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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-K

| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| | þ | Joint Annual Report Pursuant to
    Section 13 or 15(d) of the Securities Exchange Act of
    1934

| |                                                
| | -----------------------------------------------
| | For the Fiscal Year Ended December 31,
    2003
|
| | OR                                             



| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| | o | Transition Report Pursuant to Section 13
    or 15(d) of the Securities Exchange Act of 1934

| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | For the Transition Period
    from                                                                      to

|                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Commission File Number: 1-7959
    STARWOOD HOTELS &
    RESORTS WORLDWIDE, INC.(Exact name of Registrant as specified
    in its charter)                                                                                                                                                                       |  | Commission File Number: 1-6828
     STARWOOD HOTELS & RESORTS(Exact name of Registrant as specified
    in its charter)                                                                                                                                                                                         
|Maryland(State or other jurisdiction
    of incorporation or organization)52-1193298(I.R.S. employer identification no.)1111 Westchester Avenue
    White Plains, NY 10604(Address of principal executive
    offices, including zip code)(914) 640-8100(Registrants telephone number,
    including area code) |  | Maryland(State or other jurisdiction
    of incorporation or organization)52-0901263(I.R.S. employer identification no.)1111 Westchester Avenue
    White Plains, NY 10604(Address of principal executive
    offices, including zip code)(914) 640-8100(Registrants telephone number,
    including area code)

Securities Registered Pursuant to
Section 12(b) of the Act:

|                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------
|Title of Each Class                                                                                                                                                                                                                                                                                                                                                                                           |  | Name of Each Exchange on Which Registered
|                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                          
|Common Stock, par value $0.01 per share
    (Corporation Share), of Starwood Hotels &
    Resorts Worldwide, Inc. (the Corporation),
    Class B shares of beneficial interest, par value $0.01 per
    share (Class B Shares), of Starwood
    Hotels & Resorts (the Trust), and Preferred
    Stock Purchase Rights of the Corporation, all of which are
    attached and trade together as a Share |  | New York Stock Exchange                  

Securities Registered Pursuant to
Section 12(g) of the Act:

None


Indicate by check mark whether the Registrants
(1) have filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the Registrants were required to file such reports), and
(2) have been subject to such filing requirements for the
past 90 days.
Yes þ      No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of each Registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K. o

Indicate by check mark whether the Registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).
Yes þ      No o

As of June 30, 2003, the aggregate market
value of the Registrants voting and non-voting common
equity (for purposes of this Joint Annual Report only, includes
all shares other than those held by the Registrants
Directors, Trustees and executive officers) was $5,725,446,237.

As of February 26, 2004, the Corporation had
outstanding 204,151,110 Corporation Shares and the Trust had
outstanding 204,151,110 Class B Shares and 100 Class A
shares of beneficial interest, par value $0.01 per share
(Class A Shares).

For information concerning ownership of shares,
see the Proxy Statement for the Corporations Annual
Meeting of Stockholders that is currently scheduled for
May 7, 2004 (the Proxy Statement), which is
incorporated by reference under various Items of this Joint
Annual Report.

Document Incorporated by Reference:

|                |  |                           
|--------------- |  | --------------------------
|Document        |  | Where Incorporated        
|                |  |                           
|Proxy Statement |  | Part III (Items 11 and 12)



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TABLE OF CONTENTS



|                                                                                                         |  |  |  |  |  |  |  | 
|-------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I                                                                                                  
|Forward-Looking Statements                                                                              
|Item 1. Business.                                                                                       
|Item 2. Properties.                                                                                     
|Item 3. Legal Proceedings.                                                                              
|Item 4. Submission of Matters to a Vote of Security Holders.                                            
|Executive Officers of the Registrants                                                                   
|PART II                                                                                                 
|Item 5. Market for Registrants Common Equity and Related Stockholder Matters.                          
|Item 6. Selected Financial Data.                                                                        
|Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.          
|Item 7A. Quantitative and Qualitative Disclosures about Market Risk.                                    
|Item 8. Financial Statements and Supplementary Data.                                                    
|Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure            
|Item 9A. Controls and Procedures                                                                        
|PART III                                                                                                
|Item 10. Directors, Trustees and Executive Officers of the Registrants.                                 
|Item 11. Executive Compensation                                                                         
|Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|Item 13. Certain Relationships and Related Transactions.                                                
|Item 14. Principal Accountant Fees and Services                                                         
|PART IV                                                                                                 
|Item 15. Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form 8-K          
|SIGNATURES                                                                                              
|SIGNATURES                                                                                              
|CONSOLIDATED STATEMENTS OF INCOME                                                                       
|NOTES TO FINANCIAL STATEMENTS                                                                           
|EX-10.10                                                                                                
|EX-10.65                                                                                                
|EX-10.66                                                                                                
|EX-10.67                                                                                                
|EX-10.68                                                                                                
|EX-10.69                                                                                                
|EX-12.1                                                                                                 
|EX-21.1                                                                                                 
|EX-23.1                                                                                                 
|EX-31.1                                                                                                 
|EX-31.2                                                                                                 
|EX-31.3                                                                                                 
|EX-31.4                                                                                                 
|EX-32.1                                                                                                 
|EX-32.2                                                                                                 
|EX-32.3                                                                                                 
|EX-32.4                                                                                                 

TABLE OF CONTENTS





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This Joint Annual Report is filed by Starwood
Hotels & Resorts Worldwide, Inc., a Maryland corporation
(the Corporation), and its subsidiary, Starwood
Hotels & Resorts, a Maryland real estate investment trust
(the Trust). Unless the context otherwise requires,
all references to the Corporation include those entities owned
or controlled by the Corporation, including SLC Operating
Limited Partnership, a Delaware limited partnership (the
Operating Partnership), but excluding the Trust; all
references to the Trust include the Trust and those entities
owned or controlled by the Trust, including SLT Realty Limited
Partnership, a Delaware limited partnership (the Realty
Partnership); and all references to Starwood
or the Company refer to the Corporation, the Trust
and their respective subsidiaries, collectively. The shares of
common stock, par value $0.01 per share, of the Corporation
(Corporation Shares) and the Class B shares of
beneficial interest, par value $0.01 per share, of the Trust
(Class B Shares) are attached and trade
together and may be held or transferred only in units consisting
of one Corporation Share and one Class B Share (a
Share). Prior to the reorganization of Starwood (the
Reorganization) on January 6, 1999, the common
shares of beneficial interest, par value $0.01 per share, of the
Trust were traded together with the Corporation Shares as
Paired Shares, just as the Class B Shares and
the Corporation Shares are currently traded as Shares. Unless
otherwise stated herein, all information with respect to Shares
refers to Shares on and since January 6, 1999 and to Paired
Shares for periods before January 6, 1999.




PART I




Forward-Looking Statements

This Joint Annual Report contains statements that
constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such
statements appear in several places in this Joint Annual Report,
including, without limitation, the section of Item 1.
Business, captioned Business Strategy and
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations. Such
forward-looking statements may include statements regarding the
intent, belief or current expectations of Starwood, its
Directors or Trustees or its officers with respect to the
matters discussed in this Joint Annual Report. All
forward-looking statements involve risks and uncertainties that
could cause actual results to differ materially from those
projected in the forward-looking statements including, without
limitation, the risks and uncertainties set forth below. The
Company undertakes no obligation to publicly update or revise
any forward-looking statements to reflect current or future
events or circumstances.

Where you can find more
information

We file annual, quarterly and special reports,
proxy statements and other information with the SEC. Our SEC
filings are available to the public over the Internet at the
SECs web site at http://www.sec.gov. Our SEC
filings are also available on our website at
http://www.starwood.com/corporate/investorrelations.html
as soon as reasonably practicable after they are filed with or
furnished to the SEC. You may also read and copy any document we
file with the SEC at its public reference rooms in Washington,
D.C., New York, NY and Chicago, IL. Please call the SEC at
(800) SEC-0330 for further information on the public
reference rooms. Our filings with the SEC are also available at
the New York Stock Exchange. For more information on obtaining
copies of our public filings at the New York Stock Exchange, you
should call (212) 656-5060. You may also obtain a copy of
our filings free of charge by calling Allison Reid, Vice
President, Investor Relations at (914) 640-8514.

Risks Relating to Hotel, Resort and Vacation
Ownership Operations

We Are Subject to All the Operating Risks
Common to the Hotel and Vacation Ownership
Industries.Operating risks common
to the hotel and vacation ownership industries include:



| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | changes in general economic conditions, including
    the timing and robustness of a recovery from the current global
    economic downturn;
|
| |  | impact of war and terrorist activity;                                                                                                       

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| |   |                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | domestic and international political and
    geopolitical conditions;                                                                                                                                                                                                      
|
| |  | travelers fears of exposures to contagious
    diseases;                                                                                                                                                                                                                  
|
| |  | decreases in the demand for transient rooms and
    related lodging services, including a reduction in business
    travel as a result of general economic conditions;                                                                                                     
|
| |  | the impact of internet intermediaries on pricing
    and our increasing reliance on technology;                                                                                                                                                                            
|
| |  | cyclical over-building in the hotel and vacation
    ownership industries;                                                                                                                                                                                                 
|
| |  | restrictive changes in zoning and similar land
    use laws and regulations or in health, safety and environmental
    laws, rules and regulations and other governmental and
    regulatory action;                                                                       
|
| |  | changes in travel patterns;                                                                                                                                                                                                                                                
|
| |  | changes in operating costs including, but not
    limited to, energy, labor costs (including the impact of
    unionization), workers compensation and health-care
    related costs, insurance and unanticipated costs such as acts of
    nature and their consequences;
|
| |  | disputes with owners of properties, franchisees
    and homeowner associations which may result in litigation;                                                                                                                                                             
|
| |  | the availability of capital to allow us and
    potential hotel owners and franchisees to fund construction,
    renovations and investments;                                                                                                                              
|
| |  | foreign exchange fluctuations;                                                                                                                                                                                                                                             
|
| |  | the financial condition of third-party property
    owners and franchisees; and                                                                                                                                                                                            
|
| |  | the financial condition of the airline industry
    and the impact on air travel.                                                                                                                                                                                          

We are also impacted by our relationships with
owners and franchisees. Our hotel management contracts are
typically long-term arrangements, but most allow the hotel owner
to replace us if certain financial or performance criteria are
not met. Our ability to meet these financial and performance
criteria is subject to, among other things, the risks described
in this section. Additionally, our operating results would be
adversely affected if we could not maintain existing management,
franchise or representation agreements or obtain new agreements
on as favorable terms as the existing agreements.

General Economic Conditions May Negatively
Impact Our Results.Moderate or
severe economic downturns or adverse conditions may negatively
affect our operations. These conditions may be widespread or
isolated to one or more geographic regions. Our worldwide
results during the first nine months of the year, primarily in
North America, were negatively impacted by the low industry-wide
lodging demand as a result of the current global economic
conditions. A tightening of the labor markets in one or more
geographic regions may result in fewer and/or less qualified
applicants for job openings in our facilities. Higher wages,
related labor costs and the increasing cost trends in the
insurance markets may negatively impact our results as wages,
related labor costs and insurance premiums increase.

We Must Compete for Customers.The hotel and vacation ownership
industries are highly competitive. Our properties compete for
customers with other hotel and resort properties, and, with
respect to our vacation ownership resorts, with owners reselling
their vacation ownership interests (VOIs). Some of
our competitors may have substantially greater marketing and
financial resources than we do, and they may improve their
facilities, reduce their prices or expand or improve their
marketing programs in ways that adversely affect our operating
results.

We Must Compete for Management and
Franchise Agreements.We compete
with other hotel companies for management and franchise
agreements. As a result, the terms of such agreements may not be
as favorable as our current agreements. In connection with
entering into management or franchise agreements, we may be
required to make investments in or guarantee the obligations of
third parties or guarantee minimum income to third parties.

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The Hotel Industry Is Seasonal in Nature.The hotel industry is seasonal in
nature; however, the periods during which we experience higher
revenue vary from property to property and depend principally
upon location. Our revenue historically has been lower in the
first quarter than in the second, third or fourth quarters.

Internet Reservation Channels May
Negatively Impact our Bookings.Some of our hotel rooms are booked through internet travel
intermediaries such as Travelocity.com®, Expedia.com®
and Priceline.com®. As the percentage of internet bookings
increases, these intermediaries may be able to obtain higher
commissions, reduced room rates or other significant contract
concessions from us. Moreover, some of these internet travel
intermediaries are attempting to commoditize hotel rooms, by
increasing the importance of price and general indicators of
quality (such as three-star downtown hotel) at the
expense of brand identification. These agencies hope that
consumers will eventually develop brand loyalties to their
reservations system rather than to our lodging brands. Although
we expect to derive most of our business from traditional
channels, if the amount of sales made through internet
intermediaries increases significantly, our business and
profitability may be significantly harmed.

We Place Significant Reliance on
Technology.The hospitality
industry continues to demand the use of sophisticated technology
and systems including technology utilized for property
management, procurement, reservation systems, operation of our
customer loyalty program, distribution and guest amenities.
These technologies can be expected to require refinements and
there is the risk that advanced new technologies will be
introduced. There can be no assurance that as various systems
and technologies become outdated or new technology is required
we will be able to replace or introduce them as quickly as our
competition or within budgeted costs for such technology.
Further, there can be no assurance that we will achieve the
benefits that may have been anticipated from any new technology
or system.

The Hotel and Vacation Ownership Businesses
Are Capital Intensive.For our
owned, managed and franchised properties to remain attractive
and competitive, the property owners and we have to spend money
periodically to keep the properties well maintained, modernized
and refurbished. This creates an ongoing need for cash and, to
the extent the property owners and we cannot fund expenditures
from cash generated by operations, funds must be borrowed or
otherwise obtained. In addition, to continue growing our
vacation ownership business, we need to spend money to develop
new units. Accordingly, our financial results may be sensitive
to the cost and availability of funds.

Real Estate Investments Are Subject to
Numerous Risks.We are subject to
the risks that generally relate to investments in real property
because we own and lease hotels and resorts. The investment
returns available from equity investments in real estate depend
in large part on the amount of income earned and capital
appreciation generated by the related properties, and the
expenses incurred. In addition, a variety of other factors
affect income from properties and real estate values, including
governmental regulations, real estate, insurance, zoning, tax
and eminent domain laws, interest rate levels and the
availability of financing. For example, new or existing real
estate zoning or tax laws can make it more expensive and/or
time-consuming to develop real property or expand, modify or
renovate hotels. When interest rates increase, the cost of
acquiring, developing, expanding or renovating real property
increases and real property values may decrease as the number of
potential buyers decreases. Similarly, as financing becomes less
available, it becomes more difficult both to acquire and to sell
real property. Finally, under eminent domain laws, governments
can take real property. Sometimes this taking is for less
compensation than the owner believes the property is worth. Any
of these factors could have a material adverse impact on our
results of operations or financial condition. In addition,
equity real estate investments are difficult to sell quickly and
we may not be able to adjust our portfolio of owned properties
quickly in response to economic or other conditions. If our
properties do not generate revenue sufficient to meet operating
expenses, including debt service and capital expenditures, our
income will be adversely affected.

Hotel and Resort Development Is Subject to
Timing, Budgeting and Other Risks.We intend to develop hotel and resort properties, including VOIs
and residential components of hotel properties, as suitable

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opportunities arise, taking into consideration
the general economic climate. New project development has a
number of risks, including risks associated with:




| |   |                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | construction delays or cost overruns that may
    increase project costs;                                                                                                                              
|
| |  | receipt of zoning, occupancy and other required
    governmental permits and authorizations;                                                                                                           
|
| |  | development costs incurred for projects that are
    not pursued to completion;                                                                                                                        
|
| |  | so-called acts of God such as earthquakes,
    hurricanes, floods or fires that could adversely impact a
    project;                                                                                  
|
| |  | defects in design or construction that may result
    in additional costs to remedy or require all or a portion of a
    property to be closed during the period required to rectify the
    situation;
|
| |  | ability to raise capital; and                                                                                                                                                                          
|
| |  | governmental restrictions on the nature or size
    of a project or timing of completion.                                                                                                              

We cannot assure you that any development project
will be completed on time or within budget.

Environmental Regulations.Environmental laws, ordinances and
regulations of various federal, state, local and foreign
governments regulate our properties and could make us liable for
the costs of removing or cleaning up hazardous or toxic
substances on, under, or in property we currently own or operate
or that we previously owned or operated. These laws could impose
liability without regard to whether we knew of, or were
responsible for, the presence of hazardous or toxic substances.
The presence of hazardous or toxic substances, or the failure to
properly clean up such substances when present, could jeopardize
our ability to develop, use, sell or rent the real property or
to borrow using the real property as collateral. If we arrange
for the disposal or treatment of hazardous or toxic wastes, we
could be liable for the costs of removing or cleaning up wastes
at the disposal or treatment facility, even if we never owned or
operated that facility. Other laws, ordinances and regulations
could require us to manage, abate or remove lead or asbestos
containing materials. Similarly, the operation and closure of
storage tanks are often regulated by federal, state, local and
foreign laws. Certain laws, ordinances and regulations,
particularly those governing the management or preservation of
wetlands, coastal zones and threatened or endangered species,
could limit our ability to develop, use, sell or rent our real
property.

International Operations Are Subject to
Special Political and Monetary
Risks.We have significant
international operations which as of December 31, 2003
included 176 owned, managed or franchised properties in
Europe, Africa and the Middle East (including 29 properties
with majority ownership); 43 owned, managed or franchised
properties in Latin America (including 12 properties with
majority ownership); and 92 owned, managed or franchised
properties in the Asia Pacific region (including
4 properties with majority ownership). International
operations generally are subject to various political,
geopolitical, and other risks that are not present in
U.S. operations. These risks include the risk of war,
terrorism, civil unrest, expropriation and nationalization. In
addition, some international jurisdictions restrict the
repatriation of non-U.S. earnings. Various international
jurisdictions also have laws limiting the ability of
non-U.S. entities to pay dividends and remit earnings to
affiliated companies unless specified conditions have been met.
In addition, sales in international jurisdictions typically are
made in local currencies, which subject us to risks associated
with currency fluctuations. Currency devaluations and
unfavorable changes in international monetary and tax policies
could have a material adverse effect on our profitability and
financing plans, as could other changes in the international
regulatory climate and international economic conditions. Other
than Italy, where our risks are heightened due to the
13 properties we own, our international properties are
geographically diversified and are not concentrated in any
particular region.

Debt Financing

As a result of our debt obligations, we are
subject to: (i) the risk that cash flow from operations
will be insufficient to meet required payments of principal and
interest; and (ii) interest rate risk. Although we
anticipate that we will be able to repay or refinance our
existing indebtedness and any other indebtedness when

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it matures, there can be no assurance that we
will be able to do so or that the terms of such refinancings
will be favorable. Our leverage may have important consequences
including the following: (i) our ability to obtain
additional financing for acquisitions, working capital, capital
expenditures or other purposes, if necessary, may be impaired or
such financing may not be available on terms favorable to us;
(ii) a substantial decrease in operating cash flow or an
increase in our expenses could make it difficult for us to meet
our debt service requirements and force us to sell assets and/or
modify our operations; and (iii) our higher level of debt
and resulting interest expense may place us at a competitive
disadvantage with respect to certain competitors with lower
amounts of indebtedness and/or higher credit ratings. On
May 6, 2003, Standard & Poors announced its
decision to downgrade the Companys Credit Rating to BB+
(non-investment grade with a stable outlook) from BBB-
(investment grade rating on Credit Watch with negative
implications). On January 7, 2004, Moodys Investor
Services and Standard & Poors placed the
Companys Ba1 and BB+ corporate credit ratings on
review/watch for a possible downgrade. The review/watch was
prompted by the Companys announcement that it had invested
$200 million in Le Meridien Hotels and Resorts Ltd.
(Le Meridien) senior debt and would be in
discussions to negotiate the potential recapitalization of Le
Meridien. The downgrading of the Companys credit rating
may result in higher borrowing costs on future financings and
impact our ability to access capital markets.


Risks Relating to So-Called Acts of God,
Terrorist Activity and War

Our financial and operating performance may be
adversely affected by so-called acts of God, such as natural
disasters, in locations where we own and/or operate significant
properties and areas of the world from which we draw a large
number of customers. Similarly, wars (including the potential
for war), terrorist activity (including threats of terrorist
activity), political unrest and other forms of civil strife and
geopolitical uncertainty have caused in the past, and may cause
in the future, our results to differ materially from anticipated
results.

Some Potential Losses are Not Covered by
Insurance

We carry comprehensive insurance coverage for
general liability, property, business interruption and other
risks with respect to our owned and leased properties and we
make available insurance programs for owners of properties we
manage and franchise. These policies offer coverage features and
insured limits that we believe are customary for similar type
properties. Generally, our all-risk property
policies provide that coverage is available on a per occurrence
basis and that, for each occurrence, there is a limit as well as
various sub-limits on the amount of insurance proceeds we can
receive. In addition, there may be overall limits under the
policies. Sub-limits exist for certain types of claims such as
service interruption, abatement, expediting costs or landscaping
replacement, and the dollar amounts of these sub-limits are
significantly lower than the dollar amounts of the overall
coverage limit. Our property policies also provide that for the
coverages of critical earthquake (California and Mexico) and
flood, all of the claims from each of our properties resulting
from a particular insurable event must be combined together for
purposes of evaluating whether the annual aggregate limits and
sub-limits contained in our policies have been exceeded and any
such claims will also be combined with the claims of owners of
managed hotels that participate in our insurance program for the
same purpose. Therefore, if insurable events occur that affect
more than one of our owned hotels and/or managed hotels owned by
third parties that participate in our insurance program, the
claims from each affected hotel will be added together to
determine whether the annual aggregate limit or sub-limits,
depending on the type of claim, have been reached and if the
limits or sub-limits are exceeded each affected hotel will only
receive a proportional share of the amount of insurance proceeds
provided for under the policy. In addition, under those
circumstances, claims by third party owners will reduce the
coverage available for our owned and leased properties.

In addition, there are also other risks such as
war, certain forms of terrorism such as nuclear, biological or
chemical terrorism, acts of God such as hurricanes and
earthquakes and some environmental hazards that may be deemed to
fall completely outside the general coverage limits of our
policies or may be uninsurable or may be too expensive to
justify insuring against.

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We may also encounter challenges with an
insurance provider regarding whether it will pay a particular
claim that we believe to be covered under our policy. Should an
uninsured loss or a loss in excess of insured limits occur, we
could lose all or a portion of the capital we have invested in a
hotel or resort, as well as the anticipated future revenue from
the hotel or resort. In that event, we might nevertheless remain
obligated for any mortgage debt or other financial obligations
related to the property.

Acquisitions

We intend to make acquisitions that complement
our business. There can be no assurance, however, that we will
be able to identify acquisition candidates or complete
acquisitions on commercially reasonable terms or at all. On
December 30, 2003, we announced our share
($200 million) of the acquisition with Lehman Brothers
Holdings Inc. (Lehman Brothers) of all of the
outstanding senior debt of Le Meridien and our exclusive
agreement with Lehman Brothers through March 5, 2004 to
negotiate the recapitalization of Le Meridien, which may be
extended through early April 2004. There can be no assurance
that a recapitalization of Le Meridien involving Starwood will
take place and if it does what the terms will be.

If the Le Meridien transaction or additional
acquisitions are made, there can be no assurance that any
anticipated benefits will actually be realized. Similarly, there
can be no assurance that we will be able to obtain additional
financing for acquisitions, or that the ability to obtain such
financing will not be restricted by the terms of our debt
agreements.

Investing Through Partnerships or Joint
Ventures Decreases Our Ability to Manage Risk

In addition to acquiring or developing hotels and
resorts directly, we have from time to time invested, and expect
to continue to invest, as a co-venturer. Joint venturers often
have shared control over the operation of the joint venture
assets. Therefore, joint venture investments may involve risks
such as the possibility that the co-venturer in an investment
might become bankrupt or not have the financial resources to
meet its obligations, or have economic or business interests or
goals that are inconsistent with our business interests or
goals, or be in a position to take action contrary to our
instructions or requests or contrary to our policies or
objectives. Consequently, actions by a co-venturer might subject
hotels and resorts owned by the joint venture to additional
risk. Although we generally seek to maintain sufficient control
of any joint venture, we may be unable to take action without
the approval of our joint venture partners. Alternatively, our
joint venture partners could take actions binding on the joint
venture without our consent. Additionally, should a joint
venture partner become bankrupt, we could become liable for our
partners share of joint venture liabilities.

Dispositions

We periodically review our business to identify
properties or other assets that we believe either are non-core,
no longer complement our business, are in markets which may not
benefit us as much as other markets during an economic recovery
or could be sold at significant premiums. We are focused on
restructuring and enhancing real estate returns and monetizing
investments and from time to time, attempt to sell these
identified properties and assets. There can be no assurance,
however, that we will be able to complete dispositions on
commercially reasonable terms or at all.

Our Vacation Ownership Business Is Subject to
Extensive Regulation and Risk of Default

We market and sell VOIs, which typically entitle
the buyer to ownership of a fully-furnished resort unit for a
one-week period on either an annual or an alternate-year basis.
We also acquire, develop and operate vacation ownership resorts,
and provide financing to purchasers of VOIs. These activities
are all subject to extensive regulation by the federal
government and the states in which vacation ownership resorts
are located and in which VOIs are marketed and sold including
regulation of our telemarketing activities under state and
federal Do Not Call laws. In addition, the laws of
most states in which we sell VOIs grant the purchaser the right
to rescind the purchase contract at any time within a statutory
rescission period. Although we believe that we are in material
compliance with all applicable federal, state, local and foreign
laws and regulations to which vacation ownership marketing,
sales and operations are currently subject, changes in these
requirements

6



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or a determination by a regulatory authority that
we were not in compliance, could adversely affect us. In
particular, increased regulations of telemarketing activities
could adversely impact the marketing of our VOIs.


We bear the risk of defaults under purchaser
mortgages on VOIs. If a VOI purchaser defaults on the mortgage
during the early part of the loan amortization period, we will
not have recovered the marketing, selling (other than
commissions in certain events), and general and administrative
costs associated with such VOI, and such costs will be incurred
again in connection with the resale of the repossessed VOI.
Accordingly, there is no assurance that the sales price will be
fully or partially recovered from a defaulting purchaser or, in
the event of such defaults, that our allowance for losses will
be adequate.

In 2004, we expect to begin selling fractional
ownership interests (which are like VOIs but entitle the buyer
to a longer vacation period, generally three or more weeks, on
an annual or alternate year basis) based on favorable customer
response to a fully-refundable reservation program launched in
2003. The sale and financing of fractional ownership interests
are subject to regulation and default risks similar to those
described above for VOIs.

Certain Interests

Barry S. Sternlicht is the Chairman and
Chief Executive Officer of the Corporation and the Trust.
Mr. Sternlicht also serves as the President and Chief
Executive Officer of, and may be deemed to control, Starwood
Capital Group, L.L.C. (Starwood Capital), a real
estate investment firm. Starwood Capital and the Company have
entered into a non-compete agreement whereby Starwood Capital
may not purchase a hotel property in the United States without
the consent of the Company. See Item 13. Certain
Relationships and Related Transactions. Although Starwood
Capital is not subject to a non-compete agreement with the
Company for hotel properties outside of the United States, as a
matter of practice, all opportunities to purchase such
properties are also first presented to the Company in accordance
with the Companys Corporate Opportunity Policy. In each
case, the Governance Committee of the Board of Directors (or
other committee of independent directors) will make a decision
as to whether or not the Company will pursue the opportunity. In
addition, from time to time, the Company has entered into
transactions in which Mr. Sternlicht has an interest. See
Item 13. Certain Relationships and Related Transactions. To
the extent any executive officer or director of the Company has
an interest in businesses that seek to do business with the
Company, any agreements with those businesses are subject to
Governance Committee (or other committee of independent
directors) approval pursuant to the Companys Corporate
Opportunity Policy.

Ability to Manage Growth

Our future success and our ability to manage
future growth depend in large part upon the efforts of our
senior management and our ability to attract and retain key
officers and other highly qualified personnel. Competition for
such personnel is intense. There can be no assurance that we
will continue to be successful in attracting and retaining
qualified personnel. Accordingly, there can be no assurance that
our senior management will be able to successfully execute and
implement our growth and operating strategies.

Tax Risks

Failure of the Trust to Qualify as a REIT
Would Increase Our Tax Liability.Qualifying as a real estate investment trust (a
REIT) requires compliance with highly technical and
complex tax provisions that courts and administrative agencies
have interpreted only to a limited degree. Due to the
complexities of our ownership, structure and operations, the
Trust is more likely than are other REITs to face interpretative
issues for which there are no clear answers. Also, facts and
circumstances that we do not control may affect the Trusts
ability to qualify as a REIT. The Trust believes that since the
taxable year ended December 31, 1995, it has qualified as a
REIT under the Internal Revenue Code of 1986, as amended. The
Trust intends to continue to operate so it qualifies as a REIT.
However, the Trust cannot assure you that it will continue to
qualify as a REIT. If the Trust fails to qualify as a REIT for
any prior tax year, the Trust would be liable to pay a
significant amount of taxes for those years. Similarly, if the
Trust fails to qualify as a REIT in the future, our liability
for taxes would increase.

7



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Additional Legislation Could Eliminate or
Reduce Certain Benefits of Our
Structure.On January 6,
1999, we consummated the Reorganization pursuant to an Agreement
and Plan of Restructuring dated as of September 16, 1998,
as amended, among the Corporation, ST Acquisition Trust, a
wholly owned subsidiary of the Corporation, and the Trust.
Pursuant to the Reorganization, the Trust became a subsidiary of
the Corporation, which, through a wholly-owned subsidiary, holds
all the outstanding Class A shares of beneficial interest,
par value $0.01 per share, of the Trust. The Reorganization was
proposed in response to the Internal Revenue Service
Restructuring and Reform Act of 1998
(H.R. 2676), which made it difficult for us to
acquire and operate additional hotels while still maintaining
our former status as a grandfathered paired share real
estate investment trust. While we believe that the
Reorganization was the best alternative in light of
H.R. 2676 and that our current structure does not raise the
same concerns that led Congress to enact such legislation, no
assurance can be given that additional legislation, regulations
or administrative interpretations will not be adopted that would
eliminate or reduce certain benefits of the Reorganization and
could have a material adverse effect on our results of
operations, financial condition and prospects.

As part of the Jobs and Growth Tax Relief
Reconciliation Act of 2003, the tax rates on corporate dividends
to shareholders were decreased to 15 and 5 percent,
depending on the shareholders individual tax brackets.
However, dividends paid by a REIT are generally not eligible for
the reduced dividend tax rate. REIT dividends largely represent
rents and other income that are passed through to shareholders
as dividends deductible to the REIT, rather than corporate
earnings subject to the corporate income tax.

We undertake global tax planning in the normal
course of business. These activities may be subject to review by
tax authorities. As a result of the review process,
uncertainties exist and it is possible that some matters could
be resolved adversely to us.

Evolving government regulation could impose
taxes or other burdens on our
business.We rely upon generally
available interpretations of tax laws and regulations in the
countries and locales in which we operate. We cannot be sure
that these interpretations are accurate or that the responsible
taxing authority is in agreement with our views. The imposition
of additional taxes could cause us to have to pay taxes that we
currently do not collect or pay or increase the costs of our
services or increase our costs of operations.

Our current business practice with our internet
reservation channels is that the intermediary collects hotel
occupancy tax from its customer based on the price that the
intermediary paid us for the hotel room. We then remit these
taxes to the various tax authorities. Several jurisdictions have
stated that they may take the position that the tax is also
applicable to the intermediaries gross profit on these
hotel transactions. If jurisdictions take this position, they
should seek the additional tax payments from the intermediary;
however, it is possible that they may seek to collect the
additional tax payment from us and we would not be able to
collect these taxes from the customers. To the extent that any
tax authority succeeds in asserting that the hotel occupancy tax
applies to the gross profit on these transactions, we believe
that any additional tax would be the responsibility of the
intermediary. However, it is possible that we might have
additional tax exposure. In such event, such actions could have
a material adverse effect on our business, results of operations
and financial condition.

Risks Relating to Ownership of Our
Shares

No Person or Group May Own More Than 8% of
Our Shares.Our governing
documents provide (subject to certain exceptions) that no one
person or group may own or be deemed to own more than 8% of our
outstanding stock or Shares of beneficial interest, whether
measured by vote, value or number of Shares. There is an
exception for shareholders who owned more than 8% as of
February 1, 1995, who may not own or be deemed to own more
than the lesser of 9.9% or the percentage of Shares they held on
that date, provided, that if the percentage of Shares
beneficially owned by such a holder decreases after
February 1, 1995, such a holder may not own or be deemed to
own more than the greater of 8% or the percentage owned after
giving effect to the decrease. We may waive this limitation if
we are satisfied that such ownership will not jeopardize the
Trusts status as a REIT. In addition, if Shares which
would cause the Trust to be beneficially owned by fewer than 100
persons are issued or transferred to any person, such issuance
or transfer shall be null and void. This ownership limit may
have the effect of precluding a change in control of us by a
third party without the

8



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consent of our Board of Directors, even if such
change in control would otherwise give the holders of Shares or
other of our equity securities the opportunity to realize a
premium over then-prevailing market prices, and even if such
change in control would not reasonably jeopardize the status of
the Trust as a REIT.


At Least Two Annual Meetings Must Be Held
Before a Majority of Our Board of Directors Can Be
Changed.Our Board of Directors is
divided into three classes. Each class is elected for a
three-year term. At each annual meeting of shareholders,
approximately one-third of the members of the Board of Directors
are elected for a three-year term and the other directors remain
in office until their three-year terms expire. Furthermore, our
governing documents provide that no director may be removed
without cause. Any removal for cause requires the affirmative
vote of the holders of at least two-thirds of all the votes
entitled to be cast for the election of directors.

Thus, control of the Board of Directors cannot be
changed in one year without removing the directors for cause as
described above. Consequently, at least two annual meetings must
be held before a majority of the members of the Board of
Directors can be changed. Our charter provides that the charter
cannot be amended without the approval of the holders of at
least a majority of the outstanding Shares entitled to vote
thereon.

Our Board of Directors May Issue Preferred
Stock and Establish the Preferences and Rights of Such Preferred
Stock.Our charter provides that
the total number of shares of stock of all classes which the
Corporation has authority to issue is 1,350,000,000, initially
consisting of one billion shares of common stock,
50 million shares of excess common stock, 200 million
shares of preferred stock and 100 million shares of excess
preferred stock. Our Board of Directors has the authority,
without a vote of shareholders, to establish the preferences and
rights of any preferred or other class or series of shares to be
issued and to issue such shares. The issuance of preferred
shares or other shares having special preferences or rights
could delay or prevent a change in control even if a change in
control would be in the interests of our shareholders. Since our
Board of Directors has the power to establish the preferences
and rights of additional classes or series of shares without a
shareholder vote, our Board of Directors may give the holders of
any class or series preferences, powers and rights, including
voting rights, senior to the rights of holders of our shares.

Certain Provisions of Our Charter May
Require the Approval of Two-Thirds of Our Shares and Only Our
Directors May Amend Our Bylaws.Our charter contains provisions relating to restrictions on
transferability of the Corporation Shares, which may be amended
only by the affirmative vote of our shareholders holding
two-thirds of the votes entitled to be cast on the matter. As
permitted under the Maryland General Corporation Law, our Bylaws
provide that directors have the exclusive right to amend our
Bylaws.

Our Shareholder Rights Plan Would Cause
Substantial Dilution to Any Shareholder That Attempts to Acquire
Us on Terms Not Approved by Our Board of
Directors.We adopted a
shareholder rights plan which provides, among other things, that
when specified events occur, our shareholders will be entitled
to purchase from us a newly created series of junior preferred
stock, subject to the ownership limit described above. The
preferred stock purchase rights are triggered by the earlier to
occur of (i) ten days after the date of a public
announcement that a person or group acting in concert has
acquired, or obtained the right to acquire, beneficial ownership
of 15% or more of our outstanding Corporation Shares or
(ii) ten business days after the commencement of or
announcement of an intention to make a tender offer or exchange
offer, the consummation of which would result in the acquiring
person becoming the beneficial owner of 15% or more of our
outstanding Corporation Shares. The preferred stock purchase
rights would cause substantial dilution to a person or group
that attempts to acquire us on terms not approved by our Board
of Directors.

9



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|        |          
|------- | ---------
|Item 1. | Business.

General

Starwood is one of the worlds largest hotel
and leisure companies. Starwoods status as one of the
leading hotel and leisure companies resulted from the 1998
acquisitions of Westin Hotels & Resorts Worldwide, Inc.
and certain of its affiliates (Westin) (the
Westin Merger) and ITT Corporation (the
ITT Merger), renamed Sheraton Holding
Corporation (Sheraton Holding) and the 1999
acquisition of Vistana Inc. (renamed Starwood Vacation
Ownership, Inc. or SVO). The Company conducts its
hotel and leisure business both directly and through its
subsidiaries. The Companys brand names include
St. Regis®, The Luxury Collection®,
Sheraton®, Westin®, W® and Four Points® by
Sheraton. Through these brands, Starwood is well represented in
most major markets around the world. The Companys
operations are grouped into two business segments, hotels and
vacation ownership operations.

The Companys revenue and earnings are
derived primarily from hotel operations, which include the
operation of the Companys owned hotels; management and
other fees earned from hotels the Company manages pursuant to
management contracts; and the receipt of franchise and other
fees.

The Companys hotel business emphasizes the
global operation of hotels and resorts primarily in the luxury
and upscale segment of the lodging industry. Starwood seeks to
acquire interests in, or management or franchise rights with
respect to properties in this segment. At December 31,
2003, the Companys hotel portfolio included owned, leased,
managed and franchised hotels totaling 738 hotels with
approximately 229,000 rooms in 82 countries, and is
comprised of 140 hotels that Starwood owns or leases or in
which Starwood has a majority equity interest, 286 hotels
managed by Starwood on behalf of third-party owners (including
entities in which Starwood has a minority equity interest) and
312 hotels for which Starwood receives franchise fees.

The Companys revenues and earnings are also
derived from the development, ownership and operation of
vacation ownership resorts, marketing and selling VOIs in the
resorts and providing financing to customers who purchase such
interests. At December 31, 2003, the Company had
18 vacation ownership resorts in the United States and the
Bahamas.

The Trust was organized in 1969, and the
Corporation was incorporated in 1980, both under the laws of
Maryland. Sheraton Hotels & Resorts and Westin Hotels &
Resorts, Starwoods largest brands, have been serving
guests for more than 60 years. Starwood Vacation Ownership
(and its predecessor, Vistana, Inc.) has been selling VOIs for
more than 20 years.

The Companys principal executive offices
are located at 1111 Westchester Avenue, White Plains,
New York 10604, and its telephone number is
(914) 640-8100.

For a discussion of the Companys revenues,
profits, assets and geographical segments, see the notes to
financial statements of this Joint Annual Report. For additional
information concerning the Companys business, see
Item 2. Properties, of this Joint Annual Report.

Competitive Strengths

Management believes that the following factors
contribute to the Companys position as a leader in the
lodging and vacation ownership industry and provide a foundation
for the Companys business strategy:

Brand Strength.Starwood has assumed a leadership
position in markets worldwide based on its superior global
distribution, coupled with strong brands and brand recognition.
Starwoods upscale and luxury brands continue to capture
market share from competitors by aggressively cultivating new
customers while maintaining loyalty among the worlds most
active travelers. The strength of the Companys brands is
evidenced, in part, by the superior ratings received from the
Companys hotel guests and from industry publications. In
2003 Starwood had more than 40 of its top hotels on the
Condé Nast Travelers 2003 Readers Choice Awards
List, including nine hotels on their Top 100 Best Hotels
in the World. For the second year in a row Starwood was
named the Worlds Leading Hotel Group at the
World Travel Awards and was again designated as the
Worlds Best Global Hotel Company by Global
Finance magazine.

10



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Frequent Guest Program.The Companys loyalty
program, Starwood Preferred Guest® (SPG) has
over 19 million members and since its inception in 1999,
has been awarded the Hotel Program of the Year three times by
consumers via the prestigious Freddie Awards. SPG has also
received awards for Best Customer Service, Best Web Site, Best
Elite-Level Program, Best Award Redemption and Best Newsletter.
SPG, which was the first loyalty program in the hotel industry
with a policy of no blackout dates and no capacity controls,
enables members to redeem stays when they want and where they
want. SPG yields repeat guest business due to rewarding frequent
stays and purchasers of VOIs with points towards free hotel
stays and other rewards, or airline miles with any of the
participating 32 airline programs.

Significant Presence in Top Markets.The Companys luxury and
upscale hotel and resort assets are well positioned throughout
the world. These assets are primarily located in major cities
and resort areas that management believes have historically
demonstrated a strong breadth, depth and growing demand for
luxury and upscale hotels and resorts, in which the supply of
sites suitable for hotel development has been limited and in
which development of such sites is relatively expensive.

Premier and Distinctive Properties.Starwood controls a distinguished
and diversified group of hotel properties throughout the world,
including the St. Regis in New York, New York; The Phoenician in
Scottsdale, Arizona; the Hotel Gritti Palace in Venice, Italy;
the St. Regis in Beijing, China; and the Westin Palace in
Madrid, Spain. These are among the leading hotels in the
industry and are at the forefront of providing the highest
quality and service. Starwoods properties are consistently
recognized as the best of the best by readers of Condé Nast
Traveler, who are among the worlds most sophisticated and
discerning group of travelers. The November 2003 edition of the
Condé Nast Traveler Magazine named nine Starwood properties
in the top 100 Best in the World, with the
Westin Turnberry in Scotland ranked as the top European Resort.
In addition, the Condé Nast Traveler Magazine January 2004
issue included 55 Starwood properties among its prestigious
Gold List and Gold List Reserve, more than any other hotel
company.

Scale.As one
of the largest hotel and leisure companies focusing on the
luxury and upscale full-service lodging market, Starwood has the
scale to support its core marketing and reservation functions.
The Company also believes that its scale will contribute to
lowering its cost of operations through purchasing economies
areas such as insurance, energy, telecommunications, technology,
employee benefits, food and beverage, furniture, fixtures and
equipment and operating supplies.

Diversification of Cash Flow and Assets.Management believes that the
diversity of the Companys brands, market segments served,
revenue sources and geographic locations provides a broad base
from which to enhance revenue and profits and to strengthen the
Companys global brands. This diversity limits the
Companys exposure to any particular lodging or vacation
ownership asset, brand or geographic region.

While Starwood focuses on the luxury and upscale
portion of the full-service lodging and vacation ownership
markets, the Companys brands cater to a diverse group of
sub-markets within this market. For example, the St. Regis
hotels cater to high-end hotel and resort clientele while Four
Points by Sheraton hotels deliver extensive amenities and
services at more affordable rates.

11



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Starwood derives its cash flow from multiple
sources within its hotel and vacation ownership segments,
including owned hotels activity and management and franchise
fees, and is geographically diverse with operations around the
world. The following tables reflect the Companys hotel and
vacation ownership properties by type of revenue source and
geographical presence by major geographic area as of
December 31, 2003:

|                                                |  |            |     |       |  |  |         | 
|----------------------------------------------- |  | ---------- | --- | ----- |  |  | ------- | 
|                                                |  | Number of  |     |      
|                                                |  | Properties |     | Rooms
|                                                |  |            |     |      
|Owned hotels(a)                                 |  |            | 140 |       |  |  | 50,000  | 
|Managed and unconsolidated joint venture hotels |  |            | 286 |       |  |  | 98,000  | 
|Franchised hotels                               |  |            | 312 |       |  |  | 81,000  | 
|Vacation ownership resorts                      |  |            | 18  |       |  |  | 4,000   | 
|                                                |  |            |     |       |  |  |         | 
|Total properties                                |  |            | 756 |       |  |  | 233,000 | 
|                                                |  |            |     |       |  |  |         | 



---



|    |                                                             
|--- | ------------------------------------------------------------
|(a) | Includes wholly owned, majority owned and leased
    hotels.

|                                   |  |            |     |       |  |  |         | 
|---------------------------------- |  | ---------- | --- | ----- |  |  | ------- | 
|                                   |  | Number of  |     |      
|                                   |  | Properties |     | Rooms
|                                   |  |            |     |      
|North America                      |  |            | 445 |       |  |  | 149,000 | 
|Europe, Africa and the Middle East |  |            | 176 |       |  |  | 43,000  | 
|Latin America                      |  |            | 43  |       |  |  | 10,000  | 
|Asia Pacific                       |  |            | 92  |       |  |  | 31,000  | 
|                                   |  |            |     |       |  |  |         | 
|Total                              |  |            | 756 |       |  |  | 233,000 | 
|                                   |  |            |     |       |  |  |         | 

Business Segment and Geographical
Information

Incorporated by reference in Note 22.
Business Segment and Geographical Information, in the notes to
financial statements set forth in Part II, Item 8.
Financial Statements and Supplementary Data.

Business Strategy

The Companys primary business objective is
to maximize earnings and cash flow by increasing the
profitability of the Companys existing portfolio;
selectively acquiring interests in additional assets; increasing
the number of the Companys hotel management contracts and
franchise agreements; acquiring and developing vacation
ownership resorts and selling VOIs; and maximizing the value of
its owned real estate properties, including selectively
disposing of non-core hotels and trophy assets that
may be sold at significant premiums. The Company plans to meet
these objectives by leveraging its global assets, broad customer
base and other resources and by taking advantage of the
Companys scale to reduce costs. The uncertainty relating
to the timing and strength of recoveries in the North American
and European economies, combined with current political and
economic environments in South America, the Middle East and
other parts of the world and their consequent impact on travel
in their respective regions and the rest of the world, make
financial planning and implementation of our strategy more
challenging.

Growth Opportunities.Management has identified several
growth opportunities with a goal of enhancing the Companys
operating performance and profitability, including:



| |   |                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continuing to expand the Companys role as a
    third-party manager of hotels and resorts. This allows Starwood
    to expand the presence of its lodging brands and gain additional
    cash flow generally with modest capital commitment;                                                               
|
| |  | Franchising the Sheraton, Westin, Four Points by
    Sheraton and Luxury Collection brands to selected third-party
    operators and licensing the Westin, W and St. Regis brand names
    to selected third parties in connection with luxury residential
    condominiums, thereby expanding the Companys

12



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| |   |                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | market presence, enhancing the exposure of its
    hotel brands and providing additional income through franchise
    and license fees;                                                                                                                                                                                            
|
| |  | Expanding the Companys internet presence
    and sales capabilities to increase revenue and improve customer
    service;                                                                                                                                                                                                         
|
| |  | Continuing to grow the Companys frequent
    guest program, thereby increasing occupancy rates while
    providing the Companys customers with benefits based upon
    loyalty to the Companys hotels and vacation ownership
    resorts;                                                                                       
|
| |  | Enhancing the Companys marketing efforts by
    integrating the Companys proprietary customer databases,
    so as to sell additional products and services to existing
    customers, improve occupancy rates and create additional
    marketing opportunities;                                                                
|
| |  | Optimizing the Companys use of its real
    estate assets to improve ancillary revenue, such as condominium
    sales and restaurant, beverage and parking revenue from the
    Companys hotels and resorts;                                                                                                                     
|
| |  | Continuing to build the W hotel brand
    to appeal to upscale business travelers and other customers
    seeking full-service hotels in major markets by, among other
    things, placing Bliss Spa®, which the Company acquired in
    January 2004, in W hotels and expanding the W brand
    to resorts in non-urban areas;
|
| |  | Innovations such as the Heavenly Bed® and
    Heavenly Bath®, the Sheraton Sweet SleeperSM Bed
    and the Sheraton Service PromiseSM;                                                                                                                                                                                             
|
| |  | Renovating, upgrading and expanding the
    Companys branded hotels to further its strategy of
    strengthening brand identity;                                                                                                                                                                                                  
|
| |  | Developing additional vacation ownership resorts
    and leveraging our hotel real estate assets where possible
    through VOI construction and residential or condominium sales;                                                                                                                                                 
|
| |  | Leveraging the Bliss product line and
    distribution channels; and                                                                                                                                                                                                                                                               
|
| |  | Increasing operating efficiencies through
    increased use of technology.                                                                                                                                                                                                                                                         

Starwood intends to explore opportunities to
expand and diversify the Companys hotel portfolio through
minority investments and selective acquisitions of properties
domestically and internationally that meet some or all of the
following criteria:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Luxury and upscale hotels and resorts in major
    metropolitan areas and business centers;                                                                                                                                                                                                                                                                                                     
|
| |  | Major tourist hotels, destination resorts or
    conference centers that have favorable demographic trends and
    are located in markets with significant barriers to entry or
    with major room demand generators such as office or retail
    complexes, airports, tourist attractions or universities;                                                                                    
|
| |  | Undervalued hotels whose performance can be
    increased by re-branding to one of the Companys hotel
    brands, the introduction of better and more efficient management
    techniques and practices and/or the injection of capital for
    renovating, expanding or repositioning the property;                                                                                           
|
| |  | Hotels or brands which would enable the Company
    to provide a wider range of amenities and services to customers;
    and                                                                                                                                                                                                                                                                    
|
| |  | Portfolios of hotels or hotel companies that
    exhibit some or all of the criteria listed above, where the
    purchase of several hotels in one transaction enables Starwood
    to obtain favorable pricing or obtain attractive assets that
    would otherwise not be available or realize cost reductions on
    operating the hotels by incorporating them into the Starwood
    system.

Starwood may also selectively choose to develop
and construct desirable hotels and resorts to help the Company
meet its strategic goals, such as the ongoing development of the
St. Regis Museum Tower Hotel in San Francisco, California which
is expected to have approximately 269 rooms and 102 condominiums.

13



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Furthermore, the Company has developed plans for
flexible new-build Sheraton and Westin prototypes, with the
intent of expanding these brands into tertiary markets.

Competition

The hotel industry is highly competitive.
Competition is generally based on quality and consistency of
room, restaurant and meeting facilities and services,
attractiveness of locations, availability of a global
distribution system, price, the ability to earn and redeem
loyalty program points and other factors. Management believes
that Starwood competes favorably in these areas. Starwoods
properties compete with other hotels and resorts, including
facilities owned by local interests and facilities owned by
national and international chains, in their geographic markets.
The principal competitors of Starwood include other hotel
operating companies, ownership companies (including hotel REITs)
and national and international hotel brands.

Starwood encounters strong competition as a
hotel, resort and vacation ownership operator and developer.
While some of the Companys competitors are private
management firms, several are large national and international
chains that own and operate their own hotels, as well as manage
hotels for third-party owners and develop and sell VOIs, under a
variety of brands that compete directly with the Companys
brands. In addition, hotel management contracts are typically
long-term arrangements, but most allow the hotel owner to
replace the management firm if certain financial or performance
criteria are not met.

Environmental Matters

Starwood is subject to certain requirements and
potential liabilities under various federal, state and local
environmental laws, ordinances and regulations
(Environmental Laws). For example, a current or
previous owner or operator of real property may become liable
for the costs of removal or remediation of hazardous or toxic
substances on, under or in such property. Such laws often impose
liability without regard to whether the owner or operator knew
of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of hazardous or toxic substances
may adversely affect the owners ability to sell or rent
such real property or to borrow using such real property as
collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic wastes may be liable for the costs of removal
or remediation of such wastes at the treatment, storage or
disposal facility, regardless of whether such facility is owned
or operated by such person. Starwood uses certain substances and
generates certain wastes that may be deemed hazardous or toxic
under applicable Environmental Laws, and Starwood from time to
time has incurred, and in the future may incur, costs related to
cleaning up contamination resulting from historic uses of
certain of the Companys current or former properties or
the Companys treatment, storage or disposal of wastes at
facilities owned by others. Other Environmental Laws require
abatement or removal of certain asbestos-containing materials
(ACMs) (limited quantities of which are present in
various building materials such as spray-on insulation, floor
coverings, ceiling coverings, tiles, decorative treatments and
piping located at certain of the Companys hotels) in the
event of damage or demolition, or certain renovations or
remodeling. These laws also govern emissions of and exposure to
asbestos fibers in the air. Environmental Laws also regulate
polychlorinated biphenyls (PCBs), which may be
present in electrical equipment. A number of the Companys
hotels have underground storage tanks (USTs) and
equipment containing chlorofluorocarbons (CFCs); the
operation and subsequent removal or upgrading of certain USTs
and the use of equipment containing CFCs also are regulated by
Environmental Laws. In connection with the Companys
ownership, operation and management of its properties, Starwood
could be held liable for costs of remedial or other action with
respect to PCBs, USTs or CFCs.

Environmental Laws are not the only source of
environmental liability. Under the common law, owners and
operators of real property may face liability for personal
injury or property damage because of various environmental
conditions such as alleged exposure to hazardous or toxic
substances (including, but not limited to, ACMs, PCBs and CFCs),
poor indoor air quality, radon or poor drinking water quality.

Although Starwood has incurred and expects to
incur remediation and various environmental-related costs during
the ordinary course of operations, management anticipates that
such costs will not have a material adverse effect on the
operations or financial condition of the Company.

14



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Seasonality and Diversification

The hotel industry is seasonal in nature;
however, the periods during which the Companys properties
experience higher revenue activities vary from property to
property and depend principally upon location. Other than 2001,
which was dramatically impacted by the September 11, 2001
terrorist attacks in New York, Washington, D.C. and Pennsylvania
(the September 11 Attacks) and their aftermath,
the Companys revenues and operating income historically
have been lower in the first quarter than in the second, third
or fourth quarters.

Comparability of Owned Hotel Results

Starwood continually updates and renovates its
owned, leased and consolidated joint venture hotels. While
undergoing renovation, these hotels are generally not operating
at full capacity and, as such, these renovations can negatively
impact Starwoods revenues and operating income.

Employees

At December 31, 2003, Starwood employed
approximately 110,000 employees at its corporate offices, owned
and managed hotels and vacation ownership resorts, of whom
approximately 54% were employed in the United States. At
December 31, 2003, approximately 32% of the U.S.-based
employees were covered by various collective bargaining
agreements providing, generally, for basic pay rates, working
hours, other conditions of employment and orderly settlement of
labor disputes. Generally, labor relations have been maintained
in a normal and satisfactory manner, and management believes
that the Companys employee relations are good.

15



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Item 2.Properties.

Starwood is one of the largest hotel and leisure
companies in the world, with operations in 82 countries.
Starwood considers its hotels and resorts, including vacation
ownership resorts (together Resorts), generally to
be premier establishments with respect to desirability of
location, size, facilities, physical condition, quality and
variety of services offered in the markets in which they are
located. Although obsolescence arising from age and condition of
facilities can adversely affect the Companys Resorts,
Starwood and third-party owners of managed and franchised
Resorts expend substantial funds to renovate and maintain their
facilities in order to remain competitive. For further
information, see Item 7. Managements Discussion and
Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources in this
Joint Annual Report.

The Companys hotel business included 738
owned, managed or franchised hotels with approximately 229,000
rooms and its vacation ownership business included
18 vacation ownership resorts at December 31, 2003,
predominantly under six brands. All brands represent
full-service properties that range in amenities from luxury
hotels and resorts to more moderately priced hotels. As a result
of the Bliss acquisition, the Company also leases three stand
alone Bliss Spas, two in New York, New York and one in London,
England.

The following table reflects the Companys
hotel and vacation ownership properties, by brand:

|                                |  |            |     |       |  |            |         |       |  |  |    |  |  |  |       | 
|------------------------------- |  | ---------- | --- | ----- |  | ---------- | ------- | ----- |  |  | -- |  |  |  | ----- | 
|                                |  |            |     |      
|                                |  | Hotels     |     | VOI  
|                                |  |            |     |      
|                                |  | Properties |     | Rooms |  | Properties |         | Rooms
|                                |  |            |     |       |  |            |         |      
|St. Regis and Luxury Collection |  |            | 49  |       |  |            | 8,000   |       |  |  |   |  |  |  |      | 
|Sheraton                        |  |            | 394 |       |  |            | 135,000 |       |  |  | 7  |  |  |  | 2,000 | 
|Westin                          |  |            | 121 |       |  |            | 52,000  |       |  |  | 4  |  |  |  | 1,000 | 
|W                               |  |            | 18  |       |  |            | 5,000   |       |  |  |   |  |  |  |      | 
|Four Points                     |  |            | 138 |       |  |            | 25,000  |       |  |  |   |  |  |  |      | 
|Independent/Other               |  |            | 18  |       |  |            | 4,000   |       |  |  | 7  |  |  |  | 1,000 | 
|                                |  |            |     |       |  |            |         |       |  |  |    |  |  |  |       | 
|Total                           |  |            | 738 |       |  |            | 229,000 |       |  |  | 18 |  |  |  | 4,000 | 
|                                |  |            |     |       |  |            |         |       |  |  |    |  |  |  |       | 

St. Regis Hotels & Resorts(luxury full-service hotels and
resorts) deliver the most discreet, personalized and
anticipatory level of service to high-end leisure and business
travelers. St. Regis hotels typically have individual design
characteristics to accentuate each individual location and city.
Most St. Regis hotels have spacious, luxurious rooms and suites
with highly designed, residential surroundings and include a 4-
or 5-Star restaurant on premises. The Company is in the process
of developing several condominium and fractional residential
properties as part of existing, or to be built, St. Regis
hotels. Some of these properties include the St. Regis Museum
Tower Hotel in San Francisco, California, scheduled to open in
mid 2005, the Residence Club in Aspen, Colorado, scheduled to
open during the summer of 2005 and Temenos, Anguilla, a St.
Regis Retreat, which is scheduled to debut in 2006.

The Luxury Collection(luxury full-service hotels and
resorts) is a group of unique hotels and resorts offering
exceptional service to an elite clientele (some of which may
also be branded a St. Regis, Sheraton or Westin). The Luxury
Collection includes some of the worlds most renowned and
legendary hotels generally well known by the individual hotel
name. These hotels are distinguished by magnificent decor,
spectacular settings and impeccable service.

Sheraton Hotels & Resorts(upscale full-service hotels and
resorts) is the Companys largest brand serving the needs
of upscale business and leisure travelers worldwide. Sheraton
hotels and resorts offer the entire spectrum of comfort, from
full-service hotels in major cities to luxurious resorts. These
hotels and resorts typically feature a wide variety of on-site
business services and a full range of amenities including rooms
that feature generous work spaces, allowing business travelers
to stay productive on the road.

Westin Hotels & Resorts(luxury and upscale full-service
hotels and resorts) are first-class, signature hotels that
typically make up an integral part of a city or region in which
the hotels are located. Westin hotels and resorts are
characterized by a commitment to uncompromised elegance, service
and guest experience. The

16



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Company has an agreement with a third party to
operate the Westin Trillium House, a luxury condominium hotel in
Ontario, Canada, that is scheduled to open in the summer of 2005.


W Hotels(stylish boutique full-service
urban hotels and resorts) was inaugurated in December 1998 with
the opening of the W New York. W hotels provide a
unique hotel alternative to business travelers, combining the
personality, style and distinctive flavor of an intimate hotel
with the functionality, reliability and attentive service of a
major business and leisure hotel. W hotels feature modern,
sophisticated design with custom-made furnishings and
accessories, fully wired rooms with the most advanced technology
in the industry, and unique, high-quality signature restaurants
and bars. The Company is in the process of developing several
condominium residences as part of the W hotels, including
the W Dallas Victory Hotel and Residences which is expected
to open in late 2005 and the W Ft. Lauderdale Hotel
and Residences, which is scheduled to open in December 2006.

Four Points by Sheraton(moderately priced full-service
hotels) deliver extensive amenities and services such as room
service, dry cleaning, fitness centers, meeting facilities and
business centers to frequent business travelers at reasonable
prices. These hotels provide a comfortable, well-appointed room,
which typically includes a two-line telephone, a large desk for
working or in-room dining, comfortable seating and full-service
restaurants.

Hotel Business

Owned, Leased and Consolidated Joint
Venture Hotels.The following
table summarizes revenue per available room
(REVPAR)(1), average daily rates
(ADR) and average occupancy rates on a year-to-year
basis for the Companys 140 owned, leased and
consolidated joint venture hotels (excluding 25 hotels sold
or closed during 2002 and 2003) (Same-Store Owned
Hotels) for the years ended December 31, 2003 and
2002:

|                                                             |  |              |        |      |  |          |        |   |  |  |      |   
|------------------------------------------------------------ |  | ------------ | ------ | ---- |  | -------- | ------ | - |  |  | ---- | --
|                                                             |  |              |        |     
|                                                             |  | Year Ended   |        |     
|                                                             |  | December 31, |        |     
|                                                             |  |              |        |     
|                                                             |  | 2003         |        | 2002 |  | Variance
|                                                             |  |              |        |      |  |         
|Worldwide(140
    hotels with approximately 50,000 rooms)    |  |              |        |      |  |          |        |   |  |  |      |   
|REVPAR                                                       |  | $            | 98.34  |      |  | $        | 97.10  |   |  |  | 1.3  | % 
|ADR                                                          |  | $            | 152.12 |      |  | $        | 151.69 |   |  |  | 0.3  | % 
|Occupancy                                                    |  |              | 64.6   | %    |  |          | 64.0   | % |  |  | 0.6  |   
|North America(95
    hotels with approximately 37,000 rooms) |  |              |        |      |  |          |        |   |  |  |      |   
|REVPAR                                                       |  | $            | 98.62  |      |  | $        | 98.81  |   |  |  | (0.2 | )%
|ADR                                                          |  | $            | 148.03 |      |  | $        | 150.84 |   |  |  | (1.9 | )%
|Occupancy                                                    |  |              | 66.6   | %    |  |          | 65.5   | % |  |  | 1.1  |   
|International(45
    hotels with approximately 13,000 rooms) |  |              |        |      |  |          |        |   |  |  |      |   
|REVPAR                                                       |  | $            | 97.52  |      |  | $        | 92.15  |   |  |  | 5.8  | % 
|ADR                                                          |  | $            | 165.37 |      |  | $        | 154.37 |   |  |  | 7.1  | % 
|Occupancy                                                    |  |              | 59.0   | %    |  |          | 59.7   | % |  |  | (0.7 | ) 



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|    |                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | REVPAR is calculated by dividing room revenue
    which is derived from rooms and suites rented or leased, by
    total room nights available for a given period. REVPAR may not
    be comparable to similarly titled measures such as revenues.

During the years ended December 31, 2003 and
2002, the Company invested approximately $259 million and
$262 million, respectively, for capital improvements at
owned hotels and capital expenditures on technology development.
During 2003 and 2002, these capital expenditures included
continued development of the St. Regis Museum Tower in San
Francisco, California and renovations of the Phoenician in
Scottsdale, Arizona, the Westin Excelsior in Rome, Italy, the
Westin Galleria and Oaks in Houston, Texas and the Sheraton New
York Hotel and Towers in New York, New York.

17



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Managed and Franchised Hotels.Hotel and resort properties in the
United States are often owned by entities that do not manage
hotels or own a brand name. Hotel owners typically enter into
management contracts with hotel management companies to operate
their hotels. When a management company does not offer a brand
affiliation, the hotel owner often chooses to pay separate
franchise fees to secure the benefits of brand marketing,
centralized reservations and other centralized administrative
functions, particularly in the sales and marketing area.
Management believes that companies, such as Starwood, that offer
both hotel management services and well-established worldwide
brand names appeal to hotel owners by providing the full range
of management and marketing services.

Managed Hotels.Starwood manages hotels worldwide,
usually under a long-term agreement with the hotel owner
(including entities in which Starwood has a minority equity
interest). The Companys responsibilities under hotel
management contracts typically include hiring, training and
supervising the managers and employees that operate these
facilities. For additional fees, Starwood provides reservation
services and coordinates national advertising and certain
marketing and promotional services. Starwood prepares and
implements annual budgets for the hotels it manages and is
responsible for allocating property-owner funds for periodic
maintenance and repair of buildings and furnishings. In addition
to the Companys owned and leased hotels, at
December 31, 2003, Starwood managed 286 hotels with
approximately 98,000 rooms worldwide.

Management contracts typically provide for base
fees tied to gross revenue and incentive fees tied to profits as
well as fees for other services, including centralized
reservations, sales and marketing, public relations and national
and international media advertising. In the Companys
experience, owners seek hotel managers that can provide
attractively priced base, incentive, marketing and franchise
fees combined with demonstrated sales and marketing expertise
and operations-focused management designed to enhance
profitability. Some of the Companys management contracts
permit the hotel owner to terminate the agreement when the hotel
is sold or otherwise transferred to a third party, as well as if
Starwood fails to meet established performance criteria. In
addition, many hotel owners seek equity, debt or other
investments from Starwood to help finance hotel renovations or
conversions to a Starwood brand so as to align the interests of
the owner and the Company. The Companys ability or
willingness to make such investments may determine, in part,
whether Starwood will be offered, will accept, or will retain a
particular management contract. During 2003, the Company signed
management agreements for 27 hotels with approximately
10,000 rooms.

Brand Franchising and
Licensing.Starwood franchises its Sheraton,
Westin, Four Points by Sheraton and Luxury Collection brand
names and generally derives licensing and other fees from
franchisees based on a fixed percentage of the franchised
hotels room revenue, as well as fees for other services,
including centralized reservations, sales and marketing, public
relations and national and international media advertising. In
addition, a franchisee may also purchase hotel supplies,
including brand-specific products, from certain
Starwood-approved vendors. Starwood approves certain plans for,
and the location of, franchised hotels and reviews their design.
At December 31, 2003, there were 312 franchised
properties with approximately 81,000 rooms operating under
the Sheraton, Westin, Four Points by Sheraton and Luxury
Collection brands. During 2003, the Company signed franchise
agreements with 21 hotels with approximately
4,000 rooms.

Starwood also entered into management contracts
with several owners in 2003 for mixed use hotel projects which
include a residential component. To facilitate the sale of the
residential units, Starwood entered into licensing agreements
for the use of its W, Westin and St. Regis brands to allow the
owners to offer branded condominiums to prospective purchasers.
In consideration, Starwood will receive a licensing fee equal to
a percentage of the gross sales revenue of the units sold. The
licensing arrangement terminates upon sell-out of the units or
upon termination of the management contract.

Vacation Ownership Business

The Company develops, owns and operates vacation
ownership resorts, markets and sells the VOIs in the resorts
and, in many cases, provides financing to customers who purchase
such ownership interests. Owners of VOIs can trade their
interval for intervals at other Starwood vacation ownership
resorts, for intervals at certain vacation ownership resorts not
otherwise sponsored by Starwood through an exchange company, or
for hotel

18



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##### 



stays at Starwood properties. From time to time,
the Company securitizes or sells the receivables generated from
its sales of VOIs.


At December 31, 2003, the Company had
18 vacation ownership resorts in its portfolio with six
actively selling VOIs, four under construction, two expected to
start construction shortly and six that had sold all existing
inventory. During 2003, the Company held the grand opening of
the Westin Kaanapali Ocean Resort and Villas in Maui,
Hawaii. The first phase of the resort (103 units) was sold
out prior to opening. Also during 2003, the Company announced a
brand extension and fractional product with the St. Regis Aspen
Residence Club (25 units). During 2003 and 2002, the
Company invested approximately $140 million and
$96 million, respectively, for capital expenditures,
including VOI construction at Westin Kaanapali, Westin
Mission Hills Resort Villas in Rancho Mirage, California, and
Westin Kierland in Scottsdale, Arizona and the acquisition in
2002 of 18.5 acres for a new Westin vacation ownership
development in Princeville, Hawaii.




Item 3.     Legal
Proceedings.

Incorporated by reference to the description of
legal proceedings in Note 21. Commitments and Contingencies, in
the notes to financial statements set forth in Part II,
Item 8. Financial Statements and Supplementary Data.




Item 4.     Submission
of Matters to a Vote of Security Holders.

Not applicable.




Executive Officers of the
Registrants

See Part III, Item 10. of this Joint Annual
Report for information regarding the executive officers of the
Registrants, which information is incorporated herein by
reference.




PART II




Item 5.     Market
for Registrants Common Equity and Related Stockholder
Matters.

Market Information

The Shares are traded on the New York Stock
Exchange (the NYSE) under the symbol
HOT. The Class A Shares are all indirectly held
by the Corporation and have never been traded.

The following table sets forth, for the fiscal
periods indicated, the high and low sale prices per Share on the
NYSE Composite Tape.

|               |  |      |       |     |  |   |       | 
|-------------- |  | ---- | ----- | --- |  | - | ----- | 
|               |  | High |       | Low
|               |  |      |       |    
|2003           |  |      |       |     |  |   |       | 
|Fourth quarter |  | $    | 37.60 |     |  | $ | 32.96 | 
|Third quarter  |  | $    | 36.55 |     |  | $ | 28.31 | 
|Second quarter |  | $    | 30.65 |     |  | $ | 23.44 | 
|First quarter  |  | $    | 26.95 |     |  | $ | 21.68 | 
|2002           |  |      |       |     |  |   |       | 
|Fourth quarter |  | $    | 26.01 |     |  | $ | 19.00 | 
|Third quarter  |  | $    | 33.50 |     |  | $ | 21.50 | 
|Second quarter |  | $    | 39.94 |     |  | $ | 32.50 | 
|First quarter  |  | $    | 39.48 |     |  | $ | 29.31 | 

19



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Holders

As of February 26, 2004, there were
approximately 20,000 holders of record of Shares and one holder
of record of the Class A Shares.

Distributions Made/ Declared

The following table sets forth the frequency and
amount of distributions made by the Trust to holders of Shares
for the years ended December 31, 2003 and 2002:

|                    |  |               |        |  
|------------------- |  | ------------- | ------ | -
|                    |  | Distributions
|                    |  | Made         
|                    |  |              
|2003                |  |               |        |  
|Annual distribution |  | $             | 0.84(a | )
|2002                |  |               |        |  
|Annual distribution |  | $             | 0.84(a | )



---



|    |                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The Trust declared distributions in the fourth
    quarter of 2003 and 2002 to shareholders of record on
    December 31, 2003 and 2002, respectively. The distributions
    were paid in January 2004 and 2003, respectively.

The Corporation has not paid any cash dividends
since its organization and does not anticipate that it will pay
any dividends in the foreseeable future.

As a consequence of the Reorganization, holders
of Class B Shares are entitled, subject to certain
conditions, to receive a non-cumulative annual distribution,
which was set at an initial rate of $0.60 per Share for 1999, to
the extent the distribution is authorized by the Board of
Trustees of the Trust. The distribution was increased to an
annual rate of $0.80 in 2001. In the beginning of 2002, the
Company shifted from paying a quarterly distribution to paying
an annual distribution (and intends to continue its
distributions on an annual basis for 2004). For 2002 and 2003,
the Trust paid a distribution of $0.84 per Share. Unless
distributions for the then current distribution period have been
paid on the Class B Shares, the Trust is not permitted to
pay a distribution on the Class A Shares (except in certain
circumstances). At this time, the Company anticipates that the
2004 distributions will be held constant at $0.84 per Share. The
final determination of the amount of the distribution will be
subject to economic and financial conditions, as well as
approval by the Board of Trustees of the Trust.

Conversion of Securities; Sale of Unregistered
Securities

During 2003, no shares of Class B
Exchangeable Preferred Shares (Class B EPS)
were exchanged for shares of Class A Exchangeable Preferred
Shares (Class A EPS). Approximately 13,000
shares of Class A EPS were exchanged for an equal number of
Shares during 2003. Through December 31, 2003, in
accordance with the terms of the Class B EPS, which allow
the shareholders to put these units back to the Company for cash
at $38.50 for a one-year period beginning on the fifth
anniversary of the Westin acquisition (ending January 3,
2004), approximately 528,000 shares were put back to the
Company for approximately $20 million. Approximately
408,000 additional Class B EPS were redeemed for
$16 million from January 1, 2004 through
January 3, 2004. Subsequent to January 3, 2004, if
Class B EPS are put to the Company, the Company has the
option to settle in cash at $38.50 per share or Class A EPS
at $38.50 per share. On January 2, 2003,
Mr. Sternlicht redeemed 240,391 of these Class B EPS
for $38.50 per share.

During 2003, the Company exchanged approximately
13,000 limited partnership units of the Realty Partnership and
the Operating Partnership held by third parties for Shares on a
one-for-one basis.

20



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##### 



During 2003, the Company issued the following
Shares upon cashless exercises of stock options:

|                   |  |               |       |           |  |  |        | 
|------------------ |  | ------------- | ----- | --------- |  |  | ------ | 
|                   |  |               |       | Stock    
|                   |  |               |       | Options  
|Date               |  | Shares Issued |       | Exercised
|                   |  |               |       |          
|August 21, 2003    |  |               | 1,339 |           |  |  | 5,000  | 
|August 26, 2003    |  |               | 944   |           |  |  | 3,750  | 
|September 19, 2003 |  |               | 4,469 |           |  |  | 16,250 | 
|October 2, 2003    |  |               | 2,652 |           |  |  | 8,750  | 
|October 19, 2003   |  |               | 5,102 |           |  |  | 16,250 | 

The options were issued in connection with the
Companys acquisition of an interest in a business owned by
the option holders and were not subject to registration pursuant
to Section 4(2) under the Securities Act of 1933, as
amended, on the basis that the transaction did not involve a
public offering. The Shares issued to the option holders were
not registered shares but could be sold in compliance with
Rule 144 of the Securities Act.




Item 6.     Selected
Financial Data.

The following financial and operating data should
be read in conjunction with the information set forth under
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements of the Company and related notes thereto
appearing elsewhere in this Joint Annual Report and incorporated
herein by reference.

|                                                                 |  |                                      |       |      |  |      |       |      |  |      |       |   |  |   |       |   |  |   |        |  
|---------------------------------------------------------------- |  | ------------------------------------ | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | - |  | - | ------ | -
|                                                                 |  |                                     
|                                                                 |  | Year Ended December 31,             
|                                                                 |  |                                     
|                                                                 |  | 2003                                 |       | 2002 |  | 2001 |       | 2000 |  | 1999
|                                                                 |  |                                      |       |      |  |      |       |      |  |     
|                                                                 |  |                                     
|                                                                 |  | (In millions, except per Share data)
|Income Statement Data                                            |  |                                      |       |      |  |      |       |      |  |      |       |   |  |   |       |   |  |   |        |  
|Revenues(a)                                                      |  | $                                    | 3,779 |      |  | $    | 3,808 |      |  | $    | 3,893 |   |  | $ | 4,250 |   |  | $ | 3,740  |  
|Operating income                                                 |  | $                                    | 427   |      |  | $    | 551   |      |  | $    | 576   |   |  | $ | 968   |   |  | $ | 787    |  
|Income (loss) from continuing operations                         |  | $                                    | 105   |      |  | $    | 251   |      |  | $    | 147   |   |  | $ | 397   |   |  | $ | (672   | )
|Diluted earnings (loss) per Share from
    continuing operations |  | $                                    | 0.51  |      |  | $    | 1.22  |      |  | $    | 0.71  |   |  | $ | 1.94  |   |  | $ | (3.59  | )
|Operating Data                                                   |  |                                      |       |      |  |      |       |      |  |      |       |   |  |   |       |   |  |   |        |  
|Cash from continuing operations                                  |  | $                                    | 760   |      |  | $    | 688   |      |  | $    | 740   |   |  | $ | 795   |   |  | $ | 519    |  
|Cash from (used for) investing activities                        |  | $                                    | 510   |      |  | $    | (286  | )    |  | $    | (621  | ) |  | $ | (659  | ) |  | $ | 3,172  |  
|Cash used for financing activities                               |  | $                                    | (979  | )    |  | $    | (427  | )    |  | $    | (162  | ) |  | $ | (417  | ) |  | $ | (3,335 | )
|Aggregate cash distributions paid                                |  | $                                    | 170   |      |  | $    | 40 (b | )    |  | $    | 156   |   |  | $ | 134   |   |  | $ | 116    |  
|Cash distributions declared per Share                            |  | $                                    | 0.84  |      |  | $    | 0.84  |      |  | $    | 0.80  |   |  | $ | 0.69  |   |  | $ | 0.60   |  



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|    |                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Excluding other revenues from managed and
    franchised properties.                                                                                                                                                                                                              
|   
|(b) | This balance reflects the payment made in
    January 2002 for the dividends declared for the fourth
    quarter of 2001. As the Trust now declares dividends annually,
    the 2002 annual dividend payment, which was made in
    January 2003, is reflected in the 2003 column.

|                                                                                                            |  |                 |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|----------------------------------------------------------------------------------------------------------- |  | --------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                                                                            |  |                
|                                                                                                            |  | At December 31,
|                                                                                                            |  |                
|                                                                                                            |  | 2003            |        | 2002 |  | 2001 |        | 2000 |  | 1999
|                                                                                                            |  |                 |        |      |  |      |        |      |  |     
|                                                                                                            |  |                
|                                                                                                            |  | (In millions)  
|Balance Sheet Data                                                                                          |  |                 |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Total assets                                                                                                |  | $               | 11,894 |      |  | $    | 12,190 |      |  | $    | 12,416 |  |  | $ | 12,627 |  |  | $ | 12,936 | 
|Long-term debt, net of current maturities and
    including exchangeable units and Class B preferred shares |  | $               | 4,424  |      |  | $    | 4,500  |      |  | $    | 5,301  |  |  | $ | 5,090  |  |  | $ | 4,799  | 






|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations.

Managements Discussion and Analysis of
Financial Condition and Results of Operations
(MD&A) discusses the Companys consolidated
financial statements, which have been prepared in accordance with

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accounting principles generally accepted in the
United States. The preparation of these consolidated financial
statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenues and costs and expenses during the reporting periods.
On an ongoing basis, management evaluates its estimates and
judgments, including those relating to revenue recognition, bad
debts, inventories, investments, plant, property and equipment,
goodwill and intangible assets, income taxes, financing
operations, frequent guest program liability, self-insurance
claims payable, restructuring costs, retirement benefits and
contingencies and litigation.


Management bases its estimates and judgments on
historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily available
from other sources. Actual results may differ from these
estimates under different assumptions and conditions.

CRITICAL ACCOUNTING POLICIES

The Company believes the following to be its
critical accounting policies:

Revenue Recognition.The Companys revenues are
primarily derived from the following sources: (1) hotel and
resort revenues at the Companys owned, leased and
consolidated joint venture properties; (2) management and
franchise fees; (3) vacation ownership revenues; and
(4) other revenues which are ancillary to the
Companys operations. Generally, revenues are recognized
when the services have been rendered. The following is a
description of the composition of revenues for the Company:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Owned, Leased and Consolidated Joint
    Ventures  Represents revenue primarily derived from
    hotel operations, including the rental of rooms and food and
    beverage sales from owned leased or consolidated joint venture
    hotels and resorts. Revenue is recognized when rooms are
    occupied and services have been rendered. These revenues are
    impacted by global economic conditions affecting the travel and
    hospitality industry as well as relative market share of the
    local competitive set of hotels. REVPAR is a leading indicator
    of revenue trends at owned, leased and consolidated joint
    venture hotels.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Management and Franchise Fees 
    Represents fees earned on hotels managed worldwide, usually
    under long-term contracts, and franchise fees received in
    connection with the franchise of the Companys Sheraton,
    Westin, Four Points by Sheraton and Luxury Collection brand
    names. Management fees are comprised of a base fee, which is
    generally based on a percentage of gross revenues, and an
    incentive fee, which is generally based on the propertys
    profitability. For any time during the year, incentive fees are
    recognized for the fees due and earned as if the contract was
    terminated at that date, exclusive of any termination fees due
    or payable. Therefore, during periods prior to year-end, the
    incentive fees recorded may not be indicative of the eventual
    incentive fees that will be recognized at year-end as conditions
    and incentive hurdle calculations may not be final. Franchise
    fees are generally based on a percentage of hotel room revenues.
    As with hotel revenues discussed above, these revenue sources
    are affected by conditions impacting the travel and hospitality
    industry as well as competition from other hotel management and
    franchise companies.
|
| |  | Vacation Ownership  The Company
    recognizes revenue from VOI sales and financings. Such revenues
    are impacted by the state of the global economies and, in
    particular, the U.S. economy, as well as interest rate and other
    economic conditions affecting the lending market. The Company
    determines the portion of revenues to recognize for sales
    accounted for under the percentage of completion method based on
    judgments and estimates including total project costs to
    complete. Additionally, the Company records reserves against
    these revenues based on expected default levels. Changes in
    costs could lead to adjustments to the percentage of completion
    status of a project, which may result in differences in the
    timing and amount of revenues recognized from the projects. The
    Company anticipates developing future high end VOI projects
    adjacent to or as part of its luxury                                                                                                                                                                                                                                                                                                                       

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| |  |                                                                                                                                                                                                   
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | resorts, resulting in cross-selling opportunities
    and an audience of higher-end purchasers, yielding both higher
    revenues and reduced risks associated with financing these VOI
    sales.

Frequent Guest Program.SPG is the Companys frequent
guest incentive marketing program. SPG members earn points based
on spending at the Companys properties, as incentives to
first time buyers of VOIs and, to a lesser degree, through
participation in affiliated partners programs. Points can
be redeemed at most Company owned, leased, managed and
franchised properties. The cost of operating the program,
including the estimated cost of award redemption, is charged to
properties based on members qualifying expenditures.
Revenue is recognized by participating hotels and resorts when
points are redeemed for hotel stays.

The Company, through the services of third-party
actuarial analysts, determines the fair value of the future
redemption obligation based on statistical formulas which
project the timing of future point redemption based on
historical experience, including an estimate of the
breakage for points that will never be redeemed, and
an estimate of the points that will eventually be redeemed.
Actual expenditures for SPG may differ from the actuarially
determined liability. The total actuarially determined liability
as of December 31, 2003 and 2002 is $201 million and
$175 million, respectively. A 10% reduction in the
breakage of points would result in an increase of
$31 million to the liability at December 31, 2003.

Long Lived Asset
Valuations.The Company
continually evaluates the carrying value of its long-lived
assets for impairment by comparing the expected undiscounted
future cash flows of the assets to the net book value of the
assets. If the expected undiscounted future cash flows are less
than the net book value of the assets, the excess of the net
book value over the estimated fair value is charged to current
earnings. Fair value is based upon discounted cash flows of the
assets at a rate deemed reasonable for the type of asset and
prevailing market conditions, appraisals and, if appropriate,
current estimated net sales proceeds from pending offers. The
Company evaluates the carrying value of its long-lived assets
based on its plans, at the time, for such assets and such
qualitative factors as future development in the surrounding
area, status of expected local competition and projected
incremental income from renovations. Changes to the
Companys plans, including a decision to dispose of or
change the intended use of an asset, can have a material impact
on the carrying value of the asset.

Legal Contingencies.The Company is subject to various
legal proceedings and claims, the outcomes of which are subject
to significant uncertainty. SFAS No. 5, Accounting
for Contingencies, requires that an estimated loss from a
loss contingency should be accrued by a charge to income if it
is probable that an asset has been impaired or a liability has
been incurred and the amount of the loss can be reasonably
estimated. The Company evaluates, among other factors, the
degree of probability of an unfavorable outcome and the ability
to make a reasonable estimate of the amount of loss and changes
in these factors could materially impact the Companys
financial position or its results of operations.

Income Taxes.The Company provides for income
taxes in accordance with SFAS No. 109, Accounting for
Income Taxes. The objectives of accounting for income
taxes are to recognize the amount of taxes payable or refundable
for the current year and deferred tax liabilities and assets for
the future tax consequences of events that have been recognized
in an entitys financial statements or tax returns.
Judgment is required in assessing the future tax consequences of
events that have been recognized in the Companys financial
statements or tax returns.

RESULTS OF OPERATIONS

The following discussion presents an analysis of
results of our operations for the years ended December 31,
2003, 2002 and 2001.

The Companys operating results for a
substantial part of 2003 were significantly impacted by the
weakened worldwide economic environment, the war in Iraq and its
aftermath, and the Severe Acute Respiratory Syndrome
(SARS) epidemic, all of which resulted in a dramatic
slowdown in business and international travel. In the latter
part of the year, transient travel in North America, where the
Company has its largest concentration of owned hotels, began to
increase, more than offsetting continued weaknesses in group
travel.

23



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The Company derives the majority of its revenues
and operating income from its owned, leased and consolidated
joint venture hotels and, as discussed above, a significant
portion of these results are driven by these hotels in North
America. Total operating income generated from the
Companys hotels in North America for the years ending
December 31, 2003 and 2002 was $233 million and
$239 million, respectively (total operating income for the
Company was $427 million and $551 million for 2003 and
2002, respectively). The following represents the geographical
breakdown of the Companys operating income in North
America by metropolitan area for the years ended
December 31, 2003 and 2002:

|                                                             |  |           |      |           |  |  |      |  
|------------------------------------------------------------ |  | --------- | ---- | --------- |  |  | ---- | -
|                                                            
|Top Ten Metropolitan Areas as a % of Full Year 2003 and 2002
|Owned North America Operating Income                        
|                                                            
|                                                             |  | 2003      |      | 2002     
|                                                             |  | Operating |      | Operating
|Metropolitan Area                                            |  | Income    |      | Income   
|                                                             |  |           |      |          
|New York, NY                                                 |  |           | 13.5 | %         |  |  | 17.1 | %
|San Diego, CA                                                |  |           | 10.0 | %         |  |  | 8.4  | %
|Boston, MA                                                   |  |           | 9.6  | %         |  |  | 10.7 | %
|Phoenix, AZ                                                  |  |           | 5.9  | %         |  |  | 5.7  | %
|Seattle, WA                                                  |  |           | 5.8  | %         |  |  | 5.2  | %
|Atlanta, GA                                                  |  |           | 5.0  | %         |  |  | 5.4  | %
|Maui, HI                                                     |  |           | 4.3  | %         |  |  | 3.3  | %
|Los Angeles  Long Beach, CA                                 |  |           | 3.8  | %         |  |  | 3.6  | %
|Indianapolis, IN                                             |  |           | 3.4  | %         |  |  | 2.9  | %
|Toronto, Canada                                              |  |           | 3.2  | %         |  |  | 4.1  | %
|All Other                                                    |  |           | 35.5 | %         |  |  | 33.6 | %
|                                                             |  |           |      |           |  |  |      |  
|Total                                                        |  |           | 100  | %         |  |  | 100  | %
|                                                             |  |           |      |           |  |  |      |  

A leading indicator for the performance of the
Companys owned, leased and consolidated joint venture
hotels is REVPAR, which we consider to be a meaningful indicator
of our performance, as it measures the period-over-period growth
in rooms revenue for comparable properties. This is particularly
the case in the United States where there is no impact on this
measure from foreign exchange rates. REVPAR at our owned hotels
in North America has declined in the past two years due to the
global economic downturn discussed above.

Year Ended December 31, 2003 Compared
with Year Ended December 31, 2002

Continuing Operations

Revenues.Total revenues, including other
revenues from managed and franchised properties, were
$4.630 billion, remaining virtually flat compared to 2002
levels. Revenues from the Companys owned, leased and
consolidated joint venture hotels decreased 3.3% to
$3.085 billion for the year ended December 31, 2003
when compared to $3.190 billion in the corresponding period
of 2002, partially offset by a 12.3% increase in other hotel and
leisure revenues to $694 million for the year ended
December 31, 2003 when compared to $618 million in the
corresponding period of 2002.

The decrease in revenues from owned, leased and
consolidated joint venture hotels is due primarily to the
absence of revenues generated by 16 non-strategic domestic
hotels and four hotels in Costa Smeralda, Italy, which were
mostly sold in the first half of 2003, and offset by increased
revenues from the Companys Same-Store Owned Hotels
(140 hotels for 2003 and 2002, excluding 25 hotels
sold or closed during these periods). Revenues from the
20 sold hotels during 2003 were $110 million, a
decrease of $140 million as compared to $250 million
in the same period of 2002. Revenues from the Companys
Same-Store Owned Hotels increased 2.0% to $2.967 billion
for the year ended December 31, 2003 when compared to
$2.909 billion in the same period of 2002 due primarily to
an increase in REVPAR. REVPAR at the Companys Same-Store
Owned Hotels increased 1.3% to $98.34 for the year ended
December 31, 2003 when compared to the corresponding

24



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2002 period. The increase in REVPAR at these
Same-Store Owned Hotels was attributed to an increase in
occupancy to 64.6% in the year ended December 31, 2003 when
compared to 64.0% in the same period of 2002 and a slight
increase in ADR of 0.3% to $152.12 for the year ended
December 31, 2003 compared to $151.69 for the corresponding
2002 period. REVPAR at Same-Store Owned Hotels in North America
decreased 0.2% for the year ended December 31, 2003 when
compared to the same period of 2002. The slight decrease in
REVPAR and revenues from owned, leased and consolidated joint
venture hotels in North America was primarily due to the decline
in business transient demand as a result of the weakened global
economies. REVPAR at the Companys international Same-Store
Owned Hotels increased by 5.8% for the year ended
December 31, 2003 when compared to the same period of 2002,
primarily due to the favorable effect of foreign currency
translation. Including the impact of foreign currency, REVPAR
for Same-Store Owned Hotels in Europe increased 6.2%, in Latin
America decreased 5.5% and in Asia Pacific increased 31.7% when
compared to 2002. Excluding the favorable effect of foreign
exchange, REVPAR at the Companys Same-Store Owned Hotels
internationally decreased 6.5% for the year ended 2003 when
compared to 2002 due to the weakened global economies and
adverse political and economic conditions.


The increase in other hotel and leisure revenues,
for the year ended December 31, 2003 when compared to the
same period in 2002, primarily resulted from the increase in VOI
sales of 30.7% to $361 million in 2003 compared to
$276 million in 2002. Contract sales of VOI inventory
increased 23.2% in the year ended December 31, 2003 when
compared to the same period in 2002, primarily as a result of
sales at the Westin Kaanapali Ocean Resort Villas in Maui,
Hawaii, which sold out the first phase prior to the opening, as
well as strong demand reflected in our resorts in Scottsdale and
Orlando in the latter part of the year. Management and franchise
fees revenue also increased as compared to the prior year. These
increases were partially offset by reduced interest income and
increased insurance claims at the Companys captive
insurance company.

Other revenues and expenses from managed and
franchised properties increased to $851 million in 2003
when compared to $780 million in 2002, primarily due to the
addition of hotels to the Companys portfolio of managed
and franchised hotels. These revenues represent reimbursements
of costs incurred on behalf of managed hotel properties and
franchisees. These costs relate primarily to payroll costs at
managed properties where the Company is the employer. Since the
reimbursements are made based upon the costs incurred with no
added margin, these revenues and corresponding expenses have no
effect on the Companys operating income and net income.

Operating Income.Total Company operating income
(which includes $9 million of restructuring and other
special credits in 2003 and $7 million of restructuring and
other special credits and $30 million of foreign exchange
gains related to the devaluation of the Argentine Peso in 2002)
was $427 million for the year ended December 31, 2003
compared to $551 million in the same period of 2002.
Excluding depreciation and amortization of $429 million and
$488 million for the years ended December 31, 2003 and
2002, respectively, operating income decreased 17.6% or
$183 million to $856 million for the year ended
December 31, 2003 when compared to $1.039 million in
the same period in 2002, primarily due to the decline in
operating income at the Companys owned, leased and
consolidated joint venture hotels as a result of the weakened
global economies, the war in Iraq and its aftermath and the SARS
epidemic and the absence of the revenues and corresponding
operating income from the sold properties discussed above.
Operating income at the Companys owned, leased and
consolidated joint venture hotels was $445 million for the
year ended December 31, 2003 compared to $589 million
in the same period of 2002. These hotels were also negatively
impacted by increased energy, workers compensation insurance and
other health benefits related costs and reduced cancellation and
telecommunication fees in 2003 when compared to 2002. In
addition, total Company operating income in 2003 was adversely
impacted by the nonrecurring Argentina foreign exchange gains in
2002 of $30 million.

Operating income for the vacation ownership
segment was $89 million in the year ended December 31,
2003 compared to $69 million in 2002. Excluding
depreciation and amortization of $10 million in both years
ended December 31, 2003 and 2002, operating income
increased to $99 million for the period ended
December 31, 2003 as compared to $79 million in the
prior year primarily due to the increased sales from the
vacation ownership projects discussed above.

25



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Restructuring and Other Special Credits,
Net.During 2003, the Company
received $12 million in a favorable settlement of a
litigation matter. This credit was offset by an increase of
$13 million in a reserve for legal defense costs associated
with a separate litigation matter. Additionally, the Company
reversed a $9 million liability that was originally
established in 1997 for the ITT Excess Pension Plan and is no
longer required as the Company finalized the settlement of its
remaining obligations associated with the plan and reversed
$1 million related to the collection of receivables
previously deemed impaired. During the year ended
December 31, 2002, the Company reversed $7 million of
previously recorded restructuring and other special charges
primarily related to adjustments to the severance liability
established in connection with the cost containment efforts
after the September 11 Attacks, sales of its investments in
certain e-business ventures previously deemed impaired and the
collection of receivables which were previously deemed
uncollectible.

Depreciation and Amortization.Depreciation expense decreased to
$410 million in the year ended December 31, 2003 compared
to $473 million in the corresponding period of 2002.
Additional depreciation resulting from capital expenditures at
the Companys owned, leased and consolidated joint venture
hotels was more than offset by the reduced depreciation expense
from fully depreciated furniture, fixtures and equipment, as the
Company reached the five year anniversary of the merger with ITT
Corporation in February 2003 and the 16 non-core domestic
hotels, and the four Costa Smeralda hotels which were initially
classified as held for sale and depreciation suspended effective
March 31, 2003. Amortization expense increased to
$19 million in the year ended December 31, 2003
compared to $15 million in the corresponding period of 2002
due to the additional amortization of intangible assets
associated with costs incurred in connection with new management
contracts.

Gain on Sale of VOI Notes
Receivable.Gains from the sale of
VOI receivables of $15 million and $16 million in 2003
and 2002, respectively, are primarily due to the sale of
$181 million and $133 million of vacation ownership
receivables during the years ended December 31, 2003 and
2002, respectively. Included in the $181 million of VOI
receivable sales in 2003 are $89 million of VOI receivables
which were repurchased from existing securitizations.

Net Interest Expense.Interest expense for the years
ended December 31, 2003 and 2002, which is net of interest
income of $5 million and $2 million, respectively, and
discontinued operations allocations of $7 million and
$15 million for 2003 and 2002, respectively, decreased to
$282 million from $323 million, due primarily to the pay
down of debt with $1.1 billion of proceeds from the hotel
sales discussed previously, $30 million of early debt
extinguishment charges recorded in the second quarter of 2002,
lower interest rates in 2003 compared to 2002 and the impact of
certain financing transactions, including the issuance of debt
in April 2002 and May 2003. The Companys weighted average
interest rate was 5.46% at December 31, 2003 versus 5.64%
at December 31, 2002.

Gain (loss) on Asset Dispositions and
Impairments, Net.Loss on asset
dispositions and impairment for the year ended December 31,
2003 primarily represents the impairment charges recorded due to
the classification of a portfolio of 18 domestic non-core hotels
as held for sale, 16 of which were sold in 2003, offset in part
by the $9 million gain on sale of undeveloped land in
Sardinia, Italy in the second quarter of 2003. During 2002, the
Company sold its investment in Interval International, for a
gain of $6 million. This gain is offset in part by a net
loss of $3 on the disposition of two hotels.

Income Tax Expense.The income tax benefit of
$113 million on the pre-tax loss of $11 million for
2003 is primarily the result of tax exempt Trust income and the
favorable settlement of various tax matters. The 2002 income tax
provision of $2 million on pre-tax income of
$255 million is primarily the result of tax exempt Trust
income and net tax benefits primarily related to approximately
$39 million of various adjustments to federal and state tax
liabilities resulting from the successful settlement of tax
matters dating back to 1993. The Companys effective income
tax rate is determined by the level and composition of pretax
income subject to varying foreign, state and local taxes and
other items. The tax rate for the year ended December 31,
2003 is significantly lower than the prior year due to the
combination of lower pretax income and the distribution of $0.84
per Share.

26



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Discontinued Operations

For the years ended 2003 and 2002, loss from
discontinued operations represents the results of the Hotel
Principe di Savoia in Milan, Italy (Principe), net
of $7 million and $15 million, of allocated interest
expense, respectively. The Company sold the Principe with no
continuing involvement on June 30, 2003. The gain on
dispositions for 2003 consists of $194 million (pre-tax) of
gains recorded in connection with the sale of the Principe and
the reversal of a $52 million (pre-tax) accrual relating to
the Companys gaming businesses disposed of in 1999 and
2000 which are no longer required as the related contingencies
have been resolved.

During 2002, the Company recorded an after tax
gain of $109 million from discontinued operations primarily
related to the issuance of new Internal Revenue Service
(IRS) regulations in early 2002, which allowed the
Company to recognize a $79 million tax benefit from a tax
loss on the 1999 sale of the former gaming business. The tax
loss was previously disallowed under the old regulations. In
addition, the Company recorded a $25 million gain resulting
from an adjustment to the Companys tax basis in ITT World
Directories, a subsidiary which was disposed of in early 1998
through a tax deferred reorganization. The increase in the tax
basis has the effect of reducing the deferred tax charge
recorded on the disposition in 1998. This gain also included the
reversal of $5 million (after tax) of liabilities set up in
conjunction with the sale of the former gaming business that are
no longer required as the related contingencies have been
resolved.

Year Ended December 31, 2002 Compared
with Year Ended December 31, 2001

Continuing Operations

The Companys operating results for the year
ended December 31, 2002 were significantly impacted by the
weakened worldwide economic environment, which resulted in a
dramatic slowdown in business and transient travel. The decrease
in business transient demand, when compared to the same period
of 2001, had an adverse impact on the Companys majority
owned hotels, many of which are located in major urban markets.

Revenues.Total revenues, including other
revenues from managed and franchised properties, were
$4.588 billion, a 1.0% decrease from 2001 levels. Revenues
from the Companys owned, leased and consolidated joint
venture hotels decreased 3.4% to $3.190 billion for the
year ended December 31, 2002 when compared to
$3.301 billion in the corresponding period of 2001,
partially offset by a 4.4% increase in other hotel and leisure
revenues to $618 million for the year ended
December 31, 2002 when compared to $592 million in the
corresponding period of 2001.

The decrease in revenues from owned, leased and
consolidated joint venture hotels is due primarily to decreased
revenues at the Companys Same-Store Owned Hotels offset in
part by revenues generated by the W Times Square, which
opened in late December 2001, the Westin Dublin, which opened in
September 2001, the W Lakeshore Drive in Chicago, Illinois which
reopened in October 2001 after a significant renovation and
repositioning, and the Sheraton Centre Toronto in Toronto,
Canada of which the Company acquired the remaining 50% not
previously owned in April 2001. Revenues at the Companys
Same-Store Owned Hotels decreased 6.1% to $2.971 billion
for the year ended December 31, 2002 when compared to the
same period of 2001 due primarily to a decrease in REVPAR.
REVPAR at the Companys Same-Store Owned Hotels decreased
6.0% to $94.76 for the year ended December 31, 2002 when
compared to the corresponding 2001 period. The decrease in
REVPAR at these Same-Store Owned Hotels was attributed to a
decrease in occupancy to 63.5% in the year ended
December 31, 2002 when compared to 65.1% in the same period
of 2001 and a decrease in ADR at these Same-Store Owned Hotels.
ADR decreased 3.6% to $149.32 for the year ended
December 31, 2002 compared to $154.86 for the corresponding
2001 period. REVPAR at Same-Store Owned Hotels in North America
decreased 6.0% for the year ended December 31, 2002 when
compared to the same period of 2001. As discussed above, the
decrease in REVPAR and revenues from owned, leased and
consolidated joint venture hotels in North America was primarily
due to the decline in business transient demand as a result of
the weakened global economies. REVPAR at the Companys
international Same-Store Owned Hotels, which decreased by 6.0%
for the year ended December 31, 2002 when compared to the
same period of 2001, was also impacted by weakened global
economies, the unfavorable effect of foreign currency
translation and adverse political and economic conditions.
REVPAR for Same-Store Owned Hotels in Europe

27



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decreased 0.4%, in Latin America decreased 22.7%
and in Asia Pacific increased 6.8% when compared to 2001.


The increase in other hotel and leisure revenues,
for the year ended December 31, 2002 when compared to the
same period in 2001, resulted from the increase in VOI sales of
14.0% to $276 million in 2002 compared to $242 million
in 2001. Contract sales of VOI inventory increased 16.8% in the
year ended December 31, 2002 when compared to the same
period in 2001, primarily as a result of sales at the Westin
Mission Hills Resort Villas in Rancho Mirage, California and the
Westin Kaanapali Ocean Resort Villas in Maui, Hawaii.
These increases were partially offset by lower management fees,
primarily due to reduced incentive management fees as a result
of the previously discussed weakened global economies.

Other revenues and expenses from managed and
franchised properties increased to $780 million in 2002
when compared to $740 million in 2001, primarily due to the
addition of hotels to the Companys portfolio of managed
and franchised properties. These revenues represent
reimbursements of costs incurred on behalf of managed hotel
properties and franchisees. These costs relate primarily to
payroll costs at managed properties where the Company is the
employer. Since the reimbursements are made based upon the costs
incurred with no added margin, these revenues and corresponding
expenses have no effect on the Companys operating income
and net income.

Operating Income.Total Company operating income
(which includes $7 million of restructuring and other
special credits and $30 million of foreign exchange gains
related to the devaluation of the Argentine Peso in 2002 and
$50 million of restructuring and other special charges and
$24 million of foreign exchange gains related to the
initial remeasurement of the Argentine Peso in 2001) was $551
for the years ended December 31, 2002 compared to
$576 million in 2001. Excluding depreciation and
amortization of $488 million and $518 million for the
years ended December 31, 2002 and 2001, respectively,
operating income decreased 5.0% or $55 million to
$1,039 million for the years ended December 31, 2002
when compared to $1,094 million in the same period in 2001,
primarily due to the decline in operating income at the
Companys owned, leased and consolidated joint venture
hotels as a result of the weakened global economies in the
aftermath of the September 11 Attacks. Operating income at
the Companys owned, leased and consolidated joint venture
hotels was $589 million in the years ended
December 31, 2002 compared to $663 million in the same
period of 2001. These hotels were also negatively impacted by
increased energy, workers compensation insurance and other
health benefit related costs and reduced cancellation and
telecommunication fees in 2002 when compared to 2001.

Operating income for the vacation ownership
segment was $69 million in the years ended
December 31, 2002 compared to $39 million in 2001.
Excluding depreciation and amortization of $10 million and
$15 million in the years ended December 31, 2002 and
2001, respectively, operating income increased to
$79 million for the years ended December 31, 2002 as
compared to $54 million in the prior year primarily due to
the increased sales at the vacation ownership projects
previously discussed.

Restructuring and Other Special Charges
(Credits).During the year ended
December 31, 2002, the Company reversed $7 million of
previously recorded restructuring and other special charges
primarily related to adjustments to the severance liability
established in connection with the cost containment efforts
after the September 11 Attacks, sales of its investments in
certain e-business ventures previously deemed impaired and the
collection of receivables which were previously deemed
uncollectible.

Due to the September 11 Attacks and the
weakening of the U.S. economy, in the third and fourth quarters
of 2001, the Company implemented a cost reduction plan and
conducted a comprehensive review of the carrying value of
certain assets for potential impairment, resulting in 2001
restructuring charges of $15 million and noncash other
special charges aggregating approximately $36 million. The
restructuring charges were primarily for severance costs
incurred as part of the cost reduction plan. The other special
charges consisted primarily of employee retention costs
associated with the accelerated vesting of 50% of restricted
stock awards granted in February 2001 (approximately
$11 million); bad debt expense associated with receivables
no longer deemed collectible (approximately $17 million);
impairments of certain investments and other assets
(approximately $5 million); and abandoned pursuit projects
(approximately $3 million).

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In addition, in early 2001, the Company wrote
down its investments in various e-business ventures by
approximately $19 million based on the market conditions
for the technology sector at the time and managements
assessment that the impairment of these investments was
other-than-temporary. This special charge was offset by the
reversal of a $20 million restructuring charge taken in
1998 relating to a note receivable, which previously had been
written down due to non-performance.

Depreciation and Amortization.Depreciation expense increased to
$473 million in the year ended December 31, 2002
compared to $430 million in the corresponding period of
2001. The increase was due to additional depreciation resulting
from capital expenditures at the Companys owned, leased
and consolidated joint venture hotels including the opening of
the W Times Square in December 2001 and the Westin Dublin
in September 2001, as well as costs to reposition the
W Lakeshore and the W Midland hotels in Chicago and
capital expenditures on technology development. Amortization
expense decreased to $15 million in the year ended
December 31, 2002 compared to $88 million in the
corresponding period of 2001. The decrease in the amortization
expense was primarily attributable to the implementation of SFAS
No. 142, Goodwill and Other Intangible Assets,
which resulted in a $75 million pretax reduction in
amortization expense.

Gain on Sale of VOI Notes Receivable.Gains from the sale of VOI
receivables of $16 million and $12 million in 2002 and
2001, respectively, are primarily due to the sale of
$133 million and $226 million of vacation ownership
receivables during the years ended December 31, 2002 and
2001, respectively. Included in the $226 million of VOI
receivable sales in 2001 are $145 million of VOI
receivables which were repurchased from existing securitizations.

Net Interest Expense.Interest expense for the years
ended December 31, 2002 and 2001, which is net of interest
income of $2 million and $11 million, and discontinued
operations allocations of $15 million and $13 million
for 2002 and 2001, respectively, decreased to $323 million
from $354 million. Excluding $30 million and
$9 million related to the early extinguishment of debt for
2002 and 2001, respectively, and an $11 million reversal of
accrued interest on tax liabilities that have now been settled
in 2002, net interest expense decreased $41 million from
the comparable period of the prior year. This decrease was due
primarily to lower interest rates compared to 2001 lower debt
balances and the impact of certain financing transactions during
the past two years. The Companys weighted average interest
rate was 5.64% at December 31, 2002 versus 5.10% at
December 31, 2001.

Gain (loss) on Asset Dispositions and
Impairments, Net.During 2002, the
Company sold its investment in Interval International, for a
gain of $6 million. This gain is offset primarily by a net
loss of $3 million on the disposition of two hotels. In
2001, due to the September 11 Attacks and the weakening of
the U.S. economy, the Company conducted a comprehensive review
of the carrying value of certain assets for potential
impairment. As a result, the Company recorded a net charge
relating primarily to the impairment of certain investments
totaling $57 million.

Income Tax Expense.The effective income tax rate for
the year ended December 31, 2002 decreased to 0.7% compared
to 21.7% in the corresponding period in 2001. The 2002 rate
includes benefits related to approximately $39 million of
various adjustments to federal and state tax liabilities
resulting from the successful settlement of tax matters dating
back to 1993. The Companys effective income tax rate is
determined by the level and composition of pretax income subject
to varying foreign, state and local taxes and other items. The
tax rate for the year ended December 31, 2002 is
significantly lower than the prior year due to the combination
of lower pretax income, the distribution of $0.84 per share and
the cessation of amortization of goodwill (as discussed above),
which was not deductible for tax purposes.



| |                        
| | -----------------------
| | Discontinued Operations

For the years ended 2002 and 2001, loss
from discontinued operations represents the results of the
Principe, net of $15 million and $13 million, of
allocated interest expense, respectively. In June 2003, the
Company sold the Principe with no continuing involvement.

During 2002, the Company recorded an after tax
gain of $109 million from discontinued operations primarily
related to the issuance of new Internal Revenue Service
(IRS) regulations in early 2002, which

29



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allowed the Company to recognize a
$79 million tax benefit from a tax loss on the 1999 sale of
the former gaming business. The tax loss was previously
disallowed under the old regulations. In addition, the Company
recorded a $25 million gain resulting from an adjustment to
the Companys tax basis in ITT World Directories, a
subsidiary which was disposed of in early 1998 through a tax
deferred reorganization. The increase in the tax basis has the
effect of reducing the deferred tax charge recorded on the
disposition in 1998. This gain also included the reversal of
$5 million (after tax) of liabilities set up in conjunction
with the sale of the former gaming business that are no longer
required as the related contingencies have been resolved.


LIQUIDITY AND CAPITAL RESOURCES

Cash From Operating Activities

Cash flow from operating activities is the
principal source of cash used to fund the Companys
operating expenses, interest payments on debt, maintenance
capital expenditures and distribution payments by the Trust. The
Company anticipates that cash flow provided by operating
activities will be sufficient to service these cash
requirements. In 2002, the Company shifted from a quarterly
distribution to an annual distribution, and declared a
distribution of $0.84 per Share to shareholders of record on
December 31, 2002 and 2003. The Company paid the 2002
distribution in January 2003 and the 2003 distribution in
January 2004. The Company believes that existing borrowing
availability together with capacity from additional borrowings
and cash from operations will be adequate to meet all funding
requirements for the Companys operating expenses, interest
payments on debt, maintenance capital expenditures and
distribution payments by the Trust for the foreseeable future.

Cash Used for Investing Activities

Contractual
Obligations.On December 30,
2003, the Company and Lehman Brothers announced the acquisition
of all of the outstanding senior debt (approximately
$1.3 billion), at a discount, of Le Meridien. The Company
funded its $200 million share of the acquisition through a
high yield junior participation in the debt. As part of this
funding, Lehman Brothers and the Company have entered into an
exclusive agreement through March 5, 2004 to negotiate the
recapitalization of Le Meridien which may be extended through
early April 2004. A recapitalization transaction could require a
significant cash outlay by the Company.

In limited cases, the Company has made loans to
owners of or partners in hotel or resort ventures for which the
Company has a management or franchise agreement. Loans
outstanding under this program totaled $163 million at
December 31, 2003. The Company evaluates these loans for
impairment, and at December 31, 2003, believes these loans
are collectible. Unfunded loan commitments aggregating
$70 million were outstanding at December 31, 2003, of
which $42 million are expected to be funded in 2004 and
$52 million are expected to be funded in total. These loans
typically are secured by pledges of project ownership interests
and/or mortgages on the projects. The Company also has
$75 million of equity and other potential contributions
associated with managed or joint venture properties,
$24 million of which is expected to be funded in 2004.

The Company participates in programs with
unaffiliated lenders in which the Company may partially
guarantee loans made to facilitate third-party ownership of
hotels that the Company manages or franchises. As of
December 31, 2003, the Company was a guarantor for loans
which could reach a maximum of $144 million relating to three
projects: the St. Regis in Monarch Beach, California, which
opened in mid-2001; the Westin Kierland Resort and Spa in
Scottsdale, Arizona, which opened in November 2002; and the
Westin in Charlotte, North Carolina, which opened in April 2003.
In connection with the loan guarantee for the Westin Charlotte,
the Company also entered into a guarantee to fund working
capital shortfalls for this resort through 2005. No significant
fundings are anticipated under this working capital guarantee.
The Company does not anticipate any funding under the remaining
loan guarantees in 2004, as all projects are well capitalized.
Furthermore, since each of these properties was funded with
significant equity and subordinated debt financing, if the
Companys loan guarantees were to be called, the Company
could take an equity position in these properties at values
significantly below construction costs.

30



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Surety bonds issued on behalf of the Company as
of December 31, 2003 totaled $46 million, the majority
of which were required by state or local governments relating to
our vacation ownership operations and by our insurers to secure
large deductible insurance programs.

To secure management contracts, the Company may
provide performance guarantees to third-party owners. Most of
these performance guarantees allow the owner to terminate the
contract if the Company elects not to fund shortfalls if certain
performance levels are not met. In limited cases, the Company is
obliged to fund shortfalls in performance levels. As of
December 31, 2003, the Company had seven management
contracts with performance guarantees with possible cash outlays
of up to $74 million, $50 million of which, if
required, would be funded over a period of 25 years and
would be largely offset by management fees received under these
contracts. Many of the performance tests are multi-year tests,
are tied to the results of a competitive set of hotels, and have
exclusions for force majeure and acts of war and terrorism. The
Company does not anticipate any significant funding under the
performance guarantees in 2004. In addition, the Company has
agreed to guarantee certain performance levels at a managed
property that has authorized VOI sales and marketing. The exact
amount and nature of the guaranty is currently under dispute.
However, the Company does not believe that any payments under
this guaranty will be significant. Lastly, the Company does not
anticipate losing a significant number of management or
franchise contracts in 2004.

The Company had the following contractual
obligations outstanding as of December 31, 2003 (in
millions):

|                                      |  |       |       |             |  |           |     |           |  |           |       |  |  |   |     |  |  |   |       | 
|------------------------------------- |  | ----- | ----- | ----------- |  | --------- | --- | --------- |  | --------- | ----- |  |  | - | --- |  |  | - | ----- | 
|                                      |  |       |       | Due in Less |  |           |     |           |  |          
|                                      |  |       |       | Than        |  | Due in    |     | Due in    |  | Due After
|                                      |  | Total |       | 1 Year      |  | 1-3 Years |     | 4-5 Years |  | 5 Years  
|                                      |  |       |       |             |  |           |     |           |  |          
|Long-term debt                        |  | $     | 4,624 |             |  | $         | 233 | (1)       |  | $         | 1,532 |  |  | $ | 792 |  |  | $ | 2,067 | 
|Capital lease obligations             |  |       | 2     |             |  |           |    |           |  |           |      |  |  |   |    |  |  |   | 2     | 
|Operating lease obligations           |  |       | 888   |             |  |           | 61  |           |  |           | 105   |  |  |   | 92  |  |  |   | 630   | 
|Unconditional purchase obligations(2) |  |       | 89    |             |  |           | 35  |           |  |           | 43    |  |  |   | 7   |  |  |   | 4     | 
|Other long-term obligations           |  |       | 4     |             |  |           | 2   |           |  |           | 2     |  |  |   |    |  |  |   |      | 
|                                      |  |       |       |             |  |           |     |           |  |           |       |  |  |   |     |  |  |   |       | 
|Total contractual obligations         |  | $     | 5,607 |             |  | $         | 331 |           |  | $         | 1,682 |  |  | $ | 891 |  |  | $ | 2,703 | 
|                                      |  |       |       |             |  |           |     |           |  |           |       |  |  |   |     |  |  |   |       | 



---



|    |                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Balance excludes $326 million of convertible
    debt maturities classified as long-term as the Company has the
    ability and intent to draw on its revolving credit facility for
    such fundings, if required.
|   
|(2) | Included in these balances are commitments that
    may be satisfied by the Companys managed and franchised
    properties.                                                                                       

The Company had the following commercial
commitments outstanding as of December 31, 2003 (in
millions):

|                             |  |       |     |                                            |  |           |     |           |  |         |    |  |  |   |   |  |  |   |    | 
|---------------------------- |  | ----- | --- | ------------------------------------------ |  | --------- | --- | --------- |  | ------- | -- |  |  | - | - |  |  | - | -- | 
|                             |  |       |     |                                           
|                             |  |       |     | Amount of Commitment Expiration Per Period
|                             |  |       |     |                                           
|                             |  |       |     | Less Than                                  |  |           |     | After    
|                             |  | Total |     | 1 Year                                     |  | 1-3 Years |     | 4-5 Years |  | 5 Years
|                             |  |       |     |                                            |  |           |     |           |  |        
|Standby letters of credit    |  | $     | 129 |                                            |  | $         | 129 |           |  | $       |   |  |  | $ |  |  |  | $ |   | 
|Hotel loan guarantees        |  |       | 144 |                                            |  |           | 39  |           |  |         | 75 |  |  |   |  |  |  |   | 30 | 
|Other commercial commitments |  |       |    |                                            |  |           |    |           |  |         |   |  |  |   |  |  |  |   |   | 
|                             |  |       |     |                                            |  |           |     |           |  |         |    |  |  |   |   |  |  |   |    | 
|Total commercial commitments |  | $     | 273 |                                            |  | $         | 168 |           |  | $       | 75 |  |  | $ |  |  |  | $ | 30 | 
|                             |  |       |     |                                            |  |           |     |           |  |         |    |  |  |   |   |  |  |   |    | 

In the fourth quarter of 2003, Starwood commenced
a tender offer to acquire any and all of the outstanding limited
partnership units of Westin Hotels Limited Partnership, the
entity that indirectly owns the Westin Michigan Avenue Hotel in
Chicago, Illinois. The tender offer expired on February 20,
2004 and 33,873 units were tendered to Starwood and accepted for
payment, representing approximately 25% of the outstanding units
for a total cash purchase price of approximately
$25 million. The purchase price was funded from available
cash.

In January 2004, Starwood acquired a 95% interest
in Blissworld LLC which operates three stand alone spas (two in
New York, New York and one in London, England) and a beauty
products business with

31



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distribution through its own internet site and
catalogue as well as through third party retail stores. The
purchase price for the acquired interest was $23.8 million,
and was funded from available cash.


The Company intends to finance the acquisition of
additional hotel properties (including equity investments),
hotel renovations, VOI construction, capital improvements,
technology spend and other core business acquisitions and
investments and provide for general corporate purposes through
its credit facilities described below, through the net proceeds
from dispositions, through the assumption of debt and through
the issuance of additional equity or debt securities.

The Company periodically reviews its business
with a view to identifying properties or other assets that the
Company believe either are non-core, no longer complement the
business, are in markets which may not benefit the Company as
much as other markets during an economic recovery or could be
sold at significant premiums. The Company is focused on
restructuring and enhancing real estate returns and monetizing
investments. During 2003, the Company realized $1.1 billion
of cash proceeds from the sale of the Principe, the Sardinia
Assets, and 16 non-core domestic hotels.

There can be no assurance, however, that the
Company will be able to complete future dispositions on
commercially reasonable terms or at all.

Cash Used for Financing Activities

Following is a summary of the Companys debt
portfolio (including capital leases) as of December 31,
2003:

|                                    |                           |                       |        |                |  |                  |         |                |  |  |      |      |   |  |           |           | 
|----------------------------------- | ------------------------- | --------------------- | ------ | -------------- |  | ---------------- | ------- | -------------- |  |  | ---- | ---- | - |  | --------- | --------- | 
|                                    |                           | Amount                |        |                |  | Interest Rate at |         |               
|                                    |                           | Outstanding at        |        |                |  | December 31,     |         | Average       
|                                    |                           | December 31, 2003(a)  |        | Interest Terms |  | 2003             |         | Maturity      
|                                    |                           |                       |        |                |  |                  |         |               
|                                    |                           | (Dollars in millions) |        |                |  |                  |         |               
|Floating Rate Debt                  |                           |                       |        |                |  |                  |         |                |  |  |      |      |   |  |           |          
|Senior Credit Facility:             |                           |                       |        |                |  |                  |         |                |  |  |      |      |   |  |           |          
|                                    | Term Loan                 |                       | $      | 300            |  |                  |         | LIBOR(c)+162.5 |  |  |      | 2.75 | % |  |           | 2.0 years | 
|                                    | Revolving Credit Facility |                       |        | 15             |  |                  |         | CBA(d)+162.5   |  |  |      | 4.34 | % |  |           | 2.8 years | 
|Mortgages and Other                 |                           |                       | 251    |                |  |                  | Various |                |  |  | 5.08 | %    |   |  | 1.8 years |          
|Interest Rate Swaps                 |                           |                       | 1,050  |                |  |                  |         |                |  |  | 5.07 | %    |   |  |          |          
|                                    |                           |                       |        |                |  |                  |         |                |  |  |      |      |   |  |           |          
|Total/Average                       |                           | $                     | 1,616  |                |  |                  |         |                |  |  | 4.63 | %    |   |  | 1.9 years |          
|                                    |                           |                       |        |                |  |                  |         |                |  |  |      |      |   |  |           |          
|Fixed Rate Debt                     |                           |                       |        |                |  |                  |         |                |  |  |      |      |   |  |           |          
|Sheraton Holding Public Debt        |                           | $                     | 1,067  | (e)            |  |                  |         |                |  |  | 6.47 | %    |   |  | 9.0 years |          
|Senior Notes                        |                           |                       | 1,532  | (e)            |  |                  |         |                |  |  | 7.04 | %    |   |  | 6.0 years |          
|Convertible Senior Notes  Series B |                           |                       | 326    |                |  |                  |         |                |  |  | 3.25 | %    |   |  | 2.8 years | (b)      
|Convertible Debt                    |                           |                       | 360    |                |  |                  |         |                |  |  | 3.50 | %    |   |  | 2.4 years |          
|Mortgages and Other                 |                           |                       | 775    |                |  |                  |         |                |  |  | 7.15 | %    |   |  | 8.2 years |          
|Interest Rate Swaps                 |                           |                       | (1,050 | )              |  |                  |         |                |  |  | 7.11 | %    |   |  |          |          
|                                    |                           |                       |        |                |  |                  |         |                |  |  |      |      |   |  |           |          
|Total/Average                       |                           | $                     | 3,010  |                |  |                  |         |                |  |  | 5.90 | %    |   |  | 6.6 years |          
|                                    |                           |                       |        |                |  |                  |         |                |  |  |      |      |   |  |           |          
|Total Debt                          |                           |                       |        |                |  |                  |         |                |  |  |      |      |   |  |           |          
|Total Debt and Average Terms        |                           | $                     | 4,626  |                |  |                  |         |                |  |  | 5.46 | %    |   |  | 6.0 years |          
|                                    |                           |                       |        |                |  |                  |         |                |  |  |      |      |   |  |           |          



---



|    |                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Excludes approximately $410 million of the
    Companys share of unconsolidated joint venture debt, all
    of which was non-recourse, except as noted earlier.
|   
|(b) | Average maturity reflects the maturity date of
    the revolving credit facility which would be used to refinance
    the amount put to the Company.            
|   
|(c) | At December 31, 2003, LIBOR was 1.12%                                                                                                                           

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|    |                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(d) | At December 31, 2003, CBA was 2.72%                                                                                                                                                                                                            
|   
|(e) | Included approximately $20 million and
    $37 million at December 31, 2003 of fair value
    adjustments related to the fixed-to-floating interest rate swaps
    for the Sheraton Holding Public Debt and the Senior Notes,
    respectively.

Fiscal 2003
Developments.In May 2003, the Company sold an
aggregate of $360 million 3.5% coupon convertible senior
notes due 2023. The notes are convertible, subject to certain
conditions, into 7.2 million Shares based on a conversion
price of $50.00 per Share. Gross proceeds received were used to
repay a portion of the Companys Senior Credit Facility
defined below and for other operational purposes. Holders may
first present their notes to the Company for repurchase in May
2006.

During the second quarter of 2003, the Company
amended its Senior Credit Facility. The amendment adjusted the
leverage coverage ratio for the second quarter of 2003 and for
the next eight quarters (through June 30, 2005). In
addition, the Company modified its current covenant on
encumbered EBITDA (as defined) and added a restriction on the
level of cash dividends. The Company currently expects to be in
compliance with the amended covenants for the remainder of the
Senior Credit Facility term.

Fiscal 2002
Developments.In October 2002, the Company
refinanced its previous senior credit facility with a new
four-year $1.3 billion senior credit facility. The new
facility is comprised of a $1.0 billion revolving facility
and a $300 million term loan, each maturing in 2006, with a
one-year extension option, and an initial interest rate of
LIBOR + 1.625% (the Senior Credit Facility).
The proceeds from the new Senior Credit Facility were used to
pay off all amounts owed under the Companys previous
senior credit facility, which was due to mature in February
2003. The Company incurred approximately $1 million in charges
in connection with this early extinguishment of debt.

In September 2002, the Company terminated certain
Fair Value Swaps, resulting in a $78 million cash payment
to the Company. These proceeds were used to pay down the
previous revolving credit facility and will result in a decrease
to interest expense on the hedged debt through its maturity in
2007. In order to retain its fixed versus floating rate debt
position, the Company immediately entered into five new Fair
Value Swaps on the same underlying debt as the terminated swaps.

In April 2002, the Company sold $1.5 billion
of senior notes in two tranches  $700 million
principal amount of 7 3/8% senior notes due 2007 and
$800 million principal amount of 7 7/8% senior notes
due 2012. The Company used the proceeds to repay all of its
senior secured notes facility and a portion of its previous
senior credit facility. In connection with the repayment of
debt, the Company incurred charges of approximately
$29 million including approximately $23 million for
the early termination of interest rate swap agreements
associated with repaid debt, and $6 million for the
write-off of deferred financing costs and termination fees
associated with the early extinguishment of debt.

Fiscal 2001
Developments.In December 2001,
the Company entered into an 18-month 450 million Euro loan.
The loan had an interest rate of Euribor plus 195 basis
points. The proceeds of the Euro loan were drawn down in two
tranches; the first 270 million Euros was drawn down in
December 2001 and used to repay the previously outstanding
270 million Euro facility and the remaining
180 million Euros was drawn down in January 2002 and the
proceeds were used to pay down a portion of the Companys
previous senior credit facility. A portion of the proceeds from
the sale of the Principe and the Sardinia Assets were used to
repay this facility in its entirety in June 2003, as required by
the terms of the debt agreement.

In May 2001, the Company sold an aggregate face
amount of $816 million zero coupon convertible senior notes
due 2021. The two series of notes had an initial blended yield
to maturity of 2.35%. The notes are convertible, subject to
certain conditions, into an aggregate 9,657,000 Shares. The
Company received gross proceeds from these sales of
approximately $500 million, which were used to repay a
portion of its senior secured notes facility that bore interest
at LIBOR plus 275 basis points. The Company incurred
approximately $9 million of charges in connection with this
early debt extinguishment. In May 2002, the Company repurchased
all of the outstanding Series A Convertible Senior Notes
for $202 million in cash. Holders of Series B
Convertible Senior Notes may first put these notes to the
Company in May 2004 for a purchase price of approximately
$330 million. The Company has classified this debt maturity
as long-term as it has the intent and ability to draw on its
revolving credit facility for such funding, if required.

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##### 



Other.In
addition to the put rights under the Series B Convertible
Senior Notes, the Company has approximately $233 million of
its outstanding debt maturing in 2004. Based upon the current
level of operations, management believes that the Companys
cash flow from operations, together with available borrowings
under the Revolving Credit Facility (approximately
$856 million at December 31, 2003), available
borrowings from international revolving lines of credit
(approximately $44 million at December 31, 2003), and
capacity for additional borrowings will be adequate to meet
anticipated requirements for scheduled maturities, dividends,
working capital, capital expenditures, marketing and advertising
program expenditures, other discretionary investments, interest
and scheduled principal payments for the foreseeable future.
However, Starwood has a substantial amount of indebtedness and
had a working capital deficiency of $399 million at
December 31, 2003. There can be no assurance that the
Company will be able to refinance its indebtedness as it becomes
due and, if refinanced, on favorable terms, nor can there be
assurance that the Companys business will continue to
generate cash flow at or above historical levels or that
currently anticipated results will be achieved.

The Company maintains non-U.S.-dollar-denominated
debt, which provides a hedge of the Companys international
net assets and operations but also exposes its debt balance to
fluctuations in foreign currency exchange rates. During the
years ended December 31, 2003 and 2002, the effect of
changes in foreign currency exchange rates was a net increase in
debt of approximately $54 million and $135 million,
respectively. The Companys debt balance is also affected
by changes in interest rates as a result of the Companys
Fair Value Swaps. The fair market value of the Fair Value Swaps
is recorded as an asset or liability and as the Fair Value Swaps
are deemed to be effective, an adjustment is recorded against
the corresponding debt. At December 31, 2003, the
Companys debt included an increase of approximately
$57 million related to the unamortized premium on
terminated Fair Value Swaps and the fair market value of current
Fair Value Swap assets. At December 31, 2002 the
Companys debt included an increase of approximately
$75 million related to fair value swap liabilities.

If Starwood is unable to generate sufficient cash
flow from operations in the future to service the Companys
debt, the Company may be required to sell additional assets,
reduce capital expenditures, refinance all or a portion of its
existing debt or obtain additional financing. The Companys
ability to make scheduled principal payments, to pay interest on
or to refinance the Companys indebtedness depends on its
future performance and financial results, which, to a certain
extent, are subject to general conditions in or affecting the
hotel and vacation ownership industries and to general economic,
political, financial, competitive, legislative and regulatory
factors beyond the Companys control, including the
severity and duration of the current economic downturn.

On May 6, 2003, Standard & Poors
announced its decision to downgrade the Companys Credit
Rating to BB+ (non-investment grade with a stable outlook) from
BBB- (investment grade rating on Credit Watch with negative
implications). The downgrading of the Companys credit
rating may result in higher borrowing costs on future
financings. On January 7, 2004, Moodys Investor
Services and Standard & Poors placed the
Companys Ba1 (non-investment grade) and BB+ corporate
credit ratings on review/watch for a possible downgrade. The
review/watch was prompted by the Companys announcement
that it had invested $200 million in Le Meridiens
senior debt and would be in discussions to negotiate the
potential recapitalization of Le Meridien.

At December 31, 2003, approximately 800,000
shares of Class B EPS and Exchangeable Units were
outstanding, aggregating $31 million (valued at
$38.50 per share). Approximately 408,000 additional
Class B EPS were redeemed for $16 million from
January 1, 2004 through January 3, 2004. Subsequent to
January 3, 2004, if Class B EPS are put to the
Company, the Company may settle the put in cash at $38.50 per
share or Class A EPS at $38.50 per share.

In 2002, the Company shifted from a quarterly
distribution to an annual distribution. A distribution of $0.84
per Share, was paid in January 2004 and January 2003 to
shareholders of record as of December 31, 2003 and 2002,
respectively.

34



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##### 



Stock Sales and Repurchases

At December 31, 2003, Starwood had
outstanding approximately 202 million Shares,
1 million partnership units and 1 million Class A
EPS and Class B EPS. Through December 31, 2003, in
accordance with the terms of the Class B EPS, which allow
the shareholders to put these units back to the Company at
$38.50 per share for a one-year period beginning on the fifth
anniversary of the Westin acquisition (ending January 3,
2004), approximately 528,000 units of Class B EPS and
Exchangeable Units were put back to the Company for
approximately $20 million. Mr. Sternlicht held,
individually and through various family trusts, an aggregate of
240,391 Class B EPS and limited partnership units of the
Realty Partnership and Operating Partnership convertible to
Class B EPS on a one-to-one basis. On January 2, 2003,
Mr. Sternlicht put all of these Class B EPS for $38.50
per share.

In 1998, the Corporations Board of
Directors approved the repurchase of up to $1 billion of
Shares under a Share repurchase program (the Share
Repurchase Program). On April 2, 2001, the
Corporations Board of Directors authorized the repurchase
of up to an additional $500 million of Shares under the
Share Repurchase Program. Pursuant to the Share Repurchase
Program, Starwood repurchased 3.2 million Shares in the
open market for an aggregate cost of $96 million during
2001. No shares were repurchased during 2002. The Company
repurchased the following Shares during 2003:

|         |  |           |         |          |  |                     |       |                             |  |  |         |  |  |   |     | 
|-------- |  | --------- | ------- | -------- |  | ------------------- | ----- | --------------------------- |  |  | ------- |  |  | - | --- | 
|         |  |           |         |          |  |                     |       | Maximum Number (or         
|         |  |           |         |          |  | Total Number of     |       | Approximate Dollar         
|         |  | Total     |         | Average  |  | Shares Purchased as |       | Value) of Shares that      
|         |  | Number of |         | Price    |  | Part of Publicly    |       | May Yet Be Purchased       
|         |  | Shares    |         | Paid for |  | Announced Plans     |       | Under the Plans or Programs
|Period   |  | Purchased |         | Share    |  | or Programs         |       | (in millions)              
|         |  |           |         |          |  |                     |       |                            
|October  |  |           |        |          |  | $                   |      |                             |  |  |        |  |  | $ | 633 | 
|November |  |           | 315,700 |          |  | $                   | 33.43 |                             |  |  | 315,700 |  |  | $ | 623 | 
|December |  |           | 503,000 |          |  | $                   | 33.71 |                             |  |  | 503,000 |  |  | $ | 606 | 
|         |  |           |         |          |  |                     |       |                             |  |  |         |  |  |   |     | 
|Total    |  |           | 818,700 |          |  | $                   | 33.60 |                             |  |  | 818,700 |  |  |   |     | 
|         |  |           |         |          |  |                     |       |                             |  |  |         |  |  |   |     | 

During 2003, approximately 13,000 shares of
Class A EPS were exchanged for an equal number of Shares.
Also during 2003, the Company exchanged approximately 13,000
limited partnership units of the Realty Partnership and the
Operating Partnership held by third parties for Shares on a
one-for-one basis.

Off-Balance Sheet Arrangements

The nature of the Companys off-balance
sheet arrangements include beneficial interest in
securitizations of $50 million, third-party loan guarantees
of $144 million, letters of credit of $129 million,
unconditional purchase obligations of $89 million and
surety bonds of $46 million. These items are more fully
discussed earlier in this section and in the Notes to
Consolidated Financial Statements, Item 8 of Part II
of this report.






|         |                                                                
|-------- | ---------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    about Market Risk.

In limited instances, the Company seeks to reduce
earnings and cash flow volatility associated with changes in
interest rates and foreign currency exchange rates by entering
into financial arrangements intended to provide a hedge against
a portion of the risks associated with such volatility. The
Company continues to have exposure to such risks to the extent
they are not hedged.

Interest rate swap agreements are the primary
instruments used to manage interest rate risk. At
December 31, 2003, the Company had five outstanding
long-term interest rate swap agreements under which the Company
pays variable interest rates and receives fixed interest rates.
At December 31, 2003, the Company had no interest rate swap
agreements under which the Company pays a fixed rate and
receives a

35



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##### 



variable rate. The following table sets forth the
scheduled maturities and the total fair value of the
Companys debt portfolio:


|                                    |                      |                      |     |      |  |              |     |              |  |      |     |            |  |      |     |      |  |   |    |  |  |   |       |  |  |   |       |      |   |   |       |  | 
|----------------------------------- | -------------------- | -------------------- | --- | ---- |  | ------------ | --- | ------------ |  | ---- | --- | ---------- |  | ---- | --- | ---- |  | - | -- |  |  | - | ----- |  |  | - | ----- | ---- | - | - | ----- |  | 
|                                    |                      |                      |     |      |  |              |     |             
|                                    |                      | Expected Maturity or |     |      |  |              |     |             
|                                    |                      | Transaction Date     |     |      |  |              |     | Total Fair  
|                                    |                      | At December 31,      |     |      |  | Total at     |     | Value at    
|                                    |                      |                      |     |      |  | December 31, |     | December 31,
|                                    |                      | 2004                 |     | 2005 |  | 2006         |     | 2007         |  | 2008 |     | Thereafter |  | 2003 |     | 2003
|                                    |                      |                      |     |      |  |              |     |              |  |      |     |            |  |      |     |     
|Liabilities                         |                      |                      |     |      |  |              |     |              |  |      |     |            |  |      |     |      |  |   |    |  |  |   |       |  |  |   |       |      |   |   |       | 
|Fixed rate (in millions)            |                      | $                    | 36  |      |  | $            | 489 |              |  | $    | 704 |            |  | $    | 756 |      |  | $ | 22 |  |  | $ | 2,050 |  |  | $ | 4,057 |      |   | $ | 4,122 | 
|Average interest rate               |                      |                      |     |      |  |              |     |              |  |      |     |            |  |      |     |      |  |   |    |  |  |   |       |  |  |   | 6.20  | %    |   |   |       | 
|Floating rate (in millions)         |                      | $                    | 197 |      |  | $            | 114 |              |  | $    | 225 |            |  | $    | 8   |      |  | $ | 6  |  |  | $ | 19    |  |  | $ | 569   |      |   | $ | 569   | 
|Average interest rate               |                      |                      |     |      |  |              |     |              |  |      |     |            |  |      |     |      |  |   |    |  |  |   |       |  |  |   | 3.85  | %    |   |   |       | 
|Interest Rate Swaps                 |                      |                      |     |      |  |              |     |              |  |      |     |            |  |      |     |      |  |   |    |  |  |   |       |  |  |   |       |      |   |   |       | 
|Fixed to variable
    (in millions) |                      | $                    |    |      |  | $            | 450 |              |  | $    |    |            |  | $    | 600 |      |  | $ |   |  |  | $ |      |  |  | $ | 1,050 |      |   |   |       | 
|                                    | Average pay rate     |                      |     |      |  |              |     |              |  |      |     |            |  |      |     |      |  |   |    |  |  |   |       |  |  |   |       | 5.07 | % |   |       |  | 
|                                    | Average receive rate |                      |     |      |  |              |     |              |  |      |     |            |  |      |     |      |  |   |    |  |  |   |       |  |  |   |       | 7.11 | % |   |       |  | 

The Company uses foreign currency hedging
instruments to manage exposure to foreign currency exchange rate
fluctuations. The gains or losses on the hedging instruments are
largely offset by gains or losses on the underlying asset or
liability, and consequently, a sudden significant change in
foreign currency exchange rates would not have a material impact
on future net income or cash flows of the hedged item. The
Company monitors its foreign currency exposure on a monthly
basis to maximize the overall effectiveness of its foreign
currency hedge positions. Changes in the fair value of hedging
instruments are classified in the same manner as changes in the
underlying assets or liabilities due to fluctuations in foreign
currency exchange rates. At December 31, 2003, the notional
amount of the Companys open foreign exchange hedging
contracts protecting the value of the Companys foreign
currency denominated assets and liabilities was approximately
$544 million. A hypothetical 10% change in the spot
currency exchange rates would result in an increase or decrease
of approximately $59 million in the fair value of the
hedges at December 31, 2003, which would be offset by an
opposite effect on the related underlying net asset or liability.

The Company enters into a derivative financial
arrangement to the extent it meets the objectives described
above, and the Company does not engage in such transactions for
trading or speculative purposes.

See Note 19. Derivative Financial
Instruments in the notes to financial statements filed as part
of this Joint Annual Report and incorporated herein by reference
for further description of derivative financial instruments.






|        |                                                 
|------- | ------------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data.

The financial statements and supplementary data
required by this Item are included in Item 15 of this Joint
Annual Report and are incorporated herein by reference.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes In and Disagreements with
    Accountants on Accounting and Financial Disclosure

Not applicable






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

The Companys management conducted an
evaluation, under the supervision and with the participation of
the Companys Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures as of
December 31, 2003. Based on this evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures are effective
in alerting them in a timely manner to material information
required to be included in the Companys SEC reports. There
has been no change in the Companys internal control over

36



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##### 



financial reporting that occurred during the
period covered by this report that has materially affected, or
is reasonably likely to materially affect, the Companys
internal control over financial reporting.





PART III






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 10. | Directors, Trustees and Executive Officers
    of the Registrants.

The Board of Directors of the Corporation and the
Board of Trustees of the Trust are currently comprised of
10 members, each of whom is elected for a three-year term.
The following table sets forth, for each of the members of the
Board of Directors and the Board of Trustees as of the date of
this Joint Annual Report, the class to which such Director or
Trustee has been elected and certain other information regarding
such Director or Trustee.

|                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                         |  | 
|------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------- |  | 
|Name (Age)                                                               |  | Principal Occupation and Business Experience                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Service Period                                                                         
|                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                        
|Directors and Trustees Whose Terms Expire at
    the 2006 Annual Meeting |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                        
|Jean-Marc Chapus (44)                                                    |  | Group Managing Director and Portfolio Manager of
    Trust Company of the West, an investment management firm, and
    President of TCW/ Crescent Mezzanine L.L.C., a private
    investment fund, since March 1995. Mr. Chapus is a director
    of MEMC Electronic Materials, Inc.                                                                                                                                                                                                                                                                                                                                                                                         |  | Director from August 1995 to November 1997; since April 1999Trustee since November 1997
|Thomas O. Ryder (59)                                                     |  | Chairman of the Board and Chief Executive Officer
    of The Readers Digest Association, Inc. since April 1998.
    Mr. Ryder was President, American Express Travel Related
    Services International, a division of American Express Company,
    which provides travel, financial and network services, from
    October 1995 to April 1998. He is a director of Amazon.com, Inc.                                                                                                                                                                                                                                                                                       |  | Director and Trustee since April 2001                                                  
|Barry S. Sternlicht (43)                                                 |  | Chairman and Chief Executive Officer of the
    Company since September 1997 and January 1999, respectively.
    Mr. Sternlicht has served as Chairman and Chief Executive
    Officer of the Trust since January 1995. Mr. Sternlicht
    also has been the President and Chief Executive Officer of
    Starwood Capital (and its predecessor entities) since its
    formation in 1991. Mr. Sternlicht was Chief Executive
    Officer of iStar Financial, Inc. (iStar), a
    publicly-held real estate investment firm, from September 1996
    to November 1997 and served as the Chairman of the Board of
    Directors of iStar from September 1996 to April 2000. |  |                                                                                         |  | 
|Directors and Trustees Whose Terms Expire at
    the 2005 Annual Meeting |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                        
|Charlene Barshefsky (53)                                                 |  | Senior International Partner at the law firm of
    Wilmer Cutler Pickering LLP, Washington, D.C. From March
    1997 to January 2001, Ambassador Barshefsky was the United
    States Trade Representative, the chief trade negotiator and
    principal trade policy maker for the United States and a member
    of the Presidents Cabinet. Ambassador Barshefsky is a
    director of The Estee Lauder Companies, Inc., American Express
    Company and Intel Corporation.                                                                                                                                                                                             |  | Director and Trustee since October 2001                                                

37



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##### 



|                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                                      |  | 
|------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------- |  | 
|Name (Age)                                                               |  | Principal Occupation and Business Experience                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Service Period                                      
|                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                                     
|Bruce W. Duncan (52)                                                     |  | President, Chief Executive Officer and Trustee of
    Equity Residential (EQR) the largest publicly traded
    apartment company in the United States since April 2002. From
    April 2000 until March 2002, he was a private investor. From
    December 1995 until March 2000, Mr. Duncan served as
    Chairman, President and Chief Executive Officer of The Cadillac
    Fairview Corporation Limited, a real estate operating company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Director since April 1999Trustee since August 1995  
|Stephen R. Quazzo (44)                                                   |  | Managing Director, Chief Executive Officer and
    co- founder of Transwestern Investment Company, L.L.C., a real
    estate principal investment firm, since March 1996. From April
    1991 to March 1996, Mr. Quazzo was President of Equity
    Institutional Investors, Inc., a subsidiary of Equity Group
    Investments, Inc., a Chicago-based holding company controlled by
    Samuel Zell.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | Director since April 1999Trustee since August 1995  
|Directors and Trustees Whose Terms Expire at
    the 2004 Annual Meeting |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                                     
|Eric Hippeau (52)                                                        |  | Managing Partner of Softbank Capital Partners, a
    technology venture capital firm, since March 2000.
    Mr. Hippeau served as Chairman and Chief Executive Officer
    of Ziff-Davis Inc., an integrated media and marketing company,
    from 1993 to March 2000 and held various other positions with
    Ziff-Davis from 1989 to 1993. Mr. Hippeau is a director of
    Yahoo! Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | Director and Trustee since April 1999               
|George J. Mitchell (70)                                                  |  | Partner in the law firm of Piper Rudnick since
    October 2002. From January 1995 to October 2002 he was Special
    Counsel to the law firm of Verner, Liipfert, Bernhard, McPherson
    and Hand (Verner Liipfert) and served as Chairman of
    that firm from November 2001 to October 2002. Verner Liipfert
    merged into Piper Rudnick in October 2002. He served as a United
    States Senator from January 1980 to January 1995, and was the
    Senate Majority Leader from 1989 to 1995. From 1995 to 1996,
    Senator Mitchell served as the Special Advisor to the President
    of the United States on economic initiatives in Ireland.
    Subsequently, at the request of the British and Irish
    Governments, he served as Chairman of the peace negotiations in
    Northern Ireland. Senator Mitchell is a director of The Walt
    Disney Company, Federal Express Corporation and Staples, Inc. |  | Director since April 1999Trustee since November 1997
|Daniel W. Yih (45)                                                       |  | Principal and Chief Operating Officer of GTCR
    Golder Rauner, LLC, a private equity firm, since September 2000.
    From June 1995 until March 2000, Mr. Yih was a general
    partner of Chilmark Partners, L.P., a private equity firm.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Director since August 1995 Trustee since April 1999 

38



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##### 



|                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                       |  | 
|--------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- |  | 
|Name (Age)                  |  | Principal Occupation and Business Experience                                                                                                                                                                                                                                                                                                                                                                                      |  | Service Period                       
|                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                      
|Kneeland C. Youngblood (48) |  | Managing partner of Pharos Capital Group, L.L.C.,
    a private equity fund focused on technology companies, business
    service companies and health care companies, since January 1998.
    From July 1985 to December 1997, he was in private medical
    practice. He is a director of the American Advantage Funds, a
    mutual fund company managed by AMR Investments, an investment
    affiliate of American Airlines. |  | Director and Trustee since April 2001

Executive Officers of the
Registrants

The following table includes certain information
with respect to each of Starwoods executive officers.

|                    |  |     |    |             |  |                                                                                                                                                                      
|------------------- |  | --- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                |  | Age |    | Position(s)
|                    |  |     |    |            
|Barry S. Sternlicht |  |     | 43 |             |  | Chairman, Chief Executive Officer and a Director
    of the Corporation and Chairman, Chief Executive Officer and a
    Trustee of the Trust                         
|Robert F. Cotter    |  |     | 52 |             |  | President and Chief Operating Officer of the
    Corporation and a Vice President of the Trust                                                                       
|Vasant M. Prabhu    |  |     | 44 |             |  | Executive Vice President and Chief Financial
    Officer of the Corporation and Vice President, Chief Financial
    Officer and Chief Accounting Officer of the Trust
|Kenneth S. Siegel   |  |     | 48 |             |  | Executive Vice President, General Counsel and
    Secretary of the Corporation and Vice President, General Counsel
    and Secretary of the Trust                    
|David K. Norton     |  |     | 48 |             |  | Executive Vice President  Human
    Resources of the Corporation and Vice President 
    Human Resources of the Trust                                              
|Theodore W. Darnall |  |     | 46 |             |  | President, Real Estate Group of the Corporation                                                                                                                      
|Steven M. Hankin    |  |     | 43 |             |  | Chief Marketing Officer and President, Starwood
    Technology and Revenue Systems of the Corporation                                                                

Barry S. Sternlicht.See Item 10. Directors,
Trustees and Executive Officers of the Registrants above.

Robert F. Cotter.Mr. Cotter has been the
President and Chief Operating Officer of the Corporation since
November 2003, and the Chief Operating Officer of the
Corporation since February 2000. He has served as a Vice
President of the Trust since August 2000. From December 1999 to
February 2000, he was President, International Operations, and
from March 1998 to December 1999, he served as President,
Europe, of the Company. Prior to joining the Company,
Mr. Cotter was President, Sheraton Europe Division, from
June 1994 to March 1998 and previously held various other
positions with Sheraton including President, Sheraton
Asia-Pacific Divisions, and numerous sales and marketing
positions in the United States and Asia.

Vasant M. Prabhu.Mr. Prabhu has been the
Executive Vice President and Chief Financial Officer of the
Corporation and has served as Vice President, Chief Financial
Officer and Chief Accounting Officer of the Trust since January
2004. Prior to joining the Company, Mr. Prabhu served as
Executive Vice President and Chief Financial Officer for Safeway
Inc., from September 2000 through December 2003. Mr. Prabhu
was previously the President of the Information and Media Group
at the McGraw-Hill Companies, Inc., from June 1998 to August
2000, and held several senior positions at divisions of PepsiCo,
Inc. from June 1992 to May 1998. From August 1983 to May 1992 he
was a partner at Booz Allen Hamilton, an international
management consulting firm.

Kenneth S. Siegel.Mr. Siegel has been the
Executive Vice President and General Counsel of the Corporation
and Vice President and General Counsel of the Trust since
November 2000. In February 2001, he was also appointed as the
Secretary to both the Corporation and the Trust. Mr. Siegel
was formerly the Senior Vice President and General Counsel of
Gartner, Inc., a provider of research and analysis on information

39



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##### 



technology industries, from January 2000 to
November 2000. Prior to that time, he served as Senior Vice
President, General Counsel and Corporate Secretary of IMS Health
Incorporated, an information services company, and its
predecessors from February 1997 to December 1999. Prior to that
time, Mr. Siegel was a Partner in the law firm of
Baker & Botts, LLP.


David K. Norton.Mr. Norton has been the
Executive Vice President  Human Resources of the
Corporation and Vice President  Human Resources of
the Trust since May 2000. Prior to joining the Company,
Mr. Norton held various positions with PepsiCo, Inc. from
September 1990 to April 2000 including Senior Vice President,
Human Resources of Frito-Lay, a division of PepsiCo, from
November 1995 to April 2000 and Senior Vice President, Human
Resources of PepsiCo Food Systems from December 1994 to October
1995.

Theodore W. Darnall.Mr. Darnall has been the
President of the Real Estate Group since August 2002. From July
1999 to August 2002, he was the President of the Companys
North America Group. From April 1998 to July 1999,
Mr. Darnall was Executive Vice President, North American
Division. Mr. Darnall was also Executive Vice President and
COO of Starwood Lodging between April 1996 and April 1998.

Steve M. Hankin.Mr. Hankin has been Chief
Marketing Officer of the Corporation since October 2003 and
President of Starwood Technology and Revenue Systems
(STARS) since June 2000. He joined Starwood as
Senior Vice President of Strategic Planning in October 1999 and
held that position until May 2000, when he became the Executive
Vice President of the Company and President  STARS.
From October 1986 to September 1999, he was a partner at
McKinsey & Company, Inc., an international management
consulting firm.

Corporate Governance

The Corporation and the Trust have an Audit
Committee that is currently comprised of directors and trustees,
Daniel W. Yih (chairman), Stephen R. Quazzo and
Thomas O. Ryder. The Boards of Directors and Trustees have
determined that each member of the Audit Committee is
independent as defined by applicable federal
securities laws and the Listing Requirements of the New York
Stock Exchange, Inc. and that Messrs. Yih and Ryder are
audit committee financial experts, as defined by federal
securities laws.

The Company has adopted a Finance Code of Ethics
applicable to our Chief Executive Officer, Chief Financial
Officer, Corporate Controller, Controller Hotel Operations,
Corporate Treasurer, Senior Vice President-Taxes and persons
performing similar functions. The text of this code of ethics
may be found on the Companys web site at
http://starwood.com/corporate/investor  relations.html.
We intend to post amendments to and waivers from, the Finance
Code of Ethics that require disclosure under applicable SEC
rules on our web site. You may obtain a free copy of this code
in print by writing to our Investor Relations Department,
1111 Westchester Avenue, White Plains, New York 10604.

The Company is in the process of updating our
Worldwide Code of Conduct applicable to all of its directors,
officers and employees. This update will be completed prior to
the Corporations Annual Meeting of Shareholders, scheduled
for May 7, 2004 and will be available on its website at
http://starwood.com/corporate/investor  relations.html
on or before May 7, 2004. You may also obtain a free copy
of this code, after we post it, by writing to the Starwood
Investor Relations Department, 1111 Westchester Avenue,
White Plains, New York 10604.

The Companys Corporate Governance
Guidelines and the charters of its Audit Committee, Compensation
Committee, Governance Committee and Nominating Committee are
also available on its website at
http://starwood.com/corporate/investor  relations.html.
The information on our website is not incorporated by reference
into this Annual Report on Form 10-K.

Section 16(a) Beneficial Ownership
Reporting Compliance

Section 16(a) of the Securities Exchange Act
of 1934, as amended, requires that Directors, Trustees and
executive officers of the Company, and persons who own more than
10 percent of the outstanding Shares, file

40



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##### 



with the SEC (and provide a copy to the Company)
certain reports relating to their ownership of Shares and other
equity securities of the Company.


To the Companys knowledge, based solely on
a review of the copies of these reports furnished to the Company
for the fiscal year ended December 31, 2003, and written
representations that no other reports were required, all
Section 16(a) filing requirements applicable to its
Directors, Trustees, executive officers and greater than
10 percent beneficial owners were complied with for the
most recent fiscal year, except that Mr. Yih failed to
timely file one Form 4 with respect to one transaction.




Item 11.Executive
Compensation

The information called for by Item 11 is
incorporated by reference to the information under the following
captions in the Proxy Statement: Compensation of Directors
and Trustees, Summary of Cash and Certain Other
Compensation, Executive Compensation,
Option Grants, Option Exercises and
Holdings, Employment and Compensation Agreements
with Executive Officers, Compensation Committee
Interlocks and Insider Participation and
Compensation and Option Committee Report.




Item 12.Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.

Equity Compensation Plan
Information  December 31, 2003

(In millions, except per Share
amounts)


|                                                               |  |                      |            |                      |  |                           |       |  |  |  |           |    
|-------------------------------------------------------------- |  | -------------------- | ---------- | -------------------- |  | ------------------------- | ----- |  |  |  | --------- | ---
|                                                               |  | (a)                  |            | (b)                  |  | (c)                      
|                                                               |  |                      |            |                      |  | Number of securities     
|                                                               |  | Number of securities |            |                      |  | remaining available for  
|                                                               |  | to be issued upon    |            | Weighted-average     |  | future issuance under    
|                                                               |  | exercise of          |            | exercise price of    |  | equity compensation plans
|                                                               |  | outstanding options, |            | outstanding options, |  | (excluding securities    
|                                                               |  | warrants and rights  |            | warrants and rights  |  | reflected in Column (a)) 
|                                                               |  |                      |            |                      |  |                          
|Equity compensation plans approved by security
    holders     |  |                      | 40,472,758 |                      |  | $                         | 31.04 |  |  |  | 9,303,717 | (1)
|Equity compensation plans not approved by
    security holders |  |                      |           |                      |  |                           |      |  |  |  |          |    
|                                                               |  |                      |            |                      |  |                           |       |  |  |  |           |    
|Total                                                          |  |                      | 40,472,758 |                      |  | $                         | 31.04 |  |  |  | 9,303,717 |    
|                                                               |  |                      |            |                      |  |                           |       |  |  |  |           |    



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Does not include deferred share units (that vest
    over three years and may be settled in Shares) that may be
    issued pursuant to obligations under the Executive Annual
    Incentive Plan (AIP). The Executive AIP does not
    limit the number of deferred share units that may be issued.
    This plan has been amended to provide for a termination date of
    May 26, 2009 to comply with new NYSE requirements. In
    addition, 9,576,597 Shares remain available for issuance
    under the Companys Employee Stock Purchase Plan, a stock
    purchase plan meeting the requirements of Section 423 of
    the Internal Revenue Code.

The remaining information called for by
Item 12 is incorporated by reference to the information
under the caption Security Ownership of Certain Beneficial
Owners and Management in the Proxy Statement.




Item 13.     Certain
Relationships and Related Transactions.

Policies of the Board of Directors of the
Corporation and the Board of Trustees of the Trust

The policy of the Board of Directors of the
Corporation and the Board of Trustees of the Trust provides that
any contract or transaction between the Corporation or the
Trust, as the case may be, and any other entity in which one or
more of its Directors, Trustees or executive officers are
directors or officers, or have a financial interest, must be
approved or ratified by the Governance Committee (which is
comprised of Senator Mitchell, Ambassador Barshefsky and
Messrs. Ryder and Youngblood) or by a majority of the
disinterested Directors or Trustees in either case after the
material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to them.

41



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Starwood Capital

General.Barry S. Sternlicht, Chairman,
Chief Executive Officer and a Director of the Corporation, and
Chairman, Chief Executive Officer and a Trustee of the Trust,
controls and has been the President and Chief Executive Officer
of Starwood Capital since its formation in 1991.

Trademark License.An affiliate of Starwood Capital
has granted to Starwood, subject to Starwood Capitals
unrestricted right to use such name, an exclusive,
non-transferable, royalty-free license to use the
Starwood name and trademarks in connection with the
acquisition, ownership, leasing, management, merchandising,
operation and disposition of hotels worldwide, and to use the
Starwood name in its corporate name worldwide, in
perpetuity.

Starwood Capital Noncompete.In connection with a restructuring
of the Company in 1995, Starwood Capital voluntarily agreed
that, with certain exceptions, Starwood Capital would not
compete directly or indirectly with the Company within the
United States and would present to the Company all opportunities
presented to Starwood Capital to acquire fee interests in hotels
in the United States and debt interests in hotels in the United
States where it is anticipated that the equity will be acquired
by the debt holder within one year from the acquisition of such
debt (the Starwood Capital Noncompete). During the
term of the Starwood Capital Noncompete, Starwood Capital and
its affiliates are not permitted to acquire any such interest,
or any ground lease interest or other equity interest, in hotels
in the United States without the consent of the Board. In
addition, the Companys Corporate Opportunity Policy
requires that each director and executive officer submit to the
Corporate Governance Committee any opportunity that the director
or executive officer reasonably believes is within the
Companys lines of business or in which the Company has an
interest. Therefore, as a matter of practice, all opportunities
to purchase hotel-related assets, even those outside of the
United States, that Starwood Capital may pursue are first
presented to the Company. The Starwood Capital Noncompete
continues until no officer, director, general partner or
employee of Starwood Capital is on either the Board of Directors
of the Corporation or the Board of Trustees of the Trust
(subject to exceptions for certain restructurings, mergers or
other combination transactions with unaffiliated parties).
Several properties owned or managed by the Company, including
the Westin Innisbrook Resort (the Innisbrook
Resort), the Westin Mission Hills Resort and the Turnberry
Hotel, were opportunities brought to the Company or its
predecessors by Starwood Capital or entities related to
Mr. Sternlicht. With the approval in each case of the
Governance Committee of the Board of Directors of the
Corporation and the Board of Trustees of the Trust, from time to
time the Company has waived the restrictions of the Starwood
Capital Noncompete, in whole or in part, (or passed on the
opportunity in cases of the Corporate Opportunity Policy for
non-U.S. opportunities) with respect to particular acquisition
or investment opportunities in which the Company had no business
or strategic interest. Since 1995, Starwood Capital made four
such investments.

In July 2003, the Company waived the Starwood
Capital Noncompete in connection with the acquisition of the
Rennaisance Wailea Hotel in Hawaii by an affiliate of Starwood
Capital. The Company has signed a letter of intent with the
affiliate to manage this property after it is extensively
repositioned and renovated. The Company is currently negotiating
the management agreement. The Companys Governance
Committee, advised by separate independent legal and hospitality
advisors, approved the waiver of the Starwood Capital Noncompete
and the terms of the proposed management agreement as being at
or better than market terms. In addition, the Company was
provided the opportunity to make an equity investment in the
transaction but declined to do so.

In August 2003, the Company acquired from an
affiliate of Starwood Capital, its beneficial ownership interest
in 15 acres of land contiguous to the Westin Mission Hills
Resort for a purchase price of $2.8 million. The
Companys Governance Committee approved the transaction,
which was at a discount from the price determined by an
independent third party appraiser engaged by the Governance
Committee.

Portfolio Investments.An affiliate of Starwood Capital
holds an approximately 31% co-controlling interest in Troon Golf
(Troon), a golf course management company that
currently manages over 120 high-end golf courses.
Mr. Sternlichts indirect interest in Troon held
through such affiliate is approximately 12%. Troon is one of the
largest third-party managers of golf courses in the United
States. In January 2002, after extensive review of alternatives
and with the unanimous approval of the Governance Committee, the

42



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Company entered into a Master Agreement with
Troon covering the United States and Canada whereby the Company
has agreed to have Troon manage all golf courses in the United
States and Canada that are owned by the Company and to use
reasonable efforts to have Troon manage golf courses at resorts
that the Company manages and franchises. The Company believes
that the terms of the Troon agreement are at or better than
market terms. Mr. Sternlicht did not participate in the
negotiations or the approval of the Troon Master Agreement.
During 2003, Troon managed 18 golf courses at resorts owned
or managed by the Company. The Company paid Troon a total of
$948,000 for management fees and payments for other services in
2003 for nine golf courses at resorts owned or managed by the
Company. During 2002 and 2001, the Company paid $813,000 and
$432,000, respectively, for management fees and payments for
other services for the eight and two golf courses at resorts
owned or managed by the Company, respectively.


An entity in which Mr. Sternlicht has a 38%
interest owned the common area of the Sheraton Tamarron Resort,
which the Company managed until December 2001. The Company had
outstanding receivables of approximately $314,000 at
December 31, 2003, which arose as a result of the
termination of the Tamarron management agreement. These
receivables were paid in full in January 2004. The Company
believes that the terms of the Tamarron agreement were at or
better than market terms.

In addition, a subsidiary of Starwood Capital is
a general partner of a limited partnership which owns
approximately 45% in an entity that manages over 40 health
clubs, including one health club and spa space in a hotel owned
by the Company. The Company paid approximately $84,000 annually
to the management company for such management services in 2003,
2002 and 2001. The Company believes that the terms of the
management agreement were at or better than market terms. The
management agreement terminated on September 30, 2003 and
the management company has been managing the health club and spa
on a month-to-month agreement. The Company and the management
company have verbally agreed to continue this arrangement until
the Company closes the health club and spa for conversion to a
Bliss spa.

Other Management-Related Investments.Mr. Sternlicht has a 38%
indirect interest in an entity (the Innisbrook
Entity) that owns the common area facilities and certain
undeveloped land (but not the hotel) at the Innisbrook Resort.
In May 1997, the Innisbrook Entity entered into a management
agreement for the Innisbrook Resort with Westin, which was then
a privately held company partly owned by Starwood Capital and
Goldman, Sachs & Co. When the Company acquired Westin in
January 1998, it acquired Westins rights and obligations
under the management and other related agreements. Under these
agreements, the hotel manager was obligated to loan up to
$12.5 million to the owner in the event certain performance
levels were not achieved. Management fees earned under these
agreements were $512,000, $584,000 and $716,000 in 2003, 2002
and 2001, respectively. The operations of the Innisbrook Entity
have not generated sufficient cash flow to service its
outstanding debt and current obligations. The Innisbrook Entity,
its primary lender and the Company are currently in discussions
regarding the terms and timing of payments owed to the lender
and the Company. The discussions relate to the payments of
outstanding obligations of the Innisbrook Entity including
approximately $11 million owed to the Company. Based on
available information and the establishment of applicable
reserves, the Company does not believe any resolution of this
matter will have a material impact on the financial position,
results of operation or cash flows of the Company. The Company
believes that the outstanding issues will be settled during the
first half of 2004. Any settlement of this matter would be
subject to the approval of the Governance Committee.

In July 2002, the Company acquired a 49% interest
in the Westin Savannah Harbor Resort and Spa in connection with
the restructuring of the indebtedness of that property. An
unrelated party holds an additional 49% interest in the
property. The remaining 2% is held by Troon. Troon invested in
the project on a pari-passu basis and manages the golf course at
the Westin Savannah. The unrelated third party negotiated the
terms of the golf management agreement with Troon and approved
the terms of its equity interest, and therefore, the Company
believes the arrangements are on an arms-length basis.

Aircraft Lease.In February 1998, the Company
leased a Gulfstream III Aircraft (GIII) from Star
Flight LLC, an affiliate of Starwood Capital. The term of the
lease was one year and automatically renews for one-year terms
until either party terminates the lease upon 90 days
written notice. The rent for the aircraft, which was set at
approximately 90% of fair market value at the time (based on two
estimates from unrelated

43



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third parties), is (i) a monthly payment of
1.25% of the lessors total costs relating to the aircraft
 (approximately $123,000 at the beginning of the lease
with this amount increasing as additional costs are incurred by
the lessor), plus (ii) $300 for each hour that the aircraft
is in use. Payments to Star Flight LLC were $1,865,000,
$2,052,000 and $1,682,000 in 2003, 2002 and 2001, respectively.
Starwood Capital has used the GIII as well as the Gulfstream IV
Aircraft (GIV) operated by the Company. For use of
the GIII, Star Flight LLC relieves the Company of lease payments
for the days the plane is used and reimburses the Company for
costs of operating the aircraft. Lease relief and reimbursed
operating costs were approximately $52,000, $161,000 and $95,000
for fiscal 2003, 2002 and 2001, respectively. For use of the
GIV, Starwood Capital pays a charter rate that the Company
believes is no less favorable than that which the Company could
receive from an unaffiliated third party.


Other

The Company has on occasion made loans to
employees, including executive officers, principally in
connection with home purchases upon relocation. As of
December 31, 2003, approximately $7 million in loans
to approximately 25 employees was outstanding of which
approximately $5 million were non-interest bearing home
loans. Home loans are generally due five years from the date of
issuance or upon termination of employment and are secured by a
second mortgage on the employees home. Executive officers
receiving home loans in connection with relocation were
Robert F. Cotter, President and Chief Operating Officer, in
June 2001 (original balance of $600,000), David K. Norton,
Executive Vice President of Human Resources, in July 2000
(original balance of $500,000), Theodore W. Darnall,
President, Real Estate Group, in 1996 and 1998 (original balance
of $750,000 ($150,000 bridge loan in 1996 and $600,000 home loan
in 1998), of which $600,000 was repaid in August 2003) and
Steven M. Hankin, Chief Marketing Officer and President,
Starwood Technology and Revenue Systems in 2000 (original
balance of $300,000 which was repaid January 2004). As a result
of the acquisition of ITT Corporation in 1998, restricted stock
awarded to Messrs. Sternlicht and Darnall in 1996 vested at
a price for tax purposes of $53 per Share. This amount was
taxable at ordinary income rates. By late 1998, the value of the
stock had fallen below the amount of income tax owed. In order
to avoid a situation in which the executives could be required
to sell all of the Shares acquired by them to cover income
taxes, in April 1999 the Company made interest-bearing loans at
5.67% to Messrs. Sternlicht and Darnall of approximately
$1,222,000 and $416,000 respectively, to cover the taxes
payable. Accrued interest on these loans at December 31,
2003 is approximately $327,000 and $111,000, respectively. The
notes and all associated accumulated interest become due on
their tenth anniversary.

Richard Cotter held various positions with the
Company from July 1998 through September 2003.
Mr. Cotters salary and bonus were $354,885 for 2001,
$345,404 for 2002, and $234,682 for 2003. Mr. Cotter was
granted 10,823 and 28,000 options to purchase Company shares in
2001 and 2002, respectively, and was awarded 3,487 shares of
restricted stock in 2001. In connection with his employment as
general manager of the St. Regis and other positions, Mr.
Cotter was provided with the use of a Company-owned apartment in
New York City from September 1998 through August 2003, which the
Company believes has a rental value of $10,000 per month.
Richard Cotter is the brother of Robert Cotter, who is the
President and Chief Operating Officer of the Company.

An entity in which Mr. Sternlicht has an
indirect ownership interest held 259 limited partnership units
in Westin Hotels Limited Partnership (the owner of the Westin
Michigan Avenue Hotel). The units were acquired in 1995 and
1996. The entity tendered all of its units to the Company in
connection with the Companys tender offer. The Company
purchased all shares tendered to it and the entity will receive
approximately $190,000 for its units.

In 2003, Starwood retained the law firm Piper
Rudnick, of which Senator George J. Mitchell, a Director of the
Corporation and Trustee of the Trust, is a partner. We expect
that this firm will continue to provide services to the Company
in 2004.

44



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Item 14.     Principal
Accountant Fees and Services

The Audit Committee has adopted a policy
requiring pre-approval by the committee of all services (audit
and non-audit) to be provided to the Company by its independent
auditors. In accordance with that policy, the Audit Committee
has given its approval for the provision of audit services by
Ernst & Young LLP for fiscal 2004. All other
services must be specifically pre-approved by the full Audit
Committee or by a designated member of the Audit Committee who
has been delegated the authority to pre-approve the provision of
services.

Fees paid by the Corporation to its independent
auditors are set forth in the proxy statement under the heading
Audit Fees and are incorporated herein by reference.
The auditors do not specifically allocate any of the audit fees
for the audit of the Trust.

45



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PART IV






|         |                                                                                          
|-------- | -----------------------------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statements, Financial
    Statement Schedules and Reports on Form 8-K



|    |                                                                             
|--- | ----------------------------------------------------------------------------
|(a) | The following documents are filed as a part of
    this Joint Annual Report:



|   |                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | The financial statements and financial statement
    schedules listed in the Index to Financial Statements and
    Schedules following the signature pages hereof.
|  
|2. | Exhibits:                                                                                                                                                         

|        |   |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- | - | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |                       
|Number  |   | Description of Exhibit
|        |   |                       
|        | 2 | .1                     |  | Formation Agreement, dated as of
    November 11, 1994, among the Trust, the Corporation,
    Starwood Capital and the Starwood Partners (incorporated by
    reference to Exhibit 2 to the Trusts and the
    Corporations Joint Current Report on Form 8-K dated
    November 16, 1994). (The SEC file numbers of all filings
    made by the Corporation and the Trust pursuant to the Securities
    Exchange Act of 1934, as amended, and referenced herein are:
    1-7959 (the Corporation) and 1-6828 (the Trust)).                                                                                                                                                                                                                                                                                
|        | 2 | .2                     |  | Form of Amendment No. 1 to Formation
    Agreement, dated as of July 1995, among the Trust, the
    Corporation and the Starwood Partners (incorporated by reference
    to Exhibit 10.23 to the Trusts and the
    Corporations Joint Registration Statement on Form S-2
    filed with the SEC on June 29, 1995 (Registration
    Nos. 33-59155 and 33-59155-01)).                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 2 | .3                     |  | Transaction Agreement, dated as of
    September 8, 1997, by and among the Trust, the Corporation,
    Realty Partnership, Operating Partnership, WHWE L.L.C., Woodstar
    Investor Partnership (Woodstar), Nomura Asset
    Capital Corporation, Juergen Bartels, Westin Hotels &
    Resorts Worldwide, Inc., W&S Lauderdale Corp., W&S
    Seattle Corp., Westin St. John Hotel Company, Inc., W&S
    Denver Corp., W&S Atlanta Corp. and W&S Hotel L.L.C.
    (incorporated by reference to Exhibit 2 to the Trusts
    and the Corporations Joint Current Report on Form 8-K
    dated September 9, 1997, as amended by the Form 8-K/A
    dated December 18, 1997).                                                                                                                              
|        | 2 | .4                     |  | Amended and Restated Agreement and Plan of
    Merger, dated as of November 12, 1997, by and among the
    Corporation, the Trust, Chess Acquisition Corp.
    (Chess) and ITT Corporation (incorporated by
    reference to Exhibit 2.1 to the Trusts and the
    Corporations Joint Current Report on Form 8-K dated
    November 13, 1997).                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 2 | .5                     |  | Agreement and Plan of Restructuring, dated as of
    September 16, 1998, and amended as of November 30,
    1998, among the Corporation, ST Acquisition Trust (ST
    Trust) and the Trust (incorporated by reference to Annex A
    to the Trusts and the Corporations Joint Proxy
    Statement dated December 3, 1998 (the 1998 Proxy
    Statement)).                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 2 | .6                     |  | Form of Stock Purchase Agreement, dated as of
    February 23, 1998, between the Trust and the Corporation
    (incorporated by reference to Exhibit 10.4 to the
    Trusts and the Corporations Joint Annual Report on
    Form 10-K for the year ended December 31, 1997 (the
    1997 Form 10-K)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 3 | .1                     |  | Amended and Restated Declaration of Trust of the
    Trust, amended and restated through April 16, 1999
    (incorporated by reference to Exhibit 3.1 of the
    Corporations and the Trusts Joint Quarterly Report
    on Form 10-Q for the quarterly period ended March 31,
    1999 (the 1999 Form 10Q1).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 3 | .2                     |  | Charter of the Corporation, amended and restated
    as of February 1, 1995, as amended through March 24,
    1999 (incorporated by reference to Exhibit 3.2 to the
    Trusts and the Corporations Joint Annual Report on
    Form 10-K for the year ended December 31, 1998, which
    exhibit contains a conformed charter incorporating all prior
    amendments, as the 10-K was amended by the Form 10-K/A
    filed on May 17, 1999 (as so amended, the 1998
    Form 10-K)), as supplemented by the Articles
    Supplementary Series A Junior Participating Preferred Stock
    dated March 28, 1999 (incorporated by reference to
    Exhibit A to Exhibit 4 to the Corporations and
    the Trusts Joint Current Report on Form 8-K dated
    March 15, 1999 (the March 15
    Form 8-K)).

46



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##### 



|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | -- | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 3  | .3                     |  | Bylaws of the Trust, as amended and restated
    through April 16, 1999 (incorporated by reference to
    Exhibit 3.3 to the 1999 Form 10Q1.)                                                                                                                                                                                                                                                                                                                                                          
|        | 3  | .4                     |  | Bylaws of the Corporation, as amended through
    March 15, 1999 (incorporated by reference to Exhibit 3
    to the Corporations and the Trusts joint current
    report on Form 8-K dated March 15, 1998
    (March 15 Form 8-K)), as amended by the
    First Amendment to Bylaws, dated as of March 28, 2003,
    (incorporated by reference to Exhibit 3.1 to the
    Corporations and the Trusts Joint Quarterly Report
    on Form 10-Q for the quarterly period ended March 31,
    2003).
|        | 4  | .1                     |  | Amended and Restated Intercompany Agreement,
    dated as of January 6, 1999, between the Corporation and
    the Trust (incorporated by reference to Exhibit 3 to the
    Trust Form 8-A, except that on January 6, 1999, the
    Intercompany Agreement was executed and dated as of
    January 6, 1999).                                                                                                                                                                                           
|        | 4  | .2                     |  | Rights Agreement, dated as of March 15,
    1999, between the Corporation and Chase Mellon Shareholder
    Services, L.L.C., as Rights Agent (incorporated by reference to
    Exhibit 4 to the March 15 Form 8-K).                                                                                                                                                                                                                                                                                    
|        | 4  | .3                     |  | Amended and Restated Indenture, dated as of
    November 15, 1995, as Amended and Restated as of
    December 15, 1995 between ITT Corporation (formerly known
    as ITT Destinations, Inc.) and the First National Bank of
    Chicago, as trustee (incorporated by reference to
    Exhibit 4.A.IV to the First Amendment to ITT
    Corporations Registration Statement on Form S-3 filed
    November 13, 1996).                                                                                 
|        | 4  | .4                     |  | First Indenture Supplement, dated as of
    December 31, 1998, among ITT Corporation, the Corporation
    and The Bank of New York (incorporated by reference to
    Exhibit 4.1 to the Trusts and the Corporations
    Joint Current Report on Form 8-K filed January 8,
    1999).                                                                                                                                                                                                                 
|        | 4  | .5                     |  | The Registrants hereby agree to file with the
    Commission a copy of any instrument, including indentures,
    defining the rights of long-term debt holders of the Registrants
    and their consolidated subsidiaries upon the request of the
    Commission.                                                                                                                                                                                                                                      
|        | 4  | .6                     |  | First Amendment to Rights Agreement, dated as of
    October 2, 2003 (incorporated by reference to
    Exhibit 4 of Form 8-A/ A filed on October 7,
    2003).                                                                                                                                                                                                                                                                                                                                         
|        | 4  | .7                     |  | Second Amendment to Rights Agreement, dated as of
    October 24, 2003 (incorporated by reference to
    Exhibit 4 of Form 8-A/A filed on October 30,
    2003).                                                                                                                                                                                                                                                                                                                                       
|        | 10 | .1                     |  | Third Amended and Restated Limited Partnership
    Agreement for Realty Partnership, dated January 6, 1999,
    among the Trust and the limited partners of Realty Partnership
    (incorporated by reference to Exhibit 10.1 to the 1998
    Form 10-K).                                                                                                                                                                                                                                              
|        | 10 | .2                     |  | Third Amended and Restated Limited Partnership
    Agreement for Operating Partnership, dated January 6, 1999,
    among the Corporation and the limited partners of Operating
    Partnership (incorporated by reference to Exhibit 10.2 to
    the 1998 Form 10-K).                                                                                                                                                                                                                                  
|        | 10 | .3                     |  | Form of Amended and Restated Lease Agreement,
    entered into as of January 1, 1993, between the Trust as
    Lessor and the Corporation (or a subsidiary) as Lessee
    (incorporated by reference to Exhibit 10.19 to the
    Trusts and the Corporations Joint Annual Report on
    Form 10-K for the year ended December 31, 1992).                                                                                                                                                             
|        | 10 | .4                     |  | Starwood Hotels & Resorts 1995 Long-Term
    Incentive Plan (Amended and Restated as of December 3,
    1998) (incorporated by reference to Annex D to the 1998
    Proxy Statement).(1)                                                                                                                                                                                                                                                                                                               
|        | 10 | .5                     |  | Starwood Hotels & Resorts Worldwide, Inc.
    1995 Long-Term Incentive Plan (Amended and Restated as of
    December 3, 1998) (incorporated by reference to
    Annex E to the 1998 Proxy Statement).(1)                                                                                                                                                                                                                                                                                               
|        | 10 | .6                     |  | Incentive and Non-Qualified Share Option Plan
    (1986) of the Trust (incorporated by reference to
    Exhibit 10.8 to the Trusts and the Corporations
    Joint Annual Report on Form 10-K for the year ended
    August 31, 1986 (the 1986
    Form 10-K)).(1)                                                                                                                                                                                                                                  

47



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##### 



|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | -- | ---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 10 | .7                     |  | Corporation Stock Non-Qualified Stock Option Plan
    (1986) of the Trust (incorporated by reference to
    Exhibit 10.9 to the 1986 Form 10-K).(1)                                                                                                                                                                                                                                                                                   
|        | 10 | .8                     |  | Stock Option Plan (1986) of the Corporation
    (incorporated by reference to Exhibit 10.10 to the 1986
    Form 10-K).(1)                                                                                                                                                                                                                                                                                                            
|        | 10 | .9                     |  | Trust Shares Option Plan (1986) of the
    Corporation (incorporated by reference to Exhibit 10.11 to
    the 1986 Form 10-K).(1)                                                                                                                                                                                                                                                                                                     
|        | 10 | .10                    |  | Form of Indemnification Agreement between the
    Corporation, the Trust and each of its Directors/ Trustees and
    executive officers.(1)(2)                                                                                                                                                                                                                                                                                        
|        | 10 | .11                    |  | Form of Trademark License Agreement, dated as of
    December 10, 1997, between Starwood Capital and the Trust
    (incorporated by reference to Exhibit 10.22 to the 1997
    Form 10-K).                                                                                                                                                                                                                                            
|        | 10 | .12                    |  | Exchange Rights Agreement, dated as of
    January 1, 1995, among the Trust, the Corporation, Realty
    Partnership, Operating Partnership and the Starwood Partners
    (incorporated by reference to Exhibit 2B to the
    Trusts and the Corporations Joint Current Report on
    Form 8-K dated January 31, 1995 (the Formation
    Form 8-K)).                                                                              
|        | 10 | .13                    |  | Registration Rights Agreement, dated as of
    January 1, 1995, among the Trust, the Corporation and
    Starwood Capital (incorporated by reference to Exhibit 2C
    to the Formation Form 8-K).                                                                                                                                                                                                                                    
|        | 10 | .14                    |  | Exchange Rights Agreement, dated as of
    June 3, 1996, among the Trust, the Corporation, Realty
    Partnership, Operating Partnership, Philadelphia HIR Limited
    Partnership and Philadelphia HSR Limited Partnership
    (incorporated by reference to Exhibit 10.1 to the
    Trusts and the Corporations Joint Quarterly Report
    on Form 10-Q for the quarterly period ended June 30,
    1996 (the 1996 Form 10-Q2)).
|        | 10 | .15                    |  | Registration Rights Agreement, dated as of
    June 3, 1996, among the Trust, the Corporation and
    Philadelphia HSR Limited Partnership (incorporated by reference
    to Exhibit 10.2 to the 1996 Form 10-Q2).                                                                                                                                                                                                                    
|        | 10 | .16                    |  | Units Exchange Rights Agreement, dated as of
    February 14, 1997, by and among, inter alia, the
    Trust, the Corporation, Realty Partnership, Operating
    Partnership and the Starwood Partners (incorporated by reference
    to Exhibit 10.34 to the 1997 Form 10-K).                                                                                                                                                         
|        | 10 | .17                    |  | Class A Exchange Rights Agreement, dated as
    of February 14, 1997, by and among, inter alia, the
    Trust, the Corporation, Operating Partnership and the Starwood
    Partners (incorporated by reference to Exhibit 10.35 to the
    1997 Form 10-K).                                                                                                                                                                           
|        | 10 | .18                    |  | Exchange Rights Agreement, dated as of
    January 2, 1998, among, inter alia, the Trust,
    Realty Partnership and Woodstar (incorporated by reference to
    Exhibit 10.50 to the 1997 Form 10-K).                                                                                                                                                                                                                                 
|        | 10 | .19                    |  | Exchange Rights Agreement, dated as of
    January 2, 1998, among, inter alia,the Corporation,
    Operating Partnership and Woodstar (incorporated by reference to
    Exhibit 10.51 to the 1997 Form 10-K).                                                                                                                                                                                                                         
|        | 10 | .20                    |  | Registration Rights Agreement, dated as of
    January 2, 1998, among, inter alia, the Trust, the
    Corporation, and Woodstar (incorporated by reference to
    Exhibit 10.52 to the 1997 Form 10-K).                                                                                                                                                                                                                               
|        | 10 | .21                    |  | Pledge and Security Agreement, dated as of
    February 23, 1998, executed and delivered by the Trust, the
    Corporation and the other Pledgors party thereto, in favor of
    Bankers Trust Company as Collateral Agent (incorporated by
    reference to Exhibit 10.63 to the 1997 Form 10-K).                                                                                                                                    
|        | 10 | .22                    |  | Second Amended and Restated Senior Secured Note
    Agreement, dated December 30, 1999, among the Corporation,
    the Trust, the guarantors listed therein, the lenders listed
    therein, Lehman Commercial Paper Inc., as Arranger and
    Administrative Agent, and Alex Brown and Chase Securities Inc.,
    as Syndication Agents (incorporated by reference to
    Exhibit 10.46 to the 1999 Form 10-K).                      

48



---



##### 



|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                                 
|------- | -- | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 10 | .23                    |  | Loan Agreement, dated as of February 23,
    1998, between the Trust and the Corporation, together with
    Promissory Note executed in connection therewith, by the
    Corporation to the order of the Trust, in the principal amount
    of $3,282,000,000 (incorporated by reference to
    Exhibit 10.65 to the 1997 Form 10-K).           
|        | 10 | .24                    |  | Loan Agreement, dated as of February 23,
    1998, between the Trust and the Corporation, together with
    Promissory Note executed in connection therewith, by the
    Corporation to the order of the Trust, in the principal amount
    of $100,000,000 (incorporated by reference to Exhibit 10.66
    to the 1997 Form 10-K).             
|        | 10 | .25                    |  | Loan Agreement, dated as of February 23,
    1998, between the Trust and the Corporation, together with
    Promissory Note executed in connection therewith, by the
    Corporation to the order of the Trust, in the principal amount
    of $50,000,000 (incorporated by reference to Exhibit 10.67
    to the 1997 Form 10-K).              
|        | 10 | .26                    |  | Loan Agreement, dated as of January 27,
    1999, among the Borrowers named therein, as Borrowers, Starwood
    Operator I LLC, as Operator, and Lehman Brothers Holding
    Inc., d/b/a Lehman Capital, a division of Lehman Brothers
    Holdings Inc. (incorporated by reference to Exhibit 10.58
    to the 1998 Form 10-K).                
|        | 10 | .27                    |  | Form of Severance Agreement, dated December 1999,
    between the Corporation and each of Barry S. Sternlicht, Ronald
    C. Brown and Steve R. Goldman (incorporated by reference to
    Exhibit 10.52 to the 1999 Form 10-K).(1)                                                                                                              
|        | 10 | .28                    |  | Amended and Restated Employment Agreement,
    effective as of January 1, 2000, between Barry S.
    Sternlicht and the Company (incorporated by reference to
    Exhibit 10.1 to the Corporations and the Trusts
    Joint Quarterly Report on Form 10-Q for the quarterly
    period ended March 31, 2000). (1)                             
|        | 10 | .29                    |  | Employment Agreement, dated as of April 7,
    2000, between the Corporation and David K. Norton (incorporated
    by reference to Exhibit 10.1 to the Corporations and
    the Trusts Joint Quarterly Report on Form 10-Q for
    the quarterly period ended June 30, 2000).(1)                                                              
|        | 10 | .30                    |  | Employment Agreement, dated as of June 27,
    2000, between the Corporation and Robert F. Cotter (incorporated
    by reference to Exhibit 10.1 to the Corporations and
    the Trusts Joint Quarterly Report on Form 10-Q for
    the quarterly period ended September 30,
    2000).(1)                                                    
|        | 10 | .31                    |  | Form of Severance Agreement, dated as of
    August 14, 2000, between the Corporation and Robert F.
    Cotter (incorporated by reference to Exhibit 10.56 to the
    2000 Form 10-K).(1)                                                                                                                                                       
|        | 10 | .32                    |  | Employment Agreement, dated as of
    September 25, 2000, between the Corporation and Kenneth S.
    Siegel (incorporated by reference to Exhibit 10.57 to the
    2000 Form 10-K).(1)                                                                                                                                                          
|        | 10 | .33                    |  | Form of Severance Agreement, dated as of
    September 26, 2000, between the Corporation and Kenneth S.
    Siegel (incorporated by reference to Exhibit 10.58 to the
    2000 Form 10-K).(1)                                                                                                                                                   
|        | 10 | .34                    |  | Form of Severance Agreement, dated as of
    June 9, 2000, between the Corporation and David K. Norton
    (incorporated by reference to Exhibit 10.59 to the 2000
    Form 10-K).(1)                                                                                                                                                           
|        | 10 | .35                    |  | Stock Purchase Agreement, dated as of
    April 27, 1999, among the Corporation, ITT Sheraton
    Corporation, Starwood Canada Corp., Caesars World, Inc.,
    Sheraton Desert Inn Corporation, Sheraton Tunica Corporation and
    Park Place Entertainment Corporation (incorporated by reference
    to Exhibit 10.5 to the 1999 Form 10-Q1).
|        | 10 | .36                    |  | Starwood Hotels & Resorts Worldwide, Inc.
    1999 Long-Term Incentive Compensation Plan (incorporated by
    reference to Exhibit 10.4 to the Corporations and the
    Trusts Joint Quarterly Report on Form 10-Q for the
    quarterly period ended June 30, 1999 (the 1999
    Form 10-Q2)).(1)                                          
|        | 10 | .37                    |  | Starwood Hotels & Resorts Worldwide, Inc.
    1999 Annual Incentive Plan for Certain Executives (incorporated
    by reference to Exhibit 10.5 to the 1999
    Form 10-Q2).(1)                                                                                                                                                                  

49



---



##### 



|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                       
|------- | -- | ---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 10 | .38                    |  | First Amendment to the Starwood Hotels &
    Resorts Worldwide, Inc. 1999 Long-Term Incentive Compensation
    Plan, dated as of August 1, 2001 (incorporated by reference
    to Exhibit 10.1 to the Corporations and the
    Trusts Joint Quarterly Report on Form 10-Q for the
    quarterly period ended September 30, 2001).(1)
|        | 10 | .39                    |  | Starwood Hotels & Resorts Worldwide, Inc.
    Deferred Compensation Plan, effective as of January 1, 2001
    (incorporated by reference to Exhibit 10.1 to the
    Corporations and the Trusts Joint Quarterly Report
    on Form 10-Q for the quarterly period ended June 30,
    2001 (the 2001 Form 10-Q2)).(1)               
|        | 10 | .40                    |  | Indenture, dated as of May 25, 2001, by and
    among the Corporation, as Issuer, the guarantors named herein
    and Firstar Bank, N.A., as Trustee (incorporated by reference to
    Exhibit 10.2 to the 2001 Form 10-Q2).                                                                                                          
|        | 10 | .41                    |  | Registration Rights Agreement, dated as of
    May 25, 2001, among the Corporation, the Trust, the
    guarantors named herein and Salomon Smith Barney Inc.
    (incorporated by reference to Exhibit 10.3 to the 2001
    Form 10-Q2).                                                                                              
|        | 10 | .42                    |  | Addendum to Robert F. Cotter Offer Letter,
    effective as of February 16, 2002 (incorporated by
    reference to Exhibit 10.1 to the Corporations and
    Trusts Joint Quarterly Report on Form 10-Q for the
    quarter ended March 31, 2002).                                                                                   
|        | 10 | .43                    |  | Starwood Hotels & Resorts Worldwide, Inc.
    2002 Long-Term Incentive Compensation Plan (the 2002
    LTIP) (incorporated by reference to Annex B of the
    Corporations 2002 Proxy Statement).                                                                                                                                  
|        | 10 | .44                    |  | Starwood Hotels & Resorts Amended and
    Restated Non-Qualified Stock Option Agreement by and between the
    Trust and Barry S. Sternlicht, dated as of May 22, 2002
    relating to a grant made on June 29, 1995 (incorporated by
    reference to Exhibit 10.3 to the 2002 Form 10-Q2).                                          
|        | 10 | .45                    |  | Form of Non-Qualified Stock Option Agreement
    pursuant to the 2002 LTIP (incorporated by reference to
    Exhibit 10.49 to the 2002 Form 10-K filed on
    February 28, 2003 (the 2002 10-K)).                                                                                                                                   
|        | 10 | .46                    |  | Starwood Hotels & Resorts Amended and
    Restated Non-Qualified Stock Option Agreement by and between the
    Trust and Barry S. Sternlicht, dated as of May 22, 2002
    relating to a grant made on August 12, 1996 (incorporated
    by reference to Exhibit 10.4 to the 2002 Form 10-Q2).                                        
|        | 10 | .47                    |  | Starwood Hotels & Resorts Amended and
    Restated Non-Qualified Stock Option Agreement by and between the
    Trust and Barry S. Sternlicht, dated as of May 22, 2002
    relating to a grant made on August 12, 1996 (incorporated
    by reference to Exhibit 10.5 to the 2002 Form 10-Q2).                                        
|        | 10 | .48                    |  | Letter to holders of the Corporations,
    Series B Zero Coupon Convertible Senior Notes due 2021
    (incorporated by reference to Exhibit 99.5 to the 2002
    Form 10-Q2).                                                                                                                                                        
|        | 10 | .49                    |  | Amendment to Exchange Rights Agreement
    (Class A Realty Partnership Units), dated as of October 10,
    2002, among the Trust, Realty Partnership and certain limited
    partners of the Realty Partnership (incorporated by reference to
    Exhibit 10.53 to the 2002 Form 10-K).                                               
|        | 10 | .50                    |  | Amendment to Exchange Rights Agreement
    (Class B Operating Partnership Units), dated as of
    October 10, 2002, among the Corporation, Operating
    Partnership and certain limited partners of the Operating
    Partnership (incorporated by reference to Exhibit 10.54 to
    the 2002 form 10-K).                            
|        | 10 | .51                    |  | Severance Agreement, dated December 1999, between
    the Corporation and Theodore Darnall (incorporated by reference
    to Exhibit 10.55 to the 2002 form 10-K).                                                                                                                                                                    
|        | 10 | .52                    |  | Employment Agreement, dated September 2,
    1999, between Steven M. Hankin and the Corporation (incorporated
    by reference to Exhibit 10.56 to the 2002 form 10-K).                                                                                                                                                               
|        | 10 | .53                    |  | Severance Agreement, dated October 2000, between
    Starwood Hotels & Resorts Worldwide, Inc., and Steve Hankin
    (incorporated by reference to Exhibit 10.57 to the 2002
    form 10-K).                                                                                                                                          

50



---



##### 



|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | -- | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 10 | .54                    |  | Credit Agreement, dated October 9, 2002,
    among the Corporation, certain additional alternative currency
    revolving loan borrowers and various lenders, Deutsche Bank, AG,
    New York Branch, as Administrative Agent, JP Morgan Chase Bank,
    as Syndication Agent, Bank of America, N.A., Fleet National Bank
    and Societe Generale, as Co-Documentation Agents, and Deutsche
    Bank Securities Inc. and JP Morgan Securities Inc. as
    Co-Lead Arrangers and joint Book Running Managers (incorporated
    by reference to Exhibit 10.1 of Form 8-K filed on
    October 11, 2002).
|        | 10 | .55                    |  | Indenture, dated as of April 19, 2002, among
    the Corporation, the guarantor parties named herein and
    U.S. Bank National Association, as trustee (incorporated by
    reference to Exhibit 4.1 to the Corporations and
    Sheraton Holding Corporations Joint Registration Statement
    on Form S-4 filed on November 19, 2002 the 2002
    Forms S4)).                                                                                                                                                                                                                                   
|        | 10 | .56                    |  | Registration Rights Agreement, dated as of
    April 19, 2002, among the Corporation, the guarantor
    parties named therein and Lehman Brothers, Inc., (incorporated
    by reference to Exhibit 4.4 to the 2002 Form S-4).                                                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .57                    |  | First Amendment to the Starwood Hotels &
    Resorts Worldwide, Inc. 2002 Long-Term Incentive Compensation
    Plan (incorporated by reference to Exhibit 10.1 to
    Form 10-Q for the quarter ended March 31, 2003 (the
    2003 10-Q1)).                                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .58                    |  | Second Amendment to the Starwood Hotels &
    Resorts Worldwide, Inc. 1999 Long-Term Incentive Compensation
    Plan (incorporated by reference to Exhibit 10.2 to the
    2003 10-Q1).                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10 | .59                    |  | Second Amendment to the Starwood Hotels &
    Resorts Worldwide, Inc. 1995 Long-Term Incentive Compensation
    Plan (incorporated by reference to Exhibit 10.3 to the
    2003 10-Q1).                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10 | .60                    |  | Second Amendment to the Starwood Hotels &
    Resorts 1995 Long-Term Incentive Compensation Plan (incorporated
    by reference to Exhibit 10.4 to the 2003 10-Q1).                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .61                    |  | First Amendment to Credit Agreement (incorporated
    by reference to Exhibit 10.5 to the 2003 10-Q1).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10 | .62                    |  | Second Amendment to Credit Agreement
    (incorporated by reference to Exhibit 10.1 to
    Form 10-Q for the quarter ended June 30, 2003 (the
    2003 10-Q2)).                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10 | .63                    |  | Indenture dated May 16, 2003 between the
    Corporation, the Trust, the Guarantor and U.S. Bank
    National Association as trustee (incorporated by reference to
    Exhibit 4.9 to the July 8, 2003
    Form S-3)(Registration Nos. 333-106888, 333-106888-01,
    333-106888-02) (the Form S-3).                                                                                                                                                                                                                                                                                                 
|        | 10 | .64                    |  | Registration Rights Agreement, dated May 16,
    2003, among the Corporation, the Guarantor and the Initial
    Purchasers (incorporated by reference to Exhibit 4.10 to
    the Form S-3).                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10 | .65                    |  | First Amendment to the Starwood Hotels &
    Resorts Worldwide, Inc. 1999 Annual Incentive Plan for Certain
    Executives, dated as of December 17, 2003.(1)(2)                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10 | .66                    |  | Amendment to Exchange Rights Agreement, dated as
    of December 17, 2003 for the Class B Operating
    Partnership Units.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .67                    |  | Amendment to Exchange Rights Agreement, dated as
    of December 17, 2003 for the Class A Realty
    Partnership Units.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10 | .68                    |  | Employment Agreement, dated as of
    November 13, 2003, between the Corporation and Vasant
    Prabhu.(1)(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .69                    |  | Second Amended and Restated Employment Agreement
    between Starwood Hotels & Resorts Worldwide, Inc. and
    Barry S. Sternlicht, dated as of January 1,
    2003.(1)(2)                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 12 | .1                     |  | Calculation of Ratio of Earnings to Total Fixed
    Charges. (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 21 | .1                     |  | Subsidiaries of the Registrants.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 23 | .1                     |  | Consent of Ernst &
    Young LLP.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 31 | .1                     |  | Certification Pursuant to Rule 13a-14 under
    the Securities Exchange Act of 1934  Chief Executive
    Officer  Corporation.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

51



---



##### 



|        |    |                        |  |                                                                                                                                                            
|------- | -- | ---------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 31 | .2                     |  | Certification Pursuant to Rule 13a-14 under
    the Securities Exchange Act of 1934  Chief Financial
    Officer  Corporation.(2)                        
|        | 31 | .3                     |  | Certification Pursuant to Rule 13a-14 under
    the Securities Exchange Act of 1934  Chief Executive
    Officer  Trust. (2)                             
|        | 31 | .4                     |  | Certification Pursuant to Rule 13a-14 under
    the Securities Exchange Act of 1934  Chief Financial
    and Accounting Officer  Trust.(2)               
|        | 32 | .1                     |  | Certification Pursuant to Section 1350 of
    Chapter 63 of Title 18 of the United States
    Code  Chief Executive Officer 
    Corporation.(2)         
|        | 32 | .2                     |  | Certification Pursuant to Section 1350 of
    Chapter 63 of Title 18 of the United States
    Code  Chief Financial Officer 
    Corporation.(2)         
|        | 32 | .3                     |  | Certification Pursuant to Section 1350 of
    Chapter 63 of Title 18 of the United States
    Code  Chief Executive Officer 
    Trust.(2)               
|        | 32 | .4                     |  | Certification Pursuant to Section 1350 of
    Chapter 63 of Title 18 of the United States
    Code  Chief Financial and Accounting
    Officer  Trust.(2)



---



|    |                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------
|(1) | Management contract or compensatory plan or
    arrangement required to be filed as an exhibit pursuant to
    Item 14(c) of Form 10-K.
|   
|(2) | Filed herewith.                                                                                                                        

(b) Reports on Form 8-K.

During the fourth quarter of 2003, Starwood filed
a Current Report on Form 8-K dated October 30, 2003,
reporting under Item 5 and Item 7, the intention of
the Companys Chief Executive Officer (CEO) to
step down as CEO once a new CEO is hired and to become the
Executive Chairman at that time.

52



---



##### 



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                          
| | -------------------------
| | STARWOOD HOTELS & RESORTS
| | WORLDWIDE, INC.          



| |     |                        
| | --- | -----------------------
| | By: | /s/ BARRY S. STERNLICHT

| |                                      
| | -------------------------------------
| |                                      
| | Barry S. Sternlicht                  
| | Chairman, Chief Executive Officer and
| | Trustee                              



| |     |                     
| | --- | --------------------
| | By: | /s/ VASANT M. PRABHU

| |                             
| | ----------------------------
| |                             
| | Vasant M. Prabhu            
| | Executive Vice President and
| | Chief Financial Officer     

Date: February 27, 2004

Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant in the capacities
and on the dates indicated.

|                                           |  |                                                                                                       |  |                   |  | 
|------------------------------------------ |  | ----------------------------------------------------------------------------------------------------- |  | ----------------- |  | 
|                                           |  |                                                                                                       |  |                  
|Signature                                  |  | Title                                                                                                 |  | Date             
|                                           |  |                                                                                                       |  |                  
|                                          
|/s/ BARRY S. STERNLICHTBarry S. Sternlicht |  | Chairman, Chief Executive Officer and Director
    (Principal Executive Officer)                      |  | February 27, 2004
|                                          
|/s/ VASANT M. PRABHUVasant M. Prabhu       |  | Executive Vice President and Chief Financial
    Officer (Principal Financial and Accounting Officer) |  | February 27, 2004
|                                          
|                                          
|/s/ CHARLENE BARSHEFSKYCharlene Barshefsky |  | Director                                                                                              |  | February 27, 2004
|                                          
|/s/ JEAN-MARC CHAPUSJean-Marc Chapus       |  | Director                                                                                              |  | February 25, 2004
|                                          
|/s/ BRUCE W. DUNCANBruce W. Duncan         |  | Director                                                                                              |  | February 27, 2004
|                                          
|/s/ ERIC HIPPEAUEric Hippeau               |  | Director                                                                                              |  | February 27, 2004
|                                          
|/s/ GEORGE J. MITCHELLGeorge J. Mitchell   |  | Director                                                                                              |  | February 27, 2004

53



---



##### 



|                                                 |  |          |  |                   |  | 
|------------------------------------------------ |  | -------- |  | ----------------- |  | 
|                                                 |  |          |  |                  
|Signature                                        |  | Title    |  | Date             
|                                                 |  |          |  |                  
|                                                
|/s/ STEPHEN R. QUAZZOStephen R. Quazzo           |  | Director |  | February 27, 2004
|                                                
|/s/ THOMAS O. RYDERThomas O. Ryder               |  | Director |  | February 28, 2004
|                                                
|/s/ DANIEL W. YIHDaniel W. Yih                   |  | Director |  | February 27, 2004
|                                                
|/s/ KNEELAND C. YOUNGBLOODKneeland C. Youngblood |  | Director |  | February 27, 2004

54



---



##### 



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                          
| | -------------------------
| | STARWOOD HOTELS & RESORTS



| |     |                        
| | --- | -----------------------
| | By: | /s/ BARRY S. STERNLICHT

| |                                      
| | -------------------------------------
| |                                      
| | Barry S. Sternlicht                  
| | Chairman, Chief Executive Officer and
| | Director                             



| |     |                     
| | --- | --------------------
| | By: | /s/ VASANT M. PRABHU

| |                             
| | ----------------------------
| |                             
| | Vasant M. Prabhu            
| | Executive Vice President and
| | Chief Financial Officer     

Date: February 27, 2004

Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant in the capacities
and on the dates indicated.

|                                           |  |                                                                                                    |  |                   |  | 
|------------------------------------------ |  | -------------------------------------------------------------------------------------------------- |  | ----------------- |  | 
|                                           |  |                                                                                                    |  |                  
|Signature                                  |  | Title                                                                                              |  | Date             
|                                           |  |                                                                                                    |  |                  
|                                          
|/s/ BARRY S. STERNLICHTBarry S. Sternlicht |  | Chairman, Chief Executive Officer and Trustee
    (Principal Executive Officer)                    |  | February 27, 2004
|                                          
|/s/ VASANT M. PRABHUVasant M. Prabhu       |  | Executive Vice President, Chief Financial Officer
    (Principal Financial and Accounting Officer) |  | February 27, 2004
|                                          
|/s/ CHARLENE BARSHEFSKYCharlene Barshefsky |  | Trustee                                                                                            |  | February 27, 2004
|                                          
|/s/ JEAN-MARC CHAPUSJean-Marc Chapus       |  | Trustee                                                                                            |  | February 25, 2004
|                                          
|/s/ BRUCE W. DUNCANBruce W. Duncan         |  | Trustee                                                                                            |  | February 27, 2004
|                                          
|/s/ ERIC HIPPEAUEric Hippeau               |  | Trustee                                                                                            |  | February 27, 2004
|                                          
|/s/ GEORGE J. MITCHELLGeorge J. Mitchell   |  | Trustee                                                                                            |  | February 27, 2004

55



---



##### 



|                                                 |  |         |  |                   |  | 
|------------------------------------------------ |  | ------- |  | ----------------- |  | 
|                                                 |  |         |  |                  
|Signature                                        |  | Title   |  | Date             
|                                                 |  |         |  |                  
|                                                
|/s/ STEPHEN R. QUAZZOStephen R. Quazzo           |  | Trustee |  | February 27, 2004
|                                                
|/s/ THOMAS O. RYDERThomas O. Ryder               |  | Trustee |  | February 28, 2004
|                                                
|/s/ DANIEL W. YIHDaniel W. Yih                   |  | Trustee |  | February 27, 2004
|                                                
|/s/ KNEELAND C. YOUNGBLOODKneeland C. Youngblood |  | Trustee |  | February 27, 2004

56



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.

AND STARWOOD HOTELS & RESORTS


INDEX TO FINANCIAL STATEMENTS AND
SCHEDULES

|                                               |                                                                                                          |      |      |      | 
|---------------------------------------------- | -------------------------------------------------------------------------------------------------------- | ---- | ---- | ---- | 
|                                               |                                                                                                          | Page
|                                               |                                                                                                          |     
|Report of Independent Auditors                 |                                                                                                          |      | F-2  |     
|Starwood Hotels & Resorts Worldwide,
    Inc.: |                                                                                                          |      |      |     
|                                               | Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                         |      |      | F-3  | 
|                                               | Consolidated Statements of Income for the Years
    Ended December 31, 2003, 2002 and 2001               |      |      | F-4  | 
|                                               | Consolidated Statements of Comprehensive Income
    for the Years Ended December 31, 2003, 2002 and 2001 |      |      | F-5  | 
|                                               | Consolidated Statements of Equity for the Years
    Ended December 31, 2003, 2002 and 2001               |      |      | F-6  | 
|                                               | Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2003, 2002 and 2001           |      |      | F-7  | 
|Starwood Hotels & Resorts:                     |                                                                                                          |      |      |     
|                                               | Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                         |      |      | F-8  | 
|                                               | Consolidated Statements of Income for the Years
    Ended December 31, 2003, 2002 and 2001               |      |      | F-9  | 
|                                               | Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2003, 2002 and 2001           |      |      | F-10 | 
|Notes to Financial Statements                  |                                                                                                          |      | F-11 |     
|Schedules:                                     |                                                                                                          |      |      |     
|                                               | Schedule II   Valuation
    and Qualifying Accounts                                                     |      |      | S-1  | 
|                                               | Schedule III  Real Estate
    and Accumulated Depreciation                                              |      |      | S-2  | 
|                                               | Schedule IV   Mortgage
    Loans on Real Estate                                                         |      |      | S-4  | 

F-1



---



##### 



REPORT OF INDEPENDENT AUDITORS

To the Board of Directors, Board of Trustees and
Shareholders of

Starwood Hotels & Resorts Worldwide,
Inc. and Starwood Hotels & Resorts


We have audited the accompanying consolidated
balance sheets of Starwood Hotels & Resorts Worldwide,
Inc. (a Maryland corporation) and its subsidiaries (the
Company) and Starwood Hotels & Resorts (a
Maryland real estate investment trust) and its subsidiaries (the
Trust) as of December 31, 2003 and 2002, and
the related consolidated statements of income, comprehensive
income, equity, and cash flows of the Company for each of the
three years in the period ended December 31, 2003 and the
consolidated statements of income and cash flows of the Trust
for each of the three years in the period ended
December 31, 2003. Our audits also included the financial
statement schedules listed in the Index to Financial Statements
and Schedules. These financial statements and schedules are the
responsibility of the Companys and Trusts
management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of the Company and the Trust at
December 31, 2003 and 2002, and the consolidated results of
the Companys and the Trusts operations and cash
flows for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion,
the related financial statement schedules, when considered in
relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set
forth therein.

As discussed in the notes to the financial
statements, in 2002 the Company and the Trust adopted Statement
of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets.



| |                  
| | -----------------
| | ERNST & YOUNG LLP

New York, New York

February 5, 2004


F-2



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)


|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |       |       | 
|---------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------ | ----- | ----- | - | ------ | ----- | ----- | 
|                                                                                   |                                                                                                                                                                                                       |                           
|                                                                                   |                                                                                                                                                                                                       | December 31,              
|                                                                                   |                                                                                                                                                                                                       |                           
|                                                                                   |                                                                                                                                                                                                       | 2003                       |        | 2002 
|                                                                                   |                                                                                                                                                                                                       |                            |        |      
|ASSETS                                                                            
|Current assets:                                                                    |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|                                                                                   | Cash and cash equivalents                                                                                                                                                                             |                            | $      | 427   |       |   | $      | 108   |      
|                                                                                   | Restricted cash                                                                                                                                                                                       |                            |        | 81    |       |   |        | 108   |      
|                                                                                   | Accounts receivable, net of allowance for
    doubtful accounts of $53 and $45                                                                                                                        |                            |        | 418   |       |   |        | 398   |      
|                                                                                   | Inventories                                                                                                                                                                                           |                            |        | 215   |       |   |        | 214   |      
|                                                                                   | Prepaid expenses and other                                                                                                                                                                            |                            |        | 104   |       |   |        | 108   |      
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|                                                                                   |                                                                                                                                                                                                       | Total current assets       |        |       | 1,245 |   |        |       | 936   | 
|Investments                                                                        |                                                                                                                                                                                                       |                            | 415    |       |       |   | 434    |      
|Plant, property and equipment, net                                                 |                                                                                                                                                                                                       |                            | 7,123  |       |       |   | 6,911  |      
|Assets held for sale                                                               |                                                                                                                                                                                                       |                            |       |       |       |   | 839    |      
|Goodwill and intangible assets, net                                                |                                                                                                                                                                                                       |                            | 2,488  |       |       |   | 2,570  |      
|Other assets                                                                       |                                                                                                                                                                                                       |                            | 623    |       |       |   | 500    |      
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|                                                                                   |                                                                                                                                                                                                       | $                          | 11,894 |       |       | $ | 12,190 |      
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                          
|Current liabilities:                                                               |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|                                                                                   | Short-term borrowings and current maturities of
    long-term debt                                                                                                                                    |                            | $      | 233   |       |   | $      | 870   |      
|                                                                                   | Accounts payable                                                                                                                                                                                      |                            |        | 171   |       |   |        | 171   |      
|                                                                                   | Accrued expenses                                                                                                                                                                                      |                            |        | 836   |       |   |        | 723   |      
|                                                                                   | Accrued salaries, wages and benefits                                                                                                                                                                  |                            |        | 228   |       |   |        | 178   |      
|                                                                                   | Accrued taxes and other                                                                                                                                                                               |                            |        | 176   |       |   |        | 188   |      
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|                                                                                   |                                                                                                                                                                                                       | Total current liabilities  |        |       | 1,644 |   |        |       | 2,130 | 
|Long-term debt                                                                     |                                                                                                                                                                                                       |                            | 4,393  |       |       |   | 4,449  |      
|Deferred income taxes                                                              |                                                                                                                                                                                                       |                            | 898    |       |       |   | 986    |      
|Other liabilities                                                                  |                                                                                                                                                                                                       |                            | 574    |       |       |   | 538    |      
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|                                                                                   |                                                                                                                                                                                                       |                            | 7,509  |       |       |   | 8,103  |      
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|Minority interest                                                                  |                                                                                                                                                                                                       |                            | 28     |       |       |   | 39     |      
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|Exchangeable units and Class B preferred
    shares, at redemption value of $38.50 |                                                                                                                                                                                                       |                            | 31     |       |       |   | 51     |      
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|Commitments and contingencies                                                      |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|Stockholders equity:                                                              |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|                                                                                   | Class A exchangeable preferred shares of the
    Trust; $0.01 par value; authorized 30,000,000 shares;
    outstanding 480,880 and 493,968 shares at December 31,
    2003 and 2002, respectively     |                            |        |      |       |   |        |      |      
|                                                                                   | Corporation common stock; $0.01 par value;
    authorized 1,050,000,000 shares; outstanding 201,812,126 and
    199,579,542 shares at December 31, 2003 and 2002,
    respectively                    |                            |        | 2     |       |   |        | 2     |      
|                                                                                   | Trust Class B shares of beneficial interest;
    $0.01 par value; authorized 1,000,000,000 shares;
    outstanding 201,812,126 and 199,579,542 shares at
    December 31, 2003 and 2002, respectively |                            |        | 2     |       |   |        | 2     |      
|                                                                                   | Additional paid-in capital                                                                                                                                                                            |                            |        | 4,952 |       |   |        | 4,905 |      
|                                                                                   | Deferred compensation                                                                                                                                                                                 |                            |        | (9    | )     |   |        | (14   | )    
|                                                                                   | Accumulated other comprehensive income                                                                                                                                                                |                            |        | (334  | )     |   |        | (474  | )    
|                                                                                   | Accumulated deficit                                                                                                                                                                                   |                            |        | (287  | )     |   |        | (424  | )    
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|                                                                                   |                                                                                                                                                                                                       | Total stockholders equity |        |       | 4,326 |   |        |       | 3,997 | 
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|                                                                                   |                                                                                                                                                                                                       | $                          | 11,894 |       |       | $ | 12,190 |      
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      

The accompanying notes to financial statements
are an integral part of the above statements.


F-3



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.



CONSOLIDATED STATEMENTS OF INCOME


(In millions, except per Share data)


|                                                                              |                                                                  |                         |       |      |   |      |       |     |   |   |       |    |  
|----------------------------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------- | ----- | ---- | - | ---- | ----- | --- | - | - | ----- | -- | -
|                                                                              |                                                                  |                        
|                                                                              |                                                                  | Year Ended December 31,
|                                                                              |                                                                  |                        
|                                                                              |                                                                  | 2003                    |       | 2002 |   | 2001
|                                                                              |                                                                  |                         |       |      |   |     
|Revenues                                                                      |                                                                  |                         |       |      |   |      |       |     |   |   |       |   
|Owned, leased and consolidated joint venture
    hotels                       |                                                                  | $                       | 3,085 |      |   | $    | 3,190 |     |   | $ | 3,301 |   
|Other hotel and leisure                                                       |                                                                  |                         | 694   |      |   |      | 618   |     |   |   | 592   |   
|                                                                              |                                                                  |                         |       |      |   |      |       |     |   |   |       |   
|                                                                              |                                                                  |                         | 3,779 |      |   |      | 3,808 |     |   |   | 3,893 |   
|Other revenues from managed and franchised
    properties                     |                                                                  |                         | 851   |      |   |      | 780   |     |   |   | 740   |   
|                                                                              |                                                                  |                         |       |      |   |      |       |     |   |   |       |   
|                                                                              |                                                                  |                         | 4,630 |      |   |      | 4,588 |     |   |   | 4,633 |   
|Costs and Expenses                                                            |                                                                  |                         |       |      |   |      |       |     |   |   |       |   
|Owned, leased and consolidated joint venture
    hotels                       |                                                                  |                         | 2,392 |      |   |      | 2,350 |     |   |   | 2,338 |   
|Selling, general, administrative and other                                    |                                                                  |                         | 540   |      |   |      | 426   |     |   |   | 411   |   
|Restructuring and other special charges
    (credits), net                    |                                                                  |                         | (9    | )    |   |      | (7    | )   |   |   | 50    |   
|Depreciation                                                                  |                                                                  |                         | 410   |      |   |      | 473   |     |   |   | 430   |   
|Amortization                                                                  |                                                                  |                         | 19    |      |   |      | 15    |     |   |   | 88    |   
|                                                                              |                                                                  |                         |       |      |   |      |       |     |   |   |       |   
|                                                                              |                                                                  |                         | 3,352 |      |   |      | 3,257 |     |   |   | 3,317 |   
|Other expenses from managed and franchised
    properties                     |                                                                  |                         | 851   |      |   |      | 780   |     |   |   | 740   |   
|                                                                              |                                                                  |                         |       |      |   |      |       |     |   |   |       |   
|                                                                              |                                                                  |                         | 4,203 |      |   |      | 4,037 |     |   |   | 4,057 |   
|Operating income                                                              |                                                                  |                         | 427   |      |   |      | 551   |     |   |   | 576   |   
|Gain on sale of VOI notes receivable                                          |                                                                  |                         | 15    |      |   |      | 16    |     |   |   | 12    |   
|Equity earnings from unconsolidated ventures, net                             |                                                                  |                         | 12    |      |   |      | 8     |     |   |   | 15    |   
|Interest expense, net of interest income of $5,
    $2 and $11                |                                                                  |                         | (282  | )    |   |      | (323  | )   |   |   | (354  | ) 
|Gain (loss) on asset dispositions and
    impairments, net                    |                                                                  |                         | (183  | )    |   |      | 3     |     |   |   | (57   | ) 
|                                                                              |                                                                  |                         |       |      |   |      |       |     |   |   |       |   
|Income (loss) from continuing operations before
    taxes and minority equity |                                                                  |                         | (11   | )    |   |      | 255   |     |   |   | 192   |   
|Income tax benefit (expense)                                                  |                                                                  |                         | 113   |      |   |      | (2    | )   |   |   | (42   | ) 
|Minority equity in net loss (income)                                          |                                                                  |                         | 3     |      |   |      | (2    | )   |   |   | (3    | ) 
|                                                                              |                                                                  |                         |       |      |   |      |       |     |   |   |       |   
|Income from continuing operations                                             |                                                                  |                         | 105   |      |   |      | 251   |     |   |   | 147   |   
|Discontinued operations:                                                      |                                                                  |                         |       |      |   |      |       |     |   |   |       |   
|                                                                              | Loss from operations, net of taxes of $0, $2 and
    $1          |                         |       | (2   | ) |      |       | (5  | ) |   |       | (2 | )
|                                                                              | Gain on dispositions, net of tax benefit of $40,
    $104 and $0 |                         |       | 206  |   |      |       | 109 |   |   |       |   |  
|                                                                              |                                                                  |                         |       |      |   |      |       |     |   |   |       |   
|Net income                                                                    |                                                                  | $                       | 309   |      |   | $    | 355   |     |   | $ | 145   |   
|                                                                              |                                                                  |                         |       |      |   |      |       |     |   |   |       |   
|Earnings Per Share  Basic                                                    |                                                                  |                         |       |      |   |      |       |     |   |   |       |   
|Continuing operations                                                         |                                                                  | $                       | 0.52  |      |   | $    | 1.24  |     |   | $ | 0.73  |   
|Discontinued operations                                                       |                                                                  |                         | 1.01  |      |   |      | 0.52  |     |   |   | (0.01 | ) 
|                                                                              |                                                                  |                         |       |      |   |      |       |     |   |   |       |   
|Net income                                                                    |                                                                  | $                       | 1.53  |      |   | $    | 1.76  |     |   | $ | 0.72  |   
|                                                                              |                                                                  |                         |       |      |   |      |       |     |   |   |       |   
|Earnings Per Share 
    Diluted                                              |                                                                  |                         |       |      |   |      |       |     |   |   |       |   
|Continuing operations                                                         |                                                                  | $                       | 0.51  |      |   | $    | 1.22  |     |   | $ | 0.71  |   
|Discontinued operations                                                       |                                                                  |                         | 0.99  |      |   |      | 0.51  |     |   |   | (0.01 | ) 
|                                                                              |                                                                  |                         |       |      |   |      |       |     |   |   |       |   
|Net income                                                                    |                                                                  | $                       | 1.50  |      |   | $    | 1.73  |     |   | $ | 0.70  |   
|                                                                              |                                                                  |                         |       |      |   |      |       |     |   |   |       |   
|Weighted average number of Shares                                             |                                                                  |                         | 203   |      |   |      | 201   |     |   |   | 201   |   
|                                                                              |                                                                  |                         |       |      |   |      |       |     |   |   |       |   
|Weighted average number of Shares assuming
    dilution                       |                                                                  |                         | 207   |      |   |      | 205   |     |   |   | 206   |   
|                                                                              |                                                                  |                         |       |      |   |      |       |     |   |   |       |   

The accompanying notes to financial statements
are an integral part of the above statements.

F-4



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME

(In millions)


|                                                           |                                                    |                         |     |      |   |      |     |    |  |   |      |     |  
|---------------------------------------------------------- | -------------------------------------------------- | ----------------------- | --- | ---- | - | ---- | --- | -- |  | - | ---- | --- | -
|                                                           |                                                    |                        
|                                                           |                                                    | Year Ended December 31,
|                                                           |                                                    |                        
|                                                           |                                                    | 2003                    |     | 2002 |   | 2001
|                                                           |                                                    |                         |     |      |   |     
|Net income                                                 |                                                    | $                       | 309 |      |   | $    | 355 |    |  | $ | 145  |    
|                                                           |                                                    |                         |     |      |   |      |     |    |  |   |      |    
|Other comprehensive income (loss), net of taxes:           |                                                    |                         |     |      |   |      |     |    |  |   |      |    
|Foreign currency translation arising during the
    period |                                                    |                         | 139 |      |   |      | (2  | )  |  |   | (106 | )  
|Minimum pension liability adjustments                      |                                                    |                         | (1  | )    |   |      | (13 | )  |  |   | (5   | )  
|Unrealized gains on securities, net                       |                                                    |                         |     |      |   |      |     |    |  |   |      |    
|                                                           | Unrealized holding gains arising during the period |                         |     | 3    |   |      |     | 4  |  |   |      | 1   |  
|Derivative instruments, net                               |                                                    |                         |     |      |   |      |     |    |  |   |      |    
|                                                           | Change in fair value of derivative instruments     |                         |     | (1   | ) |      |     | 6  |  |   |      | (21 | )
|                                                           | Early termination of derivative instruments        |                         |     |     |   |      |     | 15 |  |   |      |    |  
|                                                           |                                                    |                         |     |      |   |      |     |    |  |   |      |    
|                                                           |                                                    |                         | 140 |      |   |      | 10  |    |  |   | (131 | )  
|                                                           |                                                    |                         |     |      |   |      |     |    |  |   |      |    
|Comprehensive income                                       |                                                    | $                       | 449 |      |   | $    | 365 |    |  | $ | 14   |    
|                                                           |                                                    |                         |     |      |   |      |     |    |  |   |      |    

The accompanying notes to financial statements
are an integral part of the above statements.

F-5



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In millions)


|                             |                                                                                                 |              |   |             |   |        |     |            |   |          |   |               |   |              |   |              |  |           |     |          |   |   |   |   |  |   |       |     |   |   |     |     |   |   |      |      |   |   |      |      |  
|---------------------------- | ----------------------------------------------------------------------------------------------- | ------------ | - | ----------- | - | ------ | --- | ---------- | - | -------- | - | ------------- | - | ------------ | - | ------------ |  | --------- | --- | -------- | - | - | - | - |  | - | ----- | --- | - | - | --- | --- | - | - | ---- | ---- | - | - | ---- | ---- | -
|                             |                                                                                                 |              |   |             |   |        |     |            |   |          |   |               |   |              |   |              |  |          
|                             |                                                                                                 | Exchangeable |   |             |   |        |     |            |   |          |   |               |   |              |   |              |  |          
|                             |                                                                                                 | units and    |   |             |   |        |     |            |   |          |   | Accumulated   |   | Retained    
|                             |                                                                                                 | Class B EPS  |   | Class A EPS |   | Shares |     | Additional |   |          |   | Other         |   | Earnings    
|                             |                                                                                                 |              |   |             |   |        |     | Paid-in    |   | Deferred |   | Comprehensive |   | (Accumulated
|                             |                                                                                                 | Shares       |   | Amount      |   | Shares |     | Amount     |   | Shares   |   | Amount        |   | Capital      |   | Compensation |  | Income(a) |     | Deficit)
|                             |                                                                                                 |              |   |             |   |        |     |            |   |          |   |               |   |              |   |              |  |           |     |         
|Balance at December 31, 2000 |                                                                                                 |              | 3 |             |   | $      | 133 |            |   |          | 1 |               |   | $            |  |              |  |           | 194 |          |   | $ | 4 |   |  | $ | 4,780 |     |   | $ | (4  | )   |   | $ | (353 | )    |   | $ | (592 | )   
|                             | Net income                                                                                      |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      |     |   |   |      | 145  |  
|                             | Stock option and restricted stock award
    transactions, net                                   |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     | 3        |   |   |   |  |  |   |       | 86  |   |   |     | (12 | ) |   |      |     |   |   |      |     |  
|                             | Share repurchases                                                                               |              |   |             |   |        |     |            |   |          |   |               |   |              |   |              |  |           |     | (3       | ) |   |   |   |  |   |       | (96 | ) |   |     |     |   |   |      |      |   |   |      |      |  
|                             | Conversion and cancellation of Class A EPS,
    Class B EPS and Partnership Units               |              |   | (2          | ) |        |     | (81        | ) |          |   |              |   |              |   |             |  |           |     | 4        |   |   |   |  |  |   |       | 81  |   |   |     |    |   |   |      |     |   |   |      |     |  
|                             | Foreign currency translation                                                                    |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | (106 | ) |   |      |     |  
|                             | Minimum pension liability adjustment                                                            |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | (5   | ) |   |      |     |  
|                             | Unrealized loss on securities, net                                                              |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | 1    |   |   |      |     |  
|                             | Unrealized loss on derivative instruments                                                       |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | (21  | ) |   |      |     |  
|                             | Distributions declared                                                                          |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      |     |   |   |      | (162 | )
|                             |                                                                                                 |              |   |             |   |        |     |            |   |          |   |               |   |              |   |              |  |           |     |          |   |   |   |   |  |   |       |     |   |   |     |     |   |   |      |      |   |   |      |     
|Balance at December 31, 2001 |                                                                                                 |              | 1 |             |   |        | 52  |            |   |          | 1 |               |   |              |  |              |  |           | 198 |          |   |   | 4 |   |  |   | 4,851 |     |   |   | (16 | )   |   |   | (484 | )    |   |   | (609 | )   
|                             | Net income                                                                                      |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      |     |   |   |      | 355  |  
|                             | Stock option and restricted stock award
    transactions, net                                   |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     | 2        |   |   |   |  |  |   |       | 52  |   |   |     | 2   |   |   |      |     |   |   |      |     |  
|                             | ESPP stock issuances                                                                            |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       | 1   |   |   |     |    |   |   |      |     |   |   |      |     |  
|                             | Conversion and cancellation of Class A EPS,
    Class B EPS and Partnership Units               |              |   |            |   |        |     | (1         | ) |          |   | (1            | ) |              |   |             |  |           |     |         |   |   |   |  |  |   |       | 1   |   |   |     |    |   |   |      |     |   |   |      |     |  
|                             | Foreign currency translation                                                                    |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | (2   | ) |   |      |     |  
|                             | Minimum pension liability adjustment                                                            |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | (13  | ) |   |      |     |  
|                             | Unrealized gain on securities, net                                                              |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | 4    |   |   |      |     |  
|                             | Unrealized gain on derivative instruments                                                       |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | 6    |   |   |      |     |  
|                             | Early termination of derivative instruments                                                     |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | 15   |   |   |      |     |  
|                             | Distributions declared                                                                          |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      |     |   |   |      | (170 | )
|                             |                                                                                                 |              |   |             |   |        |     |            |   |          |   |               |   |              |   |              |  |           |     |          |   |   |   |   |  |   |       |     |   |   |     |     |   |   |      |      |   |   |      |     
|Balance at December 31, 2002 |                                                                                                 |              | 1 |             |   |        | 51  |            |   |          |  |               |   |              |  |              |  |           | 200 |          |   |   | 4 |   |  |   | 4,905 |     |   |   | (14 | )   |   |   | (474 | )    |   |   | (424 | )   
|                             | Net income                                                                                      |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      |     |   |   |      | 309  |  
|                             | Stock option and restricted stock award
    transactions, net                                   |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     | 2        |   |   |   |  |  |   |       | 67  |   |   |     | 5   |   |   |      |     |   |   |      |     |  
|                             | ESPP stock issuances                                                                            |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       | 8   |   |   |     |    |   |   |      |     |   |   |      |     |  
|                             | Share repurchases                                                                               |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       | (28 | ) |   |     |    |   |   |      |     |   |   |      |     |  
|                             | Conversion or redemption and cancellation of
    Class A EPS, Class B EPS and Partnership Units |              |   |            |   |        |     | (20        | ) |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      |     |   |   |      |     |  
|                             | Foreign currency translation                                                                    |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | 139  |   |   |      |     |  
|                             | Minimum pension liability adjustment                                                            |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | (1   | ) |   |      |     |  
|                             | Unrealized gain on securities, net                                                              |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | 3    |   |   |      |     |  
|                             | Unrealized loss on derivative instruments                                                       |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | (1   | ) |   |      |     |  
|                             | Distributions declared                                                                          |              |   |            |   |        |     |           |   |          |   |              |   |              |   |             |  |           |     |         |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      |     |   |   |      | (172 | )
|                             |                                                                                                 |              |   |             |   |        |     |            |   |          |   |               |   |              |   |              |  |           |     |          |   |   |   |   |  |   |       |     |   |   |     |     |   |   |      |      |   |   |      |     
|Balance at December 31, 2003 |                                                                                                 |              | 1 |             |   | $      | 31  |            |   |          |  |               |   | $            |  |              |  |           | 202 |          |   | $ | 4 |   |  | $ | 4,952 |     |   | $ | (9  | )   |   | $ | (334 | )    |   | $ | (287 | )   
|                             |                                                                                                 |              |   |             |   |        |     |            |   |          |   |               |   |              |   |              |  |           |     |          |   |   |   |   |  |   |       |     |   |   |     |     |   |   |      |      |   |   |      |     



---



|    |                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | As of December 31, 2003, this balance is
    comprised of $318 million of cumulative translation
    adjustments, $4 million of cumulative unrealized gains on
    securities, including derivative instruments, and
    $20 million of cumulative minimum pension liability
    adjustment.

The accompanying notes to financial statements
are an integral part of the above statements.

F-6



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In millions)


|                                                             |                                                                                |                         |       |      |   |      |        |      |   |   |       |      |  
|------------------------------------------------------------ | ------------------------------------------------------------------------------ | ----------------------- | ----- | ---- | - | ---- | ------ | ---- | - | - | ----- | ---- | -
|                                                             |                                                                                |                        
|                                                             |                                                                                | Year Ended December 31,
|                                                             |                                                                                |                        
|                                                             |                                                                                | 2003                    |       | 2002 |   | 2001
|                                                             |                                                                                |                         |       |      |   |     
|Operating Activities                                         |                                                                                |                         |       |      |   |      |        |      |   |   |       |     
|Net income                                                   |                                                                                | $                       | 309   |      |   | $    | 355    |      |   | $ | 145   |     
|Exclude:                                                     |                                                                                |                         |       |      |   |      |        |      |   |   |       |     
|Discontinued operations                                      |                                                                                |                         | (204  | )    |   |      | (104   | )    |   |   | 2     |     
|                                                             |                                                                                |                         |       |      |   |      |        |      |   |   |       |     
|Income from continuing operations                            |                                                                                |                         | 105   |      |   |      | 251    |      |   |   | 147   |     
|Adjustments to income from continuing operations:            |                                                                                |                         |       |      |   |      |        |      |   |   |       |     
|                                                             | Depreciation and amortization                                                  |                         |       | 429  |   |      |        | 488  |   |   |       | 518  |  
|                                                             | Amortization of deferred loan costs                                            |                         |       | 14   |   |      |        | 15   |   |   |       | 15   |  
|                                                             | Amortization of hedge premiums                                                 |                         |       |     |   |      |        |     |   |   |       | 2    |  
|                                                             | Non-cash portion of restructuring and other
    special charges (credits), net |                         |       | (9   | ) |      |        | (3   | ) |   |       | 34   |  
|                                                             | Non-cash foreign currency gains, net                                           |                         |       | (4   | ) |      |        | (33  | ) |   |       | (27  | )
|                                                             | Provision for doubtful accounts                                                |                         |       | 34   |   |      |        | 27   |   |   |       | 20   |  
|                                                             | Minority equity in net income (loss)                                           |                         |       | (3   | ) |      |        | 2    |   |   |       | 3    |  
|                                                             | Distributions in excess of equity earnings                                     |                         |       | 71   |   |      |        | 31   |   |   |       | 19   |  
|                                                             | Gain on sale of VOI notes receivable                                           |                         |       | (15  | ) |      |        | (16  | ) |   |       | (12  | )
|                                                             | Loss (gain) on asset dispositions and
    impairments, net                     |                         |       | 183  |   |      |        | (3   | ) |   |       | 57   |  
|Changes in working capital:                                  |                                                                                |                         |       |      |   |      |        |      |   |   |       |     
|                                                             | Restricted cash                                                                |                         |       | 27   |   |      |        | (58  | ) |   |       | 1    |  
|                                                             | Accounts receivable                                                            |                         |       | 6    |   |      |        | 21   |   |   |       | 93   |  
|                                                             | Inventories                                                                    |                         |       | 11   |   |      |        | 14   |   |   |       | 6    |  
|                                                             | Prepaid expenses and other                                                     |                         |       | 8    |   |      |        | (19  | ) |   |       | (31  | )
|                                                             | Accounts payable and accrued expenses                                          |                         |       | 55   |   |      |        | 39   |   |   |       | 23   |  
|Accrued and deferred income taxes                            |                                                                                |                         | (138  | )    |   |      | (90    | )    |   |   | (91   | )   
|Other, net                                                   |                                                                                |                         | (14   | )    |   |      | 22     |      |   |   | (37   | )   
|                                                             |                                                                                |                         |       |      |   |      |        |      |   |   |       |     
|                                                             | Cash from continuing operations                                                |                         |       | 760  |   |      |        | 688  |   |   |       | 740  |  
|                                                             | Cash from discontinued operations                                              |                         |       | 11   |   |      |        | 18   |   |   |       | 15   |  
|                                                             |                                                                                |                         |       |      |   |      |        |      |   |   |       |     
|                                                             | Cash from operating activities                                                 |                         |       | 771  |   |      |        | 706  |   |   |       | 755  |  
|                                                             |                                                                                |                         |       |      |   |      |        |      |   |   |       |     
|Investing Activities                                         |                                                                                |                         |       |      |   |      |        |      |   |   |       |     
|Purchases of plant, property and equipment                   |                                                                                |                         | (307  | )    |   |      | (300   | )    |   |   | (477  | )   
|Proceeds from asset sales, net                               |                                                                                |                         | 1,042 |      |   |      | 65     |      |   |   | 39    |     
|Collection (issuance) of notes receivable,
    net           |                                                                                |                         | (2    | )    |   |      | 7      |      |   |   | (23   | )   
|Acquisitions, net of acquired cash                           |                                                                                |                         |      |      |   |      | (7     | )    |   |   | (51   | )   
|Investments                                                  |                                                                                |                         | (11   | )    |   |      | (41    | )    |   |   | (77   | )   
|Acquisition of senior debt                                   |                                                                                |                         | (203  | )    |   |      |       |      |   |   |      |     
|Other, net                                                   |                                                                                |                         | (9    | )    |   |      | (10    | )    |   |   | (32   | )   
|                                                             |                                                                                |                         |       |      |   |      |        |      |   |   |       |     
|                                                             | Cash from (used for) investing activities                                      |                         |       | 510  |   |      |        | (286 | ) |   |       | (621 | )
|                                                             |                                                                                |                         |       |      |   |      |        |      |   |   |       |     
|Financing Activities                                         |                                                                                |                         |       |      |   |      |        |      |   |   |       |     
|Revolving credit facility and short-term
    borrowings, net |                                                                                |                         | (344  | )    |   |      | (400   | )    |   |   | (244  | )   
|Long-term debt issued                                        |                                                                                |                         | 446   |      |   |      | 1,964  |      |   |   | 1,048 |     
|Long-term debt repaid                                        |                                                                                |                         | (911  | )    |   |      | (2,017 | )    |   |   | (743  | )   
|Distributions paid                                           |                                                                                |                         | (170  | )    |   |      | (40    | )    |   |   | (156  | )   
|Share repurchases                                            |                                                                                |                         | (28   | )    |   |      |       |      |   |   | (96   | )   
|Other, net                                                   |                                                                                |                         | 28    |      |   |      | 66     |      |   |   | 29    |     
|                                                             |                                                                                |                         |       |      |   |      |        |      |   |   |       |     
|                                                             | Cash used for financing activities                                             |                         |       | (979 | ) |      |        | (427 | ) |   |       | (162 | )
|                                                             |                                                                                |                         |       |      |   |      |        |      |   |   |       |     
|Exchange rate effect on cash and cash equivalents            |                                                                                |                         | 17    |      |   |      | 8      |      |   |   | (3    | )   
|                                                             |                                                                                |                         |       |      |   |      |        |      |   |   |       |     
|Increase (decrease) in cash and cash
    equivalents         |                                                                                |                         | 319   |      |   |      | 1      |      |   |   | (31   | )   
|Cash and cash equivalents  beginning
    of period          |                                                                                |                         | 108   |      |   |      | 107    |      |   |   | 138   |     
|                                                             |                                                                                |                         |       |      |   |      |        |      |   |   |       |     
|Cash and cash equivalents  end of
    period                |                                                                                | $                       | 427   |      |   | $    | 108    |      |   | $ | 107   |     
|                                                             |                                                                                |                         |       |      |   |      |        |      |   |   |       |     
|Supplemental Disclosures of Cash Flow
    Information        |                                                                                |                         |       |      |   |      |        |      |   |   |       |     
|Cash paid during the period for:                             |                                                                                |                         |       |      |   |      |        |      |   |   |       |     
|                                                             | Interest                                                                       |                         | $     | 170  |   |      | $      | 310  |   |   | $     | 358  |  
|                                                             |                                                                                |                         |       |      |   |      |        |      |   |   |       |     
|                                                             | Income taxes, net of refunds                                                   |                         | $     | 41   |   |      | $      | 94   |   |   | $     | 141  |  
|                                                             |                                                                                |                         |       |      |   |      |        |      |   |   |       |     

The accompanying notes to financial statements
are an integral part of the above statements.

F-7



---



##### 



STARWOOD HOTELS & RESORTS

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)


|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |        |       | 
|---------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ----- | ------ | ----- | - | ----- | ------ | ----- | 
|                                                                                   |                                                                                                                                                                                                       |                           
|                                                                                   |                                                                                                                                                                                                       | December 31,              
|                                                                                   |                                                                                                                                                                                                       |                           
|                                                                                   |                                                                                                                                                                                                       | 2003                       |       | 2002  
|                                                                                   |                                                                                                                                                                                                       |                            |       |       
|ASSETS                                                                            
|Current assets:                                                                    |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|                                                                                   | Cash and cash equivalents                                                                                                                                                                             |                            | $     | 2      |       |   | $     | 2      |      
|                                                                                   | Receivable, Corporation                                                                                                                                                                               |                            |       | 465    |       |   |       | 41     |      
|                                                                                   | Prepaid expenses and other                                                                                                                                                                            |                            |       | 1      |       |   |       | 1      |      
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|                                                                                   |                                                                                                                                                                                                       | Total current assets       |       |        | 468   |   |       |        | 44    | 
|Investments, Corporation                                                           |                                                                                                                                                                                                       |                            | 848   |        |       |   | 848   |       
|Investments                                                                        |                                                                                                                                                                                                       |                            | 25    |        |       |   | 27    |       
|Plant, property and equipment, net                                                 |                                                                                                                                                                                                       |                            | 3,324 |        |       |   | 3,362 |       
|Assets held for sale                                                               |                                                                                                                                                                                                       |                            |      |        |       |   | 648   |       
|Long-term receivables, Corporation, net                                            |                                                                                                                                                                                                       |                            | 2,084 |        |       |   | 2,070 |       
|Goodwill and intangible assets, net                                                |                                                                                                                                                                                                       |                            | 221   |        |       |   | 223   |       
|Other assets                                                                       |                                                                                                                                                                                                       |                            | 8     |        |       |   | 8     |       
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|                                                                                   |                                                                                                                                                                                                       | $                          | 6,978 |        |       | $ | 7,230 |       
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                          
|Current liabilities:                                                               |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|                                                                                   | Short-term borrowings and current maturities of
    long-term debt                                                                                                                                    |                            | $     | 9      |       |   | $     | 9      |      
|                                                                                   | Accounts payable                                                                                                                                                                                      |                            |       | 4      |       |   |       | 8      |      
|                                                                                   | Accrued expenses                                                                                                                                                                                      |                            |       | 20     |       |   |       | 24     |      
|                                                                                   | Distributions payable, Corporation                                                                                                                                                                    |                            |       | 183    |       |   |       | 148    |      
|                                                                                   | Distributions payable                                                                                                                                                                                 |                            |       | 172    |       |   |       | 170    |      
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|                                                                                   |                                                                                                                                                                                                       | Total current liabilities  |       |        | 388   |   |       |        | 359   | 
|Long-term debt                                                                     |                                                                                                                                                                                                       |                            | 445   |        |       |   | 438   |       
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|                                                                                   |                                                                                                                                                                                                       |                            | 833   |        |       |   | 797   |       
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|Minority interest                                                                  |                                                                                                                                                                                                       |                            | 29    |        |       |   | 30    |       
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|Exchangeable units and Class B preferred
    shares, at redemption value of $38.50 |                                                                                                                                                                                                       |                            | 30    |        |       |   | 48    |       
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|Commitments and contingencies                                                      |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|Stockholders equity:                                                              |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|                                                                                   | Class A exchangeable preferred shares; $0.01
    par value; authorized 30,000,000 shares; outstanding
    480,880 and 493,968 shares at December 31, 2003 and 2002,
    respectively                  |                            |       |       |       |   |       |       |      
|                                                                                   | Class A shares of beneficial interest; $0.01
    par value; authorized 5,000 shares; outstanding 100 shares at
    December 31, 2003 and 2002.                                                        |                            |       |       |       |   |       |       |      
|                                                                                   | Trust Class B shares of beneficial interest;
    $0.01 par value; authorized 1,000,000,000 shares; outstanding
    201,812,126 and 199,579,542 shares at December 31, 2003 and
    2002, respectively |                            |       | 2      |       |   |       | 2      |      
|                                                                                   | Additional paid-in capital                                                                                                                                                                            |                            |       | 7,714  |       |   |       | 7,704  |      
|                                                                                   | Distributions in excess of net income                                                                                                                                                                 |                            |       | (1,630 | )     |   |       | (1,351 | )    
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|                                                                                   |                                                                                                                                                                                                       | Total stockholders equity |       |        | 6,086 |   |       |        | 6,355 | 
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|                                                                                   |                                                                                                                                                                                                       | $                          | 6,978 |        |       | $ | 7,230 |       
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       

The accompanying notes to financial statements
are an integral part of the above statements.

F-8



---



##### 



STARWOOD HOTELS & RESORTS

CONSOLIDATED STATEMENTS OF INCOME

(In millions)


|                                                                          |  |                         |      |      |  |      |     |   |  |   |     |  
|------------------------------------------------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | --- | - |  | - | --- | -
|                                                                          |  |                        
|                                                                          |  | Year Ended December 31,
|                                                                          |  |                        
|                                                                          |  | 2003                    |      | 2002 |  | 2001
|                                                                          |  |                         |      |      |  |     
|Revenues                                                                  |  |                         |      |      |  |      |     |   |  |   |     |  
|Rent and interest, Corporation                                            |  | $                       | 526  |      |  | $    | 587 |   |  | $ | 633 |  
|                                                                          |  |                         |      |      |  |      |     |   |  |   |     |  
|                                                                          |  |                         | 526  |      |  |      | 587 |   |  |   | 633 |  
|                                                                          |  |                         |      |      |  |      |     |   |  |   |     |  
|Costs and Expenses                                                        |  |                         |      |      |  |      |     |   |  |   |     |  
|Selling, general and administrative                                       |  |                         | 3    |      |  |      | 3   |   |  |   | 3   |  
|Depreciation                                                              |  |                         | 165  |      |  |      | 222 |   |  |   | 206 |  
|Amortization                                                              |  |                         |     |      |  |      |    |   |  |   | 6   |  
|                                                                          |  |                         |      |      |  |      |     |   |  |   |     |  
|                                                                          |  |                         | 168  |      |  |      | 225 |   |  |   | 215 |  
|                                                                          |  |                         |      |      |  |      |     |   |  |   |     |  
|                                                                          |  |                         | 358  |      |  |      | 362 |   |  |   | 418 |  
|Equity earnings (losses) from unconsolidated
    joint ventures and other |  |                         | (2   | )    |  |      | (1  | ) |  |   | 3   |  
|Interest expense, net                                                     |  |                         | (35  | )    |  |      | (36 | ) |  |   | (37 | )
|Loss on asset dispositions and impairments, net                           |  |                         | (186 | )    |  |      | (3  | ) |  |   | (3  | )
|Income tax expense                                                        |  |                         | (3   | )    |  |      | (4  | ) |  |   | (4  | )
|Minority equity in net loss (income)                                      |  |                         | 1    |      |  |      | (3  | ) |  |   | (1  | )
|                                                                          |  |                         |      |      |  |      |     |   |  |   |     |  
|Net income                                                                |  | $                       | 133  |      |  | $    | 315 |   |  | $ | 376 |  
|                                                                          |  |                         |      |      |  |      |     |   |  |   |     |  

The accompanying notes to financial statements
are an integral part of the above statements.

F-9



---



##### 



STARWOOD HOTELS & RESORTS

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In millions)


|                                                      |                                                 |                         |      |      |   |      |      |     |   |   |      |      |  
|----------------------------------------------------- | ----------------------------------------------- | ----------------------- | ---- | ---- | - | ---- | ---- | --- | - | - | ---- | ---- | -
|                                                      |                                                 |                        
|                                                      |                                                 | Year Ended December 31,
|                                                      |                                                 |                        
|                                                      |                                                 | 2003                    |      | 2002 |   | 2001
|                                                      |                                                 |                         |      |      |   |     
|Operating Activities                                  |                                                 |                         |      |      |   |      |      |     |   |   |      |     
|Net income                                            |                                                 | $                       | 133  |      |   | $    | 315  |     |   | $ | 376  |     
|Adjustments to net income:                            |                                                 |                         |      |      |   |      |      |     |   |   |      |     
|                                                      | Depreciation and amortization                   |                         |      | 165  |   |      |      | 222 |   |   |      | 212  |  
|                                                      | Amortization of deferred loan costs             |                         |      |     |   |      |      | 1   |   |   |      |     |  
|                                                      | Minority equity in net income (loss)            |                         |      | (1   | ) |      |      | 3   |   |   |      | 1    |  
|                                                      | Distributions in excess of equity earnings      |                         |      | 2    |   |      |      | 3   |   |   |      | 3    |  
|                                                      | Loss on asset dispositions and impairments, net |                         |      | 186  |   |      |      | 3   |   |   |      | 3    |  
|Receivable, Corporation                               |                                                 |                         | (441 | )    |   |      | (446 | )   |   |   | (1   | )   
|Other, net                                            |                                                 |                         | (1   | )    |   |      | 3    |     |   |   | 8    |     
|                                                      |                                                 |                         |      |      |   |      |      |     |   |   |      |     
|                                                      | Cash from operating activities                  |                         |      | 43   |   |      |      | 104 |   |   |      | 602  |  
|                                                      |                                                 |                         |      |      |   |      |      |     |   |   |      |     
|Investing Activities                                  |                                                 |                         |      |      |   |      |      |     |   |   |      |     
|Purchases of plant, property and equipment            |                                                 |                         | (66  | )    |   |      | (82  | )   |   |   | (169 | )   
|Proceeds from asset sales, net                        |                                                 |                         | 402  |      |   |      | 52   |     |   |   | 21   |     
|Acquisitions, net of acquired cash                    |                                                 |                         |     |      |   |      | (7   | )   |   |   | (6   | )   
|Collection (issuance) of notes receivable             |                                                 |                         |     |      |   |      | 2    |     |   |   | (10  | )   
|Other, net                                            |                                                 |                         |     |      |   |      |     |     |   |   |     |     
|                                                      |                                                 |                         |      |      |   |      |      |     |   |   |      |     
|                                                      | Cash from (used for) investing activities       |                         |      | 336  |   |      |      | (35 | ) |   |      | (164 | )
|                                                      |                                                 |                         |      |      |   |      |      |     |   |   |      |     
|Financing Activities                                  |                                                 |                         |      |      |   |      |      |     |   |   |      |     
|Long-term debt issued                                 |                                                 |                         | 70   |      |   |      |     |     |   |   |     |     
|Long-term debt repaid                                 |                                                 |                         | (63  | )    |   |      | (36  | )   |   |   | (35  | )   
|Distributions paid                                    |                                                 |                         | (170 | )    |   |      | (40  | )   |   |   | (156 | )   
|Distributions paid to Corporation                     |                                                 |                         | (206 | )    |   |      |     |     |   |   | (243 | )   
|Share repurchases                                     |                                                 |                         | (3   | )    |   |      |     |     |   |   | (14  | )   
|Other, net                                            |                                                 |                         | (7   | )    |   |      | 6    |     |   |   | 4    |     
|                                                      |                                                 |                         |      |      |   |      |      |     |   |   |      |     
|                                                      | Cash from (used for) financing activities       |                         |      | (379 | ) |      |      | (70 | ) |   |      | (444 | )
|                                                      |                                                 |                         |      |      |   |      |      |     |   |   |      |     
|Decrease in cash and cash equivalents                 |                                                 |                         |     |      |   |      | (1   | )   |   |   | (6   | )   
|Cash and cash equivalents  beginning
    of period   |                                                 |                         | 2    |      |   |      | 3    |     |   |   | 9    |     
|                                                      |                                                 |                         |      |      |   |      |      |     |   |   |      |     
|Cash and cash equivalents  end of period             |                                                 | $                       | 2    |      |   | $    | 2    |     |   | $ | 3    |     
|                                                      |                                                 |                         |      |      |   |      |      |     |   |   |      |     
|Supplemental Disclosures of Cash Flow
    Information |                                                 |                         |      |      |   |      |      |     |   |   |      |     
|Cash paid during the period for:                      |                                                 |                         |      |      |   |      |      |     |   |   |      |     
|                                                      | Interest                                        |                         | $    | 33   |   |      | $    | 35  |   |   | $    | 36   |  
|                                                      |                                                 |                         |      |      |   |      |      |     |   |   |      |     
|                                                      | Income taxes                                    |                         | $    | 3    |   |      | $    | 4   |   |   | $    | 4    |  
|                                                      |                                                 |                         |      |      |   |      |      |     |   |   |      |     

The accompanying notes to financial statements
are an integral part of the above statements.

F-10



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.

AND STARWOOD HOTELS & RESORTS




NOTES TO FINANCIAL STATEMENTS




|        |                      
|------- | ---------------------
|Note 1. | Basis of Presentation

The accompanying consolidated financial
statements represent the consolidated financial position and
consolidated results of operations of (i) Starwood Hotels
& Resorts Worldwide, Inc. and its subsidiaries (the
Corporation), including Sheraton Holding Corporation
and its subsidiaries (Sheraton Holding) (formerly
ITT Corporation) and Starwood Hotels & Resorts and its
subsidiaries (the Trust and, together with the
Corporation, Starwood or the Company),
and (ii) the Trust.

Starwood is one of the worlds largest hotel
and leisure companies. Starwoods status as one of the
leading hotel and leisure companies resulted from the 1998
acquisition of Westin Hotels & Resorts Worldwide, Inc. and
certain of its affiliates (Westin) (the Westin
Merger) and the acquisition of ITT Corporation (the
ITT Merger). On October 1, 1999, the Company
completed the acquisition of Starwood Vacation Ownership, Inc.
(formerly Vistana, Inc.) (SVO). SVOs principal
operations include the acquisition, development and operation of
vacation ownership resorts; marketing and selling vacation
ownership interests (VOIs) in the resorts; and
providing financing to customers who purchase such interests.

The Companys principal business is hotels
and leisure, which is comprised of a worldwide hospitality
network of more than 750 full-service hotels and vacation
ownership resorts primarily serving two markets: luxury and
upscale.

The Trust was formed in 1969 and elected to be
taxed as a REIT under the Internal Revenue Code (the
Code). In 1980, the Trust formed the Corporation and
made a distribution to the Trusts shareholders of one
share of common stock, par value $0.01 per share, of the
Corporation (a Corporation Share) for each common
share of beneficial interest, par value $0.01 per share, of the
Trust (a Trust Share). Until January 6, 1999,
the Corporation Shares and Trust Shares were paired on a
one-for-one basis and, pursuant to an agreement between the
Corporation and the Trust, could be held or transferred only in
units (Paired Shares) consisting of one Corporation
Share and one Trust Share. The Trust is one of the largest real
estate investment trusts (REITs) in the United
States.

During 1998, Congress enacted tax legislation
that had the effect of eliminating the grandfathering for
certain interests in real property acquired after March 26,
1998 by a formation of a paired share REIT. In
response to this legislation, a reorganization of the
Corporation and the Trust (the Reorganization) was
proposed by the Company and was approved by the Corporation and
Trust shareholders on January 6, 1999. As a result of the
Reorganization, the Trust became a subsidiary of the
Corporation, which indirectly holds all outstanding shares of
the new Class A shares of beneficial interest in the Trust
(Class A Shares). Each outstanding Trust Share
was converted into one share of the new non-voting Class B
shares of beneficial interest in the Trust (a Class B
Share). The Corporation Shares and the Class B Shares
trade together on a one-for-one basis, and pursuant to an
agreement between the Corporation and the Trust, may be
transferred only in units (Shares) consisting of one
Corporation Share and one Class B Share. The Reorganization
was accounted for as a reorganization of two companies under
common control. As such, there was no revaluation of the assets
and liabilities of the combining companies. Unless otherwise
stated herein, all information with respect to Shares refers to
Shares on or since January 6, 1999 and to Paired Shares for
periods before January 6, 1999.

The Corporation, through its subsidiaries, is the
general partner of, and held, as of December 31, 2003, an
aggregate 98.2% partnership interest in, SLC Operating Limited
Partnership (the Operating Partnership). The Trust,
through its subsidiaries, is the general partner of, and held an
aggregate 97.3% partnership interest in, SLT Realty Limited
Partnership (the Realty Partnership and, together
with the Operating Partnership, the Partnerships) as
of December 31, 2003. The units of the Partnerships
(LP Units) held by the limited partners of the
respective Partnerships are exchangeable on a one-for-one basis
for Shares. At December 31, 2003, there were approximately
5.6 million LP Units outstanding (including
4.3 million LP Units held by the

F-11



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Corporation). For all periods presented, the LP
Units are assumed to have been converted to Shares for purposes
of calculating basic and diluted weighted average Shares
outstanding.



|        |                                
|------- | -------------------------------
|Note 2. | Significant Accounting Policies

Principles of Consolidation.The accompanying consolidated
financial statements of the Company and the Trust and their
subsidiaries include the assets, liabilities, revenues and
expenses of majority-owned subsidiaries over which the Company
and/or the Trust exercise control, and for which control is
other than temporary. Intercompany transactions and balances
have been eliminated in consolidation.

Cash and Cash Equivalents.The Company considers all highly
liquid investments purchased with an original maturity of three
months or less to be cash equivalents.

Restricted Cash.Restricted cash primarily consists
of deposits received on sales of VOIs that are held in escrow
until a certificate of occupancy is obtained, the legal
rescission period has expired and the deed of trust has been
recorded in governmental property ownership records.

Inventories.Inventories are comprised
principally of VOIs of $145 million and $137 million
as of December 31, 2003 and 2002, respectively, and hotel
operating supplies. VOI inventory is carried at the lower of
cost or net realizable value and includes $3 million,
$4 million and $4 million of capitalized interest in
2003, 2002 and 2001, respectively. Operating supplies are
generally valued at the lower of cost (first-in, first-out) or
market. Potential losses from obsolete and slow-moving
inventories are provided for in the current period.

Loan Loss Reserves.For the hotel segment, the Company
measures loan impairment based on the present value of expected
future cash flows discounted at the loans original
effective interest rate or the estimated fair value of the
collateral. For impaired loans, the Company establishes a
specific impairment reserve for the difference between the
recorded investment in the loan and the present value of the
expected future cash flows or the estimated fair value of the
collateral. The Company applies the loan impairment policy
individually to all loans in the portfolio and does not
aggregate loans for the purpose of applying such policy. For
loans that the Company has determined to be impaired, the
Company recognizes interest income on a cash basis.

For the vacation ownership segment, the Company
provides for estimated mortgages receivable cancellations and
defaults at the time the VOI sales are recorded with a charge to
selling, general administrative and other expenses. The Company
performs an analysis of factors such as economic condition and
industry trends, defaults, past due aging and historical
write-offs of mortgages and contracts receivable to evaluate the
adequacy of the allowance.

Assets Held for Sale.The Company considers properties
to be assets held for sale when management approves and commits
to a formal plan to actively market a property for sale or a
signed sales contract exists. Upon designation as an asset held
for sale, the Company records the carrying value of each
property at the lower of its carrying value or its estimated
fair value, less estimated costs to sell, and the Company stops
recording depreciation expense. Any gain realized in connection
with the sale of properties for which the Company has
significant continuing involvement (such as through a management
or franchise agreement) is deferred and recognized over the life
of the associated involvement (e.g., the life of the
related agreement).

Investments.Investments in joint ventures are
accounted for using the guidance of Financial Accounting
Standards Board (FASB) Interpretation
(FIN) No. 46 Consolidation of Variable
Interest Entities for all ventures deemed to be variable
interest entities. See additional discussion in the Impact
of Recently Issued Accounting Standards section to this
footnote. All other joint venture investments are accounted for
under the equity method of accounting when the Company has a 20%
to 50% ownership interest or exercises significant influence
over the venture. If the Companys interest exceeds 50% or
in certain cases, if the

F-12



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Company exercises control over the venture, the
results of the joint venture are consolidated herein. All other
investments are generally accounted for under the cost method.

The fair market value of investments is based on
the market prices for the last day of the period if the
investment trades on quoted exchanges. For non-traded
investments, fair value is estimated based on the underlying
value of the investment, which is dependent on the performance
of the investment as well as the volatility inherent in external
markets for these types of investments. In assessing potential
impairment for these investments, the Company will consider
these factors as well as forecasted financial performance of its
investment. If these forecasts are not met, the Company may have
to record impairment charges.

Plant, Property and Equipment.Plant, property and equipment,
including capitalized interest of $7 million,
$6 million and $7 million in 2003, 2002 and 2001,
respectively, applicable to major project expenditures, are
recorded at cost. The cost of improvements that extend the life
of plant, property and equipment are capitalized. These
capitalized costs may include structural improvements, equipment
and fixtures. Costs for normal repairs and maintenance are
expensed as incurred. Depreciation is provided on a
straight-line basis over the estimated useful economic lives of
15 to 40 years for buildings and improvements; 3 to
10 years for furniture, fixtures and equipment; 3 to
7 years for information technology software and equipment
and the lesser of the lease term or the economic useful life for
leasehold improvements. Gains or losses on the sale or
retirement of assets are included in income when the assets are
sold provided there is reasonable assurance of the
collectibility of the sales price and any future activities to
be performed by the Company relating to the assets sold are
insignificant.

The Company evaluates the carrying value of each
of the Companys assets for impairment. For assets in use,
the expected undiscounted future cash flows of the assets are
compared to the net book value of the assets. If the expected
undiscounted future cash flows are less than the net book value
of the assets, the excess of the net book value over the
estimated fair value is charged to current earnings. When assets
are identified by management as held for sale, the Company
discontinues depreciating the assets and estimates the fair
value of such assets. If the fair value of the assets which have
been identified for sale is less than the net book value of the
assets, the carrying value of the assets is reduced to fair
value less selling costs. Fair value is determined based upon
discounted cash flows of the assets at rates deemed reasonable
for the type of property and prevailing market conditions,
appraisals and, if appropriate, current estimated net sales
proceeds from pending offers.

Goodwill and Intangible Assets.Goodwill and intangible assets
arise in connection with acquisitions, including the acquisition
of management contracts. Prior to January 1, 2002, all
goodwill and intangible assets with indefinite lives were
amortized using the straight-line method over the useful life of
the asset. Effective January 1, 2002, the Company adopted
Statement of Financial Accounting Standards (SFAS)
No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets.
In accordance with this guidance, the Company ceased amortizing
goodwill and intangible assets with indefinite lives. Intangible
assets with finite lives continue to amortize on a straight-line
basis over their respective useful lives. The Company reviews
all goodwill and intangible assets for impairment by comparisons
of fair value to book value annually, or upon the occurrence of
a trigger event. Impairment charges, if any, will be recognized
in operating results. In connection with the adoption of this
standard, the Company has completed its initial and subsequent
annual recoverability tests on goodwill and intangible assets,
which did not result in any impairment charges.

Frequent Guest Program.Starwood Preferred Guest®
(SPG) is the Companys frequent guest incentive
marketing program. SPG members earn points based on their
spending at the Companys properties, including purchases
of VOIs, and, to a lesser degree, through participation in
affiliated partners programs, such as those offered by
airlines. Points can be redeemed at most Company owned, leased,
managed and franchised properties.

F-13



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

SPG is provided as a marketing program to the
Companys properties, including as incentives to first time
buyers of VOIs. The cost of operating the program, including the
estimated cost of award redemption, is charged to properties
based on members qualifying expenditures. Revenue is
recognized by participating hotels and resorts when points are
redeemed for hotel stays.

The Company, through the services of third-party
actuarial analysts, determines the fair value of the future
redemption obligation based on statistical formulas which
project timing of future point redemption based on historical
experience, including an estimate of the breakage
for points that will never be redeemed, and an estimate of the
points that will eventually be redeemed. These factors determine
the required liability for outstanding points. The
Companys management and franchise agreements require that
the Company be reimbursed currently for the costs of operating
the program, including marketing, promotion, communications
with, and performing member services for the SPG members. Actual
expenditures for SPG may differ from the actuarially determined
liability.

The liability for the SPG program is included in
other long-term liabilities and accrued expenses in the
accompanying consolidated balance sheets. The total actuarially
determined liability as of December 31, 2003 and 2002 is
$201 million and $175 million, respectively.

Legal Contingencies.The Company is subject to various
legal proceedings and claims, the outcomes of which are subject
to significant uncertainty. SFAS No. 5, Accounting
for Contingencies, requires that an estimated loss from a
loss contingency should be accrued by a charge to income if it
is probable that an asset has been impaired or a liability has
been incurred and the amount of the loss can be reasonably
estimated. Disclosure of a contingency is required if there is
at least a reasonable possibility that a loss has been incurred.
The Company evaluates, among other factors, the degree of
probability of an unfavorable outcome and the ability to make a
reasonable estimate of the amount of loss. Changes in these
factors could materially impact the Companys financial
position or its results of operations.

Derivative Financial Instruments.The Company enters into interest
rate swap agreements to manage interest rate exposure. The net
settlements paid or received under these agreements are accrued
consistent with the terms of the agreements and are recognized
in interest expense over the term of the related debt. The
related fair value of the swaps is included in other liabilities
or assets.

The Company enters into foreign currency hedging
contracts to manage exposure to foreign currency fluctuations.
All foreign currency hedging instruments have an inverse
correlation to the hedged assets or liabilities. Changes in the
fair value of the derivative instruments are classified in the
same manner as the classification of the changes in the
underlying assets or liabilities due to fluctuations in foreign
currency exchange rates.

The Company does not enter into derivative
financial instruments for trading or speculative purposes and
monitors the financial stability and credit standing of its
counterparties.

Foreign Currency Translation.Balance sheet accounts are
translated at the exchange rates in effect at each period end
and income and expense accounts are translated at the average
rates of exchange prevailing during the year. The national
currencies of foreign operations are generally the functional
currencies. Gains and losses from foreign exchange and the
effect of exchange rate changes on intercompany transactions of
a long-term investment nature are generally included as a
separate component of stockholders equity. Gains and
losses from foreign exchange rate changes related to
intercompany receivables and payables that are not of a
long-term investment nature are reported currently in costs and
expenses and amounted to a gain of $4 million,
$33 million and $27 million in 2003, 2002 and 2001,
respectively. The $33 million gain in 2002 includes a
$30 million gain recorded in selling, general,
administrative and other expenses related to the mark-to-market
of U.S. dollar intercompany receivables in Argentina as a result
of the devaluation of the Argentine Peso. The $27 million
gain in 2001 includes a $24 million gain from the same U.S.
dollar Argentine

F-14



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

intercompany receivables. Gains and losses from
foreign currency transactions are reported currently in costs
and expenses and were insignificant for all periods presented.

Income Taxes.The Company provides for income
taxes in accordance with SFAS No. 109, Accounting for
Income Taxes. The objectives of accounting for income
taxes are to recognize the amount of taxes payable or refundable
for the current year and deferred tax liabilities and assets for
the future tax consequences of events that have been recognized
in an entitys financial statements or tax returns.

Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in earnings in the period when the new
rate is enacted.

The Trust has elected to be treated as a REIT
under the provisions of the Code. As a result, the Trust is not
subject to federal income tax on its taxable income at corporate
rates provided it distributes annually all of its taxable income
to its shareholders and complies with certain other requirements.

Earnings Per Share.The following represents a
reconciliation of basic earnings per Share to diluted earnings
per Share for income from continuing operations (in millions,
except per Share data):

|                                            |                                              |                         |     |        |  |           |     |          |  |        |      |           |  |          |     |        |  |           |     |   |  |   |      |  |  |   |     |   |  |  |     |   |  |   |      |  | 
|------------------------------------------- | -------------------------------------------- | ----------------------- | --- | ------ |  | --------- | --- | -------- |  | ------ | ---- | --------- |  | -------- | --- | ------ |  | --------- | --- | - |  | - | ---- |  |  | - | --- | - |  |  | --- | - |  | - | ---- |  | 
|                                            |                                              |                        
|                                            |                                              | Year Ended December 31,
|                                            |                                              |                        
|                                            |                                              |                         |     |        |  |          
|                                            |                                              | 2003                    |     | 2002   |  | 2001     
|                                            |                                              |                         |     |        |  |          
|                                            |                                              | Earnings                |     | Shares |  | Per Share |     | Earnings |  | Shares |      | Per Share |  | Earnings |     | Shares |  | Per Share
|                                            |                                              |                         |     |        |  |           |     |          |  |        |      |           |  |          |     |        |  |          
|Basic earnings from continuing operations   |                                              | $                       | 105 |        |  |           | 203 |          |  | $      | 0.52 |           |  | $        | 251 |        |  |           | 201 |   |  | $ | 1.24 |  |  | $ | 147 |   |  |  | 201 |   |  | $ | 0.73 | 
|Effect of dilutive securities:              |                                              |                         |     |        |  |           |     |          |  |        |      |           |  |          |     |        |  |           |     |   |  |   |      |  |  |   |     |   |  |  |     |   |  |   |      | 
|                                            | Employee options and restricted stock awards |                         |     |       |  |           |     | 4        |  |        |      |           |  |          |     |       |  |           |     | 4 |  |   |      |  |  |   |     |  |  |  |     | 5 |  |   |      |  | 
|                                            |                                              |                         |     |        |  |           |     |          |  |        |      |           |  |          |     |        |  |           |     |   |  |   |      |  |  |   |     |   |  |  |     |   |  |   |      | 
|Diluted earnings from continuing operations |                                              | $                       | 105 |        |  |           | 207 |          |  | $      | 0.51 |           |  | $        | 251 |        |  |           | 205 |   |  | $ | 1.22 |  |  | $ | 147 |   |  |  | 206 |   |  | $ | 0.71 | 
|                                            |                                              |                         |     |        |  |           |     |          |  |        |      |           |  |          |     |        |  |           |     |   |  |   |      |  |  |   |     |   |  |  |     |   |  |   |      | 

Included in the Basic Share numbers for the year
ended December 31, 2003, 2002 and 2001 are approximately
1 million, 2 million and 2 million shares,
respectively, of Class A Exchangeable Preferred Shares
(Class A EPS) and Class B Exchangeable
Preferred Shares (Class B EPS).

Stock-Based
Compensation.The Company has
three stock-based employee long term incentive plans, which are
described in Note 18. Stock Incentive Plans. The Company
accounts for those plans under the recognition and measurement
principles of Accounting Principles Board (APB)
Opinion No. 25 Accounting for Stock Issued to
Employees and related interpretations. No stock-based
employee compensation cost is reflected in net income as all
options granted to employees under these plans have an exercise
price equal to the fair value of the underlying equity on the
date of grant. The following table illustrates the effect on net

F-15



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##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

income and earnings per Share if the Company had
applied the fair value recognition provisions of SFAS
No. 123 Accounting for Stock-Based Compensation
to stock-based employee compensation:

|                                   |                                        |                         |   |       |    |      |   |       |    |  |   |       |    | 
|---------------------------------- | -------------------------------------- | ----------------------- | - | ----- | -- | ---- | - | ----- | -- |  | - | ----- | -- | 
|                                   |                                        |                        
|                                   |                                        | Year Ended December 31,
|                                   |                                        |                        
|                                   |                                        | 2003                    |   | 2002  |    | 2001
|                                   |                                        |                         |   |       |    |     
|                                   |                                        |                        
|                                   |                                        | (in millions, except   
|                                   |                                        | per Share data)        
|                                   | Net income, as reported                |                         | $ | 309   |    |      | $ | 355   |    |  | $ | 145   |   
|                                   | Deduct: SFAS No. 123 compensation cost |                         |   | (100  | )  |      |   | (112  | )  |  |   | (103  | ) 
|                                   |                                        | Tax effect              |   |       | 35 |      |   |       | 39 |  |   |       | 36 | 
|                                   |                                        |                         |   |       |    |      |   |       |    |  |   |      
|                                   | Proforma net income                    |                         | $ | 244   |    |      | $ | 282   |    |  | $ | 78    |   
|                                   |                                        |                         |   |       |    |      |   |       |    |  |   |      
|                                   | Earnings per Share:                    |                         |   |       |    |      |   |       |    |  |   |       |   
|                                   | Basic, as reported                     |                         | $ | 1.53  |    |      | $ | 1.76  |    |  | $ | 0.72  |   
|                                   |                                        |                         |   |       |    |      |   |       |    |  |   |      
|                                   | Basic, proforma                        |                         | $ | 1.20  |    |      | $ | 1.40  |    |  | $ | 0.39  |   
|                                   |                                        |                         |   |       |    |      |   |       |    |  |   |      
|                                   | Diluted, as reported                   |                         | $ | 1.50  |    |      | $ | 1.73  |    |  | $ | 0.70  |   
|                                   |                                        |                         |   |       |    |      |   |       |    |  |   |      
|                                   | Diluted, proforma                      |                         | $ | 1.18  |    |      | $ | 1.38  |    |  | $ | 0.37  |   
|                                   |                                        |                         |   |       |    |      |   |       |    |  |   |      
|Average Black Scholes Assumptions: |                                        |                         |   |       |    |      |   |       |    |  |   |      
|                                   | Dividend Yield                         |                         |   | 3.1   | %  |      |   | 2.7   | %  |  |   | 2.2   | % 
|                                   | Volatility                             |                         |   | 42    | %  |      |   | 46    | %  |  |   | 47    | % 
|                                   | Risk-free rate                         |                         |   | 2.1   | %  |      |   | 3.1   | %  |  |   | 4.3   | % 
|                                   | Expected life                          |                         |   | 3 yrs |    |      |   | 3 yrs |    |  |   | 3 yrs |   

The weighted average fair value per Share of
options granted in 2003, 2002 and 2001 was $10.15, $13.58 and
$17.45, respectively, using the assumptions noted in the table
above.

Revenue Recognition.The Companys revenues are
primarily derived from the following sources: (1) hotel and
resort revenues at the Companys owned, leased and
consolidated joint venture properties; (2) management and
franchise fees; (3) vacation ownership revenues; and
(4) other revenues which are ancillary to the
Companys operations. Generally, revenues are recognized
when the services have been rendered. The following is a
description of the composition of revenues for the Company:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Owned, Leased and Consolidated Joint
    Ventures  Represents revenue primarily derived from
    hotel operations, including the rental of rooms and food and
    beverage sales, from a worldwide network of owned, leased or
    consolidated joint venture hotels and resorts operated primarily
    under the Companys proprietary brand names including St.
    Regis, The Luxury Collection, Sheraton, Westin, W and Four
    Points by Sheraton. Revenue is recognized when rooms are
    occupied and services have been rendered.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Management and Franchise Fees 
    Represents fees earned on hotels managed worldwide, usually
    under contracts with the hotel owner, and franchise fees
    received in connection with the franchise of the Companys
    Sheraton, Westin, Four Points by Sheraton and The Luxury
    Collection brand names. Management fees are comprised of a base
    fee, which is generally based on a percentage of gross revenues,
    and an incentive fee, which is generally based on the
    propertys profitability. Base fee revenues are recognized
    when earned in accordance with the terms of the contract. For
    any time during the year, incentive fees are recognized for the
    fees due and earned as if the contract was terminated at that
    date, exclusive of any termination fees due or payable.
    Franchise fees are generally based on a percentage of hotel room
    revenues and are recognized in accordance with SFAS No. 45,
    Accounting for Franchise Fee Revenue, as the fees
    are earned and become due from the franchisee. Management

F-16



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##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | and franchise fees are recognized in other hotel
    and leisure revenues in the consolidated statements of income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Vacation Ownership  The Company
    recognizes revenue from VOI sales in accordance with SFAS
    No. 66, Accounting for Sales of Real Estate.
    The Company recognizes sales when a minimum of 10% of the
    purchase price for the VOI has been received in cash, the period
    of cancellation with refund has expired and receivables are
    deemed collectible. For sales that do not qualify for full
    revenue recognition as the project has progressed beyond the
    preliminary stages but has not yet reached completion, all
    revenue and profit are initially deferred and recognized in
    earnings through the percentage-of-completion method. Vacation
    ownership revenues are recognized in other hotel and leisure
    revenues in the consolidated statements of income.

Insurance Retention.Through its captive insurance
company, the Company provides insurance coverage for
workers compensation, property and general liability
claims arising at hotel properties owned or managed by the
Company through policies written directly and through assumed
reinsurance arrangements. Estimated insurance claims payable
represent outstanding claims and those estimated to have been
incurred but not reported based upon historical loss experience.
Actual costs may vary from estimates based on trends of losses
for filed claims and claims estimated to be incurred but not yet
filed. Estimated costs of these self-insurance programs are
accrued, based on the analysis of third-party actuaries.

Costs Incurred to Sell VOIs.The Company capitalizes direct
costs attributable to the sale of VOIs until the sales are
recognized. Selling and marketing costs capitalized under this
methodology were approximately $17 million and
$9 million as of December 31, 2003 and 2002,
respectively, and all such capitalized costs are included in
other assets in the accompanying consolidated balance sheets.
Costs eligible for capitalization follow the guidelines of SFAS
No. 67 Accounting for Costs and Initial Rental
Operation of Real Estate Projects. If a contract is
cancelled, the Company charges the unrecoverable direct selling
and marketing costs to expense, and records forfeited deposits
as income.

VOI Inventory Costs.Real estate and development costs
are valued at the lower of cost or net realizable value.
Development costs include both hard and soft construction costs
and together with real estate costs are allocated to VOIs on the
relative sales value method. Interest, property taxes and
certain other carrying costs incurred during the construction
process are capitalized as incurred. Such costs associated with
completed VOI units are expensed as incurred.

Advertising
Costs.Starwood and its brand
marketing co-ops enter into multi-media ad campaigns, including
television, radio, internet and print advertisements. Costs
associated with these campaigns, including communication and
production costs, are aggregated and expensed the first time
that the advertising takes place in accordance with the American
Institute of Certified Public Accountants Statement of Position
No. 93-7 Reporting on Advertising Costs. If it
becomes apparent that the media campaign will not take place,
all costs are expensed at that time. During the years ended
December 31, 2003, 2002 and 2001, the Company incurred
approximately $110 million, $105 million and
$70 million of advertising expense, respectively, a
significant portion of which was reimbursed by managed and
franchised hotels.

Beneficial and Retained Interests.The Company periodically sells
notes receivable originated by our vacation ownership business
in connection with the sale of VOIs. The Company retains
interests in the assets transferred to qualified and
non-qualified special purpose entities which are accounted for
as over-collateralizations and interest only strips. These
Beneficial or Retained Interests are treated as
trading for transactions prior to 2002 and
available-for-sale for transactions thereafter under
the provisions of SFAS No. 115 Accounting for Certain
Investments in Debt and Equity Securities. The Company
reports changes in the fair values of these Beneficial or
Retained Interests through the accompanying consolidated
statement of income for trading securities and through the
accompanying consolidated statement of comprehensive income

F-17



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

for available-for-sale securities. The Company
had Beneficial and Retained Interests of $50 million and
$47 million at December 31, 2003 and 2002,
respectively.

Use of Estimates.The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

Reclassifications.Certain reclassifications have
been made to the prior years financial statements to
conform to the current year presentation.

Impact of Recently Issued Accounting
Standards.In December 2003, FASB
issued SFAS No. 132 (revised 2003), Employers
Disclosures about Pensions and Other Postretirement
Benefits (SFAS No. 132-(R)).
SFAS No. 132-(R) retains the disclosure requirements
in the original SFAS No. 132, but requires additional
disclosures related to plan assets, plan obligations, cash flows
and net periodic benefit cost of defined benefit pension and
other postretirement plans. In addition, this statement requires
interim period disclosure of the components of net periodic
benefit costs and contributions if significantly different from
previously reported amounts. The Company adopted SFAS
No. 132-(R) effective December 31, 2003 for its
domestic pension and postretirement plans, and incorporated the
new disclosure requirements into Note 15. Employee Benefit
Plans. SFAS No. 132-(R) is effective December 31, 2004
for the Companys foreign pension plans.

In May 2003, FASB issued SFAS No. 150
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This
statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of
both liabilities and equity, and is effective for financial
instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. As a result of
further discussion by the FASB on October 8, 2003, the FASB
announced that minority interests in consolidated partnerships
with specified finite lives should be reclassified as
liabilities and presented at fair market value unless the
interests are convertible into the equity of the parent. Fair
market value adjustments occurring subsequent to July 1,
2003 should be recorded as a component of interest expense. At
their October 29, 2003 meeting, the FASB agreed to
indefinitely defer the implementation of their announcement at
the October 8, 2003 meeting regarding the accounting
treatment for minority interests in finite life partnerships.
Therefore, until a final resolution is reached, the Company will
not implement this aspect of the standard. If the Company were
to adopt this aspect of the standard under its current
provisions, it is not expected to have a material impact on the
Companys financial statements.

In April 2003, the FASB issued SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments
and Hedging Activities which amends and clarifies
financial accounting and reporting for derivative instruments
and hedging activities, including the qualifications for the
normal purchases and normal sales exception, under SFAS
No. 133, Accounting for Derivative Instruments and
Hedging Activities. The amendment reflects decisions made
by the FASB in connection with issues raised about the
application of SFAS No. 133. Generally, the provisions of
SFAS No. 149 will be applied prospectively for contracts
entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003.
Adoption of SFAS No. 149 did not have a material effect on
the Companys financial statements.

In January 2003, the FASB issued FIN 46 which
requires a variable interest entity (VIE) to be
consolidated by its primary beneficiary (PB). The PB
is the party that absorbs a majority of the VIEs expected
losses and/or receives a majority of the expected residual
returns.

F-18



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

In December 2003, the FASB revised FIN 46
(FIN 46-(R)), delaying the effective date for
certain entities created before February 1, 2003 and making
other amendments to clarify the application of the guidance. In
adopting FIN 46 and in anticipation of adopting
FIN 46-(R), the Company has evaluated its various variable
interests to determine whether they are in VIEs. These
variable interests, which generally represent modest interests
relative to the other investors in the ventures, are primarily
related to the Companys strategy to expand its role as a
third-party manager of hotels and resorts, allowing the Company
to increase the presence of its lodging brands and gain
additional cash flow. The process identified the following types
of variable interests: (a) subordinated loans to ventures
which have typically taken the form of first or second mortgage
loans, (b) equity investments in ventures which have
typically ranged from 10% to 30% of the equity,
(c) guarantees to ventures which have typically related to
loan guarantees on new construction projects that are well
capitalized and which typically expire within a few years of the
hotels opening and (d) other types of contributions to
ventures owning hotels to secure the management or franchise
contract. The Company also reviewed its other management and
franchise agreements related to hotels that the Company has no
other investments in and concluded that such arrangements were
not variable interests since the Company is paid commensurate
with the services provided and on the same level as other
operating liabilities and the hotel owners retain the right to
terminate the arrangements.

Of the nearly 400 hotels that the Company
manages or franchises, the Company identified approximately
20 hotels that it has a variable interest in. For those
ventures that the Company holds a variable interest, it
determined that the Company was not the PB and such VIEs
should not be consolidated in the Companys financial
statements. The Companys outstanding loan balances exposed
to losses as a result of its involvement in VIEs totaled
$69 million at December 31, 2003. Equity investments
and other types of investments related to these VIEs
totaled $24 million and $21 million, respectively, at
December 31, 2003. Information concerning the
Companys exposure to loss on loan guarantees and
commitments to fund other types of contributions is summarized
in Note 21. Commitments and Contingencies.

The Company has adopted FIN 46 for entities
created subsequent to January 31, 2003 as of
December 31, 2003 and will adopt FIN 46-(R) as of the
end of the interim period ended March 31, 2004. The
adoption of FIN 46 did not result in the consolidation of
any VIEs, nor is the adoption of FIN 46-(R) expected
to result in the consolidation of any VIEs. The impact of
adopting FIN 46-(R) is not expected to result in the
identification of any additional interests in variable interest
entities.

In November 2002, the FASB issued FIN No. 45
Guarantor Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others. This interpretation modifies the accounting
treatment for certain guarantees and is effective for all
guarantees issued or modified after December 31, 2002. The
new disclosure rules are effective for interim or annual periods
ending after December 15, 2002. The Company has
incorporated the disclosure requirements into this filing and
will be monitoring its new guarantees for compliance. FIN
No. 45 did not have a material impact on the Company.

In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. This statement addresses financial accounting
and reporting for costs associated with exit or disposal
activities. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The
adoption of SFAS No. 146 did not have and the Company
believes will not have a material impact on its consolidated
financial position or cash flows; however it may affect the
timing of recognizing future restructuring costs.

Effective January 1, 2002, the Company
adopted SFAS No. 141, Business Combinations,
and SFAS No. 142, Goodwill and Other Intangible
Assets. In accordance with this guidance, the Company has
ceased amortizing goodwill and intangible assets with indefinite
lives. Intangible assets with finite lives continue to amortize
on a straight-line basis over their respective useful lives.
Adoption of this standard did not result in any impairment
charges.

F-19



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Net income, basic earnings per Share and diluted
earnings per Share for the years ended December 31, 2003,
2002 and 2001, respectively, adjusted to exclude amortization
expense no longer required due to the adoption of SFAS
No. 142, are as follows (net of tax, in millions, except
per Share data):

|                                      |                                                   |                         |      |      |  |      |      |   |  |   |      |      | 
|------------------------------------- | ------------------------------------------------- | ----------------------- | ---- | ---- |  | ---- | ---- | - |  | - | ---- | ---- | 
|                                      |                                                   |                        
|                                      |                                                   | Year Ended December 31,
|                                      |                                                   |                        
|                                      |                                                   | 2003                    |      | 2002 |  | 2001
|                                      |                                                   |                         |      |      |  |     
|Reported net income                   |                                                   | $                       | 309  |      |  | $    | 355  |   |  | $ | 145  |     
|                                      | Add back: goodwill amortization                   |                         |      |     |  |      |      |  |  |   |      | 57   | 
|                                      | Add back: trademarks and trade names amortization |                         |      |     |  |      |      |  |  |   |      | 5    | 
|                                      |                                                   |                         |      |      |  |      |      |   |  |   |      |     
|Adjusted net income                   |                                                   | $                       | 309  |      |  | $    | 355  |   |  | $ | 207  |     
|                                      |                                                   |                         |      |      |  |      |      |   |  |   |      |     
|Reported earnings per Share  basic   |                                                   | $                       | 1.53 |      |  | $    | 1.76 |   |  | $ | 0.72 |     
|                                      | Add back: goodwill amortization                   |                         |      |     |  |      |      |  |  |   |      | 0.28 | 
|                                      | Add back: trademarks and trade names amortization |                         |      |     |  |      |      |  |  |   |      | 0.03 | 
|                                      |                                                   |                         |      |      |  |      |      |   |  |   |      |     
|Adjusted earnings per Share  basic   |                                                   | $                       | 1.53 |      |  | $    | 1.76 |   |  | $ | 1.03 |     
|                                      |                                                   |                         |      |      |  |      |      |   |  |   |      |     
|Reported earnings per Share  diluted |                                                   | $                       | 1.50 |      |  | $    | 1.73 |   |  | $ | 0.70 |     
|                                      | Add back: goodwill amortization                   |                         |      |     |  |      |      |  |  |   |      | 0.28 | 
|                                      | Add back: trademarks and trade names amortization |                         |      |     |  |      |      |  |  |   |      | 0.03 | 
|                                      |                                                   |                         |      |      |  |      |      |   |  |   |      |     
|Adjusted earnings per Share  diluted |                                                   | $                       | 1.50 |      |  | $    | 1.73 |   |  | $ | 1.01 |     
|                                      |                                                   |                         |      |      |  |      |      |   |  |   |      |     

Note
3.     Significant
Acquisitions

Acquisition of Westin Savannah Harbor
Resort and Spa.In July 2002, the
Company acquired a 49% interest in the 403 room Westin
Savannah Harbor Resort and Spa for $25 million in
connection with the restructuring of the indebtedness of that
property. See Note 20. Related Party Transactions for
further detail regarding the ownership structure of this resort.

Acquisition of Sheraton Centre Toronto.In April 2001, the Company
completed the acquisition of the remaining 50% interest not
previously owned by the Company in the 1,377-room Sheraton
Centre Toronto for approximately $48 million based on
exchange rates at the time. The Company accounted for the
acquisition as a step acquisition in accordance with APB Opinion
No. 16, Business Combinations. The results of
the acquisition have been included in the accompanying
consolidated financial statements since the acquisition date.

Acquisition of Royal Orchid Hotel.In April 2001, the Company
completed the acquisition of 44% of an entity, which owns the
740 room Royal Orchid Hotel in Bangkok, Thailand for
approximately $27 million based on the exchange rates at
the time.

The pro forma effect on the Companys
revenues, net income and earnings per Share, as though these
acquisitions occurred as of January 1 of the respective
years, is not material.



|        |                                                           
|------- | ----------------------------------------------------------
|Note 4. | Gain (Loss) on Asset Dispositions and
    Impairments, Net

During 2003 the Company recorded a
$170 million charge related to the impairment of
18 non-core domestic hotels that were held for sale and
$11 million of subsequent charges primarily related to
post-closing adjustments to the sales prices. The Company sold
16 of these hotels for net proceeds of $404 million. The
Company also recorded a $9 million gain on the sale of a
51% interest in undeveloped land in Costa Smeralda in Sardinia,
Italy. This gain was offset by a $9 million write down of
the value of a hotel which was formerly

F-20



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

operated together with one of the non-core
domestic hotels and is now closed and under review for
alternative use and a $2 million charge related to an
impairment of an investment.

During 2002, the Company sold two hotels for net
proceeds of $51 million. The Company recorded a net loss on
these sales of $3 million in 2002.

In September 2002, the Company sold its
2% investment in Interval International, a timeshare
exchange company. The Company received gross proceeds of
approximately $8 million as a result of this sale and
recorded a pretax gain of approximately $6 million.

Due to the September 11, 2001 terrorist
attacks in New York, Washington, D.C. and Pennsylvania
(the September 11 Attacks) and the weakening of
the U.S. economy, the Company conducted a comprehensive
review of the carrying value of certain assets for potential
impairment. As a result, in the fourth quarter of 2001 the
Company recorded a net charge totaling $57 million relating
primarily to the impairment of certain investments.

Note 5.     Asset
Securitizations

At December 31, 2003 and 2002, the Company
has approximately $119 million and $157 million,
respectively, in vacation ownership notes receivable,
representing receivables from over 20,000 customers. From time
to time, the Company securitizes or sells these vacation
ownership notes receivable.

The Company accounts for its notes receivable
securitizations and sales as transactions in accordance with
SFAS No. 140. The Company accounted for both of the
transactions described below as SFAS No. 140 sales.

During 2003, the Company sold, without recourse,
through a bankruptcy-remote qualified special purpose entity
(the QSPE), the beneficial interest in
$181 million of notes receivable originated in connection
with the sale of VOIs (the 2003 Securitization). The
Company continues to service the notes. This sale and servicing
arrangement was negotiated on an arms-length basis based on
market conditions. The Company has retained interests in the
2003 Securitization in the form of a security (the
Beneficial Interests) that is equivalent to
over-collateralization and an interest-only strip, which
provides credit enhancement to the third party investors in the
QSPE. The Companys right to receive cash flows from the
Beneficial Interests is limited to cash available after paying
the QSPEs financing expenses, program fees and absorbing
the QSPEs credit losses related to the sold notes. Gains
from the 2003 Securitization totaled $9 million for the
year ended December 31, 2003. In connection with the 2003
Securitization, the Company repurchased all existing receivables
under the 2002 Note Sales described below.

The key assumptions used in measuring the fair
value of the Beneficial Interests at the time of the 2003
Securitization were as follows: discount rate of 14%; annual
prepayments, which yields an average expected life of prepayable
notes receivable of 89 months; and expected gross mortgage
balance defaulting as a percentage of the total initial pool of
17.8%.

During 2002, the Company sold, without recourse,
through a special purpose entity (the SPE),
$133 million of notes receivable originated in connection
with the sale of VOIs (the 2002 Note Sales). The
Company continued to service the sold notes. This sale and
servicing arrangement was negotiated on an arms-length basis
based on market conditions. The Company retained an interest
(the Retained Interests) in the sold notes that was
economically equivalent to over-collateralization and an
interest-only strip that provides credit enhancement to the
third-party purchaser of the notes. The Companys right to
receive cash flows from the Retained Interests was limited to
cash available after paying the SPEs financing expenses,
program fees and absorbing credit losses related to the sold
notes. Net cash proceeds received from this sale of notes
receivable were approximately $120 million. Gains from the
sale of these notes totaled $14 million for the year

F-21



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

ended December 31, 2002. As discussed above,
in connection with the 2003 securitizations, the Company
repurchased all of the existing receivables under the 2002 Note
Sales.

During 2001, the Company sold, without recourse,
through a bankruptcy-remote QSPE, the beneficial interest in
$226 million of notes receivable originated in connection
with the sale of VOIs (the 2001 Securitizations).
The Company continues to service the sold notes. This sale and
servicing arrangement was negotiated on an arms-length basis
based on market conditions. The Companys retained
interests in the 2001 Securitizations is in the form of a
security (the 2001 Beneficial Interests) that is
equivalent to over-collateralization and an interest-only strip,
which provides credit enhancement to the third party investors
in the QSPE. The Companys right to receive cash flows from
the 2001 Beneficial Interests is limited to cash available after
paying the QSPEs financing expenses, program fees and
absorbing the QSPEs credit losses related to the sold
notes. Gains from the 2001 Securitizations totaled
$10 million for the year ended December 31, 2001.

At December 31, 2003, $100 million of
principal amounts of notes is outstanding under the 2001
Securitizations and an additional $176 million of principal
amounts of notes is outstanding under the 2003 Securitization.
Delinquencies of more than 90 days on these receivables at
December 31, 2003 amounted to approximately $3 million
and $1 million for the 2001 and 2003 Securitizations,
respectively.

Under the 2003 and 2001 Securitizations, the
Company has an option to repurchase defaulted notes (as defined)
included in the transactions for their outstanding principal
amounts. The Company has been able to resell vacation ownership
interests underlying the loans that it repurchased under these
provisions without incurring significant losses, resulting in
additional gains of approximately $6 million and
$2 million in 2003 and 2002, respectively.

At the time of each securitization or notes sale
and at the end of each financial reporting period, the Company
estimates the fair value of its Beneficial and Retained
Interests using a discounted cash flow model. All assumptions
used in the models are reviewed and updated, if necessary, based
on current trends and historical experience. The Beneficial and
Retained Interests are classified as either trading
or available-for-sale securities in accordance with
the provisions of SFAS No. 115 Accounting for
Certain Investments in Debt and Equity Securities and
SFAS No. 140. The Beneficial Interests from the 2001
Securitizations are classified as trading, with changes in fair
value reported through operating results. The Beneficial
Interests from the 2003 Securitizations are classified as
available-for-sale, with changes in fair value reported through
equity in other comprehensive income. During 2002, the Company
changed its assumption for the 2001 Securitizations discount
rate from the initial rate of 16% to 14%, bringing its rates in
line with comparable industry assumptions. The change did not
have a material impact on the Beneficial Interest balance.

The Company has completed a sensitivity analysis
on the net present value of the Beneficial Interests to measure
the change in value associated with independent changes in
individual key variables. The methodology used applied
unfavorable changes that would be considered statistically
significant for the key variables of prepayment rate, discount
rate and expected gross credit losses. The net present value of
Beneficial Interests at

F-22



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##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

December 31, 2003 was approximately
$50 million. The decrease in value of the Beneficial
Interests as a result of various changes in key variables are as
follows (in millions):

|                                    |                               |            |   |      |  
|----------------------------------- | ----------------------------- | ---------- | - | ---- | -
|                                    |                               | Beneficial
|                                    |                               | Interests 
|                                    |                               |           
|Annual prepayment:                  |                               |            |   |     
|                                    | 100 basis points  dollars    |            | $ | 0.4  |  
|                                    | 100 basis points  percentage |            |   | 0.7  | %
|                                    | 200 basis points  dollars    |            | $ | 0.7  |  
|                                    | 200 basis points  percentage |            |   | 1.5  | %
|Discount Rate:                      |                               |            |   |     
|                                    | 100 basis points  dollars    |            | $ | 1.0  |  
|                                    | 100 basis points  percentage |            |   | 2.0  | %
|                                    | 200 basis points  dollars    |            | $ | 1.9  |  
|                                    | 200 basis points  percentage |            |   | 3.8  | %
|Gross Annual Rate of Credit Losses: |                               |            |   |     
|                                    | 100 basis points  dollars    |            | $ | 3.3  |  
|                                    | 100 basis points  percentage |            |   | 6.6  | %
|                                    | 200 basis points  dollars    |            | $ | 6.5  |  
|                                    | 200 basis points  percentage |            |   | 12.9 | %

Note 6.     Assets
Held for Sale

The Company considers properties to be assets
held for sale when management approves and commits to a formal
plan to actively market a property for sale or a signed sales
contract exists. Upon designation as an asset held for sale, the
Company records the carrying value of each property at the lower
of its carrying value or its estimated fair value, less
estimated costs to sell, and the Company stops recording
depreciation expense. Any gain realized in connection with the
sale of properties for which the Company has significant
continuing involvement (such as through a management or
franchise agreement) is deferred and recognized over the life of
the associated involvement (e.g., the initial term of the
related agreement).

In June 2003, the Company sold the Hotel Principe
di Savoia in Milan, Italy (Principe) for
275 million Euro (approximately $315 million based on
exchange rates at the time the sale closed) in gross cash
proceeds. The Company will have no continuing involvement with
the Principe, therefore the Principe results and related gain on
sale are reported as discontinued operations for all periods
presented. See Note 7. Discontinued Operations for further
discussion.

In June 2003, the Company also sold a portfolio
of assets including four hotels, a marina and shipyard, a golf
club and a 51% interest in its undeveloped land in Costa
Smeralda in Sardinia, Italy (Sardinia Assets) for
290 million Euro (approximately $340 million based on
exchange rates at the time the sale closed) in gross cash
proceeds. The Company continues to manage the four hotels
subject to long-term management contracts. Accordingly, the
results related to the Sardinia Assets prior to the sale date
are not classified as discontinued operations and the gain on
sale of $82 million, which is subject to final adjustments
which are not expected to be material, was deferred and is being
recognized in earnings over the 10.5 year life of the
management contracts.

At the end of the first quarter of 2003, the
Company approved a plan to sell a portfolio of 18 non-core
domestic hotels including several non-proprietary branded
hotels. As a result, in accordance with

F-23



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, the Company
classified these hotels as held for sale and recorded an
impairment charge of approximately $170 million (pre-tax)
to reflect the fair value less selling costs of this portfolio
in 2003 and $11 million of subsequent charges, primarily
related to post-closing adjustments to the sales prices. The
Company sold 16 of these non-core domestic hotels for
approximately $404 million during 2003, the majority of
which were sold subject to franchise agreements. Effective
December 31, 2003, the remaining two properties will no
longer be marketed for sale. Accordingly, the carrying value of
these hotels was reclassified to plant, property and equipment
as of December 31, 2003.

Note 7.     Discontinued
Operations

In accordance with SFAS No. 144, as a
result of the sale of the Principe (see Note 6. Assets Held
for Sale) with no continuing involvement in June 2003, the
accompanying consolidated financial statements reflect the
results of operations of the Principe as a discontinued
operation. Interest expense of $7 million, $15 million
and $13 million, respectively, for the years ended
December 31, 2003, 2002 and 2001 was allocated to
discontinued operations based upon the amount of Euro
denominated debt that was required to be repaid upon the
consummation of the sale. The amount of Euro denominated debt
allocated to discontinued operations was approximately
$284 million at December 31, 2002. Summary financial
information for discontinued operations is as follows (in
millions):

|                                                            |  |              |     |  
|----------------------------------------------------------- |  | ------------ | --- | -
|                                                            |  | December 31,
|                                                            |  | 2002        
|                                                            |  |             
|Balance Sheet Data                                          |  |              |     |  
|Total long lived assets                                     |  | $            | 63  |  
|Goodwill                                                    |  | $            | 55  |  
|Total assets                                                |  | $            | 123 |  
|Total liabilities                                           |  | $            | 11  |  
|Debt allocated or attributed to discontinued
    operations |  | $            | 284 |  
|Working capital deficiency                                  |  | $            | (2  | )

|                                                        |  |              |     |      |  |      |     |   |  |   |    |  
|------------------------------------------------------- |  | ------------ | --- | ---- |  | ---- | --- | - |  | - | -- | -
|                                                        |  |             
|                                                        |  | Year Ended  
|                                                        |  | December 31,
|                                                        |  |             
|                                                        |  | 2003         |     | 2002 |  | 2001
|                                                        |  |              |     |      |  |     
|Income Statement Data                                   |  |              |     |      |  |      |     |   |  |   |    |  
|Revenues                                                |  | $            | 22  |      |  | $    | 42  |   |  | $ | 42 |  
|Operating income                                        |  | $            | 5   |      |  | $    | 12  |   |  | $ | 12 |  
|Interest expense on debt repaid with sales
    proceeds |  | $            | 7   |      |  | $    | 15  |   |  | $ | 13 |  
|Income tax expense                                      |  | $            |    |      |  | $    | 2   |   |  | $ | 1  |  
|Loss from operations, net of tax                        |  | $            | (2  | )    |  | $    | (5  | ) |  | $ | (2 | )
|Gain on disposition, net of tax                         |  | $            | 206 |      |  | $    | 109 |   |  | $ |   |  

For the year ended December 31, 2003, the
gain from disposition consists of $194 million (pre-tax) of
gains recorded in connection with the sale of the Principe on
June 30, 2003 and the reversal of $52 million
(pre-tax) of reserves relating to the Companys former
gaming business disposed of in 1999 that are no longer required
as the related contingencies have been resolved.

During 2002, the Company recorded an after tax
gain of $109 million from discontinued operations primarily
related to the issuance of new Internal Revenue Service
(IRS) regulations in early 2002, which allowed the
Company to recognize a $79 million tax benefit from a tax
loss on the 1999 sale of its former gaming business. The tax
loss was previously disallowed under the old regulations. In
addition, the Company

F-24



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

recorded a $25 million gain resulting from
an adjustment to the Companys tax basis in ITT World
Directories, a subsidiary which was disposed of in early 1998
through a tax deferred reorganization. The increase in the tax
basis has the effect of reducing the deferred tax charge
recorded on the disposition in 1998. This gain also included the
reversal of $5 million (after tax) of liabilities set up in
conjunction with the sale of the former gaming business that are
no longer required as the related contingencies have been
resolved.

Note 8.     Goodwill
and Intangible Assets

Prior to the adoption of SFAS No. 142,
goodwill and trademarks and trade names were amortized on a
straight-line basis over a 40-year period. Effective
January 1, 2002, goodwill and trademarks and trade names,
which are deemed intangible assets with an indefinite life, were
no longer amortized. Intangible assets associated with
management and franchise contracts are amortized on a
straight-line basis over the initial life of the respective
contract.

The changes in the carrying amount of goodwill
for the year ended December 31, 2003 are as follows (in
millions):

|                                  |  |         |       |           |  |       |     |  |  |   |       |  
|--------------------------------- |  | ------- | ----- | --------- |  | ----- | --- |  |  | - | ----- | -
|                                  |  |         |       | Vacation  |  |      
|                                  |  | Hotel   |       | Ownership |  |      
|                                  |  | Segment |       | Segment   |  | Total
|                                  |  |         |       |           |  |      
|Balance at January 1, 2003        |  | $       | 1,959 |           |  | $     | 241 |  |  | $ | 2,200 |  
|Settlement of tax contingency     |  |         | (1    | )         |  |       |    |  |  |   | (1    | )
|Cumulative translation adjustment |  |         | 24    |           |  |       |    |  |  |   | 24    |  
|Asset dispositions                |  |         | (113  | )         |  |       |    |  |  |   | (113  | )
|                                  |  |         |       |           |  |       |     |  |  |   |       |  
|Balance at December 31, 2003.     |  | $       | 1,869 |           |  | $     | 241 |  |  | $ | 2,110 |  
|                                  |  |         |       |           |  |       |     |  |  |   |       |  

Intangible assets consisted of the following (in
millions):

|                                    |  |              |     |      |  |   |     |  
|----------------------------------- |  | ------------ | --- | ---- |  | - | --- | -
|                                    |  |             
|                                    |  | December 31,
|                                    |  |             
|                                    |  | 2003         |     | 2002
|                                    |  |              |     |     
|Trademarks and trade names          |  | $            | 226 |      |  | $ | 226 |  
|Management and franchise agreements |  |              | 168 |      |  |   | 147 |  
|Other                               |  |              | 59  |      |  |   | 64  |  
|                                    |  |              |     |      |  |   |     |  
|                                    |  |              | 453 |      |  |   | 437 |  
|Accumulated amortization            |  |              | (75 | )    |  |   | (67 | )
|                                    |  |              |     |      |  |   |     |  
|                                    |  | $            | 378 |      |  | $ | 370 |  
|                                    |  |              |     |      |  |   |     |  

Amortization expense of $13 million,
$13 million and $12 million, respectively, related to
intangible assets with finite lives was recorded during the
years ended December 31, 2003, 2002 and 2001. Amortization
expense relating to these assets is expected to be at least
$13 million in each of the fiscal years 2004 through 2009.

Note 9.     Other
Assets

Contractual
Obligations.On December 30,
2003, the Company together with Lehman Brothers Holdings Inc.
(Lehman Brothers), announced the acquisition of all
of the outstanding senior debt (approximately
$1.3 billion), at a discount, of Le Meridien Hotels
and Resorts Ltd. (Le Meridien). The Company
funded its $200 million share of this acquisition through a
high yield junior participation in the debt. As part of this
funding, Lehman Brothers and the Company have entered into an
exclusive agreement through

F-25



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

March 5, 2004 to negotiate the
recapitalization of Le Meridien which may be extended
through early April 2004, which could require a significant cash
outlay.

Note 10.     Restructuring
and Other Special Charges (Credits)

The Company had remaining accruals related to
restructuring charges of $24 million at December 31,
2003 and $25 million at December 31, 2002, of which
$20 million and $21 million is included in other
liabilities in the accompanying December 31, 2003 and 2002
consolidated balance sheets, respectively. The following tables
summarize restructuring and other special charges (credits)
activity during the years ended December 31, 2003, 2002 and
2001:

|                                      |                                                                      |         |    |              |   |              |     |              |   |   |     |     |   |   |    |     |  
|------------------------------------- | -------------------------------------------------------------------- | ------- | -- | ------------ | - | ------------ | --- | ------------ | - | - | --- | --- | - | - | -- | --- | -
|                                      |                                                                      |         |    | Cash         |   |              |     |             
|                                      |                                                                      | Noncash |    | (Receipts)   |   | Expenditures |     | Total Charge
|                                      |                                                                      | Charges |    | Expenditures |   | Accrued      |     | (Credit)    
|                                      |                                                                      |         |    |              |   |              |     |             
|Year Ended December 31, 2003          |                                                                      |         |    |              |   |              |     |              |   |   |     |     |   |   |    |    
|Restructuring charges (credits):      |                                                                      |         |    |              |   |              |     |              |   |   |     |     |   |   |    |    
|                                      | Adjustments to liability as a result of benefit
    plan termination |         | $  | (9           | ) |              | $   |             |   |   | $   |    |   |   | $  | (9  | )
|                                      |                                                                      |         |    |              |   |              |     |              |   |   |     |     |   |   |    |    
|Other special credits:                |                                                                      |         |    |              |   |              |     |              |   |   |     |     |   |   |    |    
|                                      | Proceeds from favorable settlement of litigation                     |         | $  |             |   |              | $   | (12          | ) |   | $   |    |   |   | $  | (12 | )
|                                      | Legal defense costs                                                  |         |    |             |   |              |     |             |   |   |     | 13  |   |   |    | 13  |  
|                                      | Adjustments to receivables previously written down                   |         |    |             |   |              |     |             |   |   |     | (1  | ) |   |    | (1  | )
|                                      |                                                                      |         |    |              |   |              |     |              |   |   |     |     |   |   |    |    
|Total other special credits           |                                                                      | $       |   |              |   | $            | (12 | )            |   | $ | 12  |     |   | $ |   |    
|                                      |                                                                      |         |    |              |   |              |     |              |   |   |     |     |   |   |    |    
|Year Ended December 31, 2002          |                                                                      |         |    |              |   |              |     |              |   |   |     |     |   |   |    |    
|Restructuring credits                 |                                                                      | $       |   |              |   | $            | (1  | )            |   | $ |    |     |   | $ | (1 | )  
|                                      |                                                                      |         |    |              |   |              |     |              |   |   |     |     |   |   |    |    
|Other special credits:                |                                                                      |         |    |              |   |              |     |              |   |   |     |     |   |   |    |    
|                                      | Adjustments to receivables previously written down                   |         | $  |             |   |              | $   |             |   |   | $   | (3  | ) |   | $  | (3  | )
|                                      | Adjustments to e-business investments previously
    written down    |         | $  | (3           | ) |              | $   |             |   |   |     |    |   |   |    | (3  | )
|                                      |                                                                      |         |    |              |   |              |     |              |   |   |     |     |   |   |    |    
|Total other special credits           |                                                                      | $       | (3 | )            |   | $            |    |              |   | $ | (3  | )   |   | $ | (6 | )  
|                                      |                                                                      |         |    |              |   |              |     |              |   |   |     |     |   |   |    |    
|Year Ended December 31, 2001          |                                                                      |         |    |              |   |              |     |              |   |   |     |     |   |   |    |    
|Restructuring charges (credits):      |                                                                      |         |    |              |   |              |     |              |   |   |     |     |   |   |    |    
|                                      | Adjustments to receivables previously written down                   |         | $  |             |   |              | $   |             |   |   | $   | (20 | ) |   | $  | (20 | )
|                                      | Severance                                                            |         |    |             |   |              | $   | 15           |   |   |     |    |   |   |    | 15  |  
|                                      |                                                                      |         |    |              |   |              |     |              |   |   |     |     |   |   |    |    
|Total restructuring charges (credits) |                                                                      | $       |   |              |   | $            | 15  |              |   | $ | (20 | )   |   | $ | (5 | )  
|                                      |                                                                      |         |    |              |   |              |     |              |   |   |     |     |   |   |    |    
|Other special charges:                |                                                                      |         |    |              |   |              |     |              |   |   |     |     |   |   |    |    
|                                      | Write-down of e-business investments                                 |         | $  | 23           |   |              | $   |              |   |   | $   |    |   |   | $  | 23  |  
|                                      | Receivables write-offs                                               |         |    |             |   |              |     |              |   |   |     | 17  |   |   |    | 17  |  
|                                      | Employee retention costs                                             |         |    | 11           |   |              |     |              |   |   |     |    |   |   |    | 11  |  
|                                      | Write-off costs for abandoned development project                    |         |    |             |   |              |     |             |   |   |     | 3   |   |   |    | 3   |  
|                                      | Other                                                                |         |    |             |   |              | $   |             |   |   |     | 1   |   |   |    | 1   |  
|                                      |                                                                      |         |    |              |   |              |     |              |   |   |     |     |   |   |    |    
|Total other special charges           |                                                                      | $       | 34 |              |   | $            |    |              |   | $ | 21  |     |   | $ | 55 |    
|                                      |                                                                      |         |    |              |   |              |     |              |   |   |     |     |   |   |    |    

F-26



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

2003 Restructuring and Other Special
Charges (Credits).During the year
ended December 31, 2003, the Company received
$12 million in a favorable settlement of a litigation
matter. This special credit was offset by an increase of
$13 million in a reserve for legal defense costs associated
with a separate litigation matter. Additionally, the Company
reversed through restructuring credits a $9 million
liability that was originally established in 1997 for the ITT
Excess Pension Plan through restructuring charges and is no
longer required as the Company finalized the settlement of its
remaining obligations associated with the plan.

2002 Restructuring and Other Special
Credits.During the year ended
December 31, 2002, the Company recorded reversals of
restructuring charges of $1 million and reversals of other
special charges of $6 million. The reversal of the
restructuring charge relates to an adjustment to the severance
liability established in connection with the cost containment
efforts following the September 11 Attacks based on actual
costs incurred. The reversal of the other special charges
primarily related to sales of investments in certain e-business
ventures previously deemed impaired and the collections of
receivables which were previously deemed uncollectible.

2001 Restructuring and Other Special
Charges (Credits).Due to the
September 11 Attacks and the weakening of the
U.S. economy, in the third and fourth quarter of 2001, the
Company implemented a cost reduction plan and conducted a
comprehensive review of the carrying value of certain assets for
potential impairment, resulting in 2001 restructuring charges of
$15 million and noncash other special charges aggregating
approximately $36 million. The restructuring charges were
primarily for severance costs incurred as part of the cost
reduction plan. The other special charges consisted primarily of
employee retention costs associated with the accelerated vesting
of 50% of restricted stock awards granted in February 2001
(approximately $11 million); bad debt expense associated
with receivables no longer deemed collectible (approximately
$17 million); impairments of certain investments and other
assets (approximately $5 million); and abandoned pursuit
projects (approximately $3 million).

In addition, in early 2001, the Company wrote
down its investments in various e-business ventures by
approximately $19 million based on the market conditions
for the technology sector at the time and managements
assessment that impairment of these investments was
other-than-temporary. This special charge was offset by the
reversal of a $20 million bad debt restructuring charge
taken in 1998 relating to a note receivable, which is now fully
performing.

Note 11.     Plant,
Property and Equipment

Plant, property and equipment consisted of the
following (in millions):

|                                               |  |              |        |      |  |   |        |  
|---------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | -
|                                               |  |             
|                                               |  | December 31,
|                                               |  |             
|                                               |  | 2003         |        | 2002
|                                               |  |              |        |     
|Land and improvements                          |  | $            | 1,351  |      |  | $ | 1,256  |  
|Buildings and improvements                     |  |              | 6,193  |      |  |   | 5,849  |  
|Furniture, fixtures and equipment              |  |              | 1,942  |      |  |   | 1,735  |  
|Construction work in process                   |  |              | 217    |      |  |   | 159    |  
|                                               |  |              |        |      |  |   |        |  
|                                               |  |              | 9,703  |      |  |   | 8,999  |  
|Less accumulated depreciation and amortization |  |              | (2,580 | )    |  |   | (2,088 | )
|                                               |  |              |        |      |  |   |        |  
|                                               |  | $            | 7,123  |      |  | $ | 6,911  |  
|                                               |  |              |        |      |  |   |        |  

F-27



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Note 12.     Accrued
Expenses

Accrued expenses include accrued distributions of
$172 million and $170 million at December 31,
2003 and 2002, respectively. Accrued expenses also include the
current portion of insurance reserves and SPG point liability
and other marketing accruals and other restructuring reserves as
discussed in Note 10. Restructuring and Other Special
Charges (Credits) and Note 21. Commitments and
Contingencies, respectively.

Note 13.     Income
Taxes

Income tax data from continuing operations of the
Company is as follows (in millions):

|                                       |                 |                         |      |      |   |      |     |     |   |   |     |     |  
|-------------------------------------- | --------------- | ----------------------- | ---- | ---- | - | ---- | --- | --- | - | - | --- | --- | -
|                                       |                 |                        
|                                       |                 | Year Ended December 31,
|                                       |                 |                        
|                                       |                 | 2003                    |      | 2002 |   | 2001
|                                       |                 |                         |      |      |   |     
|Pretax income (loss)                   |                 |                         |      |      |   |      |     |     |   |   |     |    
|U.S.                                   |                 | $                       | (64  | )    |   | $    | 169 |     |   | $ | 66  |    
|Foreign                                |                 |                         | 53   |      |   |      | 86  |     |   |   | 126 |    
|                                       |                 |                         |      |      |   |      |     |     |   |   |     |    
|                                       |                 | $                       | (11  | )    |   | $    | 255 |     |   | $ | 192 |    
|                                       |                 |                         |      |      |   |      |     |     |   |   |     |    
|Provision (benefit) for income
    tax |                 |                         |      |      |   |      |     |     |   |   |     |    
|Current:                               |                 |                         |      |      |   |      |     |     |   |   |     |    
|                                       | U.S. federal    |                         | $    | 1    |   |      | $   | (14 | ) |   | $   | 57  |  
|                                       | State and local |                         |      | 4    |   |      |     | (3  | ) |   |     | 8   |  
|                                       | Foreign         |                         |      | 48   |   |      |     | 69  |   |   |     | 63  |  
|                                       |                 |                         |      |      |   |      |     |     |   |   |     |    
|                                       |                 |                         | 53   |      |   |      | 52  |     |   |   | 128 |    
|                                       |                 |                         |      |      |   |      |     |     |   |   |     |    
|Deferred:                              |                 |                         |      |      |   |      |     |     |   |   |     |    
|                                       | U.S. federal    |                         | $    | (108 | ) |      | $   | (32 | ) |   | $   | (91 | )
|                                       | State and local |                         |      | (14  | ) |      |     | (4  | ) |   |     |    |  
|                                       | Foreign         |                         |      | (44  | ) |      |     | (14 | ) |   |     | 5   |  
|                                       |                 |                         |      |      |   |      |     |     |   |   |     |    
|                                       |                 |                         | (166 | )    |   |      | (50 | )   |   |   | (86 | )  
|                                       |                 |                         |      |      |   |      |     |     |   |   |     |    
|                                       |                 | $                       | (113 | )    |   | $    | 2   |     |   | $ | 42  |    
|                                       |                 |                         |      |      |   |      |     |     |   |   |     |    

No provision has been made for U.S. taxes payable
on undistributed foreign earnings amounting to approximately
$814 million as of December 31, 2003, since these
amounts are permanently reinvested.

F-28



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Deferred income taxes represent the tax effect of
the differences between the book and tax bases of assets and
liabilities. Deferred tax assets (liabilities) include the
following (in millions):

|                                                        |  |              |      |      |  |   |      |  
|------------------------------------------------------- |  | ------------ | ---- | ---- |  | - | ---- | -
|                                                        |  |             
|                                                        |  | December 31,
|                                                        |  |             
|                                                        |  | 2003         |      | 2002
|                                                        |  |              |      |     
|Plant, property and equipment                           |  | $            | (527 | )    |  | $ | (579 | )
|Intangibles                                             |  |              | (171 | )    |  |   | (155 | )
|Allowances for doubtful accounts and other
    reserves |  |              | 137  |      |  |   | 180  |  
|Employee benefits                                       |  |              | 42   |      |  |   | 59   |  
|Deferred gain on ITT World Directories disposition      |  |              | (551 | )    |  |   | (551 | )
|Net operating loss and tax credit carryforwards         |  |              | 372  |      |  |   | 318  |  
|Deferred income                                         |  |              | (136 | )    |  |   | (145 | )
|Other                                                   |  |              | (47  | )    |  |   | (58  | )
|                                                        |  |              |      |      |  |   |      |  
|                                                        |  |              | (881 | )    |  |   | (931 | )
|Less valuation allowance                                |  |              | (17  | )    |  |   | (55  | )
|                                                        |  |              |      |      |  |   |      |  
|Deferred income taxes                                   |  | $            | (898 | )    |  | $ | (986 | )
|                                                        |  |              |      |      |  |   |      |  

At December 31, 2003, the Company had net
operating loss and tax credit carryforwards of approximately
$914 million and $33 million, respectively, for
federal income tax purposes. Substantially all operating loss
carryforwards, available to provide future tax benefits, expire
between 2018 and 2023.

In February 1998, the Company disposed of ITT
World Directories. Through December 31, 2003, the Company
has recorded $551 million of income taxes relating to this
transaction, which are included in deferred income taxes in the
accompanying consolidated balance sheets. While the Company
strongly believes this transaction was completed on a
tax-deferred basis, this position is currently being challenged
by the IRS. During 2002 the matter was transferred from the IRS
Field Agent to IRS Appeals. To date, the Company has been unable
to reach a satisfactory resolution of the matter with IRS
Appeals. The Company expects to receive notification from IRS
Appeals advising the Company of its rights to either pay the
liability or elect to pursue the matter in litigation. Upon
receiving this notification, the Company plans on electing to
litigate the matter with the ultimate outcome unpredictable at
this time. If this transaction were deemed fully taxable in
1998, then the Companys federal tax obligation would be
approximately $499 million, plus interest, and would be
partially offset by the Companys net operating loss
discussed above. The Company plans to vigorously defend its
position in this matter.

F-29



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

A reconciliation of the tax provision of the
Company at the U.S. statutory rate to the provision for income
tax as reported is as follows (in millions):

|                                                   |  |                         |      |      |  |      |     |   |  |   |     |  
|-------------------------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | --- | - |  | - | --- | -
|                                                   |  |                        
|                                                   |  | Year Ended December 31,
|                                                   |  |                        
|                                                   |  | 2003                    |      | 2002 |  | 2001
|                                                   |  |                         |      |      |  |     
|Tax provision (benefit) at U.S. statutory
    rate |  | $                       | (4   | )    |  | $    | 86  |   |  | $ | 66  |  
|U.S. state and local income taxes                  |  |                         | (7   | )    |  |      | (5  | ) |  |   | 5   |  
|Exempt Trust income                                |  |                         | (60  | )    |  |      | (60 | ) |  |   | (57 | )
|Tax on repatriation of foreign earnings            |  |                         | 12   |      |  |      | 15  |   |  |   | 13  |  
|Foreign tax rate differential                      |  |                         | (1   | )    |  |      | 13  |   |  |   | 10  |  
|Non-deductible goodwill                            |  |                         |     |      |  |      |    |   |  |   | 16  |  
|Tax settlements                                    |  |                         | (36  | )    |  |      | (30 | ) |  |   |    |  
|Basis difference on asset sales                    |  |                         | (5   | )    |  |      |    |   |  |   |    |  
|Reduction of valuation allowance                   |  |                         | (12  | )    |  |      | (18 | ) |  |   | (10 | )
|Other                                              |  |                         |     |      |  |      | 1   |   |  |   | (1  | )
|                                                   |  |                         |      |      |  |      |     |   |  |   |     |  
|Provision for income tax (benefit)                 |  | $                       | (113 | )    |  | $    | 2   |   |  | $ | 42  |  
|                                                   |  |                         |      |      |  |      |     |   |  |   |     |  

In 2003 the Company filed for tax amnesty in
Italy for certain of its Italian subsidiaries related to the
1997-2001 tax years. As a result of these filings, the Company
recognized a $2 million tax benefit, which represented the
reversal of reserves associated with these tax years, net of the
tax amnesty cost. In addition, the Company recognized a
$26 million tax benefit for the reversal of a valuation
allowance associated with a tax matter, which can no longer be
contested as a result of the tax amnesty filings. Also in 2003,
the Company recognized an $8 million tax benefit relating
to the reduction of previously accrued taxes after an evaluation
of the exposure items and the expiration of related statutes of
limitation.

During 2002, the IRS completed its audits of
various tax returns of the Company for tax periods dating back
to 1993. As a result of the completion of these audits, the
Company recorded a tax benefit in the fourth quarter of 2002 of
approximately $30 million, which consists of
$17 million in expected refunds offset by a $5 million
reduction to the Companys net operating loss, and
$18 million of reversals of accrued income tax liabilities
associated with these audit years, which are no longer deemed
necessary.

F-30



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Note
14.     Debt

Long-term debt and short-term borrowings
consisted of the following (in millions):

|                                                                                                    |                                                                                                   |              |       |      |  |   |       |     | 
|--------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | ------------ | ----- | ---- |  | - | ----- | --- | 
|                                                                                                    |                                                                                                   |             
|                                                                                                    |                                                                                                   | December 31,
|                                                                                                    |                                                                                                   |             
|                                                                                                    |                                                                                                   | 2003         |       | 2002
|                                                                                                    |                                                                                                   |              |       |     
|Senior Credit Facility:                                                                             |                                                                                                   |              |       |      |  |   |       |    
|                                                                                                    | Term loan, interest at LIBOR+1.625% (2.75% at
    December 31, 2003) maturing 2004 to 2006        |              | $     | 300  |  |   | $     | 300 | 
|                                                                                                    | Revolving Credit Facility, interest at CBA+1.625%
    (4.34% at December 31, 2003), maturing 2006 |              |       | 15   |  |   |       | 325 | 
|Senior Notes interest rates of 7.375% and 7.875%,
    maturing 2007 and 2012                        |                                                                                                   |              | 1,532 |      |  |   | 1,542 |    
|Sheraton Holding public debt, interest rates
    ranging from 6.75% to 7.75%, maturing through 2025 |                                                                                                   |              | 1,067 |      |  |   | 1,324 |    
|Convertible Senior Notes  Series B                                                                 |                                                                                                   |              | 326   |      |  |   | 316   |    
|Convertible Debt                                                                                    |                                                                                                   |              | 360   |      |  |   |      |    
|Euro loan, Euribor+1.95% (4.81% at
    December 31, 2002), fully repaid during 2003                 |                                                                                                   |              |      |      |  |   | 473   |    
|Mortgages and other, interest rates ranging from
    1.81% to 9.21%, various maturities             |                                                                                                   |              | 1,026 |      |  |   | 1,039 |    
|                                                                                                    |                                                                                                   |              |       |      |  |   |       |    
|                                                                                                    |                                                                                                   |              | 4,626 |      |  |   | 5,319 |    
|Less current maturities                                                                             |                                                                                                   |              | (233  | )    |  |   | (870  | )  
|                                                                                                    |                                                                                                   |              |       |      |  |   |       |    
|Long-term debt                                                                                      |                                                                                                   | $            | 4,393 |      |  | $ | 4,449 |    
|                                                                                                    |                                                                                                   |              |       |      |  |   |       |    

Aggregate debt maturities for each of the years
ended December 31 are as follows (in millions):

|           |  |   |       | 
|---------- |  | - | ----- | 
|2004       |  | $ | 233   | 
|2005       |  |   | 603   | 
|2006       |  |   | 929   | 
|2007       |  |   | 764   | 
|2008       |  |   | 28    | 
|Thereafter |  |   | 2,069 | 
|           |  |   |       | 
|           |  | $ | 4,626 | 
|           |  |   |       | 

In May 2003, the Company sold an aggregate of
$360 million 3.5% coupon convertible senior notes due 2023.
The notes are convertible, subject to certain conditions, into
7.2 million Shares based on a conversion price of $50.00
per Share (the Convertible Debt). Gross proceeds
received were used to repay a portion of the Companys
Senior Credit Facility and for other operational purposes.
Holders may first present their Convertible Debt to the Company
for repurchase in May 2006.

During the second quarter of 2003, the Company
amended its Senior Credit Facility. The amendment adjusted the
leverage coverage ratio for the second quarter of 2003 and for
the next eight quarters (through June 30, 2005). In
addition, the Company modified its current covenant on
encumbered EBITDA (as defined) and added a restriction on the
level of cash dividends. The Company currently expects to be in
compliance with the amended covenants for the remainder of the
Senior Credit Facility term.

In October 2002, the Company refinanced its
previous senior credit facility with a new four-year
$1.3 billion Senior Credit Facility. The new facility is
comprised of a $1.0 billion Revolving Credit Facility and a
$300 million Term Loan, each maturing in 2006, with a
one-year extension option, and an initial interest rate

F-31



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

of LIBOR + 1.625%. The proceeds of the new
Senior Credit Facility were used to pay off all amounts owed
under the Companys previous senior credit facility, which
was due to mature in February 2003. The Company incurred a
charge of approximately $1 million in connection with this
early extinguishment of debt.

In April 2002, the Company sold $1.5 billion
of senior notes in two tranches  $700 million
principal amount of 7 3/8% senior notes due 2007 and
$800 million principal amount of 7 7/8% senior notes
due 2012. The Company used the proceeds to repay all of its
senior secured notes facility and a portion of its previous
senior credit facility. In connection with the repayment of
debt, the Company incurred charges of approximately
$29 million including approximately $23 million for
the early termination of interest rate swap agreements
associated with the repaid debt, and $6 million for the
write-off of deferred financing costs and termination fees for
the early extinguishment of debt.

In December 2001, the Company entered into an
18-month 450 million Euro loan that automatically extended
for six additional months until December 2003. The loan had an
interest rate of Euribor plus 195 basis points. In connection
with the sale of the Sardinia Assets and the Principe, the Euro
loan was paid in full during 2003.

In May 2001, the Company sold an aggregate face
amount of $816 million zero coupon Convertible Senior Notes
due 2021. The two series of notes had an initial blended yield
to maturity of 2.35%. The notes are convertible, subject to
certain conditions, into an aggregate 9,657,000 Shares. The
Company received gross proceeds from these sales of
approximately $500 million, which were used to repay a
portion of its senior secured notes facility that bore interest
at LIBOR plus 275 basis points. The Company incurred
approximately $9 million of charges in connection with this
early debt extinguishment. In May 2002, the Company repurchased
all of the outstanding Series A Convertible Senior Notes
for $202 million in cash. Holders of Series B
Convertible Senior Notes may first put these notes to the
Company in May 2004 for a purchase price of approximately
$330 million. The Company has classified this debt maturity
as long-term as it has the intent and ability to draw on its
Revolving Credit Facility for such funding, if required.

The Company has the ability to draw down on its
Revolving Credit Facility in various currencies. Drawdowns in
currencies other than the U.S. dollar represent a natural hedge
of the Companys foreign denominated net assets and
operations. At December 31, 2003, the Company had
$15 million drawn in Canadian dollars.

The Senior Credit Facility, Senior Notes,
Convertible Senior Notes and the Convertible Debt are guaranteed
by the Sheraton Holding Corporation, a wholly owned subsidiary
of the Corporation. The Sheraton Holding public debt is
guaranteed by the Corporation. See Note 23. Guarantor
Subsidiary for consolidating financial information for Starwood
Hotels & Resorts Worldwide, Inc. (the Parent),
Sheraton Holding Corporation (the Guarantor
Subsidiary) and all other legal entities that are
consolidated into the Companys results including the
Trust, but which are not the Guarantor Subsidiary (the
Non-Guarantor Subsidiaries).

The Company maintains lines of credit under which
bank loans and other short-term debt are drawn. In addition,
smaller credit lines are maintained by the Companys
foreign subsidiaries. The Company had approximately
$900 million of available borrowing capacity under its
domestic and foreign lines of credit as of December 31,
2003.

The Company is subject to certain restrictive
debt covenants under its short-term borrowing and long-term debt
obligations including defined financial covenants, limitations
on incurring additional debt, escrow account funding
requirements for debt service, capital expenditures, tax
payments and insurance premiums, among other restrictions. The
Company was in compliance with all of the short-term and
long-term debt covenants at December 31, 2003.

F-32



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

The weighted average interest rate for short-term
borrowings was 5.15% and 6.13% at December 31, 2003 and
2002, respectively, and their fair values approximated carrying
value given their short-term nature. These average interest
rates are composed of interest rates on both U.S. dollar and
non-U.S. dollar denominated indebtedness.

For adjustable rate debt, fair value approximates
carrying value due to the variable nature of the interest rates.
For non-public fixed rate debt, fair value is determined based
upon discounted cash flows for the debt at rates deemed
reasonable for the type of debt and prevailing market conditions
and the length to maturity for the debt. The estimated fair
value of debt at December 31, 2003 and 2002 was
$4.7 billion and $5.2 billion, respectively, and was
determined based on quoted market prices and/or discounted cash
flows. See Note 19. Derivative Financial Instruments for
additional discussion regarding the Companys interest rate
swap agreements.

Note 15.     Employee
Benefit Plans

Defined Benefit and Postretirement Benefit
Plans.The Company and its
subsidiaries sponsor or previously sponsored numerous funded and
unfunded domestic and international pension plans, including the
ITT Sheraton Corporation Ongoing Retirement Plan (Ongoing
Plan), the ITT Corporation Excess Pension Plan
(Excess Plan), the ITT Corporation Salaried
Retirement Plan (Salaried Plan) and several other
plans. All defined benefit plans covering U.S. employees are
frozen. Certain plans covering non-U.S. employees remain active.

The Ongoing Plan is a frozen, substantially
funded plan. During 2003, the Ongoing Plan paid out
$3 million in lump-sum payments, and in December 2003
purchased an annuity for $8 million settling a portion of
the remaining obligations of the plan. At December 31,
2002, the assets of the Ongoing Plan included 174,000 of the
Companys Shares. In conjunction with the settlement of the
Ongoing Plans liabilities, these shares were sold in 2003
for $6 million.

The Excess Plan was a frozen plan providing
benefits to certain former executives of ITT Corporation.
Lump-sum distributions of $1 million were made from the
Excess Plan in 2003, settling the remaining liabilities of the
Excess Plan.

As of April 2001, the Salaried Plan has been
terminated and all liabilities under the Salaried Plan have been
settled as either lump sum distributions, annuity purchases,
transfers to the Ongoing Plan or transfers to the Pension
Benefit Guaranty Corporation for missing participants. As a
result, the remaining net assets of approximately
$4 million were reverted to the Company in 2002.

As a result of annuity purchases and lump sum
distributions from the Ongoing, Excess and Salaried Plans, the
Company recorded net settlement gains of approximately
$5 million, $3 million and $14 million during the
years ended December 31, 2003, 2002 and 2001, respectively.

The Company also sponsors the Starwood Hotels
& Resorts Worldwide, Inc. Retiree Welfare Program. The plan
provides health care and life insurance benefits for certain
eligible retired employees. The Company has prefunded a portion
of the health care and life insurance obligations through trust
funds where such prefunding can be accomplished on a tax
effective basis. The Company also funds this program on a
pay-as-you-go basis.

F-33



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

The following table sets forth the benefit
obligation, fair value of plan assets, the funded status of the
Companys defined benefit pension and postretirement
benefit plans, and the amounts recognized in the Companys
consolidated balance sheets at December 31, 2003 and 2002
(amounts are in millions):

|                                                                      |                                               |          |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |     |   |   |     |     |  
|--------------------------------------------------------------------- | --------------------------------------------- | -------- | --- | ---------------- | - | -------------- | --- | ---- | - | ---- | --- | ---- | - | - | --- | --- | - | - | --- | --- | - | - | --- | --- | -
|                                                                      |                                               |          |     |                  |   |               
|                                                                      |                                               | Pension  |     | Foreign          |   | Postretirement
|                                                                      |                                               | Benefits |     | Pension Benefits |   | Benefits      
|                                                                      |                                               |          |     |                  |   |               
|                                                                      |                                               | 2003     |     | 2002             |   | 2003           |     | 2002 |   | 2003 |     | 2002
|                                                                      |                                               |          |     |                  |   |                |     |      |   |      |     |     
|Change in Benefit Obligation                                          |                                               |          |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |     |   |   |     |    
|Benefit obligation at beginning of year                               |                                               | $        | 34  |                  |   | $              | 50  |      |   | $    | 112 |      |   | $ | 97  |     |   | $ | 29  |     |   | $ | 28  |    
|                                                                      | Service cost                                  |          |     |                 |   |                |     |     |   |      |     | 4    |   |   |     | 3   |   |   |     |    |   |   |     |    |  
|                                                                      | Interest cost                                 |          |     | 2                |   |                |     | 3    |   |      |     | 7    |   |   |     | 6   |   |   |     | 2   |   |   |     | 2   |  
|                                                                      | Actuarial (gain) loss                         |          |     | (2               | ) |                |     | (5   | ) |      |     | 8    |   |   |     | 8   |   |   |     | 2   |   |   |     | 2   |  
|                                                                      | Additional liability for lump sum option      |          |     |                 |   |                |     | 2    |   |      |     |     |   |   |     |    |   |   |     |    |   |   |     |    |  
|                                                                      | Plan amendments                               |          |     |                 |   |                |     |     |   |      |     |     |   |   |     | (4  | ) |   |     |    |   |   |     |    |  
|                                                                      | Settlements                                   |          |     | (3               | ) |                |     | (11  | ) |      |     |     |   |   |     |    |   |   |     |    |   |   |     |    |  
|                                                                      | Annuity purchase                              |          |     | (8               | ) |                |     | (3   | ) |      |     |     |   |   |     |    |   |   |     |    |   |   |     |    |  
|                                                                      | Effect of foreign exchange rates              |          |     |                 |   |                |     |     |   |      |     | 7    |   |   |     | 6   |   |   |     |    |   |   |     |    |  
|                                                                      | Benefits paid                                 |          |     | (3               | ) |                |     | (2   | ) |      |     | (4   | ) |   |     | (4  | ) |   |     | (2  | ) |   |     | (3  | )
|                                                                      |                                               |          |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |     |   |   |     |    
|Benefit obligation at end of year                                     |                                               | $        | 20  |                  |   | $              | 34  |      |   | $    | 134 |      |   | $ | 112 |     |   | $ | 31  |     |   | $ | 29  |    
|                                                                      |                                               |          |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |     |   |   |     |    
|Change in Plan Assets                                                 |                                               |          |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |     |   |   |     |    
|Fair value of plan assets at beginning of year                        |                                               | $        | 16  |                  |   | $              | 36  |      |   | $    | 80  |      |   | $ | 88  |     |   | $ | 13  |     |   | $ | 21  |    
|                                                                      | Actual return on plan assets, net of expenses |          |     | 1                |   |                |     | (1   | ) |      |     | 12   |   |   |     | (12 | ) |   |     | 2   |   |   |     | (2  | )
|                                                                      | Reimbursement of benefit payments             |          |     |                 |   |                |     |     |   |      |     |     |   |   |     |    |   |   |     | (3  | ) |   |     | (6  | )
|                                                                      | Employer contribution                         |          |     | 2                |   |                |     | 1    |   |      |     | 4    |   |   |     | 3   |   |   |     | 3   |   |   |     | 3   |  
|                                                                      | Settlements                                   |          |     | (3               | ) |                |     | (11  | ) |      |     |     |   |   |     |    |   |   |     |    |   |   |     |    |  
|                                                                      | Annuity purchase                              |          |     | (8               | ) |                |     | (3   | ) |      |     |     |   |   |     |    |   |   |     |    |   |   |     |    |  
|                                                                      | Effect of foreign exchange rates              |          |     |                 |   |                |     |     |   |      |     | 5    |   |   |     | 5   |   |   |     |    |   |   |     |    |  
|                                                                      | Benefits paid                                 |          |     | (3               | ) |                |     | (2   | ) |      |     | (4   | ) |   |     | (4  | ) |   |     | (2  | ) |   |     | (3  | )
|                                                                      | Net asset reversion to Starwood               |          |     |                 |   |                |     | (4   | ) |      |     |     |   |   |     |    |   |   |     |    |   |   |     |    |  
|                                                                      |                                               |          |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |     |   |   |     |    
|Fair value of plan assets at end of year                              |                                               | $        | 5   |                  |   | $              | 16  |      |   | $    | 97  |      |   | $ | 80  |     |   | $ | 13  |     |   | $ | 13  |    
|                                                                      |                                               |          |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |     |   |   |     |    
|Funded status                                                         |                                               | $        | (15 | )                |   | $              | (18 | )    |   | $    | (37 | )    |   | $ | (32 | )   |   | $ | (18 | )   |   | $ | (16 | )  
|                                                                      | Unrecognized net actuarial (gain) loss        |          |     | (1               | ) |                |     | (4   | ) |      |     | 50   |   |   |     | 46  |   |   |     | 1   |   |   |     | (1  | )
|                                                                      | Unrecognized prior service cost               |          |     |                 |   |                |     |     |   |      |     | (3   | ) |   |     | (3  | ) |   |     |    |   |   |     |    |  
|                                                                      | Reimbursement of benefit payments             |          |     |                 |   |                |     |     |   |      |     |     |   |   |     |    |   |   |     |    |   |   |     | (1  | )
|                                                                      |                                               |          |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |     |   |   |     |    
|Net amount recognized at end of year                                  |                                               | $        | (16 | )                |   | $              | (22 | )    |   | $    | 10  |      |   | $ | 11  |     |   | $ | (17 | )   |   | $ | (18 | )  
|                                                                      |                                               |          |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |     |   |   |     |    
|Amounts recognized in the consolidated balance
    sheets consist of: |                                               |          |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |     |   |   |     |    
|                                                                      | Accrued benefit cost                          |          | $   | (18              | ) |                | $   | (23  | ) |      | $   | (16  | ) |   | $   | (16 | ) |   | $   | (17 | ) |   | $   | (18 | )
|                                                                      | Accumulated other comprehensive income        |          |     | 2                |   |                |     | 1    |   |      |     | 26   |   |   |     | 27  |   |   |     |    |   |   |     |    |  
|                                                                      |                                               |          |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |     |   |   |     |    
|Net amount recognized at end of year                                  |                                               | $        | (16 | )                |   | $              | (22 | )    |   | $    | 10  |      |   | $ | 11  |     |   | $ | (17 | )   |   | $ | (18 | )  
|                                                                      |                                               |          |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |     |   |   |     |    

F-34



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

At December 31, 2003 and 2002, the
accumulated benefit obligation for the Companys domestic
pension plans was $20 million and $34 million,
respectively, and the accumulated benefit obligation for the
foreign pension plans was $112 million and
$95 million, respectively. At December 31, 2003 and
2002, the projected benefit obligation and accumulated benefit
obligation exceeded the fair value of plan assets for all of the
Companys domestic and foreign pension plans, and the
accumulated postretirement benefit obligation exceeded plan
assets of the postretirement benefit plan.

The following table presents the components of
net periodic benefit cost for the years ended December 31,
2003, 2002 and 2001 (amounts are in millions):

|                                   |                             |          |    |                  |  |                |    |      |  |      |     |      |   |      |    |      |  |      |    |   |  |   |    |   |  |   |    |   |  |   |    |    |   |   |    |    |  
|---------------------------------- | --------------------------- | -------- | -- | ---------------- |  | -------------- | -- | ---- |  | ---- | --- | ---- | - | ---- | -- | ---- |  | ---- | -- | - |  | - | -- | - |  | - | -- | - |  | - | -- | -- | - | - | -- | -- | -
|                                   |                             |          |    |                  |  |               
|                                   |                             | Pension  |    | Foreign          |  | Postretirement
|                                   |                             | Benefits |    | Pension Benefits |  | Benefits      
|                                   |                             |          |    |                  |  |               
|                                   |                             | 2003     |    | 2002             |  | 2001           |    | 2003 |  | 2002 |     | 2001 |   | 2003 |    | 2002 |  | 2001
|                                   |                             |          |    |                  |  |                |    |      |  |      |     |      |   |      |    |      |  |     
|Service cost                       |                             | $        |   |                  |  | $              |   |      |  | $    |    |      |   | $    | 4  |      |  | $    | 3  |   |  | $ | 2  |   |  | $ |   |   |  | $ |   |    |   | $ |   |   
|Interest cost                      |                             |          | 2  |                  |  |                | 3  |      |  |      | 3   |      |   |      | 7  |      |  |      | 6  |   |  |   | 6  |   |  |   | 2  |   |  |   | 2  |    |   |   | 2  |   
|Expected return on plan assets     |                             |          | (1 | )                |  |                | (2 | )    |  |      | (3  | )    |   |      | (7 | )    |  |      | (8 | ) |  |   | (8 | ) |  |   | (1 | ) |  |   | (1 | )  |   |   | (2 | ) 
|Amortization of:                   |                             |          |    |                  |  |                |    |      |  |      |     |      |   |      |    |      |  |      |    |   |  |   |    |   |  |   |    |   |  |   |    |    |   |   |    |   
|                                   | Prior service cost (income) |          |    |                 |  |                |    |     |  |      |     |     |   |      |    |     |  |      |    |  |  |   |    |  |  |   |    |  |  |   |    |   |   |   |    | (1 | )
|                                   | Actuarial (gain) loss       |          |    |                 |  |                |    |     |  |      |     | (1   | ) |      |    | 2    |  |      |    |  |  |   |    |  |  |   |    |  |  |   |    | (1 | ) |   |    |   |  
|                                   |                             |          |    |                  |  |                |    |      |  |      |     |      |   |      |    |      |  |      |    |   |  |   |    |   |  |   |    |   |  |   |    |    |   |   |    |   
|SFAS 87 cost/SFAS 106 cost         |                             |          | 1  |                  |  |                | 1  |      |  |      | (1  | )    |   |      | 6  |      |  |      | 1  |   |  |   |   |   |  |   | 1  |   |  |   |   |    |   |   | (1 | ) 
|                                   |                             |          |    |                  |  |                |    |      |  |      |     |      |   |      |    |      |  |      |    |   |  |   |    |   |  |   |    |   |  |   |    |    |   |   |    |   
|SFAS 88 settlement gain            |                             |          | (5 | )                |  |                | (3 | )    |  |      | (14 | )    |   |      |   |      |  |      |   |   |  |   |   |   |  |   |   |   |  |   |   |    |   |   |   |   
|                                   |                             |          |    |                  |  |                |    |      |  |      |     |      |   |      |    |      |  |      |    |   |  |   |    |   |  |   |    |   |  |   |    |    |   |   |    |   
|Net periodic benefit cost (income) |                             | $        | (4 | )                |  | $              | (2 | )    |  | $    | (15 | )    |   | $    | 6  |      |  | $    | 1  |   |  | $ |   |   |  | $ | 1  |   |  | $ |   |    |   | $ | (1 | ) 
|                                   |                             |          |    |                  |  |                |    |      |  |      |     |      |   |      |    |      |  |      |    |   |  |   |    |   |  |   |    |   |  |   |    |    |   |   |    |   

For measurement purposes, a 10% annual rate of
increase in the per capita cost of covered health care benefits
was assumed for 2003 and 2004. The rate was assumed to decrease
gradually to 5.00% for 2009 and remain at that level thereafter.
Assumed health care cost trend rates can have a significant
effect on the amounts reported for the health care plans. A
one-percentage-point change in assumed health care cost trend
rates would have a $1 million effect on the postretirement
obligation and a nominal impact on the total of service and
interest cost components of net periodic benefit cost.

The weighted average assumptions used to
determine benefit obligations at December 31, were as
follows:

|                              |  |          |      |                  |  |                |      |      |  |      |      |      |  |  |      |   |  |  |      |   |  |  |      |  
|----------------------------- |  | -------- | ---- | ---------------- |  | -------------- | ---- | ---- |  | ---- | ---- | ---- |  |  | ---- | - |  |  | ---- | - |  |  | ---- | -
|                              |  |          |      |                  |  |               
|                              |  | Pension  |      | Foreign          |  | Postretirement
|                              |  | Benefits |      | Pension Benefits |  | Benefits      
|                              |  |          |      |                  |  |               
|                              |  | 2003     |      | 2002             |  | 2003           |      | 2002 |  | 2003 |      | 2002
|                              |  |          |      |                  |  |                |      |      |  |      |      |     
|Discount rate                 |  |          | 5.99 | %                |  |                | 5.86 | %    |  |      | 5.87 | %    |  |  | 6.09 | % |  |  | 6.25 | % |  |  | 6.75 | %
|Rate of compensation increase |  |          | N/A  |                  |  |                | N/A  |      |  |      | 3.74 | %    |  |  | 3.96 | % |  |  | N/A  |   |  |  | N/A  |  

The weighted average assumptions used to
determine net periodic benefit cost for the years ended
December 31, were as follows:

|                               |  |          |      |                  |  |                |      |      |  |      |      |      |  |      |      |      |  |      |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|------------------------------ |  | -------- | ---- | ---------------- |  | -------------- | ---- | ---- |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | -
|                               |  |          |      |                  |  |               
|                               |  | Pension  |      | Foreign          |  | Postretirement
|                               |  | Benefits |      | Pension Benefits |  | Benefits      
|                               |  |          |      |                  |  |               
|                               |  | 2003     |      | 2002             |  | 2001           |      | 2003 |  | 2002 |      | 2001 |  | 2003 |      | 2002 |  | 2001
|                               |  |          |      |                  |  |                |      |      |  |      |      |      |  |      |      |      |  |     
|Discount rate                  |  |          | 5.86 | %                |  |                | 6.37 | %    |  |      | 6.81 | %    |  |      | 6.09 | %    |  |      | 6.44 | % |  |  | 6.63 | % |  |  | 6.75 | % |  |  | 7.25 | % |  |  | 7.25 | %
|Rate of compensation increase  |  |          | N/A  |                  |  |                | N/A  |      |  |      | N/A  |      |  |      | 3.96 | %    |  |      | 4.29 | % |  |  | 4.59 | % |  |  | N/A  |   |  |  | N/A  |   |  |  | N/A  |  
|Expected return on plan assets |  |          | 6.00 | %                |  |                | 6.00 | %    |  |      | 7.00 | %    |  |      | 7.37 | %    |  |      | 7.94 | % |  |  | 8.11 | % |  |  | 8.75 | % |  |  | 8.00 | % |  |  | 9.75 | %

A number of factors were considered in the
determination of the expected return on plan assets. These
factors included current and expected allocation of plan assets,
the investment strategy of cash planning,

F-35



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

historical rates of return and Company and
investment expert expectations for investment performance over
approximately a ten year period.

The weighted average asset allocations at
December 31, 2003 and 2002 for the Companys domestic
defined benefit pension and postretirement benefit plans and the
Companys current target asset allocation ranges are as
follows:

|                          |  |                  |     |                         |  |        |     |               |  |      |     |      |  |  |     |   |  |  |     |   |  |  |     |  
|------------------------- |  | ---------------- | --- | ----------------------- |  | ------ | --- | ------------- |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | - |  |  | --- | -
|                          |  |                  |     |                        
|                          |  | Pension Benefits |     | Postretirement Benefits
|                          |  |                  |     |                        
|                          |  |                  |     |                         |  |        |     |              
|                          |  |                  |     | Percentage of           |  |        |     | Percentage of
|                          |  |                  |     | Plan Assets             |  |        |     | Plan Assets  
|                          |  | Target           |     |                         |  | Target |     |              
|                          |  | Allocation       |     | 2003                    |  | 2002   |     | Allocation    |  | 2003 |     | 2002
|                          |  |                  |     |                         |  |        |     |               |  |      |     |     
|Equity securities         |  |                  | 0   | %                       |  |        | 0   | %             |  |      | 26  | %    |  |  | 60  | % |  |  | 57  | % |  |  | 51  | %
|Debt securities           |  |                  | 80  | %                       |  |        | 79  | %             |  |      | 45  | %    |  |  | 40  | % |  |  | 42  | % |  |  | 48  | %
|Cash and cash equivalents |  |                  | 20  | %                       |  |        | 21  | %             |  |      | 29  | %    |  |  | 0   | % |  |  | 1   | % |  |  | 1   | %
|                          |  |                  |     |                         |  |        |     |               |  |      |     |      |  |  |     |   |  |  |     |   |  |  |     |  
|                          |  |                  | 100 | %                       |  |        | 100 | %             |  |      | 100 | %    |  |  | 100 | % |  |  | 100 | % |  |  | 100 | %
|                          |  |                  |     |                         |  |        |     |               |  |      |     |      |  |  |     |   |  |  |     |   |  |  |     |  

At December 31, 2003, the Ongoing Plan had
$5 million in assets. The remaining domestic pension plans
are unfunded. The Company anticipates satisfying all remaining
Ongoing Plan liabilities by the end of 2004. Given the short
remaining life of the Ongoing Plan, this plan has invested in
liquid assets whose value will mirror, as closely as possible,
the liabilities of the plan. The investment objective of the
postretirement benefit plan is to seek long-term capital
appreciation and current income by investing in a diversified
portfolio of equity and fixed income securities with a moderate
level of risk.

The Company expects to contribute approximately
$2 million to its domestic pension plans and approximately
$3 million to the postretirement benefit plan in 2004. The
following table represents the Companys expected domestic
pension and postretirement benefit plan payments for the next
five years and the five years thereafter (amounts are in
millions):

|          |  |          |   |                |  |   |    | 
|--------- |  | -------- | - | -------------- |  | - | -- | 
|          |  | Pension  |   | Postretirement
|          |  | Benefits |   | Benefits      
|          |  |          |   |               
|2004      |  | $        | 7 |                |  | $ | 3  | 
|2005      |  |          | 1 |                |  |   | 3  | 
|2006      |  |          | 1 |                |  |   | 3  | 
|2007      |  |          | 1 |                |  |   | 3  | 
|2008      |  |          | 1 |                |  |   | 3  | 
|2009-2013 |  |          | 6 |                |  |   | 12 | 

Defined Contribution Plans.The Company and its subsidiaries
sponsor various defined contribution plans, including the
Starwood Hotels & Resorts Worldwide, Inc. Savings and
Retirement Plan (Retirement Plan), which is a
voluntary defined contribution plan allowing participation by
employees on U.S. payroll who meet certain age and service
requirements. Each participant may contribute on a pretax basis
between 1% and 18% of his or her compensation to the plan
subject to certain maximum limits. The plan also contains
provisions for matching contributions to be made by the Company,
which are based on a portion of a participants eligible
compensation. The amount of expense for matching contributions
totaled $18 million in 2003, $17 million in 2002 and
$15 million in 2001.

Multi-Employer Pension
Plans.Certain employees are
covered by union sponsored multi-employer pension plans.
Pursuant to agreements between the Company and various unions,
contributions of $8 million in 2003 and 2002 and
$7 million in 2001 were made by the Company and charged to
expense.

F-36



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Note 16.     Leases
and Rentals

The Corporation leases certain equipment for the
hotels operations under various lease agreements. The
leases extend for varying periods through 2009 and generally are
for a fixed amount each month. In addition, several of the
Corporations hotels are subject to leases of land or
building facilities from third parties, which extend for varying
periods through 2071 and generally contain fixed and variable
components, including a 25-year building lease of the Westin
Dublin hotel in Dublin, Ireland with fixed annual payments of
$3 million and a building lease of the W Times Square
hotel in New York City which has a term of 25 years with
fixed annual lease payments of $16 million.

The Companys minimum future rents at
December 31, 2003 payable under non-cancelable operating
leases with third parties are as follows (in millions):

|           |  |   |     | 
|---------- |  | - | --- | 
|2004       |  | $ | 61  | 
|2005       |  | $ | 54  | 
|2006       |  | $ | 51  | 
|2007       |  | $ | 49  | 
|2008       |  | $ | 43  | 
|Thereafter |  | $ | 630 | 

Rent expense under non-cancelable operating
leases was $77 million, $77 million and
$75 million in 2003, 2002 and 2001, respectively.

The Trust owned equity interests in 90 hotels,
all of which were leased to the Corporation during the year
ended December 31, 2003. The leases between the Trust and
the Corporation are generally for five-year terms and provide
for annual base, or minimum rents, plus contingent, or
percentage rents based on the gross revenues of the properties
and are accounted for as operating leases. The leases are
triple-net in that the lessee is generally
responsible for paying all operating expenses of the properties,
including maintenance, insurance and real property taxes. The
lessee is also generally responsible for any payments required
pursuant to underlying ground leases. Total rental expense
incurred by the Corporation under such leases with the Trust was
approximately $346 million for the year ended
December 31, 2003, of which approximately $84 million
related to percentage rent. The Trusts rents receivable
from the Corporation relating to leased hotel properties at
December 31, 2003 and 2002 was $465 million and
$41 million, respectively.

The Corporations minimum future rents at
December 31, 2003 payable under non-cancelable operating
leases with the Trust, are as follows (in millions):

|     |  |   |     | 
|---- |  | - | --- | 
|2004 |  | $ | 262 | 
|2005 |  | $ | 262 | 
|2006 |  | $ | 262 | 
|2007 |  | $ | 109 | 

Note
17.     Stockholders
Equity

Share Repurchases.In 1998, the Board of Directors of
the Company approved the repurchase of up to $1 billion of
Shares under a Share repurchase program (the Share
Repurchase Program). On April 2, 2001, the
Companys Board of Directors authorized the repurchase of
up to an additional $500 million of Shares under the Share
Repurchase Program. Pursuant to the Share Repurchase Program,
through December 31, 2003, Starwood has repurchased
26.7 million Shares in the open market for an aggregate
cost of $644 million. As of December 31, 2003,
approximately $606 million remains available under the
Share Repurchase Program.

F-37



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Exchangeable Units and Preferred Shares.During 1998, 6.3 million
shares of Class A EPS, 5.5 million shares of
Class B EPS and approximately 800,000 limited partnership
units of the Realty Partnership and Operating Partnership
(Exchangeable Units) were issued by the Trust in
connection with the Westin Merger. Class A EPS have a par
value of $0.01 per share and are convertible on a one-for-one
basis (subject to certain adjustments) to Shares. Exchangeable
Units and Class B EPS have a liquidation preference of
$38.50 per share and provide the holders with the right, for a
one year period, from and after the fifth anniversary of the
closing date of the Westin Merger, which began on
January 2, 2003, to require the Company to redeem such
shares for cash at a price of $38.50 per share. Subsequent to
January 3, 2004, the Company may choose to settle
Class B EPS redemptions in cash at $38.50 per share or
shares of Class A EPS at the equivalent of $38.50 per
share. Exchangeable Units may be converted to Shares on a
one-for-one basis. During 2003, no shares of Class B EPS
were exchanged into shares of Class A EPS and approximately
13,000 shares of Class A EPS were exchanged into an
equal number of Shares. At December 31, 2003, the Trust had
150 million preferred shares authorized and approximately
481,000 of Class A EPS and 802,000 Exchangeable Units and
Class B EPS outstanding. Through December 31, 2003, in
accordance with the terms of the Class B EPS discussed
above, approximately 528,000 shares of Class B EPS were put
back to the Company for approximately $20 million.
Approximately 408,000 additional Class B EPS were redeemed
for $16 million from January 1, 2004 through
January 3, 2004. On January 2, 2003,
Mr. Sternlicht redeemed 240,391 of these Class B EPS
for $38.50 per share.

Note 18.     Stock
Incentive Plans

In 2002, the Company adopted the 2002 Long-Term
Incentive Compensation Plan (2002 LTIP), which
superseded the 1999 Long Term Incentive Compensation Plan (the
1999 LTIP) and provides for the purchase of Shares
by Directors, officers, employees, consultants and advisors,
pursuant to equity award grants. Although no additional awards
will be granted under the 1999 LTIP, or the Companys 1995
Share Option Plan (the 1995 LTIP), the 1999 LTIP and
1995 LTIP will continue to govern awards that have been granted
and remain outstanding under those plans. The aggregate number
of Shares subject to non-qualified or incentive stock options,
performance shares, restricted stock or any combination of the
foregoing which are available to be granted under the 2002 LTIP
at December 31, 2003 was approximately 9.3 million.

F-38



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

The following table summarizes stock option
activity for the Company:

|                                 |           |         |            |                  |   |   |       |       | 
|-------------------------------- | --------- | ------- | ---------- | ---------------- | - | - | ----- | ----- | 
|                                 |           |         |            | Weighted Average
|                                 |           |         |            | Exercise        
|                                 |           | Options |            | Price Per Share 
|                                 |           |         |            |                 
|Outstanding at December 31, 2000 |           |         | 28,165,211 |                  |   | $ | 31.33 |      
|                                 | Granted   |         |            | 8,279,160        |   |   |       | 36.55 | 
|                                 | Exercised |         |            | (1,686,986       | ) |   |       | 23.03 | 
|                                 | Forfeited |         |            | (1,892,081       | ) |   |       | 30.17 | 
|                                 |           |         |            |                  |   |   |       |      
|Outstanding at December 31, 2001 |           |         | 32,865,304 |                  |   |   | 33.22 |      
|                                 | Granted   |         |            | 15,641,647       |   |   |       | 29.54 | 
|                                 | Exercised |         |            | (1,439,332       | ) |   |       | 24.30 | 
|                                 | Forfeited |         |            | (2,260,305       | ) |   |       | 33.48 | 
|                                 |           |         |            |                  |   |   |       |      
|Outstanding at December 31, 2002 |           |         | 44,807,314 |                  |   |   | 32.22 |      
|                                 | Granted   |         |            | 682,596          |   |   |       | 26.01 | 
|                                 | Exercised |         |            | (2,336,980       | ) |   |       | 23.59 | 
|                                 | Forfeited |         |            | (3,851,559       | ) |   |       | 38.97 | 
|                                 |           |         |            |                  |   |   |       |      
|Outstanding at December 31, 2003 |           |         | 39,301,371 |                  |   | $ | 32.01 |      
|                                 |           |         |            |                  |   |   |       |      
|Exercisable at December 31, 2002 |           |         | 20,693,514 |                  |   | $ | 34.70 |      
|                                 |           |         |            |                  |   |   |       |      
|Exercisable at December 31, 2003 |           |         | 23,835,260 |                  |   | $ | 33.15 |      
|                                 |           |         |            |                  |   |   |       |      

The following table summarizes information about
outstanding stock options at December 31, 2003:

|                |                 |                     |  |                     |            |                  |  |             |      |                  |  |   |       |  |  |  |            |  |  |   |       | 
|--------------- | --------------- | ------------------- |  | ------------------- | ---------- | ---------------- |  | ----------- | ---- | ---------------- |  | - | ----- |  |  |  | ---------- |  |  | - | ----- | 
|                |                 |                     |  |                     |            |                 
|                |                 | Options Outstanding |  |                    
|                |                 |                     |  | Options Exercisable
|                |                 |                     |  | Weighted Average    |            |                  |  |            
|                |                 |                     |  | Remaining           |            | Weighted Average |  |             |      | Weighted Average
|Range of        |                 | Number              |  | Contractual Life    |            | Exercise         |  | Number      |      | Exercise        
|Exercise Prices |                 | Outstanding         |  | in Years            |            | Price/Share      |  | Exercisable |      | Price/Share     
|                |                 |                     |  |                     |            |                  |  |             |      |                 
|                | $15.00  $23.92 |                     |  |                     | 5,134,463  |                  |  |             | 4.27 |                  |  | $ | 21.50 |  |  |  | 4,542,898  |  |  | $ | 21.33 | 
|                | $24.00  $24.00 |                     |  |                     | 6,093,260  |                  |  |             | 5.70 |                  |  | $ | 24.00 |  |  |  | 4,893,090  |  |  | $ | 24.00 | 
|                | $24.13  $24.88 |                     |  |                     | 7,746,619  |                  |  |             | 6.89 |                  |  | $ | 24.85 |  |  |  | 2,234,373  |  |  | $ | 24.78 | 
|                | $25.16  $34.01 |                     |  |                     | 2,053,523  |                  |  |             | 6.82 |                  |  | $ | 29.42 |  |  |  | 1,493,790  |  |  | $ | 29.44 | 
|                | $34.06  $34.58 |                     |  |                     | 6,259,347  |                  |  |             | 8.12 |                  |  | $ | 34.58 |  |  |  | 1,619,203  |  |  | $ | 34.57 | 
|                | $34.90  $37.83 |                     |  |                     | 1,111,959  |                  |  |             | 5.83 |                  |  | $ | 36.41 |  |  |  | 712,222    |  |  | $ | 36.55 | 
|                | $37.84  $37.84 |                     |  |                     | 5,165,949  |                  |  |             | 7.10 |                  |  | $ | 37.84 |  |  |  | 2,614,029  |  |  | $ | 37.84 | 
|                | $38.00  $58.81 |                     |  |                     | 5,736,251  |                  |  |             | 4.01 |                  |  | $ | 51.58 |  |  |  | 5,725,655  |  |  | $ | 51.61 | 
|                |                 |                     |  |                     |            |                  |  |             |      |                  |  |   |       |  |  |  |            |  |  |   |       | 
|                | Total/Average   |                     |  |                     | 39,301,371 |                  |  |             | 6.13 |                  |  | $ | 32.01 |  |  |  | 23,835,260 |  |  | $ | 33.15 | 
|                |                 |                     |  |                     |            |                  |  |             |      |                  |  |   |       |  |  |  |            |  |  |   |       | 

During 2003, the Company granted restricted stock
awards for approximately 519,000 Shares. Restricted stock awards
outstanding as of December 31, 2003 totaled approximately
1.2 million Shares. Compensation expense of approximately
$6.5 million, $9.9 million and $17.5 million was
recorded during 2003, 2002 and 2001, respectively, related to
restricted stock awards. The 2001 compensation expense includes
an $11 million special charge related to the accelerated
amortization of 50% of restricted stock awards granted in
February 2001. The vesting was accelerated to enhance employee
retention efforts following the significant industry decline
resulting from the September 11 Attacks.

F-39



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##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

2002 Employee Stock Purchase
Plan

In April 2002, the Board of Directors adopted
(and in May 2002 the shareholders approved) the Companys
2002 Employee Stock Purchase Plan (the ESPP) to
provide employees of the Company with an opportunity to purchase
common stock through payroll deductions, and reserved
10,000,000 Shares for issuance under the ESPP. The ESPP
commenced in October 2002.

All full-time regular employees who have
completed 30 days of continuous service and who are
employed by the Company on U.S. payrolls are eligible to
participate in the ESPP. Eligible employees may contribute up to
20% of their total cash compensation to the ESPP. Amounts
withheld are applied at the end of every three month
accumulation period to purchase Shares. The value of the Shares
(determined as of the beginning of the offering period) that may
be purchased by any participant in a calendar year is limited to
$25,000. Participants may withdraw their contributions at any
time before Shares are purchased.

The purchase price is equal to 85% of the lower
of (a) the fair market value of Shares on the day of the
beginning of the offering period or (b) the fair market
value of Shares on the date of purchase. Approximately
350,000 Shares were issued under the ESPP during fiscal
2003 at purchase prices ranging from $19.13 to $28.73.
Approximately 73,000 Shares were issued under the ESPP in
fiscal 2002, at a purchase price of $19.69 per Share.

Note
19.     Derivative Financial
Instruments

The Company enters into interest rate swap
agreements to manage interest expense. The Companys
objective is to manage the impact of interest rates on the
results of operations, cash flows and the market value of the
Companys debt. At December 31, 2003, the Company had
no outstanding interest rate swap agreement under which the
Company pays a fixed rate and receives a variable rate of
interest.

At December 31, 2003, the Company had five
outstanding interest rate swap agreements under which the
Company pays floating rates and receives fixed rates of interest
(the Fair Value Swaps). The aggregate notional
amount of the Fair Value Swaps was $1.050 billion. The Fair
Value Swaps hedge the change in fair value of certain fixed rate
debt related to fluctuations in interest rates and mature
through 2007. The Fair Value Swaps modify the Companys
interest rate exposure by effectively converting debt with a
fixed rate to a floating rate. The fair value of the Fair Value
Swaps was an asset of approximately $14 million at
December 31, 2003.

From time to time, the Company uses various
hedging instruments to manage the foreign currency exposure
associated with the Companys foreign currency denominated
assets and liabilities (Foreign Currency Hedges). At
December 31, 2003, the Company had two Foreign Currency
Hedges outstanding with a U.S dollar equivalent of the
contractual amount of the contracts of approximately
$317 million. These contracts hedge certain
Euro-denominated assets and mature through August 2004. Changes
in the fair value of the hedging instruments are classified in
the same manner as changes in the underlying asset due to
fluctuations in foreign currency exchange rates. The fair value
of the Foreign Currency Hedges at December 31, 2003 was a
liability of approximately $26 million.

Periodically, the Company hedges the net assets
of certain international subsidiaries (Net Investment
Hedges) using various hedging instruments to manage the
translation and economic exposures related to the Companys
net investments in these subsidiaries. The Company measures the
effectiveness of derivatives designated as Net Investment Hedges
by using the changes in forward exchange rates because this
method best reflects the Companys risk management
strategies and the economics of those strategies in the
financial statements. Under this method, the change in fair
value of the hedging instrument attributable to the changes in
forward exchange rates is reported in stockholders equity
to offset the translation results on the hedged net investment.
The remaining change in fair value of the hedging instrument, if
any, is recognized through

F-40



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##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

income. As of December 31, 2003, the Company
had two Net Investment Hedges with a U.S. dollar equivalent
of the contractual amount of $227 million that mature in
June 2004. The Net Investment Hedges minimize the effect
fluctuations in foreign currency exchange rates have on a
portion of the Companys net investment in certain
Euro-denominated subsidiaries (Euro Net Investment
Hedges). The fair value of the Euro Net Investment Hedges
at December 31, 2003 was a liability of approximately
$25 million.

In April 2002, in connection with the sale of
$1.5 billion of the Senior Notes, the Company terminated
four interest rate swap agreements (with a notional amount of
$850 million) and realized a net loss of approximately
$23 million associated with this early termination. As
discussed in Note 2. Significant Accounting Policies, the
Company early adopted SFAS No. 145 and recorded this charge
in interest expense.

In September 2002, the Company terminated certain
Fair Value Swaps, resulting in a $78 million cash payment
to the Company. These proceeds were used to pay down the
previous revolving credit facility and will result in a decrease
to interest expense on the hedged debt through its maturity in
2007. In order to retain its fixed versus floating rate debt
position, the Company immediately entered into the current Fair
Value Swaps on the same underlying debt as the terminated swaps.

The counterparties to the Companys
derivative financial instruments are major financial
institutions. The Company does not expect its derivative
financial instruments to significantly impact earnings in the
next twelve months.

Note 20.     Related
Party Transactions

General.Barry S. Sternlicht, Chairman,
Chief Executive Officer and a Director of the Corporation, and
Chairman, Chief Executive Officer and a Trustee of the Trust,
controls and has been the President and Chief Executive Officer
of Starwood Capital since its formation in 1991.

Trademark License.An affiliate of Starwood Capital
has granted to Starwood, subject to Starwood Capitals
unrestricted right to use such name, an exclusive,
non-transferable, royalty-free license to use the
Starwood name and trademarks in connection with the
acquisition, ownership, leasing, management, merchandising,
operation and disposition of hotels worldwide, and to use the
Starwood name in its corporate name worldwide, in
perpetuity.

Starwood Capital Noncompete.In connection with a restructuring
of the Company in 1995, Starwood Capital voluntarily agreed
that, with certain exceptions, Starwood Capital would not
compete directly or indirectly with the Company within the
United States and would present to the Company all opportunities
presented to Starwood Capital to acquire fee interests in hotels
in the United States and debt interests in hotels in the United
States where it is anticipated that the equity will be acquired
by the debt holder within one year from the acquisition of such
debt (the Starwood Capital Noncompete). During the
term of the Starwood Capital Noncompete, Starwood Capital and
affiliates are not permitted to acquire any such interest, or
any ground lease interest or other equity interest, in hotels in
the United States without the consent of the Board. In addition,
the Companys Corporate Opportunity Policy requires that
each director and executive officer submit to the Corporate
Governance Committee any opportunity that the director or
executive officer reasonably believes is within the
Companys lines of business or in which the Company has an
interest. Therefore, as a matter of practice, all opportunities
to purchase hotel-related assets, even those outside of the
United States, that Starwood Capital may pursue are first
presented to the Company. The Starwood Capital Noncompete
continues until no officer, director, general partner or
employee of Starwood Capital is on either the Board of Directors
of the Corporation or the Board of Trustees of the Trust
(subject to exceptions for certain restructurings, mergers or
other combination transactions with unaffiliated parties).
Several properties owned or managed by the Company, including
the Westin Innisbrook Resort (the Innisbrook
Resort), the Westin Mission Hills Resort and the Turnberry
Hotel, were opportunities brought to the Company or its

F-41



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##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

predecessors by Starwood Capital or entities
related to Mr. Sternlicht. With the approval in each case
of the Governance Committee of the Board of Directors of the
Corporation and the Board of Trustees of the Trust, from time to
time the Company has waived the restrictions of the Starwood
Capital Noncompete, in whole or in part, (or passed on the
opportunity in cases of the Corporate Opportunity Policy for
non-U.S. opportunities) with respect to particular acquisition
or investment opportunities in which the Company had no business
or strategic interest. Since 1995, Starwood Capital made four
such investments.

In July 2003, the Company waived the Starwood
Capital Noncompete in connection with the acquisition of the
Rennaisance Wailea Hotel in Hawaii by an affiliate of Starwood
Capital. The Company has signed a letter of intent with the
affiliate to manage this property after it is extensively
repositioned and renovated. The Company is currently negotiating
the management agreement. The Companys Governance
Committee, advised by separate independent legal and hospitality
advisors, approved the waiver of the Starwood Capital Noncompete
and the terms of the proposed management agreement as being at
or better than market terms. In addition, the Company was
provided the opportunity to make an equity investment in the
transaction but declined to do so.

In August 2003, the Company acquired from an
affiliate of Starwood Capital, its beneficial ownership interest
in 15 acres of land contiguous to the Westin Mission Hills
Resort for a purchase price of $2.8 million. The
Companys Governance Committee approved the transaction,
which was at a discount from the price less determined by
independent third party appraiser engaged by the Governance
Committee.

Portfolio Investments.An affiliate of Starwood Capital
holds an approximately 31% co-controlling interest in Troon Golf
(Troon), a golf course management company that
currently manages over 120 high-end golf courses.
Mr. Sternlichts indirect interest in Troon held
through such affiliate is approximately 12%. Troon is one of the
largest third-party managers of golf courses in the United
States. In January 2002, after extensive review of alternatives
and with the unanimous approval of the Governance Committee, the
Company entered into a Master Agreement with Troon covering the
United States and Canada whereby the Company has agreed to have
Troon manage all golf courses in the United States and Canada
that are owned by the Company and to use reasonable efforts to
have Troon manage golf courses at resorts that the Company
manages and franchises. The Company believes that the terms of
the Troon agreement are at or better than market terms. Mr.
Sternlicht did not participate in the negotiations or the
approval of the Troon Master Agreement. During 2003, Troon
managed 18 golf courses at resorts owned or managed by the
Company. The Company paid Troon a total $948,000 for management
fees and payments for other services in 2003 for nine golf
courses at resorts owned or managed by the Company. During 2002
and 2001, the Company paid $813,000 and $432,000, respectively,
for management fees and payments for other services for the
eight and two golf courses at resorts owned or managed by
the Company, respectively.

An entity in which Mr. Sternlicht has a 38%
interest owned the common area of the Sheraton Tamarron Resort,
which the Company managed until December 2001. The Company had
outstanding receivables of approximately $314,000 at
December 31, 2003, which arose as a result of the
termination of the Tamarron management agreement. These
receivables were paid in full in January 2004. The Company
believes that the terms of the Tamarron agreement were at or
better than market terms.

In addition, a subsidiary of Starwood Capital is
a general partner of a limited partnership which owns
approximately 45% in an entity that manages over 40 health
clubs, including one health club and spa space in a hotel owned
by the Company. The Company paid approximately $84,000 annually
to the management company for such management services in 2003,
2002 and 2001. The Company believes that the terms of the
management agreement were at or better than market terms. The
management agreement terminated on September 30, 2003 and
the management company has been managing the health club and spa
on a month-to-month agreement. The Company and the management
company have verbally agreed to continue this arrangement until
the Company closes the health club and spa for conversion to a
Bliss spa.

F-42



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##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Other Management-Related Investments.Mr. Sternlicht has a 38%
indirect interest in an entity (the Innisbrook
Entity) that owns the common area facilities and certain
undeveloped land (but not the hotel) at the Innisbrook Resort.
In May 1997, the Innisbrook Entity entered into a management
agreement for the Innisbrook Resort with Westin, which was then
a privately held company partly owned by Starwood Capital and
Goldman, Sachs & Co. When the Company acquired Westin in
January 1998, it acquired Westins rights and obligations
under the management and other related agreements. Under these
agreements, the hotel manager was obligated to loan up to
$12.5 million to the owner in the event certain performance
levels were not achieved. Management fees earned under these
agreements were $512,000, $584,000 and $716,000 in 2003, 2002
and 2001, respectively. The operations of the Innisbrook Entity
have not generated sufficient cash flow to service its
outstanding debt and current obligations. The Innisbrook Entity,
its primary lender and the Company are currently in discussions
regarding the terms and timing of payments owed to the lender
and the Company. The discussions relate to the payment of
outstanding obligations of the Innisbrook Entity including
approximately $11 million owed to the Company. Based on
available information and the establishment of applicable
reserves, the Company does not believe any resolution of this
matter will have a material impact on the financial position,
results of operation or cash flows of the Company. The Company
believes that the outstanding issues will be settled during the
first half of 2004. Any settlement of this matter would be
subject to the approval of the Governance Committee.

In July 2002, the Company acquired a 49% interest
in the Westin Savannah Harbor Resort and Spa in connection with
the restructuring of the indebtedness of that property. An
unrelated party holds an additional 49% interest in the
property. The remaining 2% is held by Troon. Troon invested in
the project on a pari-passu basis and manages the golf course at
the Westin Savannah. The unrelated third party negotiated the
terms of the golf management agreement with Troon and approved
the terms of its equity interest, and therefore, the Company
believes the arrangements are on an arms-length basis.

Aircraft Lease.In February 1998, the Company
leased a Gulfstream III Aircraft (GIII) from Star
Flight LLC, an affiliate of Starwood Capital. The term of the
lease was one year and automatically renews for one-year terms
until either party terminates the lease upon 90 days
written notice. The rent for the aircraft, which was set at
approximately 90% of fair market value at the time (based on two
estimates from unrelated third parties), is (i) a monthly
payment of 1.25% of the lessors total costs relating to
the aircraft (approximately $123,000 at the beginning of the
lease with this amount increasing as additional costs are
incurred by the lessor), plus (ii) $300 for each hour that
the aircraft is in use. Payments to Star Flight LLC were
$1,865,000, $2,052,000 and $1,682,000 in 2003, 2002 and 2001,
respectively. Starwood Capital has used the GIII as well as the
Gulfstream IV Aircraft (GIV) operated by the
Company. For use of the GIII, Star Flight LLC relieves the
Company of lease payments for the days the plane is used and
reimburses the Company for costs of operating the aircraft.
Lease relief and reimbursed operating costs were approximately
$52,000, $161,000 and $95,000 for fiscal 2003, 2002 and 2001,
respectively. For use of the GIV, Starwood Capital pays a
charter rate that the Company believes is no less favorable than
that which the Company could receive from an unaffiliated third
party.

Other

The Company has on occasion made loans to
employees, including executive officers, principally in
connection with home purchases upon relocation. As of
December 31, 2003, approximately $7 million in loans
to approximately 25 employees was outstanding of which
approximately $5 million were non-interest bearing home
loans. Home loans are generally due five years from the date of
issuance or upon termination of employment and are secured by a
second mortgage on the employees home. Executive officers
receiving home loans in connection with relocation were Robert
F. Cotter, President and Chief Operating Officer, in June 2001
(original balance of $600,000), David K. Norton, Executive Vice
President of Human Resources, in July 2000 (original balance of
$500,000), Theodore W. Darnall, President, Real Estate Group, in
1996 and

F-43



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

1998 (original balance of $750,000, $150,000
bridge loan in 1996 and $600,000 home loan in 1998) of which
$600,000 was repaid in August 2003), and Steven M. Hankin, Chief
Marketing Officer and President, Starwood Technology and Revenue
Systems in 2000 (original balance of $300,000 which was repaid
January 2004). As a result of the acquisition of ITT Corporation
in 1998, restricted stock awarded to Messrs. Sternlicht and
Darnall in 1996 vested at a price for tax purposes of $53 per
Share. This amount was taxable at ordinary income rates. By late
1998, the value of the stock had fallen below the amount of
income tax owed. In order to avoid a situation in which the
executives could be required to sell all of the Shares acquired
by them to cover income taxes, in April 1999 the Company made
interest-bearing loans at 5.67% to Messrs. Sternlicht and
Darnall of approximately $1,222,000 and $416,000 respectively,
to cover the taxes payable. Accrued interest on these loans at
December 31, 2003 is approximately $327,000 and $111,000,
respectively. The notes and all associated accumulated interest
become due on their tenth anniversary.

Richard Cotter held various positions with the
Company from July 1998 through September 2003.
Mr. Cotters salary and bonus were $354,885 for 2001,
$345,404 for 2002, and $234,682 for 2003. Mr. Cotter was
granted 10,823 and 28,000 options to purchase Company shares in
2001 and 2002, respectively, and was awarded 3,487 shares of
restricted stock in 2001. In connection with his employment as
general manager of the St. Regis and other positions, Mr. Cotter
was provided with the use of a Company-owned apartment in New
York City from September 1998 through August 2003 which the
Company believes has a rental value of $10,000 per month.
Richard Cotter is the brother of Robert Cotter, who is the
President and Chief Operating Officer of the Company.

An entity in which Mr. Sternlicht has an
indirect ownership interest held 259 limited partnership units
in Westin Hotels Limited Partnership (the owner of the Westin
Michigan Avenue Hotel). The units were acquired in 1995 and
1996. The entity tendered all of its units to the Company in
connection with the Companys tender offer. The Company
purchased all shares tendered to it and the entity will receive
approximately $190,000 for its units.

In 2003, Starwood retained the law firm Piper
Rudnick, of which Senator George J. Mitchell, a Director of the
Corporation and Trustee of the Trust, is a partner. We expect
that this firm will continue to provide services to the Company
in 2004.

See Note 17. Stockholders Equity for
discussions regarding Mr. Sternlichts redemption of
exchangeable preferred shares.

Note
21.     Commitments and
Contingencies

The Company had the following contractual
obligations outstanding as of December 31, 2003 (in
millions):

|                                      |  |       |    |             |  |           |    |           |  |           |    |  |  |   |   |  |  |   |   | 
|------------------------------------- |  | ----- | -- | ----------- |  | --------- | -- | --------- |  | --------- | -- |  |  | - | - |  |  | - | - | 
|                                      |  |       |    | Due in Less |  | Due in    |    | Due in    |  | Due After
|                                      |  | Total |    | Than 1 Year |  | 1-3 Years |    | 4-5 Years |  | 5 Years  
|                                      |  |       |    |             |  |           |    |           |  |          
|Unconditional purchase obligations(a) |  | $     | 89 |             |  | $         | 35 |           |  | $         | 43 |  |  | $ | 7 |  |  | $ | 4 | 
|Other long-term obligations           |  |       | 4  |             |  |           | 2  |           |  |           | 2  |  |  |   |  |  |  |   |  | 
|                                      |  |       |    |             |  |           |    |           |  |           |    |  |  |   |   |  |  |   |   | 
|Total contractual obligations         |  | $     | 93 |             |  | $         | 37 |           |  | $         | 45 |  |  | $ | 7 |  |  | $ | 4 | 
|                                      |  |       |    |             |  |           |    |           |  |           |    |  |  |   |   |  |  |   |   | 



---



|    |                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------
|(a) | Included in these balances are commitments that
    may be satisfied by the Companys managed and franchised
    properties.

F-44



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##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

The Company had the following commercial
commitments outstanding as of December 31, 2003 (in
millions):

|                             |  |       |     |                                            |  |           |     |           |  |         |    |  |  |   |   |  |  |   |    | 
|---------------------------- |  | ----- | --- | ------------------------------------------ |  | --------- | --- | --------- |  | ------- | -- |  |  | - | - |  |  | - | -- | 
|                             |  |       |     |                                           
|                             |  |       |     | Amount of Commitment Expiration Per Period
|                             |  |       |     |                                           
|                             |  |       |     | Less Than                                  |  |           |     | After    
|                             |  | Total |     | 1 Year                                     |  | 1-3 Years |     | 4-5 Years |  | 5 Years
|                             |  |       |     |                                            |  |           |     |           |  |        
|Standby letters of credit    |  | $     | 129 |                                            |  | $         | 129 |           |  | $       |   |  |  | $ |  |  |  | $ |   | 
|Hotel loan guarantees        |  |       | 144 |                                            |  |           | 39  |           |  |         | 75 |  |  |   |  |  |  |   | 30 | 
|Other commercial commitments |  |       |    |                                            |  |           |    |           |  |         |   |  |  |   |  |  |  |   |   | 
|                             |  |       |     |                                            |  |           |     |           |  |         |    |  |  |   |   |  |  |   |    | 
|Total commercial commitments |  | $     | 273 |                                            |  | $         | 168 |           |  | $       | 75 |  |  | $ |  |  |  | $ | 30 | 
|                             |  |       |     |                                            |  |           |     |           |  |         |    |  |  |   |   |  |  |   |    | 

Guaranteed Loans and Commitments.In limited cases, the Company has
made loans to owners of or partners in hotel or resort ventures
for which the Company has a management or franchise agreement.
Loans outstanding under this program totaled $163 million
at December 31, 2003. The Company evaluates these loans for
impairment, and at December 31, 2003, believes these loans
are collectible. Unfunded loan commitments aggregating
$70 million were outstanding at December 31, 2003, of
which $42 million are expected to be funded in 2004 and
$52 million are expected to be funded in total. These loans
typically are secured by pledges of project ownership interests
and/or mortgages on the projects. The Company also has
$75 million of equity and other potential contributions
associated with managed or joint venture properties,
$24 million of which is expected to be funded in 2004.

The Company participates in programs with
unaffiliated lenders in which the Company may partially
guarantee loans made to facilitate third-party ownership of
hotels that the Company manages or franchises. As of
December 31, 2003, the Company was a guarantor for loans
which could reach a maximum of $144 million relating to
three projects: the St. Regis in Monarch Beach, California,
which opened in mid-2001; the Westin Kierland Resort and Spa in
Scottsdale, Arizona, which opened in November 2002; and the
Westin in Charlotte, North Carolina, which opened in April 2003.
In connection with the loan guarantee for the Westin Charlotte,
the Company also entered into a guarantee to fund working
capital shortfalls for this resort through 2005. No significant
fundings are anticipated under this working capital guarantee.
The Company does not anticipate any funding under the remaining
loan guarantees in 2004, as all projects are well capitalized.
Furthermore, since each of these properties was funded with
significant equity and subordinated debt financing, if the
Companys loan guarantees were to be called, the Company
could take an equity position in these properties at values
significantly below construction costs.

Surety bonds issued on behalf of the Company as
of December 31, 2003 totaled $46 million, the majority
of which were required by state or local governments relating to
our vacation ownership operations and by our insurers to secure
large deductible insurance programs.

In order to secure management contracts, the
Company may provide performance guarantees to third-party
owners. Most of these performance guarantees allow the Company
to terminate the contract rather than fund shortfalls if certain
performance levels are not met. In limited cases, the Company is
obliged to fund shortfalls in performance levels. As of
December 31, 2003, the Company had seven management
contracts with performance guarantees with possible cash outlays
of up to $74 million, $50 million of which, if
required, would be funded over a period of 25 years and
would be largely offset by management fees received under these
contracts. Many of the performance tests are multi-year tests,
are tied to the results of a competitive set of hotels, and have
exclusions for force majeure and acts of war and terrorism. The
Company does not anticipate any significant funding under the
performance guarantees in 2004. In addition, the Company has
agreed to guarantee certain performance levels at a managed
property that has authorized VOI sales and marketing. The exact
amount and nature of the guaranty is currently under dispute.
However, the Company

F-45



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

does not believe that any payments under this
guaranty will be significant. Lastly, the Company does not
anticipate losing a significant number of management or
franchise contracts in 2004.

Litigation.The Sheraton Corporation
(Sheraton Corp.) (formerly ITT Sheraton
Corporation), a subsidiary of the Company, is a defendant in
certain litigation relating to Sheraton Corp.s management
of a hotel. The case is titled 2660 Woodley Road Joint
Venture v. ITT Sheraton Corporation, Civil Action
No. 97-450-JJF (U.S.D.C., D. Del.). In December 1999,
following trial, the jury returned a verdict finding that
Sheraton Corp. had violated its contractual obligations to the
hotel owner and awarded contractual damages totaling
$11 million. The jury also found for the plaintiff on
certain common law and other claims and awarded compensatory and
other damages of $2 million and punitive damages of
$38 million. These amounts were fully reserved for as of
December 31, 1999. The jury found for Sheraton Corp. and
rejected the plaintiffs additional claims that Sheraton
Corp. had violated the Racketeer Influenced and Corrupt
Organizations Act (RICO), and that Sheraton Corp.
had engaged in fraud. Sheraton Corp. believes that the
jurys determination against it on liability issues was
erroneous as a matter of law, and that the damage awards were
excessive and not supported by the evidence. Sheraton Corp.
sought to have the verdict set aside in the trial court. In
response to Sheraton Corp.s motion, the court, in January
2002, amended the judgment and reduced the punitive damages
award from $38 million to $17 million; the court also
trebled the jurys $750,000 award for Robinson-Patman Act
violations to $2.25 million on the basis of the
courts interpretation of that statute. The amount of the
judgment, as a result, will be $31.4 million. Sheraton has
filed a Notice of Appeal with the United States Court of Appeals
and plaintiffs have filed a Cross-Notice of Appeal. The appeal
was signed on February 13, 2003. There can be no assurance
that Sheraton Corp. will be successful in having the verdict set
aside, overturned or reduced on appeal, or that other owners of
properties managed by Sheraton Corp. will not seek to assert
similar claims.

The Corporation, Sheraton Corp. and Sheraton
Holding are defendants in certain litigations arising out of
purported contracts allegedly requiring the purchase of
telecommunication, video and power services from Intelnet
International Corp. (Intelnet). The first suit was
commenced in late 1997 by Intelnet in the Superior Court of New
Jersey Law Division: Camden County, alleging that Sheraton Corp.
violated what Intelnet claimed were Intelnets exclusive
rights to provide telecommunications and other services to
Sheraton Holding and its affiliates. The complaint sought
injunctive relief to enforce alleged exclusivity rights and
unquantified monetary damages. The complaint was subsequently
amended in November 1998 to seek specific monetary and
unspecified punitive damages. Sheraton Holding and Sheraton
Corp. served an answer denying Intelnets claims, and
asserting counterclaims seeking damages and a declaration that
the purported contracts at issue were unenforceable.

In June 1999, Intelnet commenced a second lawsuit
in the Superior Court of New Jersey Law Division: Camden County,
naming Boardwalk Regency Corp. (formerly a subsidiary of the
Corporation) and the Corporation. The claims in this case are
similar in nature to those made in the first suit, and relate to
an alleged breach of a purported exclusive contract to provide
certain services to the Caesars Atlantic City hotel and
casino. The two suits have been consolidated and were in
mediation until 2001. The mediation ended during the first half
of 2001. Discovery is now complete, and the Company has filed
summary judgment motions for dismissal of Intelnets
claims. The hearing on these motions is scheduled for oral
argument on February 27, 2004. Trial is scheduled to
commence in March 2004 if the defendant is not successful on all
their motions. The Company believes that Intelnets claims
are meritless and will continue to contest them vigorously. The
Company has accrued for the expected legal cost associated with
the dispute and does not expect that the resolution will have a
material adverse effect on the consolidated results of
operations, financial position or cash flows.

In November 2001, the Corporation, Sheraton
Holding and Sheraton Corp. commenced a separate litigation in
the United States District Court for the District of New Jersey,
asserting claims arising under

F-46



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

RICO as well as fraud claims against the
principals of Intelnet. The case was subsequently dismissed by
the court on the grounds that it was brought subsequent to the
running of the statute of limitations. An appeal of this
decision is pending.

In July 2000, the Company filed suit in New York
City against Aoki Corporation (Aoki) and certain
other related and unrelated entities regarding Starwoods
management of nine hotels in the United States and Canada owned
by Aoki and/or such other entities. Starwood is seeking to
enforce the management agreements relating to these hotels and
the rights Starwood acquired in connection with the purchase of
those agreements from Aoki in 1995. In addition, Starwood seeks
monetary damages and other relief for defendants fraud,
breach of contract, negligence, breach of duty of good faith and
fair dealing, and other alleged acts of wrongdoing.

In October 2000, Aoki and the other defendants in
the lawsuit described above filed an action in New York state
court against Starwood claiming that policies and practices
constitute breaches of its contractual and fiduciary duties with
respect to fees and cost allocations relating to central
reservations, the SPG program, and marketing and sales
initiatives; Starwoods purchasing practices, and the
receipt of rebates; cross-selling and other joint marketing and
promotional programs undertaken by Starwood; and Starwoods
management and accounting practices regarding the hotels,
including the extent to which Starwood responded to the
owners prior demands for information and documents.

During 2001 Aoki and the other parties were
ordered to mediation for both lawsuits. In May 2002, a
settlement agreement for two of the hotels was reached with
entities controlled by parties other than Aoki.

The lawsuits are continuing with respect to the
remaining seven hotels that are wholly-owned by Aoki. Starwood
believes that Aokis complaint is without merit and intends
to vigorously defend against the claims made against the Company.

The Company is involved in various other legal
matters that have arisen in the normal course of business, some
of which include claims for substantial sums. Accruals have been
recorded when the outcome is probable and can be reasonably
estimated. While the ultimate results of claims and litigation
cannot be determined, the Company does not expect that the
resolution of all legal matters will have a material adverse
effect on its consolidated results of operations, financial
position or cash flow. However, depending on the amount and the
timing, an unfavorable resolution of some or all of these
matters could materially affect the Companys future
results of operations or cash flows in a particular period.

Environmental Matters.The Company is subject to certain
requirements and potential liabilities under various federal,
state and local environmental laws, ordinances and regulations.
Such laws often impose liability without regard to whether the
current or previous owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic
substances. Although the Company has incurred and expects to
incur remediation and other environmental costs during the
ordinary course of operations, management anticipates that such
costs will not have a material adverse effect on the operations
or financial condition of the Company.

Captive Insurance Company.Estimated insurance claims payable
at December 31, 2003 were $96 million. At
December 31, 2003, standby letters of credit amounting to
$101 million had been issued to provide collateral for the
estimated claims. The letters of credit are guaranteed by the
Companys captive insurance company.

ITT Industries.In 1995, the former ITT
Corporation, renamed ITT Industries, Inc. (ITT
Industries), distributed to its stockholders all of the
outstanding shares of common stock of ITT Corporation, then a
wholly owned subsidiary of ITT Industries (the
Distribution). In connection with this Distribution,
ITT Corporation, which was then named ITT Destinations, Inc.,
changed its name to ITT Corporation.

F-47



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

For purposes of governing certain of the ongoing
relationships between the Company and ITT Industries after the
Distribution and spin-off of ITT Corporation and to provide for
an orderly transition, the Company and ITT Industries have
entered into various agreements including a spin-off agreement,
Employee Benefits Services and Liability Agreement, Tax
Allocation Agreement and Intellectual Property Transfer and
License Agreements. The Company may be liable to or due
reimbursement from ITT Industries relating to the resolution of
certain pre-spin-off matters under these agreements. Based on
available information, management does not believe that these
matters would have a material impact on the consolidated results
of operations, financial position or cash flows.

For discussion of certain other matters, see Note
13. Income Taxes.

Note 22.     Business
Segment and Geographical Information

The Company has two operating segments: hotels
and vacation ownership. The hotel segment represents a worldwide
network of owned, leased and consolidated joint venture hotels
and resorts operated primarily under the Companys
proprietary brand names including St. Regis, The Luxury
Collection, Sheraton, Westin, W and Four Points by Sheraton as
well as hotels and resorts which are managed or franchised under
these brand names in exchange for fees. The vacation ownership
segment includes the development, ownership and operation of
vacation ownership resorts, marketing and selling VOIs and
providing financing to customers who purchase such interests.

The performance of the hotels and vacation
ownership segments is evaluated primarily on operating profit
before corporate selling, general and administrative expense,
interest, gains on the sale of real estate, investments,
restructuring and other special charges and income taxes. The
Company does not allocate these items to its segments.

F-48



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

The following table presents revenues, operating
income, assets and capital expenditures for the Companys
reportable segments (in millions):

|                                                                                |                                |      |      |        |  |      |      |        |  |   |      |        | 
|------------------------------------------------------------------------------- | ------------------------------ | ---- | ---- | ------ |  | ---- | ---- | ------ |  | - | ---- | ------ | 
|                                                                                |                                | 2003 |      | 2002   |  | 2001
|                                                                                |                                |      |      |        |  |     
|Revenues(a):                                                                    |                                |      |      |        |  |      |      |        |  |   |      |       
|                                                                                | Hotel                          |      | $    | 3,340  |  |      | $    | 3,455  |  |   | $    | 3,565  | 
|                                                                                | Vacation ownership             |      |      | 439    |  |      |      | 353    |  |   |      | 328    | 
|                                                                                |                                |      |      |        |  |      |      |        |  |   |      |       
|                                                                                | Total                          |      | $    | 3,779  |  |      | $    | 3,808  |  |   | $    | 3,893  | 
|                                                                                |                                |      |      |        |  |      |      |        |  |   |      |       
|Operating income                                                                |                                |      |      |        |  |      |      |        |  |   |      |       
|                                                                                | Hotel                          |      | $    | 445    |  |      | $    | 589    |  |   | $    | 663    | 
|                                                                                | Vacation ownership             |      |      | 89     |  |      |      | 69     |  |   |      | 39     | 
|                                                                                |                                |      |      |        |  |      |      |        |  |   |      |       
|                                                                                | Total segment operating income |      |      | 534    |  |      |      | 658    |  |   |      | 702    | 
|Selling, general, administrative and other                                      |                                |      | 116  |        |  |      | 114  |        |  |   | 76   |       
|Restructuring and other special charges
    (credits), net                      |                                |      | (9   | )      |  |      | (7   | )      |  |   | 50   |       
|                                                                                |                                |      |      |        |  |      |      |        |  |   |      |       
|Operating income                                                                |                                |      | 427  |        |  |      | 551  |        |  |   | 576  |       
|Gain on sale of VOI notes receivable                                            |                                |      | 15   |        |  |      | 16   |        |  |   | 12   |       
|Equity earning from unconsolidated ventures, net                                |                                |      | 12   |        |  |      | 8    |        |  |   | 15   |       
|Interest expense, net                                                           |                                |      | (282 | )      |  |      | (323 | )      |  |   | (354 | )     
|Gain (loss) on asset dispositions and
    impairments, net                      |                                |      | (183 | )      |  |      | 3    |        |  |   | (57  | )     
|                                                                                |                                |      |      |        |  |      |      |        |  |   |      |       
|Income (loss) from continuing operations
    before taxes and minority interest |                                | $    | (11  | )      |  | $    | 255  |        |  | $ | 192  |       
|                                                                                |                                |      |      |        |  |      |      |        |  |   |      |       
|Depreciation and amortization:                                                  |                                |      |      |        |  |      |      |        |  |   |      |       
|                                                                                | Hotel                          |      | $    | 372    |  |      | $    | 431    |  |   | $    | 471    | 
|                                                                                | Vacation ownership             |      |      | 10     |  |      |      | 10     |  |   |      | 15     | 
|                                                                                | Corporate                      |      |      | 47     |  |      |      | 47     |  |   |      | 32     | 
|                                                                                |                                |      |      |        |  |      |      |        |  |   |      |       
|                                                                                | Total                          |      | $    | 429    |  |      | $    | 488    |  |   | $    | 518    | 
|                                                                                |                                |      |      |        |  |      |      |        |  |   |      |       
|Assets:                                                                         |                                |      |      |        |  |      |      |        |  |   |      |       
|                                                                                | Hotel                          |      | $    | 10,922 |  |      | $    | 11,183 |  |   | $    | 11,509 | 
|                                                                                | Vacation ownership             |      |      | 879    |  |      |      | 882    |  |   |      | 812    | 
|                                                                                | Corporate                      |      |      | 93     |  |      |      | 125    |  |   |      | 95     | 
|                                                                                |                                |      |      |        |  |      |      |        |  |   |      |       
|                                                                                | Total                          |      | $    | 11,894 |  |      | $    | 12,190 |  |   | $    | 12,416 | 
|                                                                                |                                |      |      |        |  |      |      |        |  |   |      |       
|Capital expenditures:                                                           |                                |      |      |        |  |      |      |        |  |   |      |       
|                                                                                | Hotel                          |      | $    | 233    |  |      | $    | 227    |  |   | $    | 388    | 
|                                                                                | Vacation ownership             |      |      | 48     |  |      |      | 38     |  |   |      | 17     | 
|                                                                                | Corporate                      |      |      | 26     |  |      |      | 35     |  |   |      | 72     | 
|                                                                                |                                |      |      |        |  |      |      |        |  |   |      |       
|                                                                                | Total                          |      | $    | 307    |  |      | $    | 300    |  |   | $    | 477    | 
|                                                                                |                                |      |      |        |  |      |      |        |  |   |      |       



---



|    |                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Balance excludes other revenues from managed and
    franchised properties of $851 million, $780 million
    and $740 million for the years ended December 31,
    2003, 2002 and 2001 respectively.

F-49



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

The following table presents revenues (excluding
other revenues from managed and franchised properties) and
long-lived assets by geographical region:

|                        |  |               |       |                   |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|----------------------- |  | ------------- | ----- | ----------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                        |  |               |       |                  
|                        |  | Revenues      |       | Long-Lived Assets
|                        |  |               |       |                  
|                        |  | 2003          |       | 2002              |  | 2001 |       | 2003 |  | 2002
|                        |  |               |       |                   |  |      |       |      |  |     
|                        |  |              
|                        |  | (In millions)
|United States           |  | $             | 2,785 |                   |  | $    | 2,772 |      |  | $    | 2,840 |  |  | $ | 5,455 |  |  | $ | 6,174 | 
|Italy                   |  |               | 403   |                   |  |      | 413   |      |  |      | 417   |  |  |   | 841   |  |  |   | 891   | 
|All other international |  |               | 591   |                   |  |      | 623   |      |  |      | 636   |  |  |   | 1,242 |  |  |   | 1,119 | 
|                        |  |               |       |                   |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|Total                   |  | $             | 3,779 |                   |  | $    | 3,808 |      |  | $    | 3,893 |  |  | $ | 7,538 |  |  | $ | 8,184 | 
|                        |  |               |       |                   |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 

Other than Italy, there were no individual
international countries, which comprised over 10% of the total
revenues of the Company for the years ended December 31,
2003, 2002 or 2001, or 10% of the total long-lived assets of the
Company as of December 31, 2003 or 2002.



|         |                     
|-------- | --------------------
|Note 23. | Guarantor Subsidiary

The Companys payment obligations under the
Senior Credit Facility, the Senior Notes and the Notes are fully
and unconditionally guaranteed by the Sheraton Holding
Corporation, a wholly-owned subsidiary. The obligation of the
Guarantor Subsidiary under its guarantee of the Senior Notes is
equal in right of payment to its obligations under the Sheraton
Holding public debt.

Presented below is condensed consolidating
financial information for the Parent, the Guarantor Subsidiary
and the Non-Guarantor Subsidiaries. Investments in subsidiaries
are accounted for by the Parent and the Guarantor Subsidiary on
the equity method of accounting. Earnings of subsidiaries are,
therefore, reflected in the Parents and Guarantor
Subsidiarys investments in subsidiaries accounts.
The elimination entries eliminate investments in subsidiaries
and intercompany balances and transactions.

F-50



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

|                                                                                   |                                                                    |                           |        |            |     |              |        |              |    |              |        |     |       |   |         |   |   |   |        |       |       | 
|---------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ------------------------- | ------ | ---------- | --- | ------------ | ------ | ------------ | -- | ------------ | ------ | --- | ----- | - | ------- | - | - | - | ------ | ----- | ----- | 
|                                                                                   |                                                                    |                          
|                                                                                   |                                                                    | Balance Sheet            
|                                                                                   |                                                                    | December 31, 2003        
|                                                                                   |                                                                    | (In millions)            
|                                                                                   |                                                                    |                          
|                                                                                   |                                                                    |                           |        | Non-       |     |             
|                                                                                   |                                                                    |                           |        | Guarantor  |     | Guarantor    |        |             
|                                                                                   |                                                                    | Parent                    |        | Subsidiary |     | Subsidiaries |        | Eliminations |    | Consolidated
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |    |             
|Assets                                                                             |                                                                    |                           |        |            |     |              |        |              |    |              |        |     |       |   |         |   |   |   |        |      
|Current assets:                                                                    |                                                                    |                           |        |            |     |              |        |              |    |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   | Cash and cash equivalents                                          |                           | $      | 262        |     |              | $      |             |    |              | $      | 165 |       |   | $       |  |   |   | $      | 427   |      
|                                                                                   | Restricted cash                                                    |                           |        | 13         |     |              |        |             |    |              |        | 68  |       |   |         |  |   |   |        | 81    |      
|                                                                                   | Inventories                                                        |                           |        | 22         |     |              |        |             |    |              |        | 193 |       |   |         |  |   |   |        | 215   |      
|                                                                                   | Other current assets                                               |                           |        | 111        |     |              |        | 3            |    |              |        | 408 |       |   |         |  |   |   |        | 522   |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |    |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   |                                                                    | Total current assets      |        |            | 408 |              |        |              | 3  |              |        |     | 834   |   |         |   |  |   |        | $     | 1,245 | 
|Intercompany                                                                       |                                                                    |                           | (6,206 | )          |     |              | (4,779 | )            |    |              | 10,985 |     |       |   |        |   |   |   |       |      
|Investments in consolidated subsidiaries                                           |                                                                    |                           | 11,540 |            |     |              | 10,072 |              |    |              |       |     |       |   | (21,612 | ) |   |   |       |      
|Plant, property and equipment, net                                                 |                                                                    |                           | 322    |            |     |              |       |              |    |              | 6,801  |     |       |   |        |   |   |   | 7,123  |      
|Goodwill and intangible assets, net                                                |                                                                    |                           | 1,651  |            |     |              | 2      |              |    |              | 835    |     |       |   |        |   |   |   | 2,488  |      
|Other assets                                                                       |                                                                    |                           | 369    |            |     |              | 34     |              |    |              | 635    |     |       |   |        |   |   |   | 1,038  |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |    |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   |                                                                    | $                         | 8,084  |            |     | $            | 5,332  |              |    | $            | 20,090 |     |       | $ | (21,612 | ) |   | $ | 11,894 |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |    |              |        |     |       |   |         |   |   |   |        |      
|Liabilities and stockholders
    equity                                           |                                                                    |                           |        |            |     |              |        |              |    |              |        |     |       |   |         |   |   |   |        |      
|Current liabilities:                                                               |                                                                    |                           |        |            |     |              |        |              |    |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   | Short-term borrowings and current maturities of
    long-term debt |                           | $      | 51         |     |              | $      |             |    |              | $      | 182 |       |   | $       |  |   |   | $      | 233   |      
|                                                                                   | Other current liabilities                                          |                           |        | 465        |     |              |        | 30           |    |              |        | 916 |       |   |         |  |   |   |        | 1,411 |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |    |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   |                                                                    | Total current liabilities |        |            | 516 |              |        |              | 30 |              |        |     | 1,098 |   |         | $ |  |   |        |       | 1,644 | 
|Long-term debt                                                                     |                                                                    |                           | 2,470  |            |     |              | 1,067  |              |    |              | 856    |     |       |   |        |   |   |   | 4,393  |      
|Deferred income taxes                                                              |                                                                    |                           | 733    |            |     |              |       |              |    |              | 165    |     |       |   |        |   |   |   | 898    |      
|Other liabilities                                                                  |                                                                    |                           | 40     |            |     |              | 86     |              |    |              | 448    |     |       |   |        |   |   |   | 574    |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |    |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   |                                                                    |                           | 3,759  |            |     |              | 1,183  |              |    |              | 2,567  |     |       |   |        |   |   |   | 7,509  |      
|Minority interest                                                                  |                                                                    |                           | (2     | )          |     |              |       |              |    |              | 30     |     |       |   |        |   |   |   | 28     |      
|Exchangeable units and Class B preferred
    shares, at redemption value of $38.50 |                                                                    |                           | 1      |            |     |              |       |              |    |              | 30     |     |       |   |        |   |   |   | 31     |      
|Commitments and contingencies                                                      |                                                                    |                           |        |            |     |              |        |              |    |              |        |     |       |   |         |   |   |   |        |      
|Total stockholders equity                                                         |                                                                    |                           | 4,326  |            |     |              | 4,149  |              |    |              | 17,463 |     |       |   | (21,612 | ) |   |   | 4,326  |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |    |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   |                                                                    | $                         | 8,084  |            |     | $            | 5,332  |              |    | $            | 20,090 |     |       | $ | (21,612 | ) |   | $ | 11,894 |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |    |              |        |     |       |   |         |   |   |   |        |      

F-51



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

|                                                                                   |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |       |       | 
|---------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ------------------------- | ------ | ---------- | --- | ------------ | ------ | ------------ | --- | ------------ | ------ | --- | ----- | - | ------- | - | - | - | ------ | ----- | ----- | 
|                                                                                   |                                                                    |                          
|                                                                                   |                                                                    | Balance Sheet            
|                                                                                   |                                                                    | December 31, 2002        
|                                                                                   |                                                                    | (In millions)            
|                                                                                   |                                                                    |                          
|                                                                                   |                                                                    |                           |        | Non-       |     |             
|                                                                                   |                                                                    |                           |        | Guarantor  |     | Guarantor    |        |             
|                                                                                   |                                                                    | Parent                    |        | Subsidiary |     | Subsidiaries |        | Eliminations |     | Consolidated
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |     |             
|Assets                                                                             |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|Current assets:                                                                    |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   | Cash and cash equivalents                                          |                           | $      | 3          |     |              | $      | 1            |     |              | $      | 104 |       |   | $       |  |   |   | $      | 108   |      
|                                                                                   | Restricted cash                                                    |                           |        | 4          |     |              |        |             |     |              |        | 104 |       |   |         |  |   |   |        | 108   |      
|                                                                                   | Inventories                                                        |                           |        | 29         |     |              |        |             |     |              |        | 185 |       |   |         |  |   |   |        | 214   |      
|                                                                                   | Other current assets                                               |                           |        | 133        |     |              |        | 3            |     |              |        | 370 |       |   |         |  |   |   |        | 506   |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   |                                                                    | Total current assets      |        |            | 169 |              |        |              | 4   |              |        |     | 763   |   |         |   |  |   |        |       | 936   | 
|Intercompany                                                                       |                                                                    |                           | (5,773 | )          |     |              | (4,280 | )            |     |              | 10,053 |     |       |   |        |   |   |   |       |      
|Investments in consolidated subsidiaries                                           |                                                                    |                           | 11,156 |            |     |              | 9,407  |              |     |              |       |     |       |   | (20,563 | ) |   |   |       |      
|Plant, property and equipment, net                                                 |                                                                    |                           | 360    |            |     |              |       |              |     |              | 6,551  |     |       |   |        |   |   |   | 6,911  |      
|Assets held for sale                                                               |                                                                    |                           | 1      |            |     |              |       |              |     |              | 838    |     |       |   |        |   |   |   | 839    |      
|Goodwill and intangible assets, net                                                |                                                                    |                           | 1,726  |            |     |              | 2      |              |     |              | 842    |     |       |   |        |   |   |   | 2,570  |      
|Other assets                                                                       |                                                                    |                           | 163    |            |     |              | 60     |              |     |              | 711    |     |       |   |        |   |   |   | 934    |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   |                                                                    | $                         | 7,802  |            |     | $            | 5,193  |              |     | $            | 19,758 |     |       | $ | (20,563 | ) |   | $ | 12,190 |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|Liabilities and stockholders
    equity                                           |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|Current liabilities:                                                               |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   | Short-term borrowings and current maturities of
    long-term debt |                           | $      |           |     |              | $      | 250          |     |              | $      | 620 |       |   | $       |  |   |   | $      | 870   |      
|                                                                                   | Other current liabilities                                          |                           |        | 422        |     |              |        | 33           |     |              |        | 805 |       |   |         |  |   |   |        | 1,260 |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   |                                                                    | Total current liabilities |        |            | 422 |              |        |              | 283 |              |        |     | 1,425 |   |         |   |  |   |        |       | 2,130 | 
|Long-term debt                                                                     |                                                                    |                           | 2,462  |            |     |              | 1,074  |              |     |              | 913    |     |       |   |        |   |   |   | 4,449  |      
|Deferred income taxes                                                              |                                                                    |                           | 861    |            |     |              |       |              |     |              | 125    |     |       |   |        |   |   |   | 986    |      
|Other liabilities                                                                  |                                                                    |                           | 54     |            |     |              | 149    |              |     |              | 335    |     |       |   |        |   |   |   | 538    |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   |                                                                    |                           | 3,799  |            |     |              | 1,506  |              |     |              | 2,798  |     |       |   |        |   |   |   | 8,103  |      
|Minority interest                                                                  |                                                                    |                           | 3      |            |     |              |       |              |     |              | 36     |     |       |   |        |   |   |   | 39     |      
|Exchangeable units and Class B preferred
    shares, at redemption value of $38.50 |                                                                    |                           | 3      |            |     |              |       |              |     |              | 48     |     |       |   |        |   |   |   | 51     |      
|Commitments and contingencies                                                      |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|Total stockholders equity                                                         |                                                                    |                           | 3,997  |            |     |              | 3,687  |              |     |              | 16,876 |     |       |   | (20,563 | ) |   |   | 3,997  |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   |                                                                    | $                         | 7,802  |            |     | $            | 5,193  |              |     | $            | 19,758 |     |       | $ | (20,563 | ) |   | $ | 12,190 |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      

F-52



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |     |   |   |        |      |   |   |       |     |  
|--------------------------------------------------------- | ---------------------------------- | ---------------------------- | ----- | ---------- | - | ------------ | ---- | ------------ | - | ------------ | ----- | --- | - | - | ------ | ---- | - | - | ----- | --- | -
|                                                          |                                    |                             
|                                                          |                                    | Statement of Income         
|                                                          |                                    | Year Ended December 31, 2003
|                                                          |                                    | (In millions)               
|                                                          |                                    |                             
|                                                          |                                    |                              |       | Non-       |   |             
|                                                          |                                    |                              |       | Guarantor  |   | Guarantor    |      |             
|                                                          |                                    | Parent                       |       | Subsidiary |   | Subsidiaries |      | Eliminations |   | Consolidated
|                                                          |                                    |                              |       |            |   |              |      |              |   |             
|Revenues                                                  |                                    |                              |       |            |   |              |      |              |   |              |       |     |   |   |        |      |   |   |       |    
|Owned, leased and consolidated joint venture
    hotels   |                                    | $                            | 1,092 |            |   | $            |     |              |   | $            | 1,993 |     |   | $ |       |      |   | $ | 3,085 |    
|Other hotel and leisure                                   |                                    |                              | 51    |            |   |              |     |              |   |              | 940   |     |   |   | (297   | )    |   |   | 694   |    
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |     |   |   |        |      |   |   |       |    
|                                                          |                                    |                              | 1,143 |            |   |              |     |              |   |              | 2,933 |     |   |   | (297   | )    |   |   | 3,779 |    
|Other revenues from managed and franchised
    properties |                                    |                              | 774   |            |   |              |     |              |   |              | 77    |     |   |   |       |      |   |   | 851   |    
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |     |   |   |        |      |   |   |       |    
|                                                          |                                    |                              | 1,917 |            |   |              |     |              |   |              | 3,010 |     |   |   | (297   | )    |   |   | 4,630 |    
|Costs and Expenses                                        |                                    |                              |       |            |   |              |      |              |   |              |       |     |   |   |        |      |   |   |       |    
|Owned, leased and consolidated joint venture
    hotels   |                                    |                              | 1,128 |            |   |              |     |              |   |              | 1,561 |     |   |   | (297   | )    |   |   | 2,392 |    
|Selling, general and administrative and other             |                                    |                              | 209   |            |   |              | (2   | )            |   |              | 333   |     |   |   |       |      |   |   | 540   |    
|Restructuring and other special credits, net              |                                    |                              | 1     |            |   |              | (9   | )            |   |              | (1    | )   |   |   |       |      |   |   | (9    | )  
|Depreciation and amortization                             |                                    |                              | 49    |            |   |              |     |              |   |              | 380   |     |   |   |       |      |   |   | 429   |    
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |     |   |   |        |      |   |   |       |    
|                                                          |                                    |                              | 1,387 |            |   |              | (11  | )            |   |              | 2,273 |     |   |   | (297   | )    |   |   | 3,352 |    
|Other expenses from managed and franchised
    properties |                                    |                              | 774   |            |   |              |     |              |   |              | 77    |     |   |   |       |      |   |   | 851   |    
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |     |   |   |        |      |   |   |       |    
|                                                          |                                    |                              | 2,161 |            |   |              | (11  | )            |   |              | 2,350 |     |   |   | (297   | )    |   |   | 4,203 |    
|Operating income                                          |                                    |                              | (244  | )          |   |              | 11   |              |   |              | 660   |     |   |   |       |      |   |   | 427   |    
|Gain on sale of VOI notes receivable                      |                                    |                              |      |            |   |              |     |              |   |              | 15    |     |   |   |       |      |   |   | 15    |    
|Equity earning in consolidated subsidiaries               |                                    |                              | 372   |            |   |              | 320  |              |   |              |      |     |   |   | (692   | )    |   |   |      |    
|Equity earnings from unconsolidated ventures, net         |                                    |                              |      |            |   |              | 1    |              |   |              | 11    |     |   |   |       |      |   |   | 12    |    
|Interest expense, net of interest income                  |                                    |                              | (180  | )          |   |              | (360 | )            |   |              | 258   |     |   |   |       |      |   |   | (282  | )  
|Loss on asset dispositions                                |                                    |                              | (3    | )          |   |              |     |              |   |              | (180  | )   |   |   |       |      |   |   | (183  | )  
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |     |   |   |        |      |   |   |       |    
|Income (loss) before taxes and minority
    equity        |                                    |                              | (55   | )          |   |              | (28  | )            |   |              | 764   |     |   |   | (692   | )    |   |   | (11   | )  
|Income tax benefit (expense)                              |                                    |                              | 158   |            |   |              | 122  |              |   |              | (167  | )   |   |   |       |      |   |   | 113   |    
|Minority equity in net loss                               |                                    |                              | 2     |            |   |              |     |              |   |              | 1     |     |   |   |       |      |   |   | 3     |    
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |     |   |   |        |      |   |   |       |    
|Income from continuing operations                         |                                    |                              | 105   |            |   |              | 94   |              |   |              | 598   |     |   |   | (692   | )    |   |   | 105   |    
|Discontinued operations:                                  |                                    |                              |       |            |   |              |      |              |   |              |       |     |   |   |        |      |   |   |       |    
|                                                          | Loss from operations, net of taxes |                              |       | (2         | ) |              |      | (2           | ) |              |       | (2  | ) |   |        | 4    |   |   |       | (2  | )
|                                                          | Gain on dispositions, net of taxes |                              |       | 206        |   |              |      | 203          |   |              |       | 174 |   |   |        | (377 | ) |   |       | 206 |  
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |     |   |   |        |      |   |   |       |    
|Net income                                                |                                    | $                            | 309   |            |   | $            | 295  |              |   | $            | 770   |     |   | $ | (1,065 | )    |   | $ | 309   |    
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |     |   |   |        |      |   |   |       |    

F-53



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |        |      |   |   |       |     |  
|--------------------------------------------------------- | ---------------------------------- | ---------------------------- | ----- | ---------- | - | ------------ | ---- | ------------ | - | ------------ | ----- | -- | - | - | ------ | ---- | - | - | ----- | --- | -
|                                                          |                                    |                             
|                                                          |                                    | Statement of Income         
|                                                          |                                    | Year Ended December 31, 2002
|                                                          |                                    | (In millions)               
|                                                          |                                    |                             
|                                                          |                                    |                              |       | Non-       |   |             
|                                                          |                                    |                              |       | Guarantor  |   | Guarantor    |      |             
|                                                          |                                    | Parent                       |       | Subsidiary |   | Subsidiaries |      | Eliminations |   | Consolidated
|                                                          |                                    |                              |       |            |   |              |      |              |   |             
|Revenues                                                  |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |        |      |   |   |       |    
|Owned, leased and consolidated joint venture
    hotels   |                                    | $                            | 1,187 |            |   | $            |     |              |   | $            | 2,003 |    |   | $ |       |      |   | $ | 3,190 |    
|Other hotel and leisure                                   |                                    |                              | 59    |            |   |              |     |              |   |              | 917   |    |   |   | (358   | )    |   |   | 618   |    
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |        |      |   |   |       |    
|                                                          |                                    |                              | 1,246 |            |   |              |     |              |   |              | 2,920 |    |   |   | (358   | )    |   |   | 3,808 |    
|Other revenues from managed and franchised
    properties |                                    |                              | 703   |            |   |              |     |              |   |              | 77    |    |   |   |       |      |   |   | 780   |    
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |        |      |   |   |       |    
|                                                          |                                    |                              | 1,949 |            |   |              |     |              |   |              | 2,997 |    |   |   | (358   | )    |   |   | 4,588 |    
|Costs and Expenses                                        |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |        |      |   |   |       |    
|Owned, leased and consolidated joint venture hotel        |                                    |                              | 1,221 |            |   |              |     |              |   |              | 1,472 |    |   |   | (343   | )    |   |   | 2,350 |    
|Selling, general and administrative and other             |                                    |                              | 195   |            |   |              | (3   | )            |   |              | 249   |    |   |   | (15    | )    |   |   | 426   |    
|Restructuring and other special credits, net              |                                    |                              | (5    | )          |   |              |     |              |   |              | (2    | )  |   |   |       |      |   |   | (7    | )  
|Depreciation and amortization                             |                                    |                              | 50    |            |   |              |     |              |   |              | 438   |    |   |   |       |      |   |   | 488   |    
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |        |      |   |   |       |    
|                                                          |                                    |                              | 1,461 |            |   |              | (3   | )            |   |              | 2,157 |    |   |   | (358   | )    |   |   | 3,257 |    
|Other expenses from managed and franchised
    properties |                                    |                              | 703   |            |   |              |     |              |   |              | 77    |    |   |   |       |      |   |   | 780   |    
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |        |      |   |   |       |    
|                                                          |                                    |                              | 2,164 |            |   |              | (3   | )            |   |              | 2,234 |    |   |   | (358   | )    |   |   | 4,037 |    
|Operating income                                          |                                    |                              | (215  | )          |   |              | 3    |              |   |              | 763   |    |   |   |       |      |   |   | 551   |    
|Gain on sale of VOI notes receivable                      |                                    |                              |      |            |   |              |     |              |   |              | 16    |    |   |   |       |      |   |   | 16    |    
|Equity earnings in consolidated subsidiaries              |                                    |                              | 521   |            |   |              | 356  |              |   |              |      |    |   |   | (877   | )    |   |   |      |    
|Equity earnings from unconsolidated ventures, net         |                                    |                              | 2     |            |   |              | 1    |              |   |              | 5     |    |   |   |       |      |   |   | 8     |    
|Interest expense, net of interest income                  |                                    |                              | (210  | )          |   |              | (359 | )            |   |              | 246   |    |   |   |       |      |   |   | (323  | )  
|Gain on asset dispositions                                |                                    |                              |      |            |   |              |     |              |   |              | 3     |    |   |   |       |      |   |   | 3     |    
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |        |      |   |   |       |    
|Income (loss) before taxes and minority
    equity        |                                    |                              | 98    |            |   |              | 1    |              |   |              | 1,033 |    |   |   | (877   | )    |   |   | 255   |    
|Income tax expense (benefit)                              |                                    |                              | 152   |            |   |              | 155  |              |   |              | (309  | )  |   |   |       |      |   |   | (2    | )  
|Minority equity in (net income) loss                      |                                    |                              | 1     |            |   |              |     |              |   |              | (3    | )  |   |   |       |      |   |   | (2    | )  
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |        |      |   |   |       |    
|Income from continuing operations                         |                                    |                              | 251   |            |   |              | 156  |              |   |              | 721   |    |   |   | (877   | )    |   |   | 251   |    
|Discontinued operations:                                  |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |        |      |   |   |       |    
|                                                          | Loss from operations, net of taxes |                              |       | (5         | ) |              |      | (5           | ) |              |       | (5 | ) |   |        | 10   |   |   |       | (5  | )
|                                                          | Gain on dispositions, net of taxes |                              |       | 109        |   |              |      | 108          |   |              |       | 83 |   |   |        | (191 | ) |   |       | 109 |  
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |        |      |   |   |       |    
|Net income                                                |                                    | $                            | 355   |            |   | $            | 259  |              |   | $            | 799   |    |   | $ | (1,058 | )    |   | $ | 355   |    
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |        |      |   |   |       |    

F-54



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |      |   |  |   |       |    |  
|--------------------------------------------------------- | ---------------------------------- | ---------------------------- | ----- | ---------- | - | ------------ | ---- | ------------ | - | ------------ | ----- | -- | - | - | ---- | - |  | - | ----- | -- | -
|                                                          |                                    |                             
|                                                          |                                    | Statement of Income         
|                                                          |                                    | Year Ended December 31, 2001
|                                                          |                                    | (In millions)               
|                                                          |                                    |                             
|                                                          |                                    |                              |       | Non-       |   |             
|                                                          |                                    |                              |       | Guarantor  |   | Guarantor    |      |             
|                                                          |                                    | Parent                       |       | Subsidiary |   | Subsidiaries |      | Eliminations |   | Consolidated
|                                                          |                                    |                              |       |            |   |              |      |              |   |             
|Revenues                                                  |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |      |   |  |   |       |   
|Owned, leased and consolidated joint venture
    hotels   |                                    | $                            | 1,208 |            |   | $            |     |              |   | $            | 2,093 |    |   | $ |     |   |  | $ | 3,301 |   
|Other hotel and leisure                                   |                                    |                              | 54    |            |   |              | 1    |              |   |              | 999   |    |   |   | (462 | ) |  |   | 592   |   
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |      |   |  |   |       |   
|                                                          |                                    |                              | 1,262 |            |   |              | 1    |              |   |              | 3,092 |    |   |   | (462 | ) |  |   | 3,893 |   
|Other revenues from managed and franchised
    properties |                                    |                              | 677   |            |   |              |     |              |   |              | 63    |    |   |   |     |   |  |   | 740   |   
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |      |   |  |   |       |   
|                                                          |                                    |                              | 1,939 |            |   |              | 1    |              |   |              | 3,155 |    |   |   | (462 | ) |  |   | 4,633 |   
|Costs and Expenses                                        |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |      |   |  |   |       |   
|Owned, leased and consolidated joint venture hotel        |                                    |                              | 1,250 |            |   |              |     |              |   |              | 1,550 |    |   |   | (462 | ) |  |   | 2,338 |   
|Selling, general and administrative and other             |                                    |                              | 130   |            |   |              | (16  | )            |   |              | 297   |    |   |   |     |   |  |   | 411   |   
|Restructuring and other special credits, net              |                                    |                              | 43    |            |   |              |     |              |   |              | 7     |    |   |   |     |   |  |   | 50    |   
|Depreciation and amortization                             |                                    |                              | 92    |            |   |              |     |              |   |              | 426   |    |   |   |     |   |  |   | 518   |   
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |      |   |  |   |       |   
|                                                          |                                    |                              | 1,515 |            |   |              | (16  | )            |   |              | 2,280 |    |   |   | (462 | ) |  |   | 3,317 |   
|Other expenses from managed and franchised
    properties |                                    |                              | 677   |            |   |              |     |              |   |              | 63    |    |   |   |     |   |  |   | 740   |   
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |      |   |  |   |       |   
|                                                          |                                    |                              | 2,192 |            |   |              | (16  | )            |   |              | 2,343 |    |   |   | (462 | ) |  |   | 4,057 |   
|Operating income                                          |                                    |                              | (253  | )          |   |              | 17   |              |   |              | 812   |    |   |   |     |   |  |   | 576   |   
|Gain on sale of VOI notes receivable                      |                                    |                              |      |            |   |              |     |              |   |              | 12    |    |   |   |     |   |  |   | 12    |   
|Equity earnings in consolidated subsidiaries              |                                    |                              | 531   |            |   |              | 350  |              |   |              |      |    |   |   | (881 | ) |  |   |      |   
|Equity earnings from unconsolidated ventures, net         |                                    |                              | 1     |            |   |              |     |              |   |              | 14    |    |   |   |     |   |  |   | 15    |   
|Interest expense, net of interest income                  |                                    |                              | (296  | )          |   |              | (359 | )            |   |              | 301   |    |   |   |     |   |  |   | (354  | ) 
|Loss on asset dispositions                                |                                    |                              | (13   | )          |   |              |     |              |   |              | (44   | )  |   |   |     |   |  |   | (57   | ) 
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |      |   |  |   |       |   
|Income (loss) before taxes and minority
    equity        |                                    |                              | (30   | )          |   |              | 8    |              |   |              | 1,095 |    |   |   | (881 | ) |  |   | 192   |   
|Income tax expense                                        |                                    |                              | 178   |            |   |              | 120  |              |   |              | (340  | )  |   |   |     |   |  |   | (42   | ) 
|Minority equity in net income                             |                                    |                              | (1    | )          |   |              |     |              |   |              | (2    | )  |   |   |     |   |  |   | (3    | ) 
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |      |   |  |   |       |   
|Income from continuing operations                         |                                    |                              | 147   |            |   |              | 128  |              |   |              | 753   |    |   |   | (881 | ) |  |   | 147   |   
|Discontinued Operations:                                  |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |      |   |  |   |       |   
|                                                          | Loss from operations, net of taxes |                              |       | (2         | ) |              |      | (2           | ) |              |       | (2 | ) |   |      | 4 |  |   |       | (2 | )
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |      |   |  |   |       |   
|Net income                                                |                                    | $                            | 145   |            |   | $            | 126  |              |   | $            | 751   |    |   | $ | (877 | ) |  | $ | 145   |   
|                                                          |                                    |                              |       |            |   |              |      |              |   |              |       |    |   |   |      |   |  |   |       |   

F-55



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

|                                                             |                                                              |                              |      |            |   |              |      |              |   |              |       |      |   |   |        |     |  |   |       |      |  
|------------------------------------------------------------ | ------------------------------------------------------------ | ---------------------------- | ---- | ---------- | - | ------------ | ---- | ------------ | - | ------------ | ----- | ---- | - | - | ------ | --- |  | - | ----- | ---- | -
|                                                             |                                                              |                             
|                                                             |                                                              | Statement of Cash Flows     
|                                                             |                                                              | Year Ended December 31, 2003
|                                                             |                                                              | (In millions)               
|                                                             |                                                              |                             
|                                                             |                                                              |                              |      | Non-       |   |             
|                                                             |                                                              |                              |      | Guarantor  |   | Guarantor    |      |             
|                                                             |                                                              | Parent                       |      | Subsidiary |   | Subsidiaries |      | Eliminations |   | Consolidated
|                                                             |                                                              |                              |      |            |   |              |      |              |   |             
|Operating Activities                                         |                                                              |                              |      |            |   |              |      |              |   |              |       |      |   |   |        |     |  |   |       |     
|Net income                                                   |                                                              | $                            | 309  |            |   | $            | 295  |              |   | $            | 770   |      |   | $ | (1,065 | )   |  | $ | 309   |     
|Exclude:                                                     |                                                              |                              |      |            |   |              |      |              |   |              |       |      |   |   |        |     |  |   |       |     
|                                                             | Discontinued operations, net                                 |                              |      | (204       | ) |              |      | (201         | ) |              |       | (172 | ) |   |        | 373 |  |   |       | (204 | )
|                                                             |                                                              |                              |      |            |   |              |      |              |   |              |       |      |   |   |        |     |  |   |       |     
|Income from continuing operations                            |                                                              |                              | 105  |            |   |              | 94   |              |   |              | 598   |      |   |   | (692   | )   |  |   | 105   |     
|                                                             | Adjustments to net income and changes in working
    capital |                              |      | 333        |   |              |      | 155          |   |              |       | (525 | ) |   |        | 692 |  |   |       | 655  |  
|                                                             | Cash from discontinued operations                            |                              |      |           |   |              |      |             |   |              |       | 11   |   |   |        |    |  |   |       | 11   |  
|                                                             |                                                              |                              |      |            |   |              |      |              |   |              |       |      |   |   |        |     |  |   |       |     
|                                                             | Cash from operating activities                               |                              |      | 438        |   |              |      | 249          |   |              |       | 84   |   |   |        |    |  |   |       | 771  |  
|Investing Activities                                         |                                                              |                              |      |            |   |              |      |              |   |              |       |      |   |   |        |     |  |   |       |     
|Purchases of plant, property and equipment                   |                                                              |                              | (30  | )          |   |              |     |              |   |              | (277  | )    |   |   |       |     |  |   | (307  | )   
|Proceeds from asset sales                                    |                                                              |                              |     |            |   |              |     |              |   |              | 1,042 |      |   |   |       |     |  |   | 1,042 |     
|Acquisitions and investments                                 |                                                              |                              |     |            |   |              |     |              |   |              | (11   | )    |   |   |       |     |  |   | (11   | )   
|Other, net                                                   |                                                              |                              | (213 | )          |   |              |     |              |   |              | (1    | )    |   |   |       |     |  |   | (214  | )   
|                                                             |                                                              |                              |      |            |   |              |      |              |   |              |       |      |   |   |        |     |  |   |       |     
|                                                             | Cash from (used for) investing activities                    |                              |      | (243       | ) |              |      |             |   |              |       | 753  |   |   |        |    |  |   |       | 510  |  
|Financing Activities                                         |                                                              |                              |      |            |   |              |      |              |   |              |       |      |   |   |        |     |  |   |       |     
|Revolving credit facility and short-term
    borrowings, net |                                                              |                              | (319 | )          |   |              |     |              |   |              | (25   | )    |   |   |       |     |  |   | (344  | )   
|Long-term debt issued                                        |                                                              |                              | 360  |            |   |              |     |              |   |              | 86    |      |   |   |       |     |  |   | 446   |     
|Long-term debt repaid                                        |                                                              |                              |     |            |   |              | (250 | )            |   |              | (661  | )    |   |   |       |     |  |   | (911  | )   
|Distributions paid                                           |                                                              |                              |     |            |   |              |     |              |   |              | (170  | )    |   |   |       |     |  |   | (170  | )   
|Other, net                                                   |                                                              |                              | 23   |            |   |              |     |              |   |              | (23   | )    |   |   |       |     |  |   |      |     
|                                                             |                                                              |                              |      |            |   |              |      |              |   |              |       |      |   |   |        |     |  |   |       |     
|                                                             | Cash from (used for) financing activities                    |                              |      | 64         |   |              |      | (250         | ) |              |       | (793 | ) |   |        |    |  |   |       | (979 | )
|Exchange rate effect on cash and cash equivalents            |                                                              |                              |     |            |   |              |     |              |   |              | 17    |      |   |   |       |     |  |   | 17    |     
|                                                             |                                                              |                              |      |            |   |              |      |              |   |              |       |      |   |   |        |     |  |   |       |     
|Increase (decrease) in cash and cash
    equivalents         |                                                              |                              | 259  |            |   |              | (1   | )            |   |              | 61    |      |   |   |       |     |  |   | 319   |     
|Cash and cash equivalents  beginning
    of period          |                                                              |                              | 3    |            |   |              | 1    |              |   |              | 104   |      |   |   |       |     |  |   | 108   |     
|                                                             |                                                              |                              |      |            |   |              |      |              |   |              |       |      |   |   |        |     |  |   |       |     
|Cash and cash equivalents  end of
    period                |                                                              | $                            | 262  |            |   | $            |     |              |   | $            | 165   |      |   | $ |       |     |  | $ | 427   |     
|                                                             |                                                              |                              |      |            |   |              |      |              |   |              |       |      |   |   |        |     |  |   |       |     

F-56



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

|                                                             |                                                              |                              |        |            |   |              |     |              |   |              |      |      |   |   |        |     |  |   |        |      |  
|------------------------------------------------------------ | ------------------------------------------------------------ | ---------------------------- | ------ | ---------- | - | ------------ | --- | ------------ | - | ------------ | ---- | ---- | - | - | ------ | --- |  | - | ------ | ---- | -
|                                                             |                                                              |                             
|                                                             |                                                              | Statement of Cash Flows     
|                                                             |                                                              | Year Ended December 31, 2002
|                                                             |                                                              | (In millions)               
|                                                             |                                                              |                             
|                                                             |                                                              |                              |        | Non-       |   |             
|                                                             |                                                              |                              |        | Guarantor  |   | Guarantor    |     |             
|                                                             |                                                              | Parent                       |        | Subsidiary |   | Subsidiaries |     | Eliminations |   | Consolidated
|                                                             |                                                              |                              |        |            |   |              |     |              |   |             
|Operating Activities                                         |                                                              |                              |        |            |   |              |     |              |   |              |      |      |   |   |        |     |  |   |        |     
|Net income                                                   |                                                              | $                            | 355    |            |   | $            | 259 |              |   | $            | 799  |      |   | $ | (1,058 | )   |  | $ | 355    |     
|Exclude:                                                     |                                                              |                              |        |            |   |              |     |              |   |              |      |      |   |   |        |     |  |   |        |     
|                                                             | Discontinued operations                                      |                              |        | (104       | ) |              |     | (103         | ) |              |      | (78  | ) |   |        | 181 |  |   |        | (104 | )
|                                                             |                                                              |                              |        |            |   |              |     |              |   |              |      |      |   |   |        |     |  |   |        |     
|Income from continuing operations                            |                                                              |                              | 251    |            |   |              | 156 |              |   |              | 721  |      |   |   | (877   | )   |  |   | 251    |     
|                                                             | Adjustments to net income and changes in working
    capital |                              |        | 189        |   |              |     | (172         | ) |              |      | (457 | ) |   |        | 877 |  |   |        | 437  |  
|                                                             | Cash from discontinued operations                            |                              |        |           |   |              |     |             |   |              |      | 18   |   |   |        |    |  |   |        | 18   |  
|                                                             |                                                              |                              |        |            |   |              |     |              |   |              |      |      |   |   |        |     |  |   |        |     
|                                                             | Cash from (used for) operating activities                    |                              |        | 440        |   |              |     | (16          | ) |              |      | 282  |   |   |        |    |  |   |        | 706  |  
|                                                            
|Investing Activities                                         |                                                              |                              |        |            |   |              |     |              |   |              |      |      |   |   |        |     |  |   |        |     
|Purchases of plant, property and equipment                   |                                                              |                              | (38    | )          |   |              |    |              |   |              | (262 | )    |   |   |       |     |  |   | (300   | )   
|Acquisitions and investments                                 |                                                              |                              | (3     | )          |   |              | (4  | )            |   |              | (41  | )    |   |   |       |     |  |   | (48    | )   
|Other, net                                                   |                                                              |                              | 10     |            |   |              |    |              |   |              | 52   |      |   |   |       |     |  |   | 62     |     
|                                                             |                                                              |                              |        |            |   |              |     |              |   |              |      |      |   |   |        |     |  |   |        |     
|                                                             | Cash from (used for) investing activities                    |                              |        | (31        | ) |              |     | (4           | ) |              |      | (251 | ) |   |        |    |  |   |        | (286 | )
|                                                            
|Financing Activities                                         |                                                              |                              |        |            |   |              |     |              |   |              |      |      |   |   |        |     |  |   |        |     
|Revolving credit facility and short-term
    borrowings, net |                                                              |                              | (333   | )          |   |              |    |              |   |              | (67  | )    |   |   |       |     |  |   | (400   | )   
|Long-term debt issued                                        |                                                              |                              | 1,800  |            |   |              |    |              |   |              | 164  |      |   |   |       |     |  |   | 1,964  |     
|Long-term debt repaid                                        |                                                              |                              | (1,926 | )          |   |              |    |              |   |              | (91  | )    |   |   |       |     |  |   | (2,017 | )   
|Distributions paid                                           |                                                              |                              |       |            |   |              |    |              |   |              | (40  | )    |   |   |       |     |  |   | (40    | )   
|Other, net                                                   |                                                              |                              | 46     |            |   |              | 21  |              |   |              | (1   | )    |   |   |       |     |  |   | 66     |     
|                                                             |                                                              |                              |        |            |   |              |     |              |   |              |      |      |   |   |        |     |  |   |        |     
|                                                             | Cash from (used for) financing activities                    |                              |        | (413       | ) |              |     | 21           |   |              |      | (35  | ) |   |        |    |  |   |        | (427 | )
|Exchange rate effect on cash and cash equivalents            |                                                              |                              |       |            |   |              |    |              |   |              | 8    |      |   |   |       |     |  |   | 8      |     
|                                                             |                                                              |                              |        |            |   |              |     |              |   |              |      |      |   |   |        |     |  |   |        |     
|Increase (decrease) in cash and cash
    equivalents         |                                                              |                              | (4     | )          |   |              | 1   |              |   |              | 4    |      |   |   |       |     |  |   | 1      |     
|Cash and cash equivalents  beginning
    of period          |                                                              |                              | 7      |            |   |              |    |              |   |              | 100  |      |   |   |       |     |  |   | 107    |     
|                                                             |                                                              |                              |        |            |   |              |     |              |   |              |      |      |   |   |        |     |  |   |        |     
|Cash and cash equivalents  end of
    period                |                                                              | $                            | 3      |            |   | $            | 1   |              |   | $            | 104  |      |   | $ |       |     |  | $ | 108    |     
|                                                             |                                                              |                              |        |            |   |              |     |              |   |              |      |      |   |   |        |     |  |   |        |     

F-57



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

|                                                             |                                                              |                              |      |            |   |              |     |              |   |              |      |      |   |   |      |     |    |   |       |      |   | 
|------------------------------------------------------------ | ------------------------------------------------------------ | ---------------------------- | ---- | ---------- | - | ------------ | --- | ------------ | - | ------------ | ---- | ---- | - | - | ---- | --- | -- | - | ----- | ---- | - | 
|                                                             |                                                              |                             
|                                                             |                                                              | Statement of Cash Flows     
|                                                             |                                                              | Year Ended December 31, 2001
|                                                             |                                                              | (In millions)               
|                                                             |                                                              |                             
|                                                             |                                                              |                              |      | Non-       |   |             
|                                                             |                                                              |                              |      | Guarantor  |   | Guarantor    |     |             
|                                                             |                                                              | Parent                       |      | Subsidiary |   | Subsidiaries |     | Eliminations |   | Consolidated
|                                                             |                                                              |                              |      |            |   |              |     |              |   |             
|Operating Activities                                         |                                                              |                              |      |            |   |              |     |              |   |              |      |      |   |   |      |     |    |   |       |     
|Net income                                                   |                                                              | $                            | 145  |            |   | $            | 126 |              |   | $            | 751  |      |   | $ | (877 | )   |    | $ | 145   |     
|                                                             | Exclude:                                                     |                              |      |            |   |              |     |              |   |              |      |      |   |   |      |     |    |   |       |      |  
|                                                             |                                                              | Discontinued operations      |      |            | 2 |              |     |              | 2 |              |      |      | 2 |   |      |     | (4 | ) |       |      | 2 | 
|                                                             |                                                              |                              |      |            |   |              |     |              |   |              |      |      |   |   |      |     |    |   |       |     
|Income from continuing operations                            |                                                              |                              | 147  |            |   |              | 128 |              |   |              | 753  |      |   |   | (881 | )   |    |   | 147   |     
|                                                             | Adjustments to net income and changes in working
    capital |                              |      | (111       | ) |              |     | (124         | ) |              |      | (53  | ) |   |      | 881 |    |   |       | 593  |  
|                                                             | Cash from discontinued operations                            |                              |      |           |   |              |     |             |   |              |      | 15   |   |   |      |    |    |   |       | 15   |  
|                                                             |                                                              |                              |      |            |   |              |     |              |   |              |      |      |   |   |      |     |    |   |       |     
|                                                             | Cash from (used for) operating activities                    |                              | $    | 36         |   |              | $   | 4            |   |              | $    | 715  |   |   | $    |    |    |   | $     | 755  |  
|                                                            
|Investing Activities                                         |                                                              |                              |      |            |   |              |     |              |   |              |      |      |   |   |      |     |    |   |       |     
|Purchases of plant, property and equipment                   |                                                              |                              | (84  | )          |   |              |    |              |   |              | (393 | )    |   |   |     |     |    |   | (477  | )   
|Acquisitions and investments                                 |                                                              |                              | (6   | )          |   |              | (15 | )            |   |              | (107 | )    |   |   |     |     |    |   | (128  | )   
|Other, net                                                   |                                                              |                              | 1    |            |   |              | 11  |              |   |              | (28  | )    |   |   |     |     |    |   | (16   | )   
|                                                             |                                                              |                              |      |            |   |              |     |              |   |              |      |      |   |   |      |     |    |   |       |     
|                                                             | Cash from (used for) investing activities                    |                              |      | (89        | ) |              |     | (4           | ) |              |      | (528 | ) |   |      |    |    |   |       | (621 | )
|                                                            
|Financing Activities                                         |                                                              |                              |      |            |   |              |     |              |   |              |      |      |   |   |      |     |    |   |       |     
|Revolving credit facility and short-term
    borrowings, net |                                                              |                              | 1    |            |   |              |    |              |   |              | (245 | )    |   |   |     |     |    |   | (244  | )   
|Long-term debt issued                                        |                                                              |                              | 750  |            |   |              |    |              |   |              | 298  |      |   |   |     |     |    |   | 1,048 |     
|Long-term debt repaid                                        |                                                              |                              | (633 | )          |   |              |    |              |   |              | (110 | )    |   |   |     |     |    |   | (743  | )   
|Distributions paid                                           |                                                              |                              |     |            |   |              |    |              |   |              | (156 | )    |   |   |     |     |    |   | (156  | )   
|Other, net                                                   |                                                              |                              | (62  | )          |   |              |    |              |   |              | (5   | )    |   |   |     |     |    |   | (67   | )   
|                                                             |                                                              |                              |      |            |   |              |     |              |   |              |      |      |   |   |      |     |    |   |       |     
|                                                             | Cash from (used for) financing activities                    |                              |      | 56         |   |              |     |             |   |              |      | (218 | ) |   |      |    |    |   |       | (162 | )
|Exchange rate effect on cash and cash equivalents            |                                                              |                              |     |            |   |              |    |              |   |              | (3   | )    |   |   |     |     |    |   | (3    | )   
|                                                             |                                                              |                              |      |            |   |              |     |              |   |              |      |      |   |   |      |     |    |   |       |     
|Increase (decrease) in cash and cash equivalents             |                                                              |                              | 3    |            |   |              |    |              |   |              | (34  | )    |   |   |     |     |    |   | (31   | )   
|Cash and cash equivalents  beginning
    of period          |                                                              |                              | 4    |            |   |              |    |              |   |              | 134  |      |   |   |     |     |    |   | 138   |     
|                                                             |                                                              |                              |      |            |   |              |     |              |   |              |      |      |   |   |      |     |    |   |       |     
|Cash and cash equivalents  end of
    period                |                                                              | $                            | 7    |            |   | $            |    |              |   | $            | 100  |      |   | $ |     |     |    | $ | 107   |     
|                                                             |                                                              |                              |      |            |   |              |     |              |   |              |      |      |   |   |      |     |    |   |       |     

F-58



---



##### 



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)



|         |                              
|-------- | -----------------------------
|Note 24. | Quarterly Results (Unaudited)

|                                         |                                          |                                      |      |         |   |              |       |             |  |      |     |       |   |   |     |      |  |   |       |      | 
|---------------------------------------- | ---------------------------------------- | ------------------------------------ | ---- | ------- | - | ------------ | ----- | ----------- |  | ---- | --- | ----- | - | - | --- | ---- |  | - | ----- | ---- | 
|                                         |                                          |                                      |      |        
|                                         |                                          | Three Months Ended                   |      |        
|                                         |                                          |                                      |      |        
|                                         |                                          | March 31                             |      | June 30 |   | September 30 |       | December 31 |  | Year
|                                         |                                          |                                      |      |         |   |              |       |             |  |     
|                                         |                                          |                                     
|                                         |                                          | (In millions, except per Share data)
|2003                                     |                                          |                                      |      |         |   |              |       |             |  |      |     |       |   |   |     |      |  |   |       |     
|Revenues(a)                              |                                          | $                                    | 876  |         |   | $            | 991   |             |  | $    | 932 |       |   | $ | 980 |      |  | $ | 3,779 |     
|Costs and expenses(a)                    |                                          | $                                    | 822  |         |   | $            | 869   |             |  | $    | 823 |       |   | $ | 838 |      |  |   | 3,352 |     
|Income (loss) from continuing operations |                                          | $                                    | (117 | )       |   | $            | 87    |             |  | $    | 47  |       |   | $ | 88  |      |  | $ | 105   |     
|Discontinued operations                  |                                          | $                                    | 1    |         |   | $            | 203   |             |  | $    | 1   |       |   | $ | (1  | )    |  | $ | 204   |     
|Net income (loss)                        |                                          | $                                    | (116 | )       |   | $            | 290   |             |  | $    | 48  |       |   | $ | 87  |      |  | $ | 309   |     
|Earnings per Share:                      |                                          |                                      |      |         |   |              |       |             |  |      |     |       |   |   |     |      |  |   |       |     
|Basic                                   |                                          |                                      |      |         |   |              |       |             |  |      |     |       |   |   |     |      |  |   |       |     
|                                         | Income (loss) from continuing operations |                                      | $    | (0.58   | ) |              | $     | 0.43        |  |      | $   | 0.23  |   |   | $   | 0.43 |  |   | $     | 0.52 | 
|                                         | Discontinued operations                  |                                      | $    |        |   |              | $     | 1.00        |  |      | $   | 0.01  |   |   | $   |     |  |   | $     | 1.01 | 
|                                         | Net income (loss)                        |                                      | $    | (0.58   | ) |              | $     | 1.43        |  |      | $   | 0.24  |   |   | $   | 0.43 |  |   | $     | 1.53 | 
|Diluted                                 |                                          |                                      |      |         |   |              |       |             |  |      |     |       |   |   |     |      |  |   |       |     
|                                         | Income (loss) from continuing operations |                                      | $    | (0.58   | ) |              | $     | 0.42        |  |      | $   | 0.23  |   |   | $   | 0.42 |  |   | $     | 0.51 | 
|                                         | Discontinued operations                  |                                      | $    |        |   |              | $     | 0.99        |  |      | $   |      |   |   | $   |     |  |   | $     | 0.99 | 
|                                         | Net income (loss)                        |                                      | $    | (0.58   | ) |              | $     | 1.41        |  |      | $   | 0.23  |   |   | $   | 0.42 |  |   | $     | 1.50 | 
|                                        
|2002                                     |                                          |                                      |      |         |   |              |       |             |  |      |     |       |   |   |     |      |  |   |       |     
|Revenues(a)                              |                                          | $                                    | 878  |         |   | $            | 1,003 |             |  | $    | 957 |       |   | $ | 970 |      |  | $ | 3,808 |     
|Costs and expenses(a)                    |                                          | $                                    | 759  |         |   | $            | 823   |             |  | $    | 831 |       |   | $ | 844 |      |  | $ | 3,257 |     
|Income from continuing operations        |                                          | $                                    | 33   |         |   | $            | 76    |             |  | $    | 53  |       |   | $ | 89  |      |  | $ | 251   |     
|Discontinued operations                  |                                          | $                                    | (1   | )       |   | $            | 104   |             |  | $    | (1  | )     |   | $ | 2   |      |  | $ | 104   |     
|Net income                               |                                          | $                                    | 32   |         |   | $            | 180   |             |  | $    | 52  |       |   | $ | 91  |      |  | $ | 355   |     
|Earnings per Share:                      |                                          |                                      |      |         |   |              |       |             |  |      |     |       |   |   |     |      |  |   |       |     
|Basic                                   |                                          |                                      |      |         |   |              |       |             |  |      |     |       |   |   |     |      |  |   |       |     
|                                         | Income from continuing operations        |                                      | $    | 0.16    |   |              | $     | 0.38        |  |      | $   | 0.27  |   |   | $   | 0.44 |  |   | $     | 1.24 | 
|                                         | Discontinued operations                  |                                      | $    |        |   |              | $     | 0.51        |  |      | $   | (0.01 | ) |   | $   | 0.01 |  |   | $     | 0.52 | 
|                                         | Net income                               |                                      | $    | 0.16    |   |              | $     | 0.89        |  |      | $   | 0.26  |   |   | $   | 0.45 |  |   | $     | 1.76 | 
|Diluted                                 |                                          |                                      |      |         |   |              |       |             |  |      |     |       |   |   |     |      |  |   |       |     
|                                         | Income from continuing operations        |                                      | $    | 0.16    |   |              | $     | 0.37        |  |      | $   | 0.26  |   |   | $   | 0.44 |  |   | $     | 1.22 | 
|                                         | Discontinued operations                  |                                      | $    |        |   |              | $     | 0.50        |  |      | $   |      |   |   | $   | 0.01 |  |   | $     | 0.51 | 
|                                         | Net income                               |                                      | $    | 0.16    |   |              | $     | 0.87        |  |      | $   | 0.26  |   |   | $   | 0.45 |  |   | $     | 1.73 | 



---



|    |                                                                                  
|--- | ---------------------------------------------------------------------------------
|(a) | Excluding other revenues and expenses from
    managed and franchised properties.

F-59



---



##### 



SCHEDULE II

STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.

AND STARWOOD HOTELS & RESORTS


VALUATION AND QUALIFYING ACCOUNTS


(In millions)


|                                                        |                                         |            |    |                        |  |               |    |           |   |              |    |     |   |   |     |     |   |   |    |    | 
|------------------------------------------------------- | --------------------------------------- | ---------- | -- | ---------------------- |  | ------------- | -- | --------- | - | ------------ | -- | --- | - | - | --- | --- | - | - | -- | -- | 
|                                                        |                                         |            |    |                        |  |              
|                                                        |                                         |            |    | Additions (Deductions) |  |              
|                                                        |                                         |            |    |                        |  |              
|                                                        |                                         |            |    | Charged                |  |               |    |          
|                                                        |                                         |            |    | to/reversed            |  | Charged       |    |           |   |             
|                                                        |                                         | Balance    |    | from                   |  | to/from Other |    | Payments/ |   | Balance     
|                                                        |                                         | January 1, |    | Expenses               |  | Accounts(a)   |    | Other     |   | December 31,
|                                                        |                                         |            |    |                        |  |               |    |           |   |             
|2003                                                    |                                         |            |    |                        |  |               |    |           |   |              |    |     |   |   |     |     |   |   |    |   
|Trade receivables  allowance for
    doubtful accounts |                                         | $          | 45 |                        |  | $             | 17 |           |   | $            | 1  |     |   | $ | (10 | )   |   | $ | 53 |   
|Notes receivable  allowance for
    doubtful accounts  |                                         | $          | 46 |                        |  | $             | 17 |           |   | $            | 7  |     |   | $ | (6  | )   |   | $ | 64 |   
|Reserves included in accrued and other
    liabilities: |                                         |            |    |                        |  |               |    |           |   |              |    |     |   |   |     |     |   |   |    |   
|                                                        | Restructuring and other special charges |            | $  | 86                     |  |               | $  | (9        | ) |              | $  | 21  |   |   | $   | (21 | ) |   | $  | 77 | 
|2002                                                    |                                         |            |    |                        |  |               |    |           |   |              |    |     |   |   |     |     |   |   |    |   
|Trade receivables  allowance for
    doubtful accounts |                                         | $          | 48 |                        |  | $             | 11 |           |   | $            | (8 | )   |   | $ | (6  | )   |   | $ | 45 |   
|Notes receivable  allowance for
    doubtful accounts  |                                         | $          | 41 |                        |  | $             | 16 |           |   | $            | 10 |     |   | $ | (21 | )   |   | $ | 46 |   
|Reserves included in accrued and other
    liabilities: |                                         |            |    |                        |  |               |    |           |   |              |    |     |   |   |     |     |   |   |    |   
|                                                        | Restructuring and other special charges |            | $  | 98                     |  |               | $  | (7        | ) |              | $  | 6   |   |   | $   | (11 | ) |   | $  | 86 | 
|2001                                                    |                                         |            |    |                        |  |               |    |           |   |              |    |     |   |   |     |     |   |   |    |   
|Trade receivables  allowance for
    doubtful accounts |                                         | $          | 45 |                        |  | $             | 3  |           |   | $            |   |     |   | $ |    |     |   | $ | 48 |   
|Notes receivable  allowance for
    doubtful accounts  |                                         | $          | 42 |                        |  | $             | 17 |           |   | $            |   |     |   | $ | (18 | )   |   | $ | 41 |   
|Reserves included in accrued and other
    liabilities: |                                         |            |    |                        |  |               |    |           |   |              |    |     |   |   |     |     |   |   |    |   
|                                                        | Restructuring and other special charges |            | $  | 100                    |  |               | $  | 50        |   |              | $  | (19 | ) |   | $   | (33 | ) |   | $  | 98 | 



---



|    |                                
|--- | -------------------------------
|(a) | Charged to/from other accounts:

|                                     |  |                   |   |                 |  |   |     |  
|------------------------------------ |  | ----------------- | - | --------------- |  | - | --- | -
|                                     |  | Trade and Notes   |   |                
|                                     |  | Receivable       |   | Restructuring  
|                                     |  | Allowance for     |   | and Other      
|                                     |  | Doubtful Accounts |   | Special Charges
|                                     |  |                   |   |                
|2003                                 |  |                   |   |                 |  |   |     |  
|Other assets                         |  | $                 | 7 |                 |  | $ | 12  |  
|Other liabilities                    |  |                   | 1 |                 |  |   | 9   |  
|                                     |  |                   |   |                 |  |   |     |  
|Total charged to/from other accounts |  | $                 | 8 |                 |  | $ | 21  |  
|                                     |  |                   |   |                 |  |   |     |  
|2002                                 |  |                   |   |                 |  |   |     |  
|Other assets                         |  | $                 |  |                 |  | $ | 6   |  
|Other liabilities                    |  |                   | 2 |                 |  |   |    |  
|                                     |  |                   |   |                 |  |   |     |  
|Total charged to/from other accounts |  | $                 | 2 |                 |  | $ | 6   |  
|                                     |  |                   |   |                 |  |   |     |  
|2001                                 |  |                   |   |                 |  |   |     |  
|Other assets                         |  | $                 |  |                 |  | $ | (19 | )
|Other liabilities                    |  |                   |  |                 |  |   |    |  
|                                     |  |                   |   |                 |  |   |     |  
|Total charged to/from other accounts |  | $                 |  |                 |  | $ | (19 | )
|                                     |  |                   |   |                 |  |   |     |  

S-1



---



##### 



SCHEDULE III

STARWOOD HOTELS & RESORTS

REAL ESTATE AND ACCUMULATED
DEPRECIATION


December 31, 2003


(In millions)


|                                             |  |          |  |         |  |                 |     |                     |  |                      |       |              |  |             |     |              |  |                |      |              |  |          |     |      |  |   |       |  |  |   |     |  |  |  |         |  |  |         |  |        
|-------------------------------------------- |  | -------- |  | ------- |  | --------------- | --- | ------------------- |  | -------------------- | ----- | ------------ |  | ----------- | --- | ------------ |  | -------------- | ---- | ------------ |  | -------- | --- | ---- |  | - | ----- |  |  | - | --- |  |  |  | ------- |  |  | ------- |  | -------
|                                             |  |          |  |         |  |                 |     |                     |  |                      |       |              |  |             |     |              |  |                |      |              |  |         
|                                             |  |          |  |         |  |                 |     |                     |  | Gross Amount         |       |              |  |             |     |              |  |               
|                                             |  |          |  |         |  | Initial Cost to |     | Costs Subsequent to |  | Book Value           |       |              |  |             |     |              |  |               
|                                             |  |          |  |         |  | Company         |     | Acquisition         |  | at December 31, 2003 |       |              |  |             |     |              |  |               
|                                             |  |          |  |         |  |                 |     |                     |  |                      |       |              |  |             |     |              |  |               
|                                             |  |          |  |         |  |                 |     |                     |  | (a)                  |       | (a)(b)       |  |             |     |              |  |                |      |             
|                                             |  |          |  |         |  |                 |     |                     |  |                      |       |              |  |             |     |              |  |                |      |             
|                                             |  |          |  |         |  |                 |     |                     |  |                      |       |              |  | Accumulated |     |              |  |                |      |             
|                                             |  |          |  |         |  |                 |     | Building and        |  |                      |       | Building and |  |             |     | Building and |  | Depreciation & |      | Year of      |  | Date     |     |     
|Description                                  |  | City     |  | State   |  | Land            |     | Improvements        |  | Land                 |       | Improvements |  | Land        |     | Improvements |  | Amortization   |      | Construction |  | Acquired |     | Life
|                                             |  |          |  |         |  |                 |     |                     |  |                      |       |              |  |             |     |              |  |                |      |              |  |          |     |     
|The St. Regis, New York                      |  | New York |  | NY      |  | $               | 65  |                     |  | $                    | 150   |              |  | $           |    |              |  | $              | 9    |              |  | $        | 65  |      |  | $ | 159   |  |  | $ | 22  |  |  |  | 1904    |  |  | 6/98    |  | 40     
|Hotel properties, each less than 5% of total |  | Various  |  | Various |  |                 | 387 |                     |  |                      | 3,272 |              |  |             | (54 | )            |  |                | (101 | )            |  |          | 333 |      |  |   | 3,172 |  |  |   | 535 |  |  |  | Various |  |  | Various |  | Various
|                                             |  |          |  |         |  |                 |     |                     |  |                      |       |              |  |             |     |              |  |                |      |              |  |          |     |      |  |   |       |  |  |   |     |  |  |  |         |  |  |         |  |        
|                                             |  |          |  |         |  | $               | 452 |                     |  | $                    | 3,422 |              |  | $           | (54 | )            |  | $              | (92  | )            |  | $        | 398 |      |  | $ | 3,331 |  |  | $ | 557 |  |  |  |         |  |  |         |  |        
|                                             |  |          |  |         |  |                 |     |                     |  |                      |       |              |  |             |     |              |  |                |      |              |  |          |     |      |  |   |       |  |  |   |     |  |  |  |         |  |  |         |  |        
|Land                                         |  |          |  |         |  |                 |     |                     |  |                      |       |              |  |             |     |              |  |                |      |              |  |          |     |      |  |   | 398   |  |  |   |    |  |  |  |         |  |  |         |  |        
|Furniture, fixtures and equipment            |  |          |  |         |  |                 |     |                     |  |                      |       |              |  |             |     |              |  |                |      |              |  |          |     |      |  |   | 484   |  |  |   | 348 |  |  |  |         |  |  |         |  |        
|Construction in progress                     |  |          |  |         |  |                 |     |                     |  |                      |       |              |  |             |     |              |  |                |      |              |  |          |     |      |  |   | 16    |  |  |   |    |  |  |  |         |  |  |         |  |        
|                                             |  |          |  |         |  |                 |     |                     |  |                      |       |              |  |             |     |              |  |                |      |              |  |          |     |      |  |   |       |  |  |   |     |  |  |  |         |  |  |         |  |        
|                                             |  |          |  |         |  |                 |     |                     |  |                      |       |              |  |             |     |              |  |                |      |              |  |          |     |      |  | $ | 4,229 |  |  | $ | 905 |  |  |  |         |  |  |         |  |        
|                                             |  |          |  |         |  |                 |     |                     |  |                      |       |              |  |             |     |              |  |                |      |              |  |          |     |      |  |   |       |  |  |   |     |  |  |  |         |  |  |         |  |        



---



|    |                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | As of December 31, 2003, land, building,
    furniture, fixtures and equipment and construction in progress
    have a cost basis of $328 million, $1,709 million,
    $69 million and $14 million, respectively, for federal
    income tax purposes.
|   
|(b) | Building and improvements include amounts
    allocated for leasehold interest in land.                                                                                                                                                               

S-2



---



##### 



SCHEDULE III (Continued)


STARWOOD HOTELS & RESORTS

REAL ESTATE AND ACCUMULATED
DEPRECIATION


(In millions)


A reconciliation of the Trusts investment
in real estate, furniture and fixtures and related accumulated
depreciation is as follows:

|                                           |                                    |                         |       |      |   |      |       |      |   |   |       |      |  
|------------------------------------------ | ---------------------------------- | ----------------------- | ----- | ---- | - | ---- | ----- | ---- | - | - | ----- | ---- | -
|                                           |                                    |                        
|                                           |                                    | Year Ended December 31,
|                                           |                                    |                        
|                                           |                                    | 2003                    |       | 2002 |   | 2001
|                                           |                                    |                         |       |      |   |     
|Real Estate and Furniture and
    Fixtures |                                    |                         |       |      |   |      |       |      |   |   |       |     
|Balance at beginning of period             |                                    | $                       | 4,108 |      |   | $    | 4,109 |      |   | $ | 3,979 |     
|Additions during period:                   |                                    |                         |       |      |   |      |       |      |   |   |       |     
|                                           | Improvements                       |                         |       | 62   |   |      |       | 75   |   |   |       | 156  |  
|                                           | Transfer from assets held for sale |                         |       | 80   |   |      |       |     |   |   |       |     |  
|Deductions during period:                  |                                    |                         |       |      |   |      |       |      |   |   |       |     
|                                           | Sale of properties                 |                         |       | (21  | ) |      |       | (76  | ) |   |       | (26  | )
|                                           |                                    |                         |       |      |   |      |       |      |   |   |       |     
|Balance at end of period                   |                                    | $                       | 4,229 |      |   | $    | 4,108 |      |   | $ | 4,109 |     
|                                           |                                    |                         |       |      |   |      |       |      |   |   |       |     
|Accumulated Depreciation                   |                                    |                         |       |      |   |      |       |      |   |   |       |     
|Balance at beginning of period             |                                    | $                       | (746  | )    |   | $    | (581  | )    |   | $ | (414  | )   
|Additions during period:                   |                                    |                         |       |      |   |      |       |      |   |   |       |     
|                                           | Depreciations expense              |                         |       | (155 | ) |      |       | (186 | ) |   |       | (171 | )
|                                           | Transfer from assets held for sale |                         |       | (16  | ) |      |       |     |   |   |       |     |  
|Deductions during period:                  |                                    |                         |       |      |   |      |       |      |   |   |       |     
|                                           | Sale of properties                 |                         |       | 12   |   |      |       | 21   |   |   |       | 4    |  
|                                           |                                    |                         |       |      |   |      |       |      |   |   |       |     
|Balance at end of period                   |                                    | $                       | (905  | )    |   | $    | (746  | )    |   | $ | (581  | )   
|                                           |                                    |                         |       |      |   |      |       |      |   |   |       |     

S-3



---



##### 



SCHEDULE IV

STARWOOD HOTELS & RESORTS

MORTGAGE LOANS ON REAL ESTATE


December 31, 2003


(In millions)


|                            |                                                         |       |  |              |  |              |       |            |  |              |       |                 |  |   |   |   |  |   |     |     |  |   |     |     | 
|--------------------------- | ------------------------------------------------------- | ----- |  | ------------ |  | ------------ | ----- | ---------- |  | ------------ | ----- | --------------- |  | - | - | - |  | - | --- | --- |  | - | --- | --- | 
|                            |                                                         |       |  |              |  |              |       |            |  |              |       | Interest Earned
|                            |                                                         |       |  |              |  | Amount of    |       |            |  |              |       | During the     
|                            |                                                         |       |  |              |  | Principal    |       |            |  | Interest     |       | Twelve Months  
|                            |                                                         |       |  | Carrying     |  | Unpaid at    |       | Amount     |  | Due at       |       | Ended          
|                            |                                                         | Prior |  | Amount of    |  | December 31, |       | Being      |  | December 31, |       | December 31,   
|Description                 |                                                         | Liens |  | Mortgages(a) |  | 2003         |       | Foreclosed |  | 2003         |       | 2003           
|                            |                                                         |       |  |              |  |              |       |            |  |              |       |                
|First Mortgage:             |                                                         |       |  |              |  |              |       |            |  |              |       |                 |  |   |   |   |  |   |     |     |  |   |     |    
|                            | Ramada Inn  GA                                         |       |  | No           |  |              | $     | 2          |  |              | $     | 2               |  |   | $ |  |  |   | $   |    |  |   | $   |     | 
|Second Mortgage:            |                                                         |       |  |              |  |              |       |            |  |              |       |                 |  |   |   |   |  |   |     |     |  |   |    |    
|                            | Tara Merrimack, New Hampshire                           |       |  | No           |  |              |       | 2          |  |              |       | 2               |  |   |   |  |  |   |     |    |  |   |     |    | 
|                            |                                                         |       |  |              |  |              |       |            |  |              |       |                 |  |   |   |   |  |   |     |     |  |   |     |    
|                            |                                                         |       |  |              |  | $            | 4     |            |  | $            | 4     |                 |  | $ |  |   |  | $ |    |     |  | $ |    |    
|                            |                                                         |       |  |              |  |              |       |            |  |              |       |                 |  |   |   |   |  |   |     |     |  |   |     |    
|Intercompany Mortgage Loans |                                                         |       |  |              |  |              |       |            |  |              |       |                 |  |   |   |   |  |   |     |     |  |   |     |    
|First Mortgages:            |                                                         |       |  |              |  |              |       |            |  |              |       |                 |  |   |   |   |  |   |     |     |  |   |     |    
|                            | W New York  New York                                   |       |  | No           |  |              | $     | 72         |  |              | $     | 40              |  |   | $ |  |  |   | $   | 32  |  |   | $   | 4   | 
|                            | Westin Maui  Hawaii                                    |       |  | No           |  |              |       | 153        |  |              |       | 105             |  |   |   |  |  |   |     | 48  |  |   |     | 10  | 
|                            | Other, all (5) less than 3% of total carrying
    value |       |  |              |  |              |       | 123        |  |              |       | 107             |  |   |   |  |  |   |     | 16  |  |   |     | 10  | 
|                            | Sheraton Holding Corporation Mortgage Note              |       |  | No           |  |              |       | 1,977      |  |              |       | 1,289           |  |   |   |  |  |   |     | 688 |  |   |     | 129 | 
|                            | Sheraton Holding Corporation Mortgage Note              |       |  | No           |  |              |       | 305        |  |              |       | 210             |  |   |   |  |  |   |     | 95  |  |   |     | 18  | 
|                            | Starwood Hotels & Resorts                               |       |  | No           |  |              |       | 214        |  |              |       | 150             |  |   |   |  |  |   |     | 64  |  |   |     | 13  | 
|                            |                                                         |       |  |              |  |              |       |            |  |              |       |                 |  |   |   |   |  |   |     |     |  |   |     |    
|                            |                                                         |       |  |              |  | $            | 2,844 |            |  | $            | 1,901 |                 |  | $ |  |   |  | $ | 943 |     |  | $ | 184 |    
|                            |                                                         |       |  |              |  |              |       |            |  |              |       |                 |  |   |   |   |  |   |     |     |  |   |     |    

S-4



---



##### 



SCHEDULE IV (Continued)

STARWOOD HOTELS & RESORTS

RECONCILIATION OF MORTGAGE LOANS


(In millions)

|                               |                      |                         |       |      |  |      |       |     |   |   |       |     |  
|------------------------------ | -------------------- | ----------------------- | ----- | ---- |  | ---- | ----- | --- | - | - | ----- | --- | -
|                               |                      |                        
|                               |                      | Year Ended December 31,
|                               |                      |                        
|                               |                      | 2003                    |       | 2002 |  | 2001
|                               |                      |                         |       |      |  |     
|Balance at beginning of period |                      | $                       | 2,669 |      |  | $    | 2,496 |     |   | $ | 2,323 |    
|Additions:                     |                      |                         |       |      |  |      |       |     |   |   |       |    
|                               | Accrued interest(a)  |                         |       | 179  |  |      |       | 177 |   |   |       | 176 |  
|Deductions:                    |                      |                         |       |      |  |      |       |     |   |   |       |    
|                               | Principal repayments |                         |       |     |  |      |       | (4  | ) |   |       | (3  | )
|                               |                      |                         |       |      |  |      |       |     |   |   |       |    
|Balance at end of period       |                      | $                       | 2,848 |      |  | $    | 2,669 |     |   | $ | 2,496 |    
|                               |                      |                         |       |      |  |      |       |     |   |   |       |    



---



|    |                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Per the mortgage loan agreements, several of the
    loans do not require monthly interest payments if cash flows are
    insufficient. Thus, the Trust has accrued interest on such loans.

S-5



---



##### 



EXHIBIT INDEX

|        |   |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- | - | ---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |                       
|Number  |   | Description of Exhibit
|        |   |                       
|        | 2 | .1                     |  | Formation Agreement, dated as of
    November 11, 1994, among the Trust, the Corporation,
    Starwood Capital and the Starwood Partners (incorporated by
    reference to Exhibit 2 to the Trusts and the
    Corporations Joint Current Report on Form 8-K dated
    November 16, 1994). (The SEC file numbers of all filings
    made by the Corporation and the Trust pursuant to the Securities
    Exchange Act of 1934, as amended, and referenced herein are:
    1-7959 (the Corporation) and 1-6828 (the Trust)).                                                                                                                                                                                                                                                                            
|        | 2 | .2                     |  | Form of Amendment No. 1 to Formation
    Agreement, dated as of July 1995, among the Trust, the
    Corporation and the Starwood Partners (incorporated by reference
    to Exhibit 10.23 to the Trusts and the
    Corporations Joint Registration Statement on Form S-2
    filed with the SEC on June 29, 1995 (Registration Nos.
    33-59155 and 33-59155-01)).                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 2 | .3                     |  | Transaction Agreement, dated as of
    September 8, 1997, by and among the Trust, the Corporation,
    Realty Partnership, Operating Partnership, WHWE L.L.C., Woodstar
    Investor Partnership (Woodstar), Nomura Asset
    Capital Corporation, Juergen Bartels, Westin Hotels &
    Resorts Worldwide, Inc., W&S Lauderdale Corp., W&S
    Seattle Corp., Westin St. John Hotel Company, Inc., W&S
    Denver Corp., W&S Atlanta Corp. and W&S Hotel L.L.C.
    (incorporated by reference to Exhibit 2 to the Trusts
    and the Corporations Joint Current Report on Form 8-K
    dated September 9, 1997, as amended by the Form 8-K/A
    dated December 18, 1997).                                                                                                                          
|        | 2 | .4                     |  | Amended and Restated Agreement and Plan of
    Merger, dated as of November 12, 1997, by and among the
    Corporation, the Trust, Chess Acquisition Corp.
    (Chess) and ITT Corporation (incorporated by
    reference to Exhibit 2.1 to the Trusts and the
    Corporations Joint Current Report on Form 8-K dated
    November 13, 1997).                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 2 | .5                     |  | Agreement and Plan of Restructuring, dated as of
    September 16, 1998, and amended as of November 30,
    1998, among the Corporation, ST Acquisition Trust (ST
    Trust) and the Trust (incorporated by reference to Annex A
    to the Trusts and the Corporations Joint Proxy
    Statement dated December 3, 1998 (the 1998 Proxy
    Statement)).                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 2 | .6                     |  | Form of Stock Purchase Agreement, dated as of
    February 23, 1998, between the Trust and the Corporation
    (incorporated by reference to Exhibit 10.4 to the
    Trusts and the Corporations Joint Annual Report on
    Form 10-K for the year ended December 31, 1997 (the
    1997 Form 10-K)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 3 | .1                     |  | Amended and Restated Declaration of Trust of the
    Trust, amended and restated through April 16, 1999
    (incorporated by reference to Exhibit 3.1 of the
    Corporations and the Trusts Joint Quarterly Report
    on Form 10-Q for the quarterly period ended March 31,
    1999 (the 1999 Form 10Q1).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 3 | .2                     |  | Charter of the Corporation, amended and restated
    as of February 1, 1995, as amended through March 24, 1999
    (incorporated by reference to Exhibit 3.2 to the
    Trusts and the Corporations Joint Annual Report on
    Form 10-K for the year ended December 31, 1998, which
    exhibit contains a conformed charter incorporating all prior
    amendments, as the 10-K was amended by the Form 10-K/A
    filed on May 17, 1999 (as so amended, the 1998
    Form 10-K)), as supplemented by the Articles
    Supplementary Series A Junior Participating Preferred Stock
    dated March 28, 1999 (incorporated by reference to
    Exhibit A to Exhibit 4 to the Corporations and
    the Trusts Joint Current Report on Form 8-K dated
    March 15, 1999 (the March 15 From 8-K)).
|        | 3 | .3                     |  | Bylaws of the Trust, as amended and restated
    through April 16, 1999 (incorporated by reference to
    Exhibit 3.3 to the 1999 Form 10Q1.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 3 | .4                     |  | Bylaws of the Corporation, as amended through
    March 15, 1999 (incorporated by reference to Exhibit 3
    to the Corporations and the Trusts joint current
    report on Form 8-K dated March 15, 1998
    (March 15 Form 8-K)) as amended by the
    First Amendment to Bylaws, dated as of March 28, 2003,
    (incorporated by reference to Exhibit 3.1 to the
    Corporations and the Trusts Joint Quarterly Report
    on Form 10-Q for the quarterly period ended March 31,
    2003).                                                                                                                                                                                                                                                                                                   



---



##### 



|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | -- | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 4  | .1                     |  | Amended and Restated Intercompany Agreement,
    dated as of January 6, 1999, between the Corporation and the
    Trust (incorporated by reference to Exhibit 3 to the Trust
    Form 8-A, except that on January 6, 1999, the
    Intercompany Agreement was executed and dated as of
    January 6, 1999).                                                                                                          
|        | 4  | .2                     |  | Rights Agreement, dated as of March 15,
    1999, between the Corporation and Chase Mellon Shareholder
    Services, L.L.C., as Rights Agent (incorporated by reference to
    Exhibit 4 to the March 15 Form 8-K).                                                                                                                                                                                                   
|        | 4  | .3                     |  | Amended and Restated Indenture, dated as of
    November 15, 1995, as Amended and Restated as of
    December 15, 1995 between ITT Corporation (formerly known
    as ITT Destinations, Inc.) and the First National Bank of
    Chicago, as trustee (incorporated by reference to
    Exhibit 4.A.IV to the First Amendment to ITT
    Corporations Registration Statement on Form S-3 filed
    November 13, 1996).
|        | 4  | .4                     |  | First Indenture Supplement, dated as of
    December 31, 1998, among ITT Corporation, the Corporation
    and The Bank of New York (incorporated by reference to
    Exhibit 4.1 to the Trusts and the Corporations
    Joint Current Report on Form 8-K filed January 8,
    1999).                                                                                                                                
|        | 4  | .5                     |  | The Registrants hereby agree to file with the
    Commission a copy of any instrument, including indentures,
    defining the rights of long-term debt holders of the Registrants
    and their consolidated subsidiaries upon the request of the
    Commission.                                                                                                                                                     
|        | 4  | .6                     |  | First Amendment to Rights Agreement, dated as of
    October 2, 2003 (incorporated by reference to
    Exhibit 4 of Form 8-A/ A filed on October 7,
    2003).                                                                                                                                                                                                                                                        
|        | 4  | .7                     |  | Second Amendment to Rights Agreement, dated as of
    October 24, 2003 (incorporated by reference to
    Exhibit 4 of Form 8-A/ A filed on October 30,
    2003).                                                                                                                                                                                                                                                     
|        | 10 | .1                     |  | Third Amended and Restated Limited Partnership
    Agreement for Realty Partnership, dated January 6, 1999,
    among the Trust and the limited partners of Realty Partnership
    (incorporated by reference to Exhibit 10.1 to the 1998
    Form 10-K).                                                                                                                                                             
|        | 10 | .2                     |  | Third Amended and Restated Limited Partnership
    Agreement for Operating Partnership, dated January 6, 1999,
    among the Corporation and the limited partners of Operating
    Partnership (incorporated by reference to Exhibit 10.2 to
    the 1998 Form 10-K).                                                                                                                                                 
|        | 10 | .3                     |  | Form of Amended and Restated Lease Agreement,
    entered into as of January 1, 1993, between the Trust as
    Lessor and the Corporation (or a subsidiary) as Lessee
    (incorporated by reference to Exhibit 10.19 to the Trusts
    and the Corporations Joint Annual Report on Form 10-K
    for the year ended December 31, 1992).                                                                            
|        | 10 | .4                     |  | Starwood Hotels & Resorts 1995 Long-Term
    Incentive Plan (Amended and Restated as of December 3,
    1998) (incorporated by reference to Annex D to the 1998
    Proxy Statement).(1)                                                                                                                                                                                                                              
|        | 10 | .5                     |  | Starwood Hotels & Resorts Worldwide, Inc.
    1995 Long-Term Incentive Plan (Amended and Restated as of
    December 3, 1998) (incorporated by reference to Annex E to
    the 1998 Proxy Statement).(1)                                                                                                                                                                                                              
|        | 10 | .6                     |  | Incentive and Non-Qualified Share Option Plan
    (1986) of the Trust (incorporated by reference to
    Exhibit 10.8 to the Trusts and the Corporations
    Joint Annual Report on Form 10-K for the year ended
    August 31, 1986 (the 1986
    Form 10-K)).(1)                                                                                                                                                 
|        | 10 | .7                     |  | Corporation Stock Non-Qualified Stock Option Plan
    (1986) of the Trust (incorporated by reference to
    Exhibit 10.9 to the 1986 Form 10-K).(1)                                                                                                                                                                                                                                                                   
|        | 10 | .8                     |  | Stock Option Plan (1986) of the Corporation
    (incorporated by reference to Exhibit 10.10 to the 1986
    Form 10-K).(1)                                                                                                                                                                                                                                                                                            
|        | 10 | .9                     |  | Trust Shares Option Plan (1986) of the
    Corporation (incorporated by reference to Exhibit 10.11 to
    the 1986 Form 10-K).(1)                                                                                                                                                                                                                                                                                     
|        | 10 | .10                    |  | Form of Indemnification Agreement between the
    Corporation, the Trust and each of its Directors/ Trustees and
    executive officers.(1)(2)                                                                                                                                                                                                                                                                        



---



##### 



|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | -- | ---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 10 | .11                    |  | Form of Trademark License Agreement, dated as of
    December 10, 1997, between Starwood Capital and the Trust
    (incorporated by reference to Exhibit 10.22 to the 1997
    Form 10-K).                                                                                                                                                                                                                                            
|        | 10 | .12                    |  | Exchange Rights Agreement, dated as of
    January 1, 1995, among the Trust, the Corporation, Realty
    Partnership, Operating Partnership and the Starwood Partners
    (incorporated by reference to Exhibit 2B to the
    Trusts and the Corporations Joint Current Report on
    Form 8-K dated January 31, 1995 (the Formation
    Form 8-K)).                                                                              
|        | 10 | .13                    |  | Registration Rights Agreement, dated as of
    January 1, 1995, among the Trust, the Corporation and
    Starwood Capital (incorporated by reference to Exhibit 2C
    to the Formation Form 8-K).                                                                                                                                                                                                                                    
|        | 10 | .14                    |  | Exchange Rights Agreement, dated as of
    June 3, 1996, among the Trust, the Corporation, Realty
    Partnership, Operating Partnership, Philadelphia HIR Limited
    Partnership and Philadelphia HSR Limited Partnership
    (incorporated by reference to Exhibit 10.1 to the
    Trusts and the Corporations Joint Quarterly Report
    on Form 10-Q for the quarterly period ended June 30,
    1996 (the 1996 Form 10-Q2)).
|        | 10 | .15                    |  | Registration Rights Agreement, dated as of
    June 3, 1996, among the Trust, the Corporation and
    Philadelphia HSR Limited Partnership (incorporated by reference
    to Exhibit 10.2 to the 1996 Form 10-Q2).                                                                                                                                                                                                                    
|        | 10 | .16                    |  | Units Exchange Rights Agreement, dated as of
    February 14, 1997, by and among, inter alia, the
    Trust, the Corporation, Realty Partnership, Operating
    Partnership and the Starwood Partners (incorporated by reference
    to Exhibit 10.34 to the 1997 Form 10-K).                                                                                                                                                         
|        | 10 | .17                    |  | Class A Exchange Rights Agreement, dated as
    of February 14, 1997, by and among, inter alia, the
    Trust, the Corporation, Operating Partnership and the Starwood
    Partners (incorporated by reference to Exhibit 10.35 to the
    1997 Form 10-K).                                                                                                                                                                           
|        | 10 | .18                    |  | Exchange Rights Agreement, dated as of
    January 2, 1998, among, inter alia, the Trust,
    Realty Partnership and Woodstar (incorporated by reference to
    Exhibit 10.50 to the 1997 Form 10-K).                                                                                                                                                                                                                                 
|        | 10 | .19                    |  | Exchange Rights Agreement, dated as of
    January 2, 1998, among, inter alia, the Corporation,
    Operating Partnership and Woodstar (incorporated by reference to
    Exhibit 10.51 to the 1997 Form 10-K).                                                                                                                                                                                                                        
|        | 10 | .20                    |  | Registration Rights Agreement, dated as of
    January 2, 1998, among, inter alia, the Trust, the
    Corporation, and Woodstar (incorporated by reference to
    Exhibit 10.52 to the 1997 Form 10-K).                                                                                                                                                                                                                               
|        | 10 | .21                    |  | Pledge and Security Agreement, dated as of
    February 23, 1998, executed and delivered by the Trust, the
    Corporation and the other Pledgors party thereto, in favor of
    Bankers Trust Company as Collateral Agent (incorporated by
    reference to Exhibit 10.63 to the 1997 Form 10-K).                                                                                                                                    
|        | 10 | .22                    |  | Second Amended and Restated Senior Secured Note
    Agreement, dated December 30, 1999, among the Corporation,
    the Trust, the guarantors listed therein, the lenders listed
    therein, Lehman Commercial Paper Inc., as Arranger and
    Administrative Agent, and Alex Brown and Chase Securities Inc.,
    as Syndication Agents (incorporated by reference to
    Exhibit 10.46 to the 1999 Form 10-K).                      
|        | 10 | .23                    |  | Loan Agreement, dated as of February 23,
    1998, between the Trust and the Corporation, together with
    Promissory Note executed in connection therewith, by the
    Corporation to the order of the Trust, in the principal amount
    of $3,282,000,000 (incorporated by reference to
    Exhibit 10.65 to the 1997 Form 10-K).                                                                                                 
|        | 10 | .24                    |  | Loan Agreement, dated as of February 23,
    1998, between the Trust and the Corporation, together with
    Promissory Note executed in connection therewith, by the
    Corporation to the order of the Trust, in the principal amount
    of $100,000,000 (incorporated by reference to Exhibit 10.66
    to the 1997 Form 10-K).                                                                                                   
|        | 10 | .25                    |  | Loan Agreement, dated as of February 23,
    1998, between the Trust and the Corporation, together with
    Promissory Note executed in connection therewith, by the
    Corporation to the order of the Trust, in the principal amount
    of $50,000,000 (incorporated by reference to Exhibit 10.67
    to the 1997 Form 10-K).                                                                                                    



---



##### 



|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                                 
|------- | -- | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 10 | .26                    |  | Loan Agreement, dated as of January 27,
    1999, among the Borrowers named therein, as Borrowers, Starwood
    Operator I LLC, as Operator, and Lehman Brothers Holding Inc.,
    d/b/a Lehman Capital, a division of Lehman Brothers Holdings
    Inc. (incorporated by reference to Exhibit 10.58 to the
    1998 Form 10-K).                
|        | 10 | .27                    |  | Form of Severance Agreement, dated December 1999,
    between the Corporation and each of Barry S. Sternlicht, Ronald
    C. Brown and Steve R. Goldman (incorporated by reference to
    Exhibit 10.52 to the 1999 Form 10-K).(1)                                                                                                              
|        | 10 | .28                    |  | Amended and Restated Employment Agreement,
    effective as of January 1, 2000, between Barry S.
    Sternlicht and the Company (incorporated by reference to
    Exhibit 10.1 to the Corporations and the Trusts
    Joint Quarterly Report on Form 10-Q for the quarterly
    period ended March 31, 2000). (1)                             
|        | 10 | .29                    |  | Employment Agreement, dated as of April 7,
    2000, between the Corporation and David K. Norton (incorporated
    by reference to Exhibit 10.1 to the Corporations and
    the Trusts Joint Quarterly Report on Form 10-Q for
    the quarterly period ended June 30, 2000).(1)                                                              
|        | 10 | .30                    |  | Employment Agreement, dated as of June 27,
    2000, between the Corporation and Robert F. Cotter (incorporated
    by reference to Exhibit 10.1 to the Corporations and
    the Trusts Joint Quarterly Report on Form 10-Q for
    the quarterly period ended September 30,
    2000).(1)                                                    
|        | 10 | .31                    |  | Form of Severance Agreement, dated as of
    August 14, 2000, between the Corporation and Robert F.
    Cotter (incorporated by reference to Exhibit 10.56 to the
    2000 Form 10-K).(1)                                                                                                                                                       
|        | 10 | .32                    |  | Employment Agreement, dated as of
    September 25, 2000, between the Corporation and Kenneth S.
    Siegel (incorporated by reference to Exhibit 10.57 to the
    2000 Form 10-K).(1)                                                                                                                                                          
|        | 10 | .33                    |  | Form of Severance Agreement, dated as of
    September 26, 2000, between the Corporation and Kenneth S.
    Siegel (incorporated by reference to Exhibit 10.58 to the
    2000 Form 10-K).(1)                                                                                                                                                   
|        | 10 | .34                    |  | Form of Severance Agreement, dated as of
    June 9, 2000, between the Corporation and David K. Norton
    (incorporated by reference to Exhibit 10.59 to the 2000
    Form 10-K).(1)                                                                                                                                                           
|        | 10 | .35                    |  | Stock Purchase Agreement, dated as of
    April 27, 1999, among the Corporation, ITT Sheraton
    Corporation, Starwood Canada Corp., Caesars World, Inc.,
    Sheraton Desert Inn Corporation, Sheraton Tunica Corporation and
    Park Place Entertainment Corporation (incorporated by reference
    to Exhibit 10.5 to the 1999 Form 10-Q1).
|        | 10 | .36                    |  | Starwood Hotels & Resorts Worldwide, Inc.
    1999 Long-Term Incentive Compensation Plan (incorporated by
    reference to Exhibit 10.4 to the Corporations and the
    Trusts Joint Quarterly Report on Form 10-Q for the
    quarterly period ended June 30, 1999 (the 1999
    Form 10-Q2)).(1)                                          
|        | 10 | .37                    |  | Starwood Hotels & Resorts Worldwide, Inc.
    1999 Annual Incentive Plan for Certain Executives (incorporated
    by reference to Exhibit 10.5 to the 1999
    Form 10-Q2).(1)                                                                                                                                                                  
|        | 10 | .38                    |  | First Amendment to the Starwood Hotels &
    Resorts Worldwide, Inc. 1999 Long-Term Incentive Compensation
    Plan, dated as of August 1, 2001 (incorporated by reference
    to Exhibit 10.1 to the Corporations and the
    Trusts Joint Quarterly Report on Form 10-Q for the
    quarterly period ended September 30, 2001).(1)          
|        | 10 | .39                    |  | Starwood Hotels & Resorts Worldwide, Inc.
    Deferred Compensation Plan, effective as of January 1, 2001
    (incorporated by reference to Exhibit 10.1 to the
    Corporations and the Trusts Joint Quarterly Report
    on Form 10-Q for the quarterly period ended June 30,
    2001 (the 2001 Form 10-Q2)).(1)                         
|        | 10 | .40                    |  | Indenture, dated as of May 25, 2001, by and
    among the Corporation, as Issuer, the guarantors named herein
    and Firstar Bank, N.A., as Trustee (incorporated by reference to
    Exhibit 10.2 to the 2001 Form 10-Q2).                                                                                                                    
|        | 10 | .41                    |  | Registration Rights Agreement, dated as of
    May 25, 2001, among the Corporation, the Trust, the
    guarantors named herein and Salomon Smith Barney Inc.
    (incorporated by reference to Exhibit 10.3 to the 2001
    Form 10-Q2).                                                                                                        
|        | 10 | .42                    |  | Addendum to Robert F. Cotter Offer Letter,
    effective as of February 16, 2002 (incorporated by
    reference to Exhibit 10.1 to the Corporations and
    Trusts Joint Quarterly Report on Form 10-Q for the
    quarter ended March 31, 2002).                                                                                             



---



##### 



|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | -- | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 10 | .43                    |  | Starwood Hotels & Resorts Worldwide, Inc.
    2002 Long-Term Incentive Compensation Plan (the 2002
    LTIP) (incorporated by reference to Annex B of the
    Corporations 2002 Proxy Statement).                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 10 | .44                    |  | Starwood Hotels & Resorts Amended and
    Restated Non-Qualified Stock Option Agreement by and between the
    Trust and Barry S. Sternlicht, dated as of May 22, 2002
    relating to a grant made on June 29, 1995 (incorporated by
    reference to Exhibit 10.3 to the 2002 Form 10-Q2).                                                                                                                                                                                                                                                                                                           
|        | 10 | .45                    |  | Form of Non-Qualified Stock Option Agreement
    pursuant to the 2002 LTIP (incorporated by reference to
    Exhibit 10.49 to the 2002 Form 10-K filed on
    February 28, 2003 (the 2002 10-K)).                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .46                    |  | Starwood Hotels & Resorts Amended and
    Restated Non-Qualified Stock Option Agreement by and between the
    Trust and Barry S. Sternlicht, dated as of May 22, 2002
    relating to a grant made on August 12, 1996 (incorporated
    by reference to Exhibit 10.4 to the 2002 Form 10-Q2).                                                                                                                                                                                                                                                                                                         
|        | 10 | .47                    |  | Starwood Hotels & Resorts Amended and
    Restated Non-Qualified Stock Option Agreement by and between the
    Trust and Barry S. Sternlicht, dated as of May 22, 2002
    relating to a grant made on August 12, 1996 (incorporated
    by reference to Exhibit 10.5 to the 2002 Form 10-Q2).                                                                                                                                                                                                                                                                                                         
|        | 10 | .48                    |  | Letter to holders of the Corporations,
    Series B Zero Coupon Convertible Senior Notes due 2021
    (incorporated by reference to Exhibit 99.5 to the 2002
    Form 10-Q2).                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .49                    |  | Amendment to Exchange Rights Agreement
    (Class A Realty Partnership Units), dated as of
    October 10, 2002, among the Trust, Realty Partnership and
    certain limited partners of the Realty Partnership (incorporated
    by reference to Exhibit 10.53 to the 2002 Form 10-K).                                                                                                                                                                                                                                                                                                                
|        | 10 | .50                    |  | Amendment to Exchange Rights Agreement
    (Class B Operating Partnership Units), dated as of
    October 10, 2002, among the Corporation, Operating
    Partnership and certain limited partners of the Operating
    Partnership (incorporated by reference to Exhibit 10.54 to
    the 2002 form 10-K).                                                                                                                                                                                                                                                                                             
|        | 10 | .51                    |  | Severance Agreement, dated December 1999, between
    the Corporation and Theodore Darnall (incorporated by reference
    to Exhibit 10.55 to the 2002 form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10 | .52                    |  | Employment Agreement, dated September 2,
    1999, between Steven M. Hankin and the Corporation (incorporated
    by reference to Exhibit 10.56 to the 2002 form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10 | .53                    |  | Severance Agreement, dated October 2000, between
    Starwood Hotels & Resorts Worldwide, Inc., and Steve Hankin
    (incorporated by reference to Exhibit 10.57 to the 2002
    form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10 | .54                    |  | Credit Agreement, dated October 9, 2002,
    among the Corporation, certain additional alternative currency
    revolving loan borrowers and various lenders, Deutsche Bank, AG,
    New York Branch, as Administrative Agent, JP Morgan Chase Bank,
    as Syndication Agent, Bank of America, N.A., Fleet National Bank
    and Societe Generale, as Co-Documentation Agents, and Deutsche
    Bank Securities Inc. and JP Morgan Securities Inc. as Co-Lead
    Arrangers and joint Book Running Managers (incorporated by
    reference to Exhibit 10.1 of Form 8-K filed on
    October 11, 2002).
|        | 10 | .55                    |  | Indenture, dated as of April 19, 2002, among
    the Corporation, the guarantor parties named herein and U.S.
    Bank National Association, as trustee (incorporated by reference
    to Exhibit 4.1 to the Corporations and Sheraton
    Holding Corporations Joint Registration Statement on
    Form S-4 filed on November 19, 2002 the 2002
    Forms S4)).                                                                                                                                                                                                                                   
|        | 10 | .56                    |  | Registration Rights Agreement, dated as of
    April 19, 2002, among the Corporation, the guarantor
    parties named therein and Lehman Brothers, Inc., (incorporated
    by reference to Exhibit 4.4 to the 2002 Form S-4).                                                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .57                    |  | First Amendment to the Starwood Hotels &
    Resorts Worldwide, Inc. 2002 Long-Term Incentive Compensation
    Plan (incorporated by reference to Exhibit 10.1 to
    Form 10-Q for the quarter ended March 31, 2003 (the
    2003 10-Q1)).                                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .58                    |  | Second Amendment to the Starwood Hotels &
    Resorts Worldwide, Inc. 1999 Long-Term Incentive Compensation
    Plan (incorporated by reference to Exhibit 10.2 to the 2003
    10-Q1).                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10 | .59                    |  | Second Amendment to the Starwood Hotels &
    Resorts Worldwide, Inc. 1995 Long-Term Incentive Compensation
    Plan (incorporated by reference to Exhibit 10.3 to the 2003
    10-Q1).                                                                                                                                                                                                                                                                                                                                                                                                                



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##### 



|        |    |                        |  |                                                                                                                                                                                                                                                                                                       
|------- | -- | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 10 | .60                    |  | Second Amendment to the Starwood Hotels &
    Resorts 1995 Long-Term Incentive Compensation Plan (incorporated
    by reference to Exhibit 10.4 to the 2003 10-Q1).                                                                                                                                   
|        | 10 | .61                    |  | First Amendment to Credit Agreement (incorporated
    by reference to Exhibit 10.5 to the 2003 10-Q1).                                                                                                                                                                                                
|        | 10 | .62                    |  | Second Amendment to Credit Agreement
    (incorporated by reference to Exhibit 10.1 to
    Form 10-Q for the quarter ended June 30, 2003 (the
    2003 10-Q2)).                                                                                                                                     
|        | 10 | .63                    |  | Indenture dated May 16, 2003 between the
    Corporation, the Trust, the Guarantor and U.S. Bank National
    Association as trustee (incorporated by reference to
    Exhibit 4.9 to the July 8, 2003
    Form S-3)(Registration Nos. 333-106888, 333-106888-01,
    333-106888-02) (the Form S-3).
|        | 10 | .64                    |  | Registration Rights Agreement, dated May 16,
    2003, among the Corporation, the Guarantor and the Initial
    Purchasers (incorporated by reference to Exhibit 4.10 to
    the Form S-3).                                                                                                           
|        | 10 | .65                    |  | First Amendment to the Starwood Hotels &
    Resorts Worldwide, Inc. 1999 Annual Incentive Plan for Certain
    Executives, dated as of December 17, 2003.(1)(2)                                                                                                                                      
|        | 10 | .66                    |  | Amendment to Exchange Rights Agreement, dated as
    of December 17, 2003 for the Class B Operating
    Partnership Units.(2)                                                                                                                                                                         
|        | 10 | .67                    |  | Amendment to Exchange Rights Agreement, dated as
    of December 17, 2003 for the Class A Realty
    Partnership Units.(2)                                                                                                                                                                            
|        | 10 | .68                    |  | Employment Agreement, dated as of
    November 13, 2003, between the Corporation and Vasant
    Prabhu.(1)(2)                                                                                                                                                                                         
|        | 10 | .69                    |  | Second Amended and Restated Employment Agreement
    between Starwood Hotels & Resorts Worldwide, Inc. and
    Barry S. Sternlicht, dated as of January 1,
    2003.(1)(2)                                                                                                                            
|        | 12 | .1                     |  | Calculation of Ratio of Earnings to Total Fixed
    Charges. (2)                                                                                                                                                                                                                                      
|        | 21 | .1                     |  | Subsidiaries of the Registrants.(2)                                                                                                                                                                                                                                                                   
|        | 23 | .1                     |  | Consent of Ernst & Young LLP.(2)                                                                                                                                                                                                                                                                      
|        | 31 | .1                     |  | Certification Pursuant to Rule 13a-14 under
    the Securities Exchange Act of 1934  Chief Executive
    Officer  Corporation.(2)                                                                                                                                                                   
|        | 31 | .2                     |  | Certification Pursuant to Rule 13a-14 under
    the Securities Exchange Act of 1934  Chief Financial
    Officer  Corporation.(2)                                                                                                                                                                   
|        | 31 | .3                     |  | Certification Pursuant to Rule 13a-14 under
    the Securities Exchange Act of 1934  Chief Executive
    Officer  Trust. (2)                                                                                                                                                                        
|        | 31 | .4                     |  | Certification Pursuant to Rule 13a-14 under
    the Securities Exchange Act of 1934  Chief Financial
    and Accounting Officer  Trust.(2)                                                                                                                                                          
|        | 32 | .1                     |  | Certification Pursuant to Section 1350 of
    Chapter 63 of Title 18 of the United States
    Code  Chief Executive Officer 
    Corporation.(2)                                                                                                                                                    
|        | 32 | .2                     |  | Certification Pursuant to Section 1350 of
    Chapter 63 of Title 18 of the United States
    Code  Chief Financial Officer 
    Corporation.(2)                                                                                                                                                    
|        | 32 | .3                     |  | Certification Pursuant to Section 1350 of
    Chapter 63 of Title 18 of the United States
    Code  Chief Executive Officer 
    Trust.(2)                                                                                                                                                          
|        | 32 | .4                     |  | Certification Pursuant to Section 1350 of
    Chapter 63 of Title 18 of the United States
    Code  Chief Financial and Accounting
    Officer  Trust.(2)                                                                                                                                           



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|    |                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------
|(1) | Management contract or compensatory plan or
    arrangement required to be filed as an exhibit pursuant to
    Item 14(c) of Form 10-K.
|   
|(2) | Filed herewith.                                                                                                                        



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