<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

     (Mark One)

     [X] Annual report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

     For the fiscal year ended December 31, 2004

     [ ] Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

     For the transition period from __________________ to __________________

     Commission File No. 001-12056
                         ---------

                           THE TOWN AND COUNTRY TRUST
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

         MARYLAND                                         52-6613091
---------------------------------------    -------------------------------------
(State or Other Jurisdiction               (IRS Employer Identification Number)
of Incorporation or Organization)

300 East Lombard Street
Baltimore, Maryland                                         21202
---------------------------------------    -------------------------------------
(Address of Principal Executive Office)                  (ZIP Code)

(410) 539-7600
--------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)

     Securities registered pursuant to Section 12(b) of the Act:

           Title of Each Class             Name of Exchange on Which Registered
           -------------------             ------------------------------------

  Common Shares of Beneficial Interest           New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None
                                                             ----


                       [Cover Continued on Following Page]



<PAGE>


                      [Cover Continued From Previous Page]

Indicate by check mark whether the Registrant (1) has 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 Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X  No
                                      ---   ---
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 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. Yes X  No
              ---    ---

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes X   No
                                                                  ---    ---

Aggregate market value of voting stock held by non-affiliates of the Registrant
as of June 30, 2004: $439,650,512.


Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practical date: 17,551,823 Common Shares of
Beneficial Interest, $.01 Par Value, at February 17, 2005
--------------------------------------------------------------------------


                       DOCUMENTS INCORPORATED BY REFERENCE

                                                     Part of Form 10-K Document
                 Document                              In Which Incorporated
                 --------                              ---------------------

      Portions of the Registrant's Notice of                 I and III
      Annual Meeting and Proxy Statement for
      the annual meeting of shareholders to be
      held on May 4, 2005


None of the Report of the Compensation Committee of the Board of Trustees on
Executive Compensation, the Audit Committee Report or the Performance Graph
contained in the Registrant's Notice of Annual Meeting and Proxy Statement for
the annual meeting of shareholders be held on May 4, 2005 shall be deemed
incorporated by reference herein.


                                       2

<PAGE>


                              SAFE HARBOR STATEMENT

The matters discussed herein include certain "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The Town and
Country Trust (the "Company") intends that such forward-looking statements be
subject to the safe harbors created by such Acts. Words and phrases such as
"looking ahead," "we are confident," "should be," "will be," "predicted,"
"believe," "expect," "anticipate," and similar expressions identify
forward-looking statements. These forward-looking statements reflect the
Company's current views regarding future events and financial performance but
are subject to many known and unknown risks, uncertainties, and other factors
relating to the Company's operations and business environment which may cause
the actual results of the Company to differ materially from any future results
expressed or implied by such forward-looking statements. Such factors include,
but are not limited to the following:

     -    Interest rate fluctuations;
     -    Competition for tenants and acquisitions from others, many of whom may
          have greater financial resources than the Company;
     -    Changes in rental rates which may be charged by the Company in
          response to market rental rate changes or otherwise;
     -    Changes in federal income tax laws and regulations;
     -    Any changes in the Company's capacity to acquire additional apartment
          properties and any changes in the Company's financial condition or
          operating results due to the acquisition of additional apartment
          properties;
     -    Unanticipated increases in rental expenses due to factors such as
          casualties to the Company's apartment properties or adverse weather
          conditions in the geographic locations of the Company's apartment
          properties;
     -    Local economic and business conditions, including, without limitation,
          conditions that may affect public securities markets generally, the
          real estate investment trust industry, or the markets in which the
          Company's apartment properties are located.

 Although the Company believes that the assumptions underlying the
 forward-looking statements contained herein are reasonable, there can be no
 assurance that such statements will prove to be accurate. In view of the
 significant uncertainties associated with such forward-looking statements, the
 inclusion of this information should not be construed as a representation by
 the Company that the results or conditions described in such statements will be
 achieved. The Company undertakes no obligation to update publicly or revise any
 forward-looking statements whether as a result of new information, future
 events or otherwise.





                                       3
<PAGE>


                                     PART I
                                     ------

ITEM 1. BUSINESS


GENERAL

The Registrant, The Town and Country Trust (the "Trust" and, together with its
consolidated subsidiaries and other controlled entities, the "Company"), is a
self administered and self managed real estate investment trust ("REIT"),
organized in Maryland in 1993. The Company operates in one industry segment, the
ownership and operation of multifamily apartment communities. The Trust conducts
substantially all of its operations through its operating partnership, The TC
Operating Limited Partnership (the "Operating Partnership"), in which it holds
an 88% general partnership interest at February 17, 2005. The remaining 12%
limited partnership interest in the Operating Partnership is held by certain of
the indirect predecessor owners of the Company's original 26 properties,
including the successors of the late Alfred Lerner, the Trust's former Chairman,
and Harvey Schulweis, the Trust's Chairman of the Board and Chief Executive
Officer. At December 31, 2004, the Company owned 38 apartment communities (the
"Properties") with 13,065 apartment units located in selected markets in the
Mid-Atlantic region and Florida. The Company's headquarters is located at 300
East Lombard Street, Baltimore Maryland 21202 and its telephone number is (410)
539-7600.

The Registrant makes available free of charge, through its website
(www.tctrust.com), its reports on Form 10-K, 10-Q and 8-K as soon as practicable
after they are electronically filed with the Securities and Exchange Commission.

The Company's objective is to continue to be a significant owner of
middle-income apartment communities in select markets in the Mid-Atlantic and
Southeast regions of the United States. The Company seeks to own and operate
apartment communities in markets that it believes will achieve acceptable
population and employment growth and in other markets it considers to have high
barriers to entry. At December 31, 2004, approximately 38.2% of the Company's
apartments were located in the greater Baltimore metropolitan area and an
additional 26% were located in the greater Washington, D.C. metropolitan area.
The Company seeks to acquire additional apartment communities in its operating
region, particularly in the greater Washington, D.C. and Baltimore metropolitan
areas, and in Florida.

In 2004, the Company sold two apartment communities with 580 units in Charlotte,
North Carolina, for an aggregate consideration of $31.1 million, including
disposition costs.

The Company continues to seek new investment opportunities that meet its
investment criteria. While the Company prefers investments within its operating
region, it also will consider acquisitions beyond its existing markets if, among
other things, they are large enough to support the overhead associated with
establishing and maintaining dedicated regional and/or district offices. The
Company prefers acquisitions in markets with long term stability, reasonably
high barriers to entry and the potential for establishing a meaningful ownership
position over time.


                                       4
<PAGE>
The Company continues to implement the ongoing program of reinvesting
significant capital in its existing portfolio. During 2004, the Company began or
continued renovations to seven of its communities containing 3,646 units. One
other 336 unit community had renovations completed in 2003. The renovations
include the installation of new kitchens and baths, washers and dryers, new
entranceways and windows. At one of these properties, the renovation included
the completion of a 7,200 square foot clubhouse, which has helped make it one of
the premier communities in its market. Renovations at 1,122 units were completed
during 2004 bringing the total completed to 1,872 units. The Company expects to
expand the program to several additional communities and to have a slightly
higher number of units completed during 2005.

PROPERTY MANAGEMENT

Each of the apartment communities is managed by the Operating Partnership. The
management staff for each community includes on-site management and maintenance
personnel as well as off-site support staff. On-site staff performs leasing and
rent collection functions and coordinates maintenance and resident services.
Property management staff are supervised by regional managers.

COMPETITION

All of the Company's apartments are located in developed areas and compete with
numerous other apartment communities within their respective sub-markets. In
many of the Company's apartment markets, the competition for residents is
intense. Some competing communities are larger or newer than the Company's
apartments and many offer features that the Company's communities do not have.
The competitive position of each of the Company's apartment communities varies.
Certain of the Company's competitors may have greater financial resources and
other competitive advantages over the Company.

FINANCING

All of the Company's properties are encumbered by mortgage debt. Thirty-three
properties are pledged as collateral for the Company's master credit facility
with Fannie Mae and the remaining five properties are encumbered by individual
mortgage loans from Freddie Mac.

At December 31, 2004, outstanding borrowings under the Company's credit facility
with Fannie Mae totaled $340 million. Of this amount, $300 million bears
interest at a fixed rate of 6.91%. The remaining $40 million outstanding has a
weighted-average variable rate of 2.43% at December 31, 2004 and can be
converted to a fixed-rate term loan at the Company's option.

The Company has a $50 million bank line of credit. Advances under the line bear
interest at 120 basis points over LIBOR and are due on demand. Up to $10 million
of the line may be used for working capital purposes and $40 million may be used
to fund acquisitions. In October 2004, the Company renewed this line of credit
through October 2005 and at the Company's option the line may be extended
through October 2007. As of December 31, 2004, $2 million was outstanding under
the line.


                                       5
<PAGE>
The Company has $74.75 million principal amount of 5.375% Convertible Senior
Notes outstanding which mature on August 15, 2023. The notes are convertible
into the Company's common shares under certain circumstances, provided that the
share price exceeds $30.61 over a specified trading period. The initial
conversion rate is 39.20185 shares per $1,000 principal amount of notes
(equivalent to $25.51 per share) and is subject to adjustment under certain
circumstances, including stock splits, stock dividends and increases in the
dividend rate over the current quarterly rate of $.43 per share. The notes are
redeemable at the Company's option for shares or cash at any time on or after
August 21, 2010 and are subject to repurchase at the option of the holder in
August, 2008, August, 2010, August, 2013, and August, 2018, or upon the
occurrence of certain events. The notes are unsecured and unsubordinated
obligations of the Company.

The Company uses interest rate protection agreements to reduce the potential
impact of increases in interest rates as required by its secured credit
facility. The Company maintains two interest rate protection agreements for $139
million and $49.2 million, capping the Company's exposure to LIBOR at 9.35% and
7.5%, respectively, through March 2007. In addition, the Company executed two
$20 million floating to fixed interest rate swaps to effectively fix the
interest rate on $40 million of floating rate debt under the secured credit
facility at a blended rate of approximately 4.67%. The Company simultaneously
sold two $20 million interest rate caps, capping the Company's exposure to LIBOR
at 9.35%. These interest rate protection agreements hedge interest payments
consistent with the Company's risk management objective and strategy to reduce
exposure to variability in cash flows attributable to increases in LIBOR.

ENVIRONMENTAL MATTERS

Under various Federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be liable for costs of
removal or remediation of certain hazardous or toxic substances on, under or in
such property. Such enactments often impose liability without regard to whether
the owner knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure to properly
remediate such substances, may affect adversely the owner's ability to sell or
rent such property or to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances also may
be liable for the costs of removal or remediation of such substances at the
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Certain environmental laws impose liability for release
of asbestos-containing materials ("ACMs") into the air and third parties may
seek recovery from owners or operators of real property for personal injury
associated with ACMs. In connection with its ownership and operation of the
Properties, the Trust, the Operating Partnership, or any of their respective
direct or indirect subsidiaries, as the case may be, potentially may be liable
for such costs.

All of the Properties have been subjected to a Phase I or similar environmental
assessment which generally does not involve invasive techniques such as soil or
ground water sampling. These assessments have not revealed any environmental
conditions that the Company believes will have a material adverse effect on its
business, assets, financial condition or results of operations, nor is the
Company aware of any material environmental liability.


                                       6
<PAGE>

EMPLOYEES

As of December 31, 2004, the Company had 412 employees.

ITEM 2. PROPERTIES.

The Properties consist of 38 multifamily properties comprising 13,065 apartment
units located in suburban Baltimore, Maryland; suburban Washington, D.C. and
northern Virginia; southeastern Pennsylvania; Delaware; and Florida.

The average occupancy rate for all Properties for fiscal 2004 and fiscal 2003
was 92.6% and 93.5%, respectively. Tenant leases are generally for one-year
terms and often require security deposits. Approximately 96% of the apartments
in the Properties are one-bedroom and two-bedroom apartments. The balance are
three-bedroom apartments. The Properties typically consist of two- and
three-story buildings in a landscaped setting, many with amenities such as
swimming pools, tennis courts, playgrounds and community buildings. All
apartments offer air conditioning. The majority of such buildings are of brick
construction and all of the Properties are located in mature, fully-developed
neighborhoods.

The following table presents certain additional information concerning the
Properties :

<TABLE>
<CAPTION>
                                                                                                    2004
                                                                               NUMBER              AVERAGE
PROPERTY NAME                             PROPERTY LOCATION                   OF UNITS           OCCUPANCY(1)
-------------                             -----------------                   --------           ------------
<S>                                       <C>                                   <C>              <C>
BALTIMORE
Bowleys Quarters                          Baltimore, Maryland                    462              93.3%
Excalibur at Avalon                       Pikesville, Maryland                   147              92.3%
Howard Crossing                           Ellicott City, Maryland                1,350            91.9%
Hallfield                                 Perry Hall, Maryland                   75               98.0%
Skylark Pointe                            Carney, Maryland                       336              93.2%
Hollows                                   Glen Burnie, Maryland                  336              94.2%
Ridgeview                                 Rossville, Maryland                    257              90.4%
Eagles Walk at White Marsh (2)            Rossville, Maryland                    692              79.3%
Steeplechase                              Cockeysville, Maryland                 540              91.6%
The Courts of Avalon                      Pikesville, Maryland                   258              93.6%
Versailles                                Towson, Maryland                       210              96.9%
Woodhill                                  Glen Burnie, Maryland                  334              92.3%

WASHINGTON, D.C.
Barton's Crossing                         Alexandria, Virginia                   532              93.9%
Carlyle Station                           Manassas, Virginia                     408              94.4%
Fox Run                                   Germantown, Maryland                   218              91.4%
Lionsgate                                 Herndon, Virginia                      328              93.2%
Tall Oaks                                 Laurel, Maryland                       352              92.6%
The Glen                                  Leesburg, Virginia                     134              95.4%
The Village at McNair Farms               Herndon, Virginia                      283              95.3%
University Heights                        Ashburn, Virginia                      466              92.6%
Willow Lake                               Laurel, Maryland                       456              94.4%
</TABLE>


                                       7
<PAGE>
<TABLE>
<CAPTION>
                                                                                                    2004
                                                                               NUMBER              AVERAGE
PROPERTY NAME                             PROPERTY LOCATION                   OF UNITS           OCCUPANCY(1)
-------------                             -----------------                   --------           ------------
<S>                                       <C>                                   <C>              <C>
Watkins Station                           Gaithersburg, Maryland                 210              90.4%

PENNSYLVANIA
Colonial Crest Emmaus                     Emmaus, Pennsylvania                   329              92.8%
Hanover                                   Hanover, Pennsylvania                  215              94.0%
Hidden Village                            Allentown, Pennsylvania                264              91.3%
Lancaster East                            Lancaster, Pennsylvania                272              89.4%
Lancaster West                            Lancaster, Pennsylvania                413              88.1%
Rolling Hills                             York, Pennsylvania                     184              97.0%
York                                      York, Pennsylvania                     396              89.0%

NEWARK, DELAWARE
Christina Mill                            Newark, Delaware                       228              94.7%
Stonegate                                 Elkton, Maryland                       260              91.8%

FLORIDA
Gardens East Apartments                   Palm Beach Gardens, Florida            448              94.7%
Heron's Run                               Sarasota, Florida                      274              96.3%
Kirkman                                   Orlando, Florida                       370              95.3%
McIntosh                                  Sarasota, Florida                      212              94.4%
Perico                                    Bradenton, Florida                     256              95.8%
Twelve Oaks                               Orlando, Florida                       284              93.8%
Windermere Lakes                          Orlando, Florida                       276              93.9%

Total                                                                            13,065           92.6%
                                                                                 ------
</TABLE>

----------
(1)  Average occupancy is defined as total market rent at 100% less market rent
     on vacant units divided by total market rent for the period, expressed as a
     percentage.
(2)  Property is undergoing major renovation.


ITEM 3. LEGAL PROCEEDINGS

There were no legal proceedings pending at December 31, 2004 or as of the date
of this report to which the Registrant, the Operating Partnership or any of the
separate general partnerships and limited liability companies which own the
Properties is a party or to which the Properties are subject that are likely to
have a material adverse impact on the Registrant's operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.




                                       8
<PAGE>


EXECUTIVE OFFICERS OF THE REGISTRANT

The age (as of February 15, 2005), business experience during the past five
years and offices presently held by Harvey Schulweis are set forth under the
caption "Election of Trustees" in the Registrant's Proxy Statement for the
annual meeting of shareholders to be held on May 4, 2005, which information is
incorporated herein by reference. Such information in respect of each of the
Registrant's Executive Officers who are not Trustees is reported below. The
Registrant's Bylaws provide that officers shall hold office until their
successors are elected and qualified.

Thomas Brodie: Age 42. Mr. Brodie has served as President and Chief Operating
Officer of the Registrant since November 2004. Prior thereto, he served as
Executive Vice President-Co-Chief Operating Officer of the Registrant from
February 2003 to November 2004. He served as Senior Vice President and Chief
Investment Officer of the Registrant from May 2001 to February 2003. Mr. Brodie
also has served as Managing Director of Schulweis Realty, Inc., a private real
estate investment and development firm, since 1991. Prior to 1991, Mr. Brodie
was a Senior Vice President of Lazard Realty, Inc.

Alan W. Lasker: Age 58. Mr. Lasker has served as Senior Vice President-Finance,
Chief Financial Officer and Assistant Secretary of the Registrant since February
2003. Prior thereto, he served as Senior Vice President-Finance of the
Registrant since February 2000 and Vice President-Finance of the Registrant
since July 1997. Mr. Lasker also has served as Senior Vice President of
Schulweis Realty, Inc., a private real estate investment and development firm,
since 1991. Prior to 1991, Mr. Lasker was a Senior Vice President of Lazard
Realty, Inc. Mr. Lasker is a Certified Public Accountant.

W. Daniel Brown: Age 54. Mr. Brown has served as Senior Vice President - Human
Resources of the Registrant since May of 2001. Prior to joining the Company he
held the same position at Prime Retail, LP beginning in 1998. From 1994 through
1998, Mr. Brown was a Vice President in Human Resources at T. Rowe Price
Associates. Prior to joining T. Rowe Price, Mr. Brown was a member of the
Principal Professional Staff of the Johns Hopkins University Applied Physics
Laboratory (APL) from 1984 through 1994. Mr. Brown holds professional
certifications in both human resources and compensation.

William J. Fishell: Age 50. Mr. Fishell has served as Vice President - Treasurer
of the Registrant since February 2004. Previously, he served as Vice President -
Controller of the Registrant since its initial public offering in 1993. He has
been the Principal Accounting Officer of the Registrant since February 2003.
Prior thereto, Mr. Fishell served as Assistant Vice President - Assistant
Controller since 1979.


                                       9
<PAGE>

                                     PART II
                                     -------


ITEM 5. MARKET FOR REGISTRANT'S COMMON SHARES OF BENEFICIAL INTEREST AND RELATED
SHAREHOLDER MATTERS

The Company's common shares of beneficial interest are listed on the New York
Stock Exchange under the trading symbol "TCT."


<TABLE>
<CAPTION>
                                        SALES PRICE
                                                                   CASH
                                -------------------------------  DIVIDENDS
         QUARTER ENDED             HIGH             LOW          DECLARED
   --------------------------------------------------------------------------

<S>                             <C>              <C>                 <C>
   March 31, 2003               $  21.35         $   19.51           $.43
   June 30, 2003                $  23.91         $   20.18           $.43
   September 30, 2003           $  24.69         $   22.40           $.43
   December 31, 2003            $  25.63         $   22.25           $.43

   March 31, 2004               $  27.20         $   24.99           $.43
   June 30, 2004                $  27.93         $   22.50           $.43
   September 30, 2004           $  25.86         $   24.00           $.43
   December 31, 2004            $  29.21         $   25.25           $.43
</TABLE>

On February 2, 2005, a cash dividend of $.43 per share was declared, payable
March 10, 2005, to shareholders of record as of February 18, 2005.

At December 31, 2004, the approximate number of record holders of the Trust's
shares was 492. This does not include beneficial owners for whom Cede & Co. or
others act as nominee.


                      EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth information concerning the Amended and Restated
1993 Long Term Incentive Plan and the 1997 Long Term Incentive Plan, both of
which have been approved by the shareholders of the Trust. The figures shown are
for the year ended December 31, 2004.

<TABLE>
<CAPTION>
                                Number of Securities To be   Weighted-Average Exercise    Number of Securities
                                Issued Upon Exercise of      Price of Outstanding         Remaining Available for
                                Outstanding Options          Options                      Future Issuance Under
                                                                                          Equity Compensation Plans
------------------------------- ---------------------------- ---------------------------- ----------------------------
<S>                             <C>                          <C>                          <C>
Equity Compensation
Plans Approved by
the Shareholders                          227,666                    $19.67                       373,034
                                                                     -----
</TABLE>

                                       10
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA

Selected Financial Data

<TABLE>
<CAPTION>
(In thousands, except per share data) /
   Year ended December 31,                          2004          2003           2002         2001          2000
                                                 -----------   -----------   -----------   -----------   -----------
<S>                                              <C>           <C>           <C>           <C>           <C>
OPERATING DATA

Rental income                                    $   126,975   $   118,017   $   110,232   $   107,401   $   100,238
Operating expenses                                    53,710        50,670        44,978        42,105        37,487
                                                 -----------   -----------   -----------   -----------   -----------
  Net operating income                                73,265        67,347        65,254        65,296        62,751
Depreciation and amortization                         30,083        21,387        18,483        17,645        18,721
Interest expense                                      32,969        28,785        25,216        24,387        27,148
General and administrative expenses                    5,866         4,744         4,595         4,355         3,557
Separation expense                                     1,533            --            --         3,338            --
Gain on sales of operating properties                    --             --            --            --         9,461
                                                 -----------   -----------   -----------   -----------   -----------
Income before discontinued operations and
  minority interest                                    2,814        12,431        16,960        15,571        22,786
Income allocated to minority interest from
  continuing operations                                 (364)       (1,681)       (2,269)       (2,110)       (3,108)
Minority interest distributions less than
  (in excess of) earnings                                 --           576          (576)           --            --
                                                 -----------   -----------   -----------   -----------   -----------
Income from continuing operations                      2,450        11,326        14,115        13,461        19,678
Discontinued operations:
  Income from discontinued operations                    918         2,054         3,669         1,730         3,026
  Gain on sales of properties                             --         80,081           --            --            --
  Impairment of assets held for disposition           (1,672)       (4,000)           --            --            --
  Loss (income) allocated to minority interest
    from discontinued operations                         100       (10,693)         (492)         (235)         (413)
                                                 -----------   -----------   -----------   -----------   -----------
(Loss) income from discontinued operations              (654)       67,442         3,177         1,495         2,613
                                                 -----------   -----------   -----------   -----------   -----------
Net income(1)                                    $     1,796   $    78,768   $    17,292   $    14,956   $    22,291
                                                 ===========   ===========   ===========   ===========   ===========

Basic earnings per share:
  Income from continuing operations              $       .15   $       .72   $       .88   $       .86   $      1.26
  (Loss) income from discontinued operations            (.04)         4.27           .20           .09           .17

                                                 -----------   -----------   -----------   -----------   -----------
  Net income                                     $       .11   $      4.99   $      1.08   $       .95   $      1.43
                                                 ===========   ===========   ===========   ===========   ===========

Diluted earnings per share:
  Income from continuing operations              $       .14   $       .70   $       .87   $       .84   $      1.24
  (Loss) income from discontinued operations            (.04)         4.20           .20           .09           .16
                                                 -----------   -----------   -----------   -----------   -----------
  Net income                                     $       .10   $      4.90   $      1.07   $       .93   $      1.40
                                                 ===========   ===========   ===========   ===========   ===========
</TABLE>


                                       11
<PAGE>


<TABLE>
<CAPTION>
(In thousands)                                        2004         2003         2002          2001          2000
                                                   -----------  -----------  -----------   -----------  -----------
<S>                                                <C>          <C>          <C>           <C>          <C>
BALANCE SHEET DATA AT YEAR-END

Real estate assets, at cost                        $   815,318  $   809,135  $   665,998   $   643,271  $   626,079
Net real estate assets                                 543,334      535,752      412,854       407,902      407,768
Real estate and other assets held for disposition           --       32,561       73,336        74,119       75,419
Total assets                                           562,084      588,990      503,785       498,962      498,552
Mortgage notes payable                                 415,132      427,318      422,003       390,587      390,946
Notes payable                                            2,000           --           --        16,000        5,000
5.375% Convertible Senior Notes                         74,750       74,750           --            --           --
Mortgage notes payable and other liabilities
  held for disposition                                      --       23,734       71,346        70,175       70,191
Minority interest                                        6,592        7,556           --           905        2,803
Shareholders' equity (deficit)                          46,717       39,362       (1,610)        9,492       20,052
</TABLE>

<TABLE>
<CAPTION>
(In thousands, except per share data) / 31,
       Year ended December                                 2004        2003          2002         2001         2000
                                                        ----------   ----------   ----------   ----------   ----------
<S>                                                     <C>          <C>          <C>          <C>          <C>
SUPPLEMENTAL INFORMATION

Dividends declared per share                            $     1.72   $     1.72   $     1.72   $     1.72   $     1.68
                                                        ==========   ==========   ==========   ==========   ==========

Net cash provided by operating activities               $   37,546   $   43,107   $   42,875   $   42,221   $   38,875
Net cash used in investing activities                       (7,542)     (30,585)     (25,615)     (21,335)     (30,474)
Net cash used in financing activities                      (31,326)     (12,896)     (16,311)     (20,456)      (9,419)

Reconciliation of net income to funds from operations:
  Net income(1)                                         $    1,796   $   78,768   $   17,292   $   14,956   $   22,291
  Income allocated to minority interest                        264       11,798        3,337        2,345        3,521
  Gain on involuntary conversion                              (558)        (621)          --           --           --
  Gain on sales of properties                                   --      (80,081)          --           --       (9,461)
  Real estate depreciation                                  28,859       23,175       21,153       20,359       21,809
                                                        ----------   ----------   ----------   ----------   ----------
  Funds from operations (1),(2)                         $   30,361   $   33,039   $   41,782   $   37,660   $   38,160
                                                        ==========   ==========   ==========   ==========   ==========
</TABLE>

(1) Net income and funds from operations for the years ended December 31, 2004
    and 2003 include a $1.7 million and $4 million impairment charge,
    respectively, on the Charlotte properties sold during 2004. Net income and
    funds from operations for the years ended December 31, 2004 and 2001 include
    a charge of $1,553,000 and $3,338,000, respectively, related to the
    departure of certain executives.

(2) Funds from operations ("FFO") is computed as net income (loss) (computed in
    accordance with U.S. generally accepted accounting principles) ("U.S. GAAP")
    excluding gains and losses from sales and involuntary conversions of
    operating properties, plus real estate depreciation and income allocated to
    minority interest. This computation of FFO is consistent with the formal
    definition promulgated by the National Association of Real Estate Investment
    Trusts (NAREIT). The reconciliation of FFO to Net Income, the most directly
    comparable financial measure calculated in accordance with GAAP, is included
    in the table above. Management generally considers FFO to be a useful
    measure for reviewing the comparative operating performance of the Trust
    between periods or as compared to other companies, without giving effect to
    real estate depreciation and amortization, which assumes that the value of
    real estate diminishes predictably over time and which can vary among owners
    of similar assets based upon historical cost and useful life estimates. FFO
    should not be considered an alternative to net income as a measure of
    performance nor does it represent cash generated from operating activities
    in accordance with GAAP and, therefore, it should not be considered
    indicative of cash available to fund cash needs.


                                       12
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

The Town and Country Trust owns an approximate 88% general partnership interest
in The TC Operating Limited Partnership, which, through wholly-owned subsidiary
entities, holds the operating assets of the Company. The remaining 12% is owned
by minority interest partners that hold limited partnership units, which are
convertible by the holders into the Company's common shares of beneficial
interest on a one-for-one basis. The general and limited partnership interests
in the TC Operating Limited Partnership are represented by Operating Partnership
units ("OP Units"). At December 31, 2004, the Company owned 17,479,576 OP Units
and the minority interests held 2,466,535 OP Units.

The Town and Country Trust, organized in 1993, is a real estate investment trust
("REIT") focused on the ownership and operation of multifamily apartment
communities in selected markets in the Mid-Atlantic and Southeast regions of the
U. S. At December 31, 2004, the Company owned 38 apartment communities with
13,065 apartment homes. The Company seeks to acquire additional apartments in
certain of its existing markets, and other "high barrier to entry" markets,
particularly in the Greater Washington, D. C. and Baltimore metropolitan areas
and in Florida. In addition, the Company continues to evaluate its portfolio for
communities and/or submarkets that may no longer match its long-term strategy.
In 2003, the Company acquired three apartment communities with an average age of
4.3 years while disposing of five apartment communities with an average age of
35.8 years. In 2004, the Company exited the Charlotte, North Carolina market
through the strategic disposition of its two apartment communities located
there. During 2004, the Company had been unable to find suitable investment
opportunities in its preferred markets at acceptable pricing, as the investment
climate for multifamily properties has continued to be extremely competitive.

The Company continues to aggressively reinvest in its existing portfolio.
Renovation projects include modernization of kitchens and bathrooms, new
building entrances and windows, new business and fitness centers, and the
addition of washers and dryers inside apartment homes.

CRITICAL ACCOUNTING POLICIES

The Company's discussion and analysis of its financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with U.S. generally accepted accounting principles ("U.S.


                                       13
<PAGE>

GAAP"). The preparation of these financial statements requires the Company to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions.

The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.

IMPAIRMENT OF REAL ESTATE ASSETS The Company periodically evaluates its
apartment communities for potential impairment indicators. Judgments regarding
the existence of impairment indicators are based on legal factors, market
conditions and operational performance of the apartment communities. Future
events could cause management to conclude that impairment indicators exist and
that the Company's portfolio of apartment communities is impaired. Any resulting
impairment loss could have a material adverse impact on the Company's financial
condition and results of operations.

REAL ESTATE The Company capitalizes expenditures made to acquire new assets or
to substantially improve the value or extend the useful life of an existing
asset. Any expenditure to repair or maintain an existing asset in normal
operating condition is expensed as incurred.

Depreciation is computed on a straight-line basis over the estimated useful
lives of the related assets. In assessing estimated useful lives, the Company
makes assumptions based on historical experience acquired from both within and
outside the Company.

The Company accounts for property acquisitions utilizing the purchase method,
and accordingly, the results of acquired properties are included in the
Company's results of operations from the date of acquisition. The Company
allocates the purchase price to the acquired tangibles, consisting of land,
building and improvements, and, if material, to identified intangible assets and
liabilities, consisting of above/below market leases and at-market leases in
place based on their fair values.

REVENUE RECOGNITION Revenue from rental property is recognized on a
straight-line basis over the terms of the lease. Leases are generally for terms
of one year or less.

Gains on sales of real estate assets are recognized pursuant to the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 66, Accounting for
Sales of Real Estate. The specific timing of the recognition of the sale and the
related gain are measured against the various criteria in SFAS No. 66 related to
the terms of the transactions and the Company's continuing involvement, if any,
associated with the assets sold. To the extent the sales criteria are not met,
the Company defers gain recognition until the sales criteria are met.

DISCONTINUED OPERATIONS SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets, requires that the assets and liabilities and the results
of operations of any communities which have been sold since January 1, 2002, or
otherwise qualify as held for sale, be presented as discontinued operations in
the Company's consolidated financial statements in both current and prior
periods presented. The community-specific components of net income that are
presented as discontinued operations include net operating income, depreciation
expense, minority interest and interest expense. In addition, the net gain or
loss (including any impairment charge) on the disposition of communities held
for sale is presented as discontinued operations. A change in presentation for
discontinued operations does not have any impact on the Company's financial
conditions or results of operations. Real estate assets held for sale are
measured at the lower of the carrying amount or the fair value less costs to
sell, and are presented separately in the accompanying Consolidated Balance
Sheet. Subsequent to classification of a community as held for sale, no further
depreciation is recorded on the assets.

HEDGE ACCOUNTING The Company carries all derivative financial instruments as
assets or liabilities on its balance sheets at fair value. Changes in fair value
of these instruments, which qualify as cash flow hedges, are recorded as a
component of other comprehensive income (loss). Any ineffective portion of the
change in value is recorded to current period earnings. Furthermore, should any
change in management strategy, or other circumstance, cause an existing highly
effective hedge to become entirely ineffective, the accumulated loss or gain in
the value of the derivative instrument since its inception may be required to be
immediately reclassified from the shareholders' equity section of the balance
sheet to the income statement.

NEW ACCOUNTING PRONOUNCEMENT In December 2004, the Financial Accounting
Standards Board (FASB) issued a revision to SFAS No. 123 (revised 2004), Share
Based Payment ("Statement No.123(R)"). Statement No. 123(R) requires all


                                       14
<PAGE>

share-based payments to employees, including grants of employee stock options,
to be recorded as an expense based on their fair values. The grant-date fair
value of employee share options and similar instruments will be estimated using
an option-pricing model adjusted for any unique characteristics of a particular
instrument. If an equity award is modified after the grant date, incremental
compensation cost will be recognized in an amount equal to the excess of the
fair value of the modified award over the fair value of the original award
immediately before the modification. The Company will adopt the provisions of
SFAS No. 123(R) during the third quarter 2005. The adoption of this new standard
will not have a material effect on the financial position or financial results
of the Company.

RESULTS OF OPERATIONS

The Company's results include the results of both continuing and discontinued
operations. Income from Discontinued Operations in the accompanying statement of
operations reflects the results of operations of seven apartment communities
(2,905 apartment homes) that were sold since the beginning of 2003. The
Company's results from continuing operations consist of both "Same Store"
results and results of new acquisitions. "Same Store" results reflect results
from 12,332 apartment homes owned and operated throughout both 2004 and 2003.
Results from new acquisitions include results from three communities (733
apartment homes) acquired in 2003.

YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003 Net income
for 2004 was $1,796,000, or $0.10 per diluted share, a decrease of $76,972,000
from $78,768,000, or $4.90 per diluted share, for the year ended December 31,
2003. Included in 2003 net income is an $80,081,000 gain resulting from the sale
of five communities in 2003. Included in net income for 2004 and 2003 is
$1,672,000 and $4,000,000, respectively, of impairment charges recorded on
properties that were sold during 2004. Net income for 2004 also includes a
separation charge of $1,533,000 related to the departure of two senior
executives consisting primarily of cash payments that will be paid during 2005
and 2006. During 2004, the Company revised the estimated useful lives of certain
depreciable assets, principally carpet, to more closely approximate their
current economic lives based upon the Company's capital improvement and
renovation plans. This change in accounting estimate resulted in additional
depreciation expense of $6,493,000.

CONTINUING OPERATIONS - Same Store Communities

Operating results for the Same Store communities are set forth in the table
below:

<TABLE>
<CAPTION>
(In thousands) / Year ended December 31,         2004              2003               Change
<S>                                            <C>              <C>           <C>              <C>
Rental income                                  $115,710         $112,660      $  3,050         2.7%
Operating expenses                               49,581           48,570         1,011         2.1%
                                               --------         --------      --------         ---
Net operating income                           $ 66,129         $ 64,090      $  2,039         3.2%
                                               ========         ========      ========         ===
</TABLE>

A reconciliation between net income and Same Store net operating income is as
follows:

<TABLE>
<CAPTION>
(In thousands) / Year ended December 31,               2004            2003
<S>                                                  <C>              <C>
Same Store net operating income                      $ 66,129         $ 64,090
Deduct (add):
   Real estate depreciation                            28,859           20,675
   Interest expense                                    32,969           28,785
   General and administrative                           5,866            4,744
   Other depreciation and amortization                  1,224              712
   Separation expense                                   1,533               --
   (Loss) income from discontinued operations             754          (78,135)
   Net operating income from acquisitions              (7,136)          (3,257)
   Income allocated to minority interest                  264           11,798
                                                     --------         --------
Net income                                           $  1,796         $ 78,768
                                                     ========         ========
</TABLE>


                                       15
<PAGE>

The Company uses net operating income (NOI) to measure the operating results of
its communities and to compare the operating performance of single assets or
groups of assets. The Company defines NOI as property rental income less
property operating expenses and does not include general and administrative
expenses, interest expense, depreciation and amortization, discontinued
operations, or gains/losses on sales of properties. Accordingly, this
performance measure is not intended as a replacement for net income determined
in accordance with U.S. GAAP. NOI is widely used by management and investors in
the real estate industry in connection with the valuation of income-producing
real estate and as a supplemental measure of operating performance. NOI measures
presented by the Company may not be comparable to other similarly titled
measures of other companies.

      Same Store rental income for the year ended December 31, 2004, grew by
$3,050,000 or 2.7%, reflecting an average rental rate increase of 3.3% despite a
decline in occupancy of 110 basis points from 93.6% to 92.5%. Occupancy and
average rent statistics for the Company's operating markets are as follows:

<TABLE>
<CAPTION>
                                                            Average Monthly Rent                          Occupancy
                                    % of Portfolio(1)   2004        2003      Change         2004         2003       Change
<S>                                 <C>               <C>        <C>          <C>            <C>          <C>        <C>
Baltimore, Maryland                       37.2%       $    770   $    734       4.9%         91.1%        93.2%      (2.1)%
Metropolitan Washington, DC
   Northern Virginia                      14.8%          1,070      1,036       3.3%         94.0%        94.4%      (0.4)%
   Maryland Suburbs                       10.0%            938        908       3.3%         92.6%        92.9%      (0.3)%
Pennsylvania                              16.8%            654        638       2.5%         91.1%        94.4%      (3.3)%
Orlando, Florida                           7.6%            724        715       1.3%         94.5%        91.7%       2.8%
Sarasota/Bradenton, Florida                6.0%            760        744       2.2%         95.6%        93.2%       2.4%
Newark, Delaware                           4.0%            888        881       0.8%         93.1%        94.1%      (1.0)%
Palm Beach Gardens, Florida                3.6%            900        901      (0.1)%        94.7%        94.3%       0.4%
   Same Store Total                      100.0%       $    817   $    791       3.3%         92.5%        93.6%      (1.1)%
</TABLE>

(1)   Based on number of Same Store apartment homes

Same Store operating expenses for the year ended December 31, 2004, increased
2.1% or $1,011,000, to $49,581,000 from $48,570,000 in 2003. Operating expenses
reflect an increase in repairs and maintenance of $623,000 or 4.4%, to
$14,658,000 from $14,035,000 as the Company experienced approximately $573,000
in damages sustained in the 2004 hurricane season and annual salary increases
offset by reduced snow removal cost reflecting return to historical levels of
snowfall in 2004 following the record snowfall experienced on the East Coast in
early 2003. Marketing and advertising increased $442,000 or 11.2% to $4,388,000
from $3,946,000 related to increased leasing costs as well as increased
advertising for newly renovated properties. As a result, Same Store net
operating income (i.e., rental income less operating expenses) increased
$2,039,000 or 3.2% to $66,129,000 from $64,090,000.

ACQUISITIONS During the year ended December 31, 2004, the three communities
acquired in 2003 had net operating income of $7,136,000 compared to $3,257,000
for the prior year.

INTEREST EXPENSE During 2003, the Company issued $74,750,000 of 5.375%
Convertible Senior Notes due 2023. Interest expense for 2004 related to the
notes was $4,106,000 compared to $1,659,000 for the year ended December 31,
2003. Interest expense on mortgage debt increased $1,737,000 or 6.4% to
$28,863,000 from $27,126,000 last year. Despite a decrease in average debt
outstanding attributable to continuing operations, from $457 million to $421
million, the weighted average interest rate attributable to this debt, excluding
the Convertible Senior Notes, was 6.42% compared to 5.67% for last year
resulting in an increase to interest expense.


                                       16
<PAGE>

DISCONTINUED OPERATIONS For the year ended December 31, 2004, the Company
recorded a loss on discontinued operations of $654,000 compared to net income of
$67,442,000 for the year ended December 31, 2003. The income from discontinued
operations for the prior year includes an $80,081,000 gain related to the sale
of five apartment communities containing 2,325 apartment homes in the Baltimore,
Maryland suburbs. Discontinued operations for 2004 and 2003, included impairment
charges of $1,672,000 and a $4,000,000, respectively, recorded on the Charlotte
properties sold during 2004.

DISTRIBUTIONS TO MINORITY INTEREST IN EXCESS OF EARNINGS U.S. GAAP requires
that, for financial reporting purposes, an additional allocation of income be
made to the minority interest account in an amount necessary to keep such
balance from falling below zero since there is no requirement for the unit
holders to make additional contributions. During 2003, earnings were in excess
of distributions to minority interests and, therefore, the Company reallocated
the $576,000 that had previously been so allocated to the minority interests.

YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002 Net income
for 2003 was $78,768,000, or $4.90 per diluted share, an increase of $61,476,000
from $17,292,000 or $1.07 per diluted share, for the year ended December 31,
2002. Included in net income in 2003 is an $80,081,000 gain resulting from the
sale of five communities in 2003. Also included in 2003 net income is a
$4,000,000 impairment charge recorded on a property held for disposition. Net
income also reflects a reallocation of additional income to minority interests
in prior periods as discussed below.

CONTINUING OPERATIONS - Same Store Communities

Operating results for the Same Store communities are set forth in the table
below:

<TABLE>
<CAPTION>
(In thousands) / Year ended December 31,       2003            2002                      Change
<S>                                          <C>            <C>               <C>                   <C>
Rental income                                $112,660       $  110,232        $    2,428             2.2%
Operating expenses                             48,570           44,978             3,592             8.0%
                                             --------       ----------        ----------             ---
Net operating income                         $ 64,090       $   65,254        $   (1,164)           (1.8)%
                                             ========       ==========        ==========             ===
</TABLE>

A reconciliation between net income and Same Store net operating income is as
follows:

<TABLE>
<CAPTION>
(In thousands) / Year ended December 31,             2003            2002
<S>                                                <C>              <C>
Same Store net operating income                    $ 64,090         $ 65,254
Deduct (add):
   Real estate depreciation                          20,675           17,797
   Interest expense                                  28,785           25,216
   General and administrative                         4,744            4,595
   Other depreciation and amortization                  712              686
   Income from discontinued operations              (78,135)          (3,669)
   Net operating income from acquisitions            (3,257)              --
   Income allocated to minority interest             11,798            3,337
                                                   --------         --------
Net income                                         $ 78,768         $ 17,292
                                                   ========         ========
</TABLE>


                                       17
<PAGE>

Same Store rental income for the year ended December 31, 2003, grew by
$2,428,000 or 2.2%, reflecting an average rental rate increase of 2.1% and no
change in physical occupancy at 93.6%. Occupancy and average rent statistics for
the Company's operating markets are as follows:

<TABLE>
<CAPTION>
                                                   Average Monthly Rent                                Occupancy
                                % of Portfolio(1)   2003        2002         Change         2003         2002        Change
<S>                             <C>                <C>         <C>           <C>            <C>          <C>        <C>
Baltimore, Maryland                   37.2%        $  734      $  703          4.4%         93.2%        93.9%       (0.7)%
Metropolitan Washington, DC
  Northern Virginia                   14.8%         1,036       1,045         (0.9)%        94.4%        93.0%        1.4%
  Maryland Suburbs                    10.0%           908         869          4.5%         92.9%        93.7%       (0.8)%
Pennsylvania                          16.8%           638         632          0.9%         94.4%        94.4%        0.0%
Orlando, Florida                       7.6%           715         721         (0.8)%        91.7%        91.5%        0.2%
Sarasota/Bradenton, Florida            6.0%           744         746         (0.3)%        93.2%        92.9%        0.3%
Newark, Delaware                       4.0%           881         858          2.7%         94.1%        95.0%       (0.9)%
Palm Beach Gardens, Florida            3.6%           901         883          2.0%         94.3%        95.7%       (1.4)%
                                     -----         ------      ------          ---          ----         ----         ---
  Same Store Total                   100.0%        $  791      $  775          2.1%         93.6%        93.6%        0.0%
                                     =====         ======      ======          ===          ====         ====         ===
</TABLE>

(1) Based on number of Same Store apartment homes

Same Store operating expenses for the year ended December 31, 2003, increased
8.0% or $3,592,000, to $48,570,000 from $44,978,000 in 2002. Operating expenses
reflect an increase in real estate taxes and insurance of $1,010,000, or 9.2%.
Of the increase, $556,000 is attributable to the renewal of the Company's
2002-2003 insurance program, and the remaining $454,000 results from increased
real estate taxes in certain of the Company's markets. Repairs and maintenance
also increased $1,137,000 or 8.8%, to $14,035,000 from $12,898,000 as the
Company experienced approximately $351,000 in increased payroll and snow removal
cost related to the record snowfall experienced on the East Coast early in the
year. An additional $515,000 of the increase reflects increased payroll and
related expenses associated with higher staffing levels, lower associate
turnover and other increased benefit costs. The harsh weather during the early
months of 2003 and rising natural gas prices also adversely affected the
Company's utility costs, which increased $677,000 or 10.6%, for the year ended
December 31, 2003. Management expense increased $441,000 or 7.1%, to $6,619,000
from $6,178,000 as the Company continued to experience increased personnel and
related benefit costs associated with the development of its human resources and
technology infrastructure started in 2001. As a result, Same Store net operating
income decreased $1,164,000 or 1.8% to $64,090,000 from $65,254,000.

ACQUISITIONS During the year ended December 31, 2003, the three acquired
communities experienced occupancy of 92.2% and contributed rental income of
$5,357,000, operating expenses of $2,100,000, and net operating income of
$3,257,000.

INTEREST EXPENSE In August, 2003, the Company issued $74,750,000 of 5.375%
Convertible Senior Notes due 2023. Interest expense related to the notes was
$1,659,000. Interest expense on mortgage debt increased $1,910,000 or 7.6% to
$27,126,000 from $25,216,000 the prior year. This increase reflects an increase
in the average amount of outstanding debt attributable to continuing operations
during the year to $457 million versus $410 million during last year, primarily
as a result of borrowings incurred in connection with the 2003 acquisitions and
with the funding of the Company's ongoing capital improvement program. During
2003, the weighted average interest rate attributable to the Company's average
amount of debt outstanding attributable to continuing operations, excluding the
Convertible Senior Notes, was 5.67% compared to 6.01% for the prior year.

DISCONTINUED OPERATIONS For the year ended December 31, 2003, income from
discontinued operations after minority interest was $67,442,000 compared to
$3,177,000 for the prior year. The income from discontinued operations in 2003
includes an $80,081,000 gain related to the sale of five apartment communities
containing 2,325 apartment homes in the Baltimore, Maryland suburbs. It also
includes a $4,000,000 impairment charge recorded on one of the Charlotte
properties held for disposition at December 31, 2003.


                                       18
<PAGE>


DISTRIBUTIONS TO MINORITY INTEREST (LESS THAN) IN EXCESS OF EARNINGS U.S. GAAP
require that, for financial reporting purposes, an additional allocation of
income be made to the minority interest account in an amount necessary to keep
such balance from falling below zero since there is no requirement for the unit
holders to make additional contributions. During 2003, earnings were in excess
of distributions to minority interests and, therefore, the Company reallocated
the $576,000 that had previously been so allocated to the minority interests.

FUNDS FROM OPERATIONS

Funds from operations ("FFO") is computed as net income (loss) (computed in
accordance with U.S. GAAP) excluding gains and losses from sales and involuntary
conversions of operating properties, plus real estate depreciation. This
computation of FFO is consistent with the formal definition promulgated by the
National Association of Real Estate Investment Trusts (NAREIT). The
reconciliation of FFO to Net Income, the most directly comparable financial
measure calculated in accordance with U.S. GAAP, is included in the table below.
Management generally considers FFO to be a useful measure for reviewing the
comparative operating performance of the Trust between periods or as compared to
other companies, without giving effect to real estate depreciation and
amortization, which assumes that the value of real estate diminishes predictably
over time and which can vary among owners of similar assets based upon
historical cost and useful life estimates. FFO should not be considered an
alternative to net income as a measure of performance nor does it represent cash
generated from operating activities in accordance with U.S. GAAP and, therefore,
it should not be considered indicative of cash available to fund cash needs.

While the NAREIT definition of FFO does not specifically address involuntary
conversions of operating properties, management believes that such conversions
are, in substance, sales of property. Since the NAREIT definition of FFO
excludes gains and losses on property sales, the reported gain on involuntary
conversion has, likewise, been excluded from FFO.

A reconciliation between net income and FFO is as follows:

<TABLE>
<CAPTION>
(In thousands) / Year ended December 31,       2004           2003            2002
<S>                                          <C>             <C>            <C>
Net income                                   $ 1,796         $78,768        $17,292
Income allocated to minority interest            264          11,798          3,337
Gain on involuntary conversion                  (558)           (621)            --
Gain on sales of operating properties             --         (80,081)            --
Real estate depreciation                      28,859          23,175         21,153
                                             -------         -------        -------
Funds from operations (1), (2)               $30,361         $33,039        $41,782
                                             =======         =======        =======
</TABLE>

(1) Funds from operations for 2004 and 2003 include a $1,672,000 and a
$4,000,000, respectively, impairment charge on the Charlotte properties sold
during 2004.

(2) Funds from operations for 2004 includes a $1,533,000 charge for separation
expense relating to the departure of two senior officers.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET COMMITMENTS The following table
summarizes the Company's contractual obligations as of December 31, 2004:

<TABLE>
<CAPTION>
(In thousands)                      Total     Less than 1 year  1-3 years       3-5 years   More than 5 years
<S>                                <C>        <C>               <C>             <C>         <C>
Long-term debt obligations         $491,882        $2,697        $24,577        $389,858        $74,750
Operating lease obligations           5,049           622          1,271           1,163          1,993
</TABLE>

See Note 6 to the Consolidated Financial Statements for a discussion of the
Company's off-balance sheet obligations upon the exercise of the right of the
holders of the 5.375% Convertible Senior Notes to convert their notes into
common shares. In connection with the Company's improvement program discussed
below, the Company currently has contracts pending that aggregate $7,348,000 for
work to be performed over the next one to three years. However, these contracts
contain certain provisions to allow for termination without significant
penalties.


                                       19
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

A summary of the Company's cash flow activities is as follows:

<TABLE>
<CAPTION>
(In thousands) / Year ended December 31,           2004              2003              2002
<S>                                             <C>               <C>               <C>
Net cash provided by operating activities       $  37,546         $  43,107         $  42,875
Net cash used in investing activities              (7,542)          (30,585)          (25,615)
Net cash used in financing activities             (31,326)          (12,896)          (16,311)
</TABLE>

Operating activities provided unrestricted cash for 2004 of $37,546,000 compared
to $43,107,000 for 2003, and $42,875,000 for 2002. The decrease in operating
cash flow is primarily the result of increased interest expense and the
reduction of income attributable to the portfolio changes. Net cash flow used
for capital expenditures has continued to increase over the past few years
related to the Company's capital improvement program as discussed below. The
Company expects to expand this program to additional properties in the
foreseeable future. The proceeds from the sale of the Company's Charlotte
properties, along with the issuance of additional common shares, were used to
fund the capital expenditure program and pay down debt. Although the trustees
consider the appropriateness of the dividend level on a quarterly basis, the
Company does not anticipate any change in its dividend policy at this time.

The Company makes capital improvements to certain of its properties. These
capital improvements include expenditures that increase the value and extend the
useful life of an asset. Expenditures for ordinary repairs and maintenance are
expensed as incurred. Normal, recurring capital expenditures generally relate to
items having economic lives of 10 years or less and include the replacement of
appliances, carpeting and tile plus other routine capital expenditures such as
landscaping, parking lot sealing and striping, HVAC equipment and various
interior and exterior building improvements. The Company also makes certain
expenditures that are considered to be non-recurring or revenue-enhancing in
nature and generally relate either to (i) items having economic lives of more
than 10 years or (ii) renovation projects such as the modernization of kitchen
and bathrooms, new building entrances and windows, new business and fitness
centers, and the addition of new appliances such as washers and dryers. In
conjunction with certain of these renovation projects, the Company enters into
commitments to purchase goods and services with vendors performing the work. The
Company finances its capital improvements through a revolving credit facility
and working capital. The following table details these expenditures for the year
ended December 31, 2004 and 2003.

<TABLE>
<CAPTION>
                                                                                     2004                         2003
(In thousands, except per unit data) / Year ended December 31,                Amount       Per Unit        Amount       Per Unit
<S>                                                                          <C>           <C>            <C>           <C>
Recurring                                                                    $ 6,598        $  494        $ 7,374        $  497
Non-recurring                                                                 30,389         2,273         22,939         1,545
                                                                             -------        ------        -------        ------
Total capital                                                                $36,987        $2,767        $30,313        $2,042
                                                                             =======        ======        =======        ======
</TABLE>

The Company has a $488.2 million credit facility with Fannie Mae. This secured
facility matures in 2008. At December 31, 2004, outstanding borrowings under the
facility were $340 million. Of the $340 million, $300 million bears interest at
a fixed rate of 6.91%. The remaining $40 million outstanding has a
weighted-average variable rate of 2.43% at December 31, 2004 and can be
converted to a fixed-rate term loan at the Company's option. The Company is
party to floating-to-fixed interest rate swaps that effectively fix the interest
rate on this $40 million of floating rate debt, changing the weighted average
rate at December 31, 2004 to 4.67%.

Total outstanding borrowings under the facility at December 31, 2003 were $375
million. Of the $375 million, $300 million bears interest at a fixed rate of
6.91%. The remaining $75 million was outstanding at a weighted-average variable
rate of 1.81% at December 31, 2003. After giving effect to the interest rate
swaps, the weighted average interest rate on the $75 million was 3.40%.

The Company has a $50 million bank line of credit. Advances under the line bear
interest at 120 basis points over LIBOR and are due on demand. Up to $10 million
of the line may be used for working capital purposes and $40 million may be used
to fund acquisitions. This line of credit matures in October 2005. The Company
has the option to extend the line through October 2007. As of December 31, 2004,
$2,000,000 was outstanding under the line. At December 31, 2003, no amounts were
outstanding under the line.


                                       20
<PAGE>

The Company has $74.75 million aggregate principal amount of 5.375% Convertible
Senior Notes outstanding. The notes mature on August 15, 2023 and are
convertible into the Company's common shares under certain circumstances,
provided that the share price exceeds $30.61 for a specified period of time. The
initial conversion rate of the notes is 39.20185 shares per $1,000 principal
amount of notes (equivalent to $25.51 per share). The conversion rate will be
adjusted under certain circumstances, including stock splits, stock dividends
and increases in the dividend rate over the current quarterly rate of $.43 per
share. The shares would be considered in diluted earnings per share if the
effect of including the conversion of debt were dilutive to earnings per share
from continuing operations. The notes are redeemable at the Company's option for
shares or cash at any time on or after August 21, 2010 and are subject to
repurchase at the option of the holder on August 15, 2008, August 15, 2010,
August 15, 2013 and August 15, 2018, or upon the occurrence of certain events.
The notes are unsecured and unsubordinated obligations of the Company.
Concurrent with the offering in 2003, the Company used approximately $15.0
million of the proceeds to purchase and retire 646,800 of its common shares
($23.19 per share) in privately negotiated transactions.

The following table sets forth certain information regarding the Company's
outstanding indebtedness as of December 31, 2004:

<TABLE>
<CAPTION>
(Dollar amounts in thousands)                   Amount            % of Debt         Interest Rate(2)         Maturity
<S>                                           <C>                 <C>               <C>                      <C>
Mortgage debt:
Secured facility (1)                          $  340,000            69.2%               6.64%                2008
Conventional mortgages                            75,132            15.2%               6.18%                2007 - 2009
                                              ----------           -----                ----
   Total mortgage debt                           415,132            84.4%               6.55%
Convertible Senior Notes                          74,750            15.2%               5.38%                2023
Notes payable                                      2,000              .4%               3.62%                on demand
                                              ----------           -----                ----
Total debt                                    $  491,882           100.0%               6.36%
                                              ==========           =====                ====
</TABLE>

(1)   The information shown for this debt gives effect to two interest rate swap
      agreements that have the effect of fixing the interest rate on $40 million
      of debt at approximately 4.67% from January 2003 to April 2007.

(2)   Weighted average

The following table provides information about the Company's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates. For debt obligations, the table presents principal
cash flows and related weighted average interest rates by expected maturity
dates. For interest rate swaps and caps, the table presents notional amounts and
weighted average interest rates or strike rates by contractual maturity dates.

<TABLE>
<CAPTION>
                                                                                                                        Fair Value
(In thousands)                             2005     2006      2007        2008     2009       Thereafter    Total       at 12/31/04
<S>                                     <C>        <C>     <C>          <C>       <C>         <C>           <C>         <C>
Long-term debt
  Fixed rate                            $   697    $ 736   $  23,841    $300,298  $ 49,560    $  74,750     $449,882    $ 448,339
  Avg. interest rate                        6.8%     6.8%        6.8%        6.7%      7.2%         5.4%
  Floating rate                           2,000       --          --      40,000        --           --       42,000       42,000
  Avg. interest rate                         (1)      (1)         (1)         (1)       (1)          --
Interest rate derivative financial
  instruments related to debt
Interest rate swaps
  Pay fixed/receive variable
    notional amount                          --       --      40,000          --        --           --       40,000         (652)
  Avg. pay rate                            4.16%    4.16%       4.16%         --        --           --
  Avg. receive rate                          (2)      (2)         (2)         --        --           --
Interest rate caps
  Notional amount                            --       --     148,172          --        --           --      148,172            5
  Strike rate                                --       --         8.7%         --        --           --
</TABLE>

(1)   Average variable interest rate is equivalent to the Fannie Mae MBS
      pass-through rate plus 49 basis points.

(2)   Average receive rate is equivalent to LIBOR.


                                       21
<PAGE>

At December 31, 2003, the Company had fixed rate debt outstanding of
$450,543,000, which had a fair value of $492,225,000.

The Company's primary market risk exposure relates to changes in interest rates
associated with the variable rate portion of its secured credit facility and its
bank line of credit. The Company had $2 million in variable rate debt
outstanding at December 31, 2004, excluding amounts on which the interest rates
are effectively fixed by floating to fix interest rate swap agreements. A
hypothetical 100 basis point increase in interest rates in 2005 over the rates
in effect during 2004 would result in an increase of interest expense and a
corresponding decrease in income before discontinued operations and minority
interest of approximately $20,000. This estimate incorporates only those
exposures that exist as of December 31, 2004 and does not consider exposures
that could arise after that date.

The Company uses interest rate protection agreements to reduce the potential
impact of increases in interest rates as required by its secured credit
facility. The Company maintains two interest rate protection agreements for $139
million and $49.2 million, capping the Company's exposure to LIBOR at 9.35% and
7.5%, respectively, through March 2007. In addition, the Company executed two
$20 million floating to fixed interest rate swaps to effectively fix the
interest rate on $40 million of floating rate debt under the secured credit
facility at a blended rate of approximately 4.67%. The Company simultaneously
sold two $20 million interest rate caps, capping the Company's exposure to LIBOR
at 9.35%. These interest rate protection agreements hedge interest payments
consistent with the Company's risk management objective and strategy to reduce
exposure to variability in cash flows attributable to increases in LIBOR.

Debt agreements typically contain representations and financial or other
covenants that must be adhered to in order for a borrower to avoid default on
the agreement. The Company monitors its compliance with the covenants set forth
in its debt agreements and does not believe that it will breach any of them in
the ordinary course of business. A breach of a material covenant would normally
result in the inability of the Company to maintain funds available until such
breach is remedied or would allow the lender to require the Company to repay the
debt obligation.

The Company has an effective shelf registration statement on file with the SEC
that provides for the issuance of up to $75 million in securities. The Company
believes that it is prudent to maintain shelf registration capacity in order to
facilitate future capital raising activities. In February 2004, the Company sold
1,410,000 of its common shares pursuant to its shelf registration in a private
sale at a negotiated price of $24.80 per share. After the sale, approximately
$40 million in securities remains available under the shelf registration
statement. The net proceeds of approximately $34.7 million from the sale, along
with the proceeds of the debt offering in August 2003, were used to pay down
floating rate debt.

Management believes that the Company has and will have access to the capital
resources necessary to adequately fund its business. At December 31, 2004, the
Company had $945,000 in cash and cash equivalents and $8 million available under
its working capital line of credit. The Company also had $148.2 million in
unused capacity on its secured credit facility which it intends to use primarily
to fund acquisitions as well as its on-going capital improvements program. In
addition, another $40 million is available for acquisitions on its bank line of
credit. The Company expects that adequate cash will be available to fund its
operating and administrative expenses, normal capital expenditures, debt service
obligations and payments of dividends in the foreseeable future.

The Company believes that the direct effects of inflation upon its operations
are immaterial. Substantially all of its apartment unit leases are for a term of
one year or less, which enables the Company to seek increased rents upon renewal
or reletting of apartment units. Such short-term leases minimize the risk of the
adverse effects of inflation; however, as a general rule, such leases permit
tenants to leave at the end of the lease term without penalty.


                                       22
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information in response to this Item is set forth under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Recourses" included in Item 7 of this Form
10-K and is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(a)  FINANCIAL STATEMENTS

Consolidated Balance Sheets

<TABLE>
<CAPTION>
(In thousands, except share data) / December 31,                       2004          2003
                                                                   -----------   -----------
<S>                                                                <C>           <C>
ASSETS

Real estate held for investment:
  Land                                                             $   103,325   $   103,325
  Buildings and improvements                                           708,175       701,518
  Other                                                                  3,818         4,292
                                                                   -----------   -----------
                                                                       815,318       809,135
Less accumulated depreciation                                          271,984       273,383
                                                                   -----------   -----------
                                                                       543,334       535,752
Real estate and other assets held for disposition                           --        32,561
Cash and cash equivalents                                                  945         2,267
Restricted cash                                                          2,390         2,415
Deferred financing costs, net                                            5,647         6,628
Other assets                                                             9,768         9,367
                                                                   -----------   -----------
  Total assets                                                     $   562,084   $   588,990
                                                                   ===========   ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

Mortgage notes payable                                             $   415,132   $   427,318
5.375% Convertible Senior Notes                                         74,750        74,750
Mortgage notes payable and other liabilities held for disposition           --        23,734
Notes payable                                                            2,000            --
Accrued interest                                                         4,029         4,021
Accounts payable and other liabilities                                   9,537         9,157
Security deposits                                                        3,327         3,092
Minority interest                                                        6,592         7,556
                                                                   -----------   -----------
  Total liabilities                                                    515,367       549,628
Shareholders' equity:
  Common shares of beneficial interest ($0.01 par value),
    500,000,000 shares authorized, 17,479,576 and
    15,858,619 issued and outstanding at December 31, 2004
    and 2003, respectively                                                 175           159
Additional paid-in capital                                             351,727       316,926
Distributions in excess of accumulated earnings                       (300,372)     (272,370)
Deferred compensation - restricted stock                                (3,799)       (3,299)
Accumulated other comprehensive loss                                    (1,014)       (2,054)
                                                                   -----------   -----------
   Total shareholders' equity                                           46,717        39,362
                                                                   -----------   -----------
Total liabilities and shareholders' equity                         $   562,084   $   588,990
                                                                   ===========   ===========
</TABLE>

See accompanying notes.




                                       23

<PAGE>

Consolidated Statements of Operations

<TABLE>
<CAPTION>
(In thousands, except per share data) / Year ended December 31,          2004             2003             2002
                                                                       ---------        ---------        ---------
<S>                                                                    <C>              <C>              <C>
REVENUES:
Rental income                                                          $ 126,975        $ 118,017        $ 110,232

EXPENSES:

Operating expenses:
    Real estate taxes and insurance                                       13,230           12,647           10,945
    Utilities                                                              7,463            7,181            6,360
    Repairs and maintenance                                               15,877           14,664           12,898
    Marketing and advertising                                              4,880            4,172            3,964
    Management expense                                                     6,765            6,619            6,018
    Other                                                                  5,495            5,387            4,793
                                                                       ---------        ---------        ---------
    Total operating expenses                                              53,710           50,670           44,978
Real estate depreciation                                                  28,859           20,675           17,797
Interest expense                                                          32,969           28,785           25,216
General and administrative                                                 5,866            4,744            4,595
Other depreciation and amortization                                        1,224              712              686
Separation expense                                                         1,533               --               --
                                                                       ---------        ---------        ---------
                                                                         124,161          105,586           93,272
                                                                       ---------        ---------        ---------
Income before discontinued operations and minority interest                2,814           12,431           16,960
Income allocated to minority interest from continuing operations            (364)          (1,681)          (2,269)
Minority interest distribution less than (in excess of) earnings              --              576             (576)
                                                                       ---------        ---------        ---------
Income from continuing operations                                          2,450           11,326           14,115
                                                                       ---------        ---------        ---------
Discontinued operations:
    Income from discontinued operations                                      918            2,054            3,669
    Gain on sales of properties                                               --           80,081               --
    Impairment of assets held for disposition                             (1,672)          (4,000)              --
    Loss (income) allocated to minority interest from
      discontinued operations                                                100          (10,693)            (492)
                                                                       ---------        ---------        ---------
    (Loss) income from discontinued operations                              (654)          67,442            3,177
                                                                       ---------        ---------        ---------
Net income                                                             $   1,796        $  78,768        $  17,292
                                                                       =========        =========        =========
Basic earnings per share:
    Income from continuing operations                                  $     .15        $     .72        $     .88
    (Loss) income from discontinued operations                              (.04)            4.27              .20
                                                                       ---------        ---------        ---------
    Net income                                                         $     .11        $    4.99        $    1.08
                                                                       =========        =========        =========
Diluted earnings per share:
Income from continuing operations                                      $     .14        $     .70        $     .87
(Loss) income from discontinued operations                                  (.04)            4.20              .20
                                                                       ---------        ---------        ---------
Net income                                                             $     .10        $    4.90        $    1.07
                                                                       =========        =========        =========
Weighted average common shares outstanding - basic                        16,896           15,773           15,961
Dilutive effect of outstanding options, restricted shares and
    convertible debt                                                         278              298              253
                                                                       ---------        ---------        ---------
Weighted average common shares outstanding - diluted                      17,174           16,071           16,214
                                                                       ==========       =========        =========
Dividends declared and paid per share outstanding                      $    1.72        $    1.72        $    1.72
                                                                       =========        =========        =========
</TABLE>

See accompanying notes.


                                       24
<PAGE>

Consolidated Statements of Shareholders' Equity(Deficit)

<TABLE>
<CAPTION>
                                           Common Shares
                                           of Beneficial                 Distributions
                                             Interest        Additional  in Excess of                    Other
                                        ------------------    Paid-In     Accumulated     Deferred    Comprehensive
(In thousands, except per share data)   Shares    Amount      Capital      Earnings     Compensation      Loss           Total
-------------------------------------   ------   ---------   ----------  -------------  ------------  -------------    ---------
<S>                                     <C>      <C>         <C>         <C>            <C>           <C>              <C>
Balance at January 1, 2002              16,088   $     161   $ 324,193     $(312,892)    $  (1,970)      $      --     $   9,492
Comprehensive income:
  Net income                                --          --          --        17,292            --              --        17,292
  Unrealized loss on derivative
   financial instruments                    --          --          --            --            --          (2,024)       (2,024)
                                        ------   ---------   ---------     ---------     ---------       ---------     ---------
Comprehensive Income                        --          --          --        17,292            --          (2,024)       15,268
Dividends declared ($1.72 per share)        --          --          --       (27,941)           --              --       (27,941)
Amortization of deferred compensation       --          --          --            --           597              --           597
Share options exercised, net of 22
  shares surrendered                       138           1       1,878            --            --              --         1,879
Issuance of restricted share awards,
  net of 45 shares surrendered              31           1         677            --        (1,624)             --          (946)
Issuance of common shares through
  Dividend Reinvestment and
  Share Purchase Plan                        2          --          41            --            --              --            41
                                        ------   ---------   ---------     ---------     ---------       ---------     ---------
Balance at December 31, 2002            16,259         163     326,789      (323,541)       (2,997)         (2,024)       (1,610)
Comprehensive income:
  Net income                                --          --          --        78,768            --              --        78,768
  Unrealized loss on derivative
    financial instruments                   --          --          --            --            --             (30)          (30)
                                        ------   ---------   ---------     ---------     ---------       ---------     ---------
Comprehensive Income                        --          --          --        78,768            --             (30)       78,738
Dividends declared ($1.72 per share)        --          --          --       (27,597)           --              --       (27,597)
Amortization of deferred compensation       --          --          --            --           738              --           738
Share options exercised                     52          --         709            --            --              --           709
Issuance of restricted share awards,
  net of 4 shares surrendered               51           1       1,035            --        (1,040)             --            (4)
Issuance of common shares through
  Dividend Reinvestment and
  Share Purchase Plan                      144           1       3,386            --            --              --         3,387
Repurchase of common shares of
  beneficial interest                     (647)         (6)    (14,993)           --            --              --       (14,999)
                                        ------   ---------   ---------     ---------     ---------       ---------     ---------
Balance at December 31, 2003            15,859         159     316,926      (272,370)       (3,299)         (2,054)       39,362
Comprehensive income:
  Net income                                --          --          --         1,796            --              --         1,796
  Unrealized gain on derivative
    financial instruments                   --          --          --            --            --           1,040         1,040
                                        ------   ---------   ---------     ---------     ---------       ---------     ---------
Comprehensive Income                        --          --          --         1,796            --           1,040         2,836
Dividends declared ($1.72 per share)        --          --          --       (29,798)           --              --       (29,798)
Amortization of deferred compensation       --          --          --            --           897              --           897
Share options exercised, net of 184
  shares surrendered                       158           1       1,498            --            --              --         1,499
Issuance of restricted share awards,
  net of 29 shares surrendered              46           1       1,413            --        (1,397)             --            17
Issuance of common shares through
  Dividend Reinvestment and
  Share Purchase Plan                        7          --         174            --            --              --           174
Issuance of common shares                1,410          14      34,731            --            --              --        34,745
Adjustment to minority interest from
  change in ownership in TCOLP              --          --      (3,015)           --            --              --        (3,015)
                                        ------   ---------   ---------     ---------     ---------       ---------     ---------
Balance at December 31, 2004            17,480   $     175   $ 351,727     $(300,372)    $  (3,799)      $  (1,014)    $  46,717
                                        ======   =========   =========     =========     =========       =========     =========
</TABLE>

See accompanying notes.


                                       25
<PAGE>

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
          (In thousands) / Year ended December 31,                        2004             2003             2002
-----------------------------------------------------------             ---------        ---------        ---------
<S>                                                                     <C>              <C>              <C>
OPERATING ACTIVITIES

Net income                                                              $   1,796        $  78,768        $  17,292
Adjustments to reconcile net income to net cash provided by
  operating activities:
    Depreciation and amortization                                          31,303           22,442           19,122
    Depreciation and amortization from discontinued operations                 12            2,606            3,461
    Income allocated to minority interest                                     264           11,798            3,337
    Amortization of deferred compensation                                     897              738              597
    Gain on sales of properties                                                --          (80,081)              --
    Impairment on assets held for disposition                               1,672            4,000               --
    Changes in operating assets and liabilities:
      Decrease (increase) in restricted cash                                   25              245             (200)
      Decrease (increase) in other assets                                     174             (530)           1,074
      Increase (decrease) in accounts payable, other liabilities,
        accrued interest and security deposits                              1,403            3,121           (1,808)
                                                                        ---------        ---------        ---------
Net cash provided by operating activities                                  37,546           43,107           42,875

INVESTING ACTIVITIES

Acquisitions of operating properties                                           --         (117,435)              --
Net proceeds from disposition of properties                                31,072          117,209               --
Capital expenditures, net                                                 (38,614)         (30,359)         (25,615)
                                                                        ---------        ---------        ---------
Net cash used in investing activities                                      (7,542)         (30,585)         (25,615)

FINANCING ACTIVITIES

Net (payments) borrowings on mortgage notes payable                       (35,661)         (41,224)          32,613
Net borrowings (payments) on notes payable - unsecured                      2,000               --          (16,000)
Proceeds from issuance of Convertible Senior Notes                             --           74,750               --
Payment of financing costs                                                    (60)          (3,676)          (1,715)
Proceeds from issuance of shares under dividend reinvestment plan             174            3,387               41
Proceeds from exercise of share options                                     1,516              705              933
Issuance of common shares                                                  34,745               --               --
Repurchase of common shares of beneficial interest                             --          (14,999)              --
Dividends paid to shareholders                                            (29,798)         (27,597)         (27,941)
Distributions to minority interest holders                                 (4,242)          (4,242)          (4,242)
                                                                        ---------        ---------        ---------
Net cash used in financing activities                                     (31,326)         (12,896)         (16,311)
                                                                        ---------        ---------        ---------
(Decrease) increase in cash and cash equivalents                           (1,322)            (374)             949
Cash and cash equivalents at beginning of year                              2,267            2,641            1,692
                                                                        ---------        ---------        ---------
Cash and cash equivalents at end of year                                $     945        $   2,267        $   2,641
                                                                        =========        =========        =========
Cash interest paid                                                      $  32,082        $  29,074        $  28,814
                                                                        =========        =========        =========
</TABLE>

See accompanying notes.


                                       26
<PAGE>

Notes to Consolidated Financial Statements

NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION The Town and Country Trust (the "Company"), a Maryland real estate
investment trust, is a self-administered and self-managed real estate investment
trust ("REIT") organized in 1993 to own and operate a portfolio of multifamily
residential properties. The Company conducts all of its business and owns all of
its properties through The TC Operating Limited Partnership ("TCOLP"). At
December 31, 2004, the Company owned 13,065 apartment homes in 38 apartment
communities in selected markets in the Mid-Atlantic and Southeast.

PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant
intercompany transactions and accounts have been eliminated.

REAL ESTATE ASSETS, DEPRECIATION AND IMPAIRMENT Real estate assets held for
investment are carried at historical cost, less accumulated depreciation.
Expenditures for repairs and maintenance are expensed as incurred. Significant
expenditures for improvements, renovations and replacements are capitalized.

The Company accounts for the acquisitions of real estate in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, utilizing the purchase method and includes the results of the
acquisition properties in the Company's results of operations from the date of
acquisition. The Company allocates the purchase price to the acquired tangibles,
consisting of land, building and improvements, and, if material, identified
intangible assets and liabilities consisting of above/below market leases and
at-market leases in place based on their fair values.

If there is an event or change in circumstance that indicates an impairment in
the value of an apartment community has occurred, the Company's policy is to
assess any impairment in value by comparing the current and estimated future
undiscounted operating cash flows of the community over its remaining useful
life to the carrying amount of the asset. If such carrying amounts exceed the
estimated projected operating cash flows of the community, the Company would
recognize an impairment loss equal to the amount necessary to adjust the
carrying amount of the asset to its estimated fair market value. The Company did
not recognize any impairment losses in 2004, 2003 or 2002 on any of its
properties held for investment. However, as discussed in Note 4, the Company
recognized an impairment loss in 2004 and 2003 related to properties sold during
2004.

Depreciation is computed on a straight-line basis over the estimated useful
lives of the related assets which are 27 1/2 to 40 years for buildings, 15 to 20
years for major improvements and 3 to 12 years for furniture, fixtures and
equipment. Intangible assets relating to the value of in-place leases for
community acquisitions are amortized over the remaining term of the tenant
leases. Depreciation expense was $30,083,000, $21,387,000 and $18,483,000 for
2004, 2003 and 2002, respectively, including amortization expense for in-place
leases of $217,000 and $472,000 in 2004 and 2003, respectively.

During the year ended December 31, 2004, the Company revised the estimated
useful life on certain depreciable assets, principally carpet, to more closely
approximate their current economic lives based upon the Company's capital
improvement and renovation plans. Consequently, the Company recorded an
additional depreciation charge of $6,493,000.

DISCONTINUED OPERATIONS On January 1, 2002, the Company adopted SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, which requires
that the assets and liabilities and the results of operations of any communities
which have been sold since January 1, 2002, or otherwise qualify as held for
sale, be presented as discontinued operations in the Company's Consolidated
Financial Statements in both current and prior periods presented. The community
specific components of net income that are presented as discontinued operations
include net operating income, depreciation expense, minority interest and
interest expense. In addition, the net gain or loss (including any impairment
charge) on the disposition of communities held for sale is presented as
discontinued operations. A change in presentation for discontinued operations
will not have any impact on the Company's financial conditions or results of
operations. Real estate assets held for sale are measured at the lower of the
carrying amount or the fair value less costs to sell, and are presented
separately in the accompanying Consolidated Balance Sheet. Subsequent to
classification of a community as held for sale, no further depreciation is
recorded on the assets.

CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.


                                       27
<PAGE>


DEFERRED FINANCING COSTS Deferred financing costs include certain fees and other
external costs incurred in connection with debt financings and are amortized to
interest expense using the straight-line method, which approximates the
effective interest method, over the term of the related debt. Deferred financing
costs at December 31, 2004 and 2003 are presented net of accumulated
amortization of $4,392,000 and $3,272,000, respectively. Amortization of
deferred financing costs are included in interest expense and totaled
$1,220,000, $1,055,000 and $638,000, during 2004, 2003 and 2002, respectively.

INTEREST RATE RISK MANAGEMENT SFAS No. 133, Accounting for Certain Derivative
Instruments and Hedging Activities, as amended, establishes accounting and
reporting standards requiring all derivative financial instruments to be carried
in the balance sheet as either an asset or liability measured at its fair value.
The accounting for changes in the fair value of a derivative instrument depends
on whether it has been designated and qualifies as part of a hedging
relationship and on the type of hedge transaction. For derivative financial
instruments that qualify as cash flow hedges, changes in fair value of the
derivative instrument are reported as a component of other comprehensive income
with a corresponding offset to other assets and reclassified into earnings
during the same period or periods during which the hedged transaction affects
earnings. For hedges where a change in the fair value of the derivative exceeds
the change in the fair value of the hedged item or the notional amount of the
hedge exceeds the expected proceeds under the debt agreements, the ineffective
portion, if any, is recognized in other income/expense in current period
earnings. The Company uses derivative financial instruments in the normal course
of business to limit its exposure to fluctuations in interest rates. The Company
does not enter into derivative instruments for speculative purposes.

To manage interest rate risk, the Company may employ interest rate swaps, caps
and floors, options, forwards or a combination thereof, depending on the
underlying exposure. Interest rate swaps and collars are contractual agreements
between the Company and third parties to exchange fixed and floating interest
payments periodically without the exchange of the underlying principal amounts
(notional amounts). In the unlikely event that a counterparty fails to meet the
terms of an interest rate swap contract or collar agreement, the Company's
exposure would be limited to the interest rate differential on the notional
amount. The Company does not anticipate non-performance by any of its
counterparties. Net interest differentials to be paid or received under a swap
contract and/or collar agreement are accrued as interest expense as incurred or
earned.

REVENUE RECOGNITION Revenues from rental property are recognized on a
straight-line basis over the term of the lease. Leases are generally for terms
of one year or less.

REAL ESTATE SALES Gains on sales of real estate assets are recognized pursuant
to the provisions of SFAS No. 66, Accounting for Sales of Real Estate. The
specific timing of the recognition of the sale and the related gain are measured
against the various criteria in SFAS No. 66 related to the terms of the
transactions and any continuing involvement associated with the assets sold. To
the extent the sales criteria are not met, the Company defers gain recognition
until the sales criteria are met.

ADVERTISING AND PROMOTION COSTS Advertising and promotion costs are expensed as
incurred. Total advertising and promotion expense for each of the years ended
December 31, 2004, 2003 and 2002 was $1,167,000, $1,110,000 and $1,171,000,
respectively.

EARNINGS PER COMMON SHARE Basic earnings per common share is computed based upon
the weighted average number of common shares outstanding during the year.
Diluted earnings per common share is computed based upon common shares
outstanding plus the effect of dilutive stock options and other potentially
dilutive common stock equivalents. The dilutive effect of stock options and
other potentially dilutive common stock equivalents is determined using the
treasury stock method based on the Company's average stock price. The Company
adopted Emerging Issues Task Force Issue No. 04-8, "The Effect of Contingently
Convertible Instruments on Diluted Earnings per Share."Issue No. 04-8 requires
convertible debt or preferred stock to be included in diluted earnings per share
computations if only one or more specified contingencies are required to occur,
such as the underlying common stock achieving a specified price target,
regardless of whether the market price trigger has been met. The adoption of
this new pronouncement had no impact on the Company's diluted earnings per share
for any year presented as the effect was anti-dilutive to earnings per share
from continuing operations.

MINORITY INTEREST Minority interest is comprised of TCOLP common units that are
not held by the Company. Minority interest is increased and decreased,
respectively, for income and loss as well as distributions allocated to units
held by outside interests. Periodically, the Company raises additional equity
through the issuance of common shares and contributes the proceeds


                                       28
<PAGE>

to TCOLP for an equivalent number of common units. The Company records
adjustments to minority interest and shareholders' equity to reflect the
Company's increased ownership in TCOLP.

As of December 31, 2004 and 2003, there were 2,466,535 common units of TCOLP
that were not held by the Company, which represented 12.37% and 13.46% of the
units in TCOLP, respectively. These units are exchangeable by the holders, at
the Company's option, for either cash or common shares on a one-for-one basis.
This exchange right has not been considered in the computation of per share
data, as it does not have a dilutive effect.

USE OF ESTIMATES The Company's financial statements have been prepared in
accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). The
preparation of these financial statements requires the Company to make estimates
and judgments that affect the reported amounts of assets, liabilities, equity,
revenues and expenses. The Company bases its estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions.

STOCK BASED COMPENSATION In December 2004, the Financial Accounting Standards
Board (FASB) issued a revision to SFAS No. 123 (revised 2004), Share Based
Payment ("Statement No.123(R)"). Statement No.123(R) requires all share-based
payments to employees, including grants of employee stock options, to be
recorded as an expense based on their fair values. The grant-date fair value of
employee share options and similar instruments will be estimated using an
option-pricing model adjusted for any unique characteristics of a particular
instrument. If an equity award is modified after the grant date, incremental
compensation cost will be recognized in an amount equal to the excess of the
fair value of the modified award over the fair value of the original award
immediately before the modification. The Company will adopt the provisions of
FAS 123R during the third quarter 2005. The adoption of this new standard will
not have a material effect on the financial position or financial results of the
Company.

RECLASSIFICATIONS Certain previously reported amounts have been reclassified to
conform to the current presentation.

NOTE  2. RESTRICTED CASH

The Company maintains certificates of deposit, all with initial maturities of
three months or less, to cover the aggregate amount of resident security
deposits retained by the respective communities in certain states.

NOTE  3. REAL ESTATE

The following is a reconciliation of the carrying amount of real estate held for
investment:

<TABLE>
<CAPTION>
(In thousands)                        2004         2003
--------------                     ---------     --------
<S>                                <C>           <C>
Balance at January 1               $ 809,135     $665,998
Real estate purchased                     --      117,435
Improvements                          36,562       26,146
Real estate disposed/retired         (30,379)        (444)
                                   ---------     --------
Balance at December 31             $ 815,318     $809,135
                                   =========     ========
</TABLE>


                                       29
<PAGE>

The Company's operating properties are located in the Mid-Atlantic region and in
Florida. The following is a summarization of the cost, accumulated depreciation
and indebtedness of the Company's real estate held for investment by operating
market.

<TABLE>
<CAPTION>
                                    Number of    Carrying     Accumulated    Net Carrying
(In thousands)                     Communities   Value(1)     Depreciation       Value      Encumbrances(2)
--------------                     -----------  ---------     ------------   ------------   ---------------
<S>                                <C>          <C>           <C>            <C>            <C>
Baltimore                             12        $ 300,445      $ 116,161      $ 184,284        $ 144,432
Metropolitan Washington, D.C.
  Northern Virginia                    6          192,225         49,881        142,344           96,254
  Maryland Suburbs                     4           65,025         30,850         34,175           41,650
Newark, Delaware                       2           30,164          8,239         21,925           16,320
Pennsylvania                           7           85,388         48,029         37,359           35,904
Orlando, Florida                       3           62,915          8,918         53,997           34,207
Sarasota/ Bradenton, Florida           3           44,001          5,656         38,345           22,890
Palm Beach Gardens, Florida            1           35,155          4,250         30,905           23,475
                                      --        ---------      ---------      ---------        ---------
                                      38        $ 815,318      $ 271,984      $ 543,334        $ 415,132
                                      ==        =========      =========      =========        =========
</TABLE>

(1)Carrying value consists of initial acquisition costs plus improvements
subsequent to acquisition.

(2)32 properties are cross-collateralized with $340 million outstanding at
December 31, 2004 under the Company's existing credit facility.

During 2003, the Company acquired two apartment communities in Baltimore,
Maryland and another apartment community in Herndon, Virginia containing a total
of 733 apartment homes, for approximately $117.4 million, including acquisition
costs. The acquisitions were initially funded using the Company's existing
credit facilities and the Company's Convertible Senior Notes (see Note 6). The
properties were acquired as part of like-kind exchanges under Section 1031 of
the Internal Revenue Code (see Note 4).

The Company accounted for the acquisitions utilizing the purchase method, and
accordingly, the results of the acquisition properties are included in the
Company's results of operations from the date of acquisition. The Company
allocated the purchase price to the acquired tangibles, consisting of land,
building and improvements, and, if material, identified intangible assets and
liabilities consisting of above/below market leases and at-market leases in
place based on their fair values, as follows (in thousands):

<TABLE>
<S>                                    <C>
Land                                   $    12,804
Building and improvements                  103,796
Other                                          835
                                       -----------
Total                                  $   117,435
                                       ===========
</TABLE>

The following unaudited pro forma results of operations of the Company reflect
the acquisition of the three apartment communities as if these transactions had
occurred on January 1, 2003, and 2002. Results for 2004 include these three
properties for the entire year.

<TABLE>
<CAPTION>
(In thousands, except per share data)              2003         2002
-------------------------------------           ----------    ---------
<S>                                             <C>           <C>
Revenues                                        $  123,737    $ 121,668
Net income                                      $   78,619    $  16,823
Income per share - basic                        $     4.98    $    1.05
Income per share - diluted                      $     4.89    $    1.04
</TABLE>

NOTE 4. DISCONTINUED OPERATIONS

At December 31, 2003, the Company's two Charlotte communities were classified as
held for disposition in the accompanying balance sheet as the Company made the
strategic decision to exit the Charlotte, North Carolina market. The communities
were sold during 2004 for net proceeds of approximately $31.1 million. Based on
the carrying value of each community and the


                                       30
<PAGE>

related net sales proceeds, the Company recorded impairment charges totaling
approximately $1,672,000 during 2004 and $4,000,000 during 2003. During 2004,
the Company also recorded a $558,000 gain on involuntary conversion relating to
insurance proceeds received related to fires at two of the communities sold in
2003. During 2003, the Company sold five apartment communities containing 2,325
units for $117.2 million resulting in a gain on sales of $80.1 million. The 2003
sales were structured to qualify as like-kind exchanges for the three acquired
properties discussed in Note 2.

The results of operations for these seven properties are classified on the
Consolidated Statements of Operations as, "Discontinued Operations". The assets
and liabilities of the two properties held for sale at December 31, 2003 are
included in "Real estate and other assets held for disposition" and "Mortgage
notes payable and other liabilities held for disposition" on the Company's
Consolidated Balance Sheets. Unaudited condensed summary results of operations
of the seven apartment communities is as follows:

<TABLE>
<CAPTION>
(In thousands)                                 2004         2003           2002
--------------                              ---------    ----------     -----------
<S>                                         <C>          <C>            <C>
Rental income                               $   2,118    $   15,132     $    20,186
Operating expenses                              1,289         7,475           8,759
Real estate depreciation                           --         2,500           3,356
Interest expense                                  469         3,724           4,402
Gain on involuntary conversion                    558           621              --
                                            ---------    ----------     -----------
Income from discontinued operations         $     918    $    2,054     $     3,669
                                            =========    ==========     ===========
</TABLE>

At December 31, 2004, there are no assets and liabilities held for disposition.
Assets and liabilities of the apartment communities held for disposition at
December 31, 2003 consisted of the following:

<TABLE>
<CAPTION>
(In thousands)                                                        2003
--------------                                                      ---------
<S>                                                                 <C>
Land                                                                $   6,032
Building and improvements                                              32,901
Other                                                                      78
Accumulated depreciation                                               (6,694)
Other assets                                                              244
                                                                    ---------
Real estate and other assets held for disposition                   $  32,561
                                                                    =========
Mortgage notes payable                                              $  23,475
Other liabilities                                                         259
                                                                    ---------
Mortgage notes payable and other liabilities held for disposition   $  23,734
                                                                    =========
</TABLE>

NOTE 5. MORTGAGE NOTES PAYABLE AND NOTES PAYABLE

The Company has a credit facility with Fannie Mae of $488.2 million. This
secured facility matures in 2008. At December 31, 2004, outstanding borrowings
under the facility were $340 million. Of the $340 million, $300 million bears
interest at a fixed rate of 6.91%. The remaining $40 million outstanding has a
weighted-average variable rate of 2.43% at December 31, 2004 and can be
converted to a fixed-rate term loan at the Company's option. The Company is
party to floating-to-fixed interest rate swaps that effectively fix the interest
rate on this $40 million of floating rate debt, changing the weighted average
rate at December 31, 2004 to 4.67%.

Total outstanding borrowings under the facility at December 31, 2003 were
$375,000,000. Of the $375,000,000, $300,000,000 bears interest at a fixed rate
of 6.91%. The remaining $75,000,000 was outstanding at a weighted-average
variable rate of 1.81% at December 31, 2003. After giving effect to the interest
rate swaps, the weighted average interest rate on the $75,000,000 was 3.40%.

The Company has a $50 million bank line of credit. Advances under the line bear
interest at 120 basis points over LIBOR and are due on demand. Up to $10 million
of the line may be used for working capital purposes and $40 million may be used
to fund acquisitions. This line of credit matures in October 2005. The Company
has the option to extend the line through


                                       31
<PAGE>

October 2007. As of December 31, 2004, $2,000,000 was outstanding under the
line. At December 31, 2003, no amounts were outstanding under the line.

The Company uses interest rate protection agreements to reduce the potential
impact of increases in interest rates as required by the loan agreement covering
its secured credit facility. The Company maintains two interest rate protection
agreements for $139 million and $49.2 million, capping the Company's exposure to
LIBOR at 9.35% and 7.5%, respectively, through March 2007. In addition, the
Company executed two $20 million floating-to-fixed interest rate swaps to
effectively fix the interest rate on $40 million of floating rate debt under the
secured facility at a blended rate of approximately 4.67%. The Company
simultaneously sold two $20 million interest rate caps, capping LIBOR at 9.35%.
These interest rate protection agreements hedge interest payments consistent
with the Company's risk management objective and strategy to reduce exposure to
variability in cash flows attributable to increases in LIBOR.

The Company also has mortgages that were obtained in connection with the
purchase or refinancing of certain properties. Information concerning these
mortgages is summarized below:

<TABLE>
<CAPTION>
                                                                 Balance at December 31,
                                                               --------------------------
Type                            Interest Rate      Maturity       2004           2003
----                            -------------      --------    -----------   ------------
<S>                             <C>                <C>         <C>           <C>
Amortizing                       4.11%-4.18%         2007      $24,507,000   $24,950,000
Non-amortizing                         6.81%         2009      $33,175,000   $33,175,000*
Amortizing                             7.85%         2009      $17,450,000   $17,668,000
</TABLE>

* Includes, in 2003, $23,475,000 of mortgage debt allocated to properties held
for disposition.

All of the Company's 38 properties are secured by first and/or second priority
mortgages. In connection with the mortgages, the Company maintains annually
renewable bank letters of credit totaling $6,700,000 in lieu of maintaining real
estate tax escrow deposits. Certain loan agreements contain restrictive
covenants relating to the maintenance of specified financial performance ratios.
As of December 31, 2004, the Company was in compliance with these covenants.

      The following is a summary of scheduled debt maturities that includes the
Company's mortgage notes payable, notes payable and Convertible Senior Notes
(see Note 6):

<TABLE>
<CAPTION>
(In thousands)
--------------
<S>                                      <C>
2005                                     $    2,697
2006                                            736
2007                                         23,841
2008                                        340,298
2009                                         49,560
Thereafter                                   74,750
                                         ----------
Total scheduled debt maturities          $  491,882
                                         ==========
</TABLE>

NOTE 6. 5.375% CONVERTIBLE SENIOR NOTES

The Company has $74.75 million aggregate principal amount of 5.375% Convertible
Senior Notes outstanding. The notes mature on August 15, 2023 and are
convertible into the Company's common shares under certain circumstances,
provided that the share price exceeds $30.61 for a specified period of time. The
initial conversion rate of the notes is 39.20185 shares per $1,000 principal
amount of notes (equivalent to $25.51 per share). The conversion rate will be
adjusted under certain circumstances, including stock splits, stock dividends
and increases in the dividend rate over the current quarterly rate of $.43 per
share. The shares would be considered in diluted earnings per share if the
effect of including the conversion of debt were dilutive to earnings per share
from continuing operations. The notes are redeemable at the Company's option for
shares or cash at any time on or after August 21, 2010 and are subject to
repurchase at the option of the holder on August 15, 2008, August 15, 2010,
August 15, 2013 and August 15, 2018, or upon the occurrence of certain events.
The notes are unsecured and unsubordinated obligations of the Company.
Concurrent with the offering in 2003, the Company used approximately $15.0
million of the proceeds to purchase and retire 646,800 of its common shares
($23.19 per share) in privately negotiated transactions.

                                       32
<PAGE>

NOTE 7. INCOME TAXES

Since its inception, the Company has elected to be taxed as a real estate
investment trust ("REIT") under Sections 856 through 860 of the Internal Revenue
Code. As a REIT, the Company generally is not subject to Federal income taxes
provided that it meets certain conditions, including the requirement that it
distributes at least 90% of its REIT taxable income to its shareholders.
Management believes that the Company has qualified as a REIT for all years
presented. Accordingly, no provision has been made for Federal income taxes.
Although the Company qualifies for taxation as a REIT, it may be subject to
certain state and local taxes on its income and property, and to Federal income
and excise taxes on its undistributed income, if any.

TCOLP makes a number of special allocations for tax purposes only. In general,
100% of the interest deductions related to $232,000,000 of borrowings are
allocated to the Trust and 85% of depreciation deductions related to certain
communities are allocated to the minority interest ownership.

The following table reconciles GAAP net income to Federal taxable income for the
years ended December 31, 2004, 2003 and 2002:

<TABLE>
<CAPTION>
(In thousands, unaudited)                                     2004       2003       2002
---------------------------------------------------------   --------   --------   --------
<S>                                                         <C>        <C>        <C>
GAAP net income                                             $  1,796   $ 78,768   $ 17,292
Book/tax depreciation and amortization difference              5,682        404       (272)
Book/tax gain on 1031 tax deferred exchange difference            --    (80,036)        --
Book impairment on property held for disposition/tax loss
  on sale of properties                                       (2,952)     4,000         --
Separation expense, timing differences                         1,344       (406)    (1,982)
Deferred compensation, timing differences                     (2,124)       734     (1,666)
Other operating book/tax differences, net                     (1,263)    (1,417)    (1,219)
Book/tax minority interest allocation difference               5,327     14,925      5,757
                                                            --------   --------   --------
REIT taxable income before dividends                        $  7,810   $ 16,972   $ 17,910
                                                            ========   ========   ========
Dividends paid                                              $ 29,798   $ 27,597   $ 27,941
                                                            ========   ========   ========
</TABLE>

For income tax purposes, dividends to common shareholders consist of ordinary
income and return of capital. For the years ended December 31, 2004, 2003 and
2002, dividends paid per share were taxable as follows:

<TABLE>
<CAPTION>
                               2004                2003                  2002
(Unaudited)              Amount         %    Amount         %    Amount          %
-------------------     --------   -----    --------    -----   --------    -----
<S>                     <C>        <C>      <C>         <C>     <C>         <C>
Ordinary income         $    .48    28.0%   $   1.10     64.2%  $   1.13     65.9%
Return of capital           1.24    72.0%        .62     35.8%       .59     34.1%
                        --------   -----    --------    -----   --------    -----
Total dividend          $   1.72   100.0%   $   1.72    100.0%  $   1.72    100.0%
                        ========   =====    ========    =====   ========    =====
</TABLE>

NOTE 8. SEPARATION EXPENSE

During the fourth quarter of 2004, the Company recorded a charge of
approximately $1.5 million, relating to the departure of two senior executives.
The charge consists primarily of cash payments to be made to the executives
during 2005 and 2006.

NOTE 9. EMPLOYEE BENEFIT PLANS

SHARE OPTION PLANS In 1993, the Company established a long-term incentive plan
for the purpose of attracting and retaining executive officers, other key
employees and non-employee trustees (the "1993 Plan"). The 1993 Plan provides
for the granting of restricted stock and share options (incentive and
non-qualified) to purchase up to 750,000 shares of the Company's common shares
at prices not less than the fair market value at the date of grant. The 1993
Plan expired in May 2003. During 1997, the Company established an additional
long-term incentive plan (the "1997 Plan"). The 1997 Plan provides for the


                                       33
<PAGE>

granting of options to purchase up to 1,200,000 of the Company's common shares
at a price not less than the fair market value at the date of grant.

Under the Plans, options generally become exercisable in equal installments over
a three-year period, commencing with the first anniversary of the date of grant.
All options expire ten years from the date of grant.

A summary of the Company's share option activity during the three years ended
December 31, 2004 is as follows:

<TABLE>
<CAPTION>
                                       Incentive     Non-qualified                           Weighted Average
                                        Options        Options            Option Price        Exercise Price
                                       ---------     -------------     -----------------     ----------------
<S>                                    <C>           <C>               <C>                   <C>
Balance at January 1, 2002               268,334           290,158     $ 13.50 - $ 22.00     $          15.68
Granted                                   96,247           140,753     $ 20.99 - $ 21.30     $          21.29
Exercised                               (102,744)          (57,710)    $ 14.00 - $ 15.25     $          14.78
Forfeited                                   (200)               --     $          15.125     $          15.13
                                       ---------     -------------
Balance at December 31, 2002             261,637           373,201     $ 13.50 - $ 22.00     $          18.00
Granted                                       --             8,000     $           21.28     $          21.28
Exercised                                (39,671)          (12,000)    $ 14.00 - $ 22.00     $          16.04
Forfeited                                (14,589)           (4,000)    $ 14.75 - $ 22.00     $          16.44
                                       ---------     -------------
Balance at December 31, 2003             207,377           365,201     $ 13.50 - $ 21.28     $          18.28
Granted                                       --             8,000     $           25.40     $          25.40
Exercised                                (92,211)         (249,167)    $ 14.00 - $ 21.30     $          17.41
Forfeited                                 (7,895)           (3,639)    $           21.30     $          21.30
                                       ---------     -------------
Balance at December 31, 2004             107,271           120,395     $ 13.50 - $ 25.40     $          19.67
                                       =========     =============
Shares exercisable at December 31:
  2004                                    86,838           101,097     $ 13.50 - $ 25.40     $          19.32
                                       =========     =============
  2003                                   130,548           276,699     $ 13.50 - $ 21.28     $          17.11
                                       =========     =============
  2002                                   138,063           214,441     $ 13.50 - $ 22.00     $          15.66
                                       =========     =============
</TABLE>

An additional 373,034 common shares have been authorized for issuance in future
grants of options under the 1997 Plan as of December 31, 2004. The option price
of future grants may not be less than the fair market value of the shares on the
date of grant.
      Pro forma information regarding net income and earnings per share as
required by SFAS No. 148, which also requires that the information be determined
as if the Company had accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method of that Statement,
is set forth in the table below:

<TABLE>
<CAPTION>
(In thousands, except per share information)                 2004         2003         2002
-------------------------------------------------------     -------     --------     --------
<S>                                                         <C>         <C>          <C>
Net income, as reported                                     $ 1,796     $ 78,768     $ 17,292
Add: Total stock compensation expense included in
  reported net income                                           897          738          597
Less: Total stock based compensation expense determined
  under the fair value method for all awards                   (963)        (812)        (688)
                                                            -------     --------     --------
Pro forma net income                                        $ 1,730     $ 78,694     $ 17,201
                                                            =======     ========     ========
Earnings per share:
  Basic, as reported                                        $   .11     $   4.99     $   1.08
  Basic, pro forma                                          $   .10     $   4.99     $   1.08
  Diluted, as reported                                      $   .10     $   4.90     $   1.07
  Diluted, pro forma                                        $   .10     $   4.90     $   1.06
</TABLE>


                                       34
<PAGE>

For purposes of the pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period.
      The fair value for the options was estimated at the date of grant using
Black-Scholes option valuation model with the following weighted-average
assumptions:

<TABLE>
<CAPTION>
                                              2004     2003     2002
                                              ----     ----     ----
<S>                                           <C>      <C>      <C>
Risk free interest rate                        3.4%     3.0%     4.3%
Dividend yield                                 8.8%     9.3%     8.1%
Volatility factor                              .18      .18      .17
Weighted-average expected life (in years)        5        5        5
</TABLE>

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected share price volatility. Because
the Company's employee share options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee share options.

The weighted average per share fair value of options granted during the years
ended December 31, 2004, 2003 and 2002 was $1.10, $.87 and $1.10, respectively.
The weighted average remaining contractual life of options granted is 6.01
years.

401(k) PLAN The Company has a 401(k) Plan that covers substantially all of its
associates with more than thirty days of service. The 401(k) Plan complies with
Internal Revenue Service requirements as a 401(k) Safe Harbor Plan whereby
discretionary contributions made by the Company are 100% vested. The aggregate
cost of the Company's contributions to the 401(k) Plan was $464,000, $483,000,
and $472,000 for the years ended December 31, 2004, 2003, and 2002,
respectively.

RESTRICTED SHARES From 1995 through 2003, the Company granted 484,000 restricted
common shares to certain officers, pursuant to the 1993 and 1997 Plans. In
February 2004, the Company granted an additional 70,000 restricted shares under
the 1997 Plan. The stock price on the date of grant was $26.83. Under the terms
of the grants issued prior to 2003, the shares become fully vested upon
termination of the officer-shareholder's employment due to (i) retirement from
the Company; (ii) death or disability or (iii) a change of control, as defined
in the Plans. Should an officer-shareholder leave the Company for any other
reason, the restricted shares are subject to forfeiture. Under the terms of the
subsequent grants, the shares generally become vested 20% per year in years four
through eight of the restricted stock agreement. Should the officer-shareholder
leave prior to full vesting, any unvested portion of the grant is subject to
forfeiture. The market value of the shares awarded as of the dates of grant has
been recorded as Unearned Compensation-Restricted Stock and the unamortized
portion ($3,799,000 and $3,299,000 at December 31, 2004 and 2003, respectively)
is reflected in the accompanying Balance Sheet as a separate component of
Shareholders' Equity and is amortized into income as deferred compensation
expense over the estimated vesting period. Such deferred compensation totaled
$897,000, $738,000 and $597,000 for the years ended December 31, 2004, 2003, and
2002, respectively.

SUPPLEMENTAL EMPLOYEES RETIREMENT PLAN The Company has a split-dollar life
insurance plan for certain officers. Through 2003, the Company advanced the
premiums on life insurance policies for certain officers where such advances
were not considered loans under the Sarbanes-Oxley Act of 2002. In 2004, the
Company elected to discontinue paying premiums on all split-dollar policies. The
policies are assigned to the Company. In the event of retirement or death, the
Company will be repaid the aggregate amount of premiums paid from the cash
surrender value at the time the benefits are paid. The remaining value is paid
to the employee or beneficiary. The aggregate premiums advanced under the
policies totaled $447,000 and are recorded as an asset to the Company. As part
of the separation agreement for one of the senior officers, the Company agreed
to defer collection of the amount due until the separated officer reaches the
age of 65 or the policy is surrendered, during which time, the former officer
will pay interest at 4.68% per annum.

                                       35
<PAGE>

NOTE 10. LEASES

The Company leases certain office facilities under noncancellable operating
leases. The lease on the corporate office in Baltimore, Maryland contains
escalating annual payments through December 31, 2014 with two five-year renewal
options. Future minimum rental commitments under noncancellable leases with
remaining terms in excess of one year are as follows at December 31, 2004:

<TABLE>
<CAPTION>
(In thousands)
--------------
<C>                               <C>
2005                              $  622
2006                                 631
2007                                 640
2008                                 650
2009                                 513
Thereafter                         1,993
                                  ------
Total rental commitments          $5,049
                                  ======
</TABLE>

Total rent expense for the years ended December 31, 2004, 2003, and 2002, was
approximately $559,000, $552,000 and $483,000, respectively.

NOTE 11. DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN

The Company maintains a Dividend Reinvestment and Share Purchase Plan (the
"Plan") pursuant to which shareholders may purchase additional shares of
beneficial interest through reinvestment of dividends or by optional cash
investment. Shares may be acquired by the Plan either from the Company issuing
new shares or by the Plan administrator acquiring shares in the open market. The
Company has registered 750,000 common shares of beneficial interest for
potential issuance under the Plan.

<TABLE>
<CAPTION>
Year ended December 31,                2004          2003
-----------------------                ----          ----
<S>                                  <C>          <C>
Total shares acquired                   6,804       145,720
Shares purchased from Company           6,804       144,135
Weighted average price per share     $  25.63     $   23.50
</TABLE>

At December 31, 2004, 597,196 shares remain available for future purchases under
the Plan.

NOTE 12. DISTRIBUTIONS TO MINORITY INTEREST LESS THAN (IN EXCESS OF) EARNINGS

During 2002, the amount reported under the caption "Minority interest" in the
accompanying Balance Sheet was reduced to zero. U.S. GAAP requires that, for
financial reporting purposes, an additional allocation of income be made to the
minority interest account in an amount necessary to keep such balance from
falling below zero since there is no requirement for the unit holders to make
additional contributions. During 2003, earnings were in excess of distributions
to the minority interests and, therefore, the Company reallocated the $576,000
that had previously been so allocated to the minority interests.

NOTE 13. CONTINGENCIES

During 2004, the Company determined that two of its wholly owned subsidiaries
are subject to filing requirements and franchise taxes in a state in which the
Company owns property. The Company is in the process of preparing and filing
these returns and has accrued a provision for taxes of approximately $140,000.
However, certain provisions of the state's regulations may be subject to varying
interpretation as to their applicability to the Company's subsidiaries. The
Company is seeking clarification from the state, which, if determined to be
adverse to the Company, would subject the Company to additional taxes of
approximately $710,000. The Company has made certain changes to its corporate
structure such that it will no longer be subject to such taxes.


                                       36
<PAGE>

NOTE 14. SHAREHOLDERS' EQUITY

On February 3, 2004, the Company sold 1.41 million of its common shares of
beneficial interest in a private sale at a negotiated price of $24.80 per share
for net proceeds of approximately $34.7 million. The sale was made pursuant to
the Company's existing shelf registration statement as previously filed with the
Securities and Exchange Commission.

NOTE 15. FINANCIAL INSTRUMENTS

The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments as of December 31, 2004 and 2003. SFAS No.
107, Disclosures about Fair Value of Financial Instruments, defines the fair
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties.

<TABLE>
<CAPTION>
                                        DECEMBER 31, 2004           December 31, 2003
                                 ---------------------------  ---------------------------
(In thousands)                   Carrying Amount  Fair Value  Carrying Amount  Fair Value
--------------                   ---------------  ----------  ---------------  ----------
<S>                              <C>              <C>         <C>              <C>
Fixed rate mortgages                 $375,132      $374,717       $375,793       $417,781
Floating rate mortgages              $ 40,000      $ 40,000       $ 75,000       $ 75,000
5.375% Convertible Senior Notes      $ 74,750      $ 73,622       $ 74,750       $ 74,444
Notes payable                        $  2,000      $  2,000       $     --       $     --
</TABLE>

The carrying amounts shown in the above table are included in the accompanying
Balance Sheet under the captions "Mortgage notes payable," "5.375% Convertible
Senior Notes due 2023," "Notes payable," and "Mortgage notes payable and other
liabilities held for disposition." The fair value of the fixed rate portion of
the Company's mortgage notes payable is estimated by discounting expected cash
flows based on the Company's incremental borrowing rate for similar types of
borrowing arrangements. The floating rate portion of the Company's mortgage
notes payable approximated market. Cash equivalents, other assets, accounts
payable and other liabilities are carried at amounts that reasonably approximate
their fair value.

      The following table presents the fair value of outstanding derivative
financial instruments, based on external market quotations as of December 31,
2004 and 2003.

<TABLE>
<CAPTION>
                                                                                         Fair Value as of December 31,
Notional Amount  Fixed Rate      Type of Contract     Effective Date  Contract Maturity     2004             2003
---------------  ----------  ----------------------   --------------  -----------------  ----------       ------------
<S>              <C>         <C>                      <C>             <C>                <C>              <C>
$ 139,000,000       9.35%                       Cap      April, 2002     April, 2007     $   2,000        $   145,000
$  49,172,000       7.50%                       Cap      April, 2003     April, 2007     $   4,000        $   106,000
$ (40,000,000)      9.35%                       Cap    January, 2003     April, 2007     $  (1,000)       $   (42,000)
$  20,000,000       4.84%    Swap(Floating to Fixed)   January, 2003     April, 2007     $(624,000)       $(1,285,000)
$  20,000,000       3.48%    Swap(Floating to Fixed)   January, 2003     April, 2007     $ (28,000)       $  (423,000)
</TABLE>

The following is a summary of the derivative transactions for years ended
December 31, 2004, 2003 and 2002.

<TABLE>
<CAPTION>
(In thousands) / Year ended December 31,                         2004        2003         2002
----------------------------------------                       -------     --------     --------
<S>                                                            <C>         <C>          <C>
Net income                                                     $ 1,796     $ 78,768     $ 17,292
Other comprehensive income (loss) - unrealized gain (loss)
  on hedge instruments                                           1,040          (30)      (2,024)
                                                               -------     --------     --------
Comprehensive income                                           $ 2,836     $ 78,738     $ 15,268
                                                               =======     ========     ========
Adjustment to net income related to the ineffective portion
  of hedge instruments                                         $  (188)    $     34     $    (56)
</TABLE>

The Company expects to reclassify approximately $457,000 of unrealized losses
into earnings in the next twelve months.


                                       37
<PAGE>

Notes to Consolidated Financial Statements

NOTE 16. UNAUDITED QUARTERLY RESULTS OF OPERATIONS

The following is a summary of quarterly results of operations for the years
ended December 31, 2004 and 2003.

<TABLE>
<CAPTION>
(In thousands, except per share data) / Quarter ended     March 31        June 30      September 30    December 31
-----------------------------------------------------    ----------     ----------     ------------    -----------
<S>                                                      <C>            <C>            <C>             <C>
2004
Revenues                                                 $   30,771     $   31,297     $    31,962     $    32,945
Income (loss) before discontinued operations
  and minority interest                                       2,282         (3,420)          2,000           1,952
Income (loss) from continuing operations                      1,985         (2,987)          1,747           1,705
(Loss) income from discontinued operations                   (1,173)           543              (4)            (20)
Net income (loss)                                               812         (2,444)          1,743           1,685
Basic earnings per share
  Income (loss) from continuing operations               $      .12     $     (.17)    $       .10     $       .10
  (Loss) income from discontinued operations                   (.07)           .03              --              --
                                                         ----------     ----------     -----------     -----------
  Net income (loss)                                      $      .05     $     (.14)    $       .10     $       .10
                                                         ==========     ==========     ===========     ===========
Diluted earnings Per share
Income (loss) from continuing operations                 $      .12     $     (.17)    $       .10     $       .10
  (Loss) income from discontinued operations                   (.07)           .03              --              --
                                                         ----------     ----------     -----------     -----------
Net income (loss)                                        $      .05     $     (.14)    $       .10     $       .10
                                                         ==========     ==========     ===========     ===========
2003
Revenues                                                 $   27,756     $   28,875     $    30,108     $    31,278
Income before discontinued operations
  and minority interest                                       3,457          2,882           3,364           2,728
Income from continuing operations                             2,592          1,924           4,457           2,353
Income from discontinued operations                           1,271            666          35,660          29,845
Net income                                                    3,863          2,590          40,117          32,198
Basic earnings per share
  Income from continuing operations                      $      .16     $      .12     $       .29     $       .15
  Income from discontinued operations                           .08            .04            2.28            1.93
                                                         ----------     ----------     -----------     -----------
  Net income                                             $      .24     $      .16     $      2.57     $      2.08
                                                         ==========     ==========     ===========     ===========
Diluted earnings per share
  Income from continuing operations                      $      .16     $      .12     $       .28     $       .15
  Income from discontinued operations                           .08            .04            2.24            1.89
                                                         ----------     ----------     -----------     -----------
  Net income                                             $      .24     $      .16     $      2.52     $      2.04
                                                         ==========     ==========     ===========     ===========
</TABLE>

NOTE 17. SUBSEQUENT EVENT

On February 2, 2005, the Board of Trustees declared a quarterly dividend of $.43
per share, aggregating approximately $7,500,000. Concurrent with the payment of
the dividend, a limited partnership distribution of approximately $1,100,000
will be made to the minority interest holders. The dividend and distribution
will be paid on March 10, 2005 to holders of record as of February 18, 2005.

                                       38
<PAGE>

Report of Independent Registered Public Accounting Firm

To The Board of Trustees and Shareholders
The Town and Country Trust

We have audited the accompanying consolidated balance sheets of The Town and
Country Trust (the "Company") as of December 31, 2004 and 2003, and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 2004. Our
audits also included the financial statement schedule listed in the index at
Item 15(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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 Town and
Country Trust at December 31, 2004 and 2003, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2004, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of The Town and
Country Trust's internal control over financial reporting as of December 31,
2004, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 24, 2005 expressed an unqualified opinion thereon.

                                                           /s/ Ernst & Young LLP
                                                           ---------------------

McLean, Virginia
February 24, 2005


                                       39
<PAGE>
(b) SUPPLEMENTARY DATA

             SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
                           THE TOWN AND COUNTRY TRUST
                                DECEMBER 31, 2004

<TABLE>
<CAPTION>
                                                                        GROSS AMOUNT AT WHICH
                                       INITIAL COST (c)              CARRIED AT CLOSE OF PERIOD
                                       ----------------              --------------------------
                                                        IMPROVEMENTS
                                                            MADE
                                                         SUBSEQUENT
                       NON-RECOURSE          BUILDINGS       TO             BUILDINGS          ACCUMULATED
     PROPERTY           MORTGAGE                 AND     ACQUISITION            AND     TOTAL  DEPRECIATION    YEAR     USEFUL
   DESCRIPTION(a)         DEBT(b)      LAND  IMPROVEMENTS     (d)     LAND IMPROVEMENTS  (e)      (f)         ACQUIRED   LIFE
------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>          <C>      <C>           <C>       <C>      <C>      <C>       <C>          <C>        <C>
MARYLAND
   Howard Crossing/
      West Commercial  $40,392      $8,822   $37,785       $28,270   $8,822   $66,055  $74,877   $31,074      1993(h)    (g)
   Excalibur             7,276       2,166    19,493           300    2,166    19,793   21,959     1,038      2003       (g)
   The Courts of
      Avalon            17,204       4,277    38,490           131    4,277    38,621   42,898     2,000      2003       (g)
   Watkins Station       7,616       1,505     6,889         4,870    1,505    11,759   13,264     5,926      1993(h)    (g)
   Hollows               8,432       1,424    10,401         2,835    1,424    13,236   14,660     8,433      1993(h)    (g)
   Woodhill              8,228       1,317    10,097         3,129    1,317    13,226   14,543     8,429      1993(h)    (g)
   Hallfield             1,700         320     2,240         1,573      320     3,813    4,133     1,776      1993(h)    (g)
   Ridgeview             5,032       1,138     7,513         1,770    1,138     9,283   10,421     5,760      1993(h)    (g)
   Bowley's Quarters     8,534       1,795    10,549         3,963    1,795    14,512   16,307     8,666      1993(h)    (g)
   Skylark Pointe        8,568       1,474    10,511         7,022    1,474    17,533   19,007     8,519      1993(i)    (g)
   Tall Oaks            10,982       1,397     9,845         3,562    1,397    13,407   14,804     7,816      1993(h)    (g)
   Willow Lake          13,532       1,781    14,088         6,433    1,781    20,521   22,302    11,862      1993(h)    (g)
   Steeplechase         18,156       2,749    18,151         9,359    2,749    27,510   30,259    15,154      1993(h)    (g)
   Eagles Walk at
      White Marsh       13,430       3,136    19,944        10,391    3,136    30,335   33,471    16,226      1993(h)    (g)
   Versailles            7,480       1,599    10,921         5,390    1,599    16,311   17,910     9,086      1993(h)    (g)
   Fox Run               9,520       2,498    11,412           745    2,498    12,157   14,655     5,246      1993       (g)
   Stonegate             8,772       2,887    13,261           512    2,887    13,773   16,660     4,633      1994       (g)

PENNSYLVANIA
   Hidden Village        4,760       1,229     7,447         1,974    1,229     9,421   10,650     6,172      1993(h)    (g)
   Emmaus                7,378       1,394     9,577         3,292    1,394    12,869   14,263     7,875      1993(h)    (g)
   Hanover               3,604         590     4,946         1,629      590     6,575    7,165     4,410      1993(h)    (g)
   Lancaster East        4,488         812     8,249         3,129      812    11,378   12,190     7,033      1993(h)    (g)
   Lancaster West        6,902       1,285    12,794         4,821    1,285    17,615   18,900    10,736      1993(h)    (g)
   York                  5,746       1,951    10,622         1,579    1,951    12,201   14,152     9,014      1993(h)    (g)
   Rolling Hills         3,026       1,282     5,842           944    1,282     6,786    8,068     2,789      1993       (g)

VIRGINIA
   Barton's Crossing    23,392       7,320    33,845         6,414    7,320    40,259   47,579    17,072      1993       (g)
   Lionsgate            20,502       6,361    46,649           -70    6,361    46,579   52,940     1,915      2003       (g)
   The Glen              4,590       1,157     5,269         1,287    1,157     6,556    7,713     2,674      1993       (g)
   McNair Farms         11,730       3,564    16,237         2,471    3,564    18,708   22,272     8,323      1993       (g)
   University Heights   19,958       5,789    26,371         2,154    5,789    28,525   34,314    13,123      1993       (g)
   Carlyle Station      16,082       4,259    19,610         3,538    4,259    23,148   27,407     6,774      1994       (g)

DELAWARE
   Christina Mill        7,548       2,288    10,454           762    2,288    11,216   13,504     3,606      1994       (g)

FLORIDA
   Windermere            9,700       2,809    12,797         1,375    2,809    14,172   16,981     2,464      1998       (g)
   Twelve Oaks           9,393       3,100    13,711         1,630    3,100    15,341   18,441     2,702      1998       (g)
   Heron's Run           5,440       2,795    12,754         1,094    2,795    13,848   16,643     2,200      1999       (g)
   Kirkman              15,115       4,565    20,795         2,133    4,565    22,928   27,493     3,752      1999       (g)
   Gardens East         23,475       5,970    27,182         2,003    5,970    29,185   35,155     4,250      2000       (g)
   Perico                9,958       2,491    11,248         1,437    2,491    12,685   15,176     1,855      1999       (g)
   McIntosh              7,492       2,029     9,194           959    2,029    10,153   12,182     1,601      1999       (g)
                      ----------------------------------------------------------------------------------------
     TOTAL            $415,132    $103,325  $577,183      $134,810 $103,325  $711,993 $815,318  $271,984
                      ========================================================================================
</TABLE>



                                       40
<PAGE>
                              NOTES TO SCHEDULE III
                           THE TOWN AND COUNTRY TRUST
                                 (IN THOUSANDS)

(a)  All properties are garden apartment communities with the exception of one
     commercial building included in the Howard Crossing/West Commercial
     Partnership.

(b)  See description of mortgages payable in Note 4 of Notes to Consolidated
     Financial Statements of the Company.

(c)  Initial cost for properties originally acquired from the Predecessor (see
     note (h) below) represents the historical cost as of August 23, 1993 plus
     the acquisition of non-controlled interests in the Predecessor on August
     23, 1993. The initial cost of all other property acquisitions represents
     the cost to purchase the property at the date of acquisition.

(d)  The aggregate cost of land, buildings and equipment on a Federal Income Tax
     basis is $693,059 at December 31, 2004.

<TABLE>
(e)  Reconciliation of Real Estate Properties
     ------------------------------------------------------------
<S>                                                                  <C>
     Balance at January 1, 2002                                      $  643,271
     Other additions                                                     22,749
     Other dispositions                                                     (22)
                                                                    -----------
     Balance at December 31, 2002                                       665,998
     Acquisition of new operating properties                            117,435
     Other additions                                                     26,146
     Other dispositions                                                    (444)
                                                                    -----------
     Balance at December 31, 2003                                       809,135
     Other additions                                                     36,562
     Other dispositions/retirements                                     (30,379)
                                                                    -----------
     Balance at December 31, 2004                                    $  815,318
                                                                    ===========

(f)  Reconciliation of Accumulated Depreciation
     ------------------------------------------------------------
     Balance at January 1, 2002                                      $  235,369
     2002 depreciation expense, net of retirements                       17,775
                                                                    -----------
     Balance at December 31, 2002                                       253,144
     2003 depreciation expense, net of retirements                       20,239
                                                                    -----------
     Balance at December 31, 2003                                       273,383
     2004 depreciation expense, net of retirements                       (1,399)
                                                                    -----------
     Balance at December 31, 2004                                    $  271,984
                                                                    ===========
</TABLE>

<TABLE>
     (g)  Depreciation is computed based          Assets acquired      Assets acquired
     upon the following estimated lives:          subsequent to        prior to
                                                  January 1, 1994      December 31, 1993
                                            ----------------------------------------------------
<S>                                               <C>                          <C>
Buildings                                         27.5 years                   40 years
Building improvements                             15 to 19 years               20 years
Furniture, fixtures and equipment                 3 to 12 years                5 to 12 years
</TABLE>

(h)  Denotes property originally purchased in 1979 by the Predecessor.




                                       41
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

As of December 31, 2004, an evaluation was performed under the supervision and
with the participation of the Company's management, including the CEO and CFO,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the
Exchange Act). Based on that evaluation, the Company's management, including the
CEO and CFO, concluded that the Company's disclosure controls and procedures
were effective as of December 31, 2004. There have been no significant changes
in the Company's internal controls or in other factors that could significantly
affect internal controls subsequent to December 31, 2004.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of The Town and Country Trust (the "Company") is responsible for
establishing and maintaining adequate internal controls over financial reporting
and for the assessment of the effectiveness of internal controls over financial
reporting. As defined by the Securities and Exchange Commission, internal
control over financial reporting is a process designed by, or supervised by, the
Company's principal executive and principal financial officers to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of the consolidated financial statements in accordance with U.S.
generally accepted accounting principles.

The Company's internal controls over financial reporting are supported by
written policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the Company's assets; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of the consolidated
financial statements in accordance with U.S. generally accepted accounting
principles, and that receipts and expenditures of the Company are being made
only in accordance with authorizations of the Company's management and trustees;
and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company's assets that could
have a material effect on the consolidated financial statements taken as a
whole.

In connection with the preparation of the Company's annual consolidated
financial statements, management has undertaken an assessment of the
effectiveness of the Company's internal controls over financial reporting as of
December 31, 2004, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Management's assessment included an evaluation of the
design of the Company's internal controls over financial reporting and testing
of the operational effectiveness of those controls.

Based on this assessment, management has concluded that the Company's internal
controls over financial reporting were effective as of December 31, 2004.

Ernst & Young LLP, the independent registered public accounting firm that
audited the Company's consolidated financial statements included in this report,
have issued an attestation report on management's assessment of internal
control over financial reporting, a copy of which is included in this Annual
Report on Form 10-K.

                                       42
<PAGE>
Report of Independent Registered Public Accounting Firm on Internal Control Over
Financial Reporting

To The Board of Trustees and Shareholders
The Town and Country Trust

We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting that The Town
and Country Trust (the "Company") maintained effective internal control over
financial reporting as of December 31, 2004, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). The Company's
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with U.S. generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and trustees of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion, management's assessment that The Town and Country Trust
maintained effective internal control over financial reporting as of December
31, 2004, is fairly stated, in all material respects, based on the COSO
criteria. Also, in our opinion, The Town and Country Trust maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2004, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the 2004 consolidated financial
statements of The Town and Country Trust and our report dated February 24, 2005,
expressed an unqualified opinion thereon.

                                        /s/ Ernst & Young LLP
                                        -----------------------

McLean, Virginia
February  24, 2005


                                       43
<PAGE>
ITEM 9B. OTHER INFORMATION

None.


                                    PART III
                                    --------

ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT

Certain information required by this item concerning the Registrant's Trustees
and Executive Officers is set forth under the captions "Election of Trustees,"
"Board of Trustees; Committees of the Board of Trustees" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Registrant's Proxy Statement
for the annual meeting of shareholders to be held on May 4, 2005, which
information is incorporated herein by reference. The information required by
this Item in respect of the Registrant's Executive Officers who are not Trustees
is set forth in Item 4 of this Form 10-K and is incorporated herein by
reference.
<PAGE>

The Company's Board of Trustees has not determined whether any of the members of
the Audit Committee of the Board of Trustees meets the definition of "audit
committee financial expert" as defined in the rules adopted by the Securities
and Exchange Commission because the listing standards of the New York Stock
Exchange do not require a listed company's audit committee to include as a
member a person who satisfies the definition of "audit committee financial
expert." The Company's Board of Trustees has determined that each of the present
members of the Audit Committee is fiscally literate and has accounting or
related management expertise in accordance with the listing standards of the New
York Stock Exchange.

ITEM 11. EXECUTIVE COMPENSATION

Information in response to this Item is set forth under the caption
"Compensation of Executive Officers" in the Registrant's Proxy Statement for the
annual meeting of shareholders to be held on May 4, 2005, which information is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information in response to this Item concerning security ownership of certain
beneficial owners and management is set forth under the caption "Ownership of
Common Shares of Beneficial Interest" in the Registrant's Proxy Statement for
the annual meeting of shareholders to be held on May 4, 2005, which information
is incorporated herein by reference. Information in response to this Item
concerning equity compensation plan information is set forth in Item 5 of this
Form 10-K and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information in response to this Item is set forth under the caption "Certain
Related Transactions" in the Registrant's Proxy Statement for the annual meeting
of shareholders to be held on May 4, 2005, which information is incorporated
herein by reference.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information in response to this Item concerning fees paid to the independent
auditors is set forth under the caption "Selection of Accountants" in the
Registrant's Proxy Statement for the annual meeting of shareholders to be held
on May 4, 2005, which information is incorporated herein by reference. The Audit
Committee of the Board of Trustees must pre-approve all auditing services and
all non-audit services (including the fees and terms thereof) to be performed by
the independent auditors. The Audit Committee may delegate to the Audit
Committee Chairman the authority to grant pre-approvals for audit and permitted
non-audit services to be performed for the Company by the independent auditor,
provided that decisions of such members to grant pre-approvals shall be
presented to the full Committee at its next regularly scheduled meeting.


                                       44
<PAGE>

                                     PART IV
                                     -------

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)      The following documents are filed as part of this report:

<TABLE>
<CAPTION>
                                                                       PAGE
                                                                       ----
<S>      <C>                                                            <C>
         (1)      Financial Statements:
                  ---------------------

                  Consolidated Balance Sheets of
                  the Registrant at December 31, 2004
                  and at December 31, 2003

                  Consolidated Statements of Operations
                  of the Registrant for the years ended
                  December 31, 2004, December 31, 2003 and
                  December 31, 2002

                  Consolidated Statements of Shareholders'
                  Equity of the Registrant for the years ended
                  December 31, 2004, December 31, 2003 and
                  December 31, 2002

                  Consolidated Statements of Cash Flows of the
                  Registrant for the years ended December 31, 2004,
                  December 31, 2003 and December 31, 2002

                  Notes to Consolidated Financial
                  Statements of the Registrant

                  Report of Independent Registered Public
                  Accounting Firm

         (2)      Financial Statement Schedules:
                  ------------------------------

                  Schedule III--Real Estate and
                  Accumulated Depreciation
</TABLE>

All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.


                                       45
<PAGE>

         (3)      Exhibits
                  --------

Exhibit
-------
Number
------

3.1      First Amended and Restated Declaration of Trust (incorporated by
         reference to Exhibit 3.1 to the Registrant's Registration Statement on
         Form S-11 (No. 333-63150)).

3.2      By-Laws (incorporated by reference to Exhibit 3.2 to the Registrant's
         Registration Statement on Form S-11 (No. 333-63150)).

4.1      Indenture, dated as of August 4, 2003, between The Town and Country
         Trust and The Bank of New York, as trustee (incorporated by reference
         to Exhibit 4.1 to the Registrant's Registration Statement on Form S-3
         (No. 333-109157)).

4.2      Form of 5.375% Convertible Senior Note due 2023 (incorporated by
         reference to Exhibit 4.1 to the Registrant's Registration Statement on
         Form S-3 (No. 333-109157)).

4.3      Registration Rights Agreement, dated as of August 4, 2003, between The
         Town and Country Trust and Banc of America Securities LLC (incorporated
         by reference to Exhibit 4.3 to the Registrant's Registration Statement
         on Form S-3 (No. 333-109157)).

10.1     Third Amended and Restated Agreement of Limited Partnership of The TC
         Operating Limited Partnership dated as of August 4, 2003 (incorporated
         by reference to Exhibit 10.1 to the Registrant's Annual Report on Form
         10-K for the fiscal year ended December 31, 2003).

10.2*    Registrant's Amended and Restated 1993 Long Term Incentive Plan
         (incorporated by reference to Exhibit 10.2 to the Registrant's Annual
         Report on Form 10-K for the fiscal year ended December 31, 2002).

10.3*    Registrant's 1997 Long Term Incentive Plan (incorporated by reference
         to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the
         fiscal year ended December 31, 2002).

10.4     Amended and Restated Master Credit Facility Agreement, dated as of
         April 25, 2002, entered into by and among the Registrant, the TC
         Operating Limited Partnership, The Town and Country Holding
         Corporation, The TC Property Company, The Town and Country Oriole
         Corporation, each of the Property Partnerships and Prudential
         Multifamily Mortgage, Inc. (incorporated by reference to Exhibit 10.1
         to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
         March 31, 2002).

10.4.1   First Amendment to Amended and Restated Master Credit Facility
         Agreement, dated April 16, 2003, entered into by and among the
         Registrant, The TC Operating Limited Partnership, The Town and County
         Holding Corporation, the TC Property Company, The Town and Country
         Oriole Corporation, each of the Property Partnerships and Prudential
         Multifamily Mortgage, Inc. (incorporated by reference to Exhibit 10.4.1
         to the Registrant's Annual Report on Form 10-K for the fiscal year
         dated December 31, 2003).

10.4.2   Second Amendment to Amended and Restated Master Credit Facility
         Agreement, dated July 29, 2003, entered into by and among the
         Registrant, The TC Operating Limited Partnership, The Town and Country
         Holding Corporation, The TC Property Company, The Town and Country
         Oriole Corporation, Ivy Acquisitions LLC, Daisy Acquisitions LLC,
         Shamrock Acquisitions LLC, each of the Property Partnerships,
         Prudential Multifamily Mortgage, Inc. and Fannie Mae (incorporated by
         reference to Exhibit 10.4.2 to the Registrant's Annual Report on Form
         10-K for the fiscal year dated December 31, 2003).

10.4.3   Third Amendment to Amended and Restated Master Credit Facility
         Agreement, dated November 4, 2003, entered into by and among the
         Registrant, The TC Operating Limited Partnership, The Town and Country
         Holding Company, LLC, The TC Property Company, The Town and Country
         Oriole Corporation, The TC-Excalibur Company, LLC, The TC-Courts
         Company, LLC, The TC-Avalon Company, LLC, The TC-Lionsgate Company,
         LLC, each of the Property Partnerships, Prudential Multifamily
         Mortgage, Inc. and Fannie Mae (incorporated by reference to Exhibit
         10.4.3 to the Registrant's Report on Form 10-K for the fiscal year
         dated December 31, 2003).

10.5     Financing Agreement dated September 25, 1998, by and among the
         Registrant, The TC Operating Limited Partnership, The TC Property
         Company II and Allfirst Bank (fka The First National Bank of Maryland)
         (incorporated by reference to


                                       46
<PAGE>

         Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the
         fiscal year ended December 31, 2002).

10.6     Letter Agreement dated March 8, 2001 and effective March 1, 2001,
         between Michael H. Rosen and the Registrant (incorporated by reference
         to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on
         April 4, 2001).

10.7     Letter Agreement dated March 2, 2001 between Jennifer C. Munch and the
         Registrant (incorporated by reference to Exhibit 10.2 to the
         Registrant's Current Report on Form 8-K filed on April 4, 2001).

10.8     Form of Severance Agreement (incorporated by reference to Exhibit 10.1
         to the Registrant's Current Report on Form 8-K filed on February 8,
         2005).

10.9     Separation Agreement and General Release dated December 21, 2004
         between James Dolphin and the Registrant.

10.10    Separation Agreement and General Release dated December 17, 2004
         between Gerry J. Haak and the Registrant.

12       Computation of Ratio of Earnings to Combined Fixed Charges

14       Code of Ethics is available on the Company's website at
         www.tctrust.com.

21       Subsidiaries of the Registrant

23       Consent of Independent Registered Public Accounting Firm

24       Powers of Attorney

31       Rule 13a-14(a)/15d-14(a) Certifications

32       Section 1350 Certifications

     * Compensation plan or arrangement required to be filed as an exhibit
       hereto.



                                   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.

                              THE TOWN AND COUNTRY TRUST


                              By:  /s/ Harvey Schulweis
                                  ----------------------------------------------
                                   Harvey Schulweis
                                   Chairman of the Board and Chief Executive
                                   Officer


Dated:  March 2, 2005



                                       47
<PAGE>



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 and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature                               Title                              Date
---------                               -----                              ----

<S>                              <C>                                   <C>
/s/ Harvey Schulweis             Chairman of the Board,                March 2, 2005
-------------------------        Chief Executive Officer,
Harvey Schulweis                 Principal Executive
                                 Officer and Trustee


/s/Alan W. Lasker                Senior Vice President-                March 2, 2005
-------------------------        Chief Financial Officer
Alan W. Lasker                   and Principal Financial
                                 Officer


/s/ William J. Fishell           Vice President -Treasurer             March 2, 2005
-------------------------        and Principal Accounting
William J. Fishell               Officer


James H. Berick*                 Trustee
H. Grant Hathaway*               Trustee
Milton A. Wolf*                  Trustee
Nancy F. Lerner*                 Trustee
</TABLE>

                   *By:  /s/ Harvey Schulweis      March 2, 2005
                         ---------------------
                          Harvey Schulweis
                          Attorney-in-Fact

----------
     -    Powers of attorney authorizing Harvey Schulweis to sign this annual
          report on Form 10-K on behalf of certain Trustees of the Registrant is
          being filed with the Securities and Exchange Commission herewith
          (Exhibit 24).



                                       48