<PAGE>

                       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, 2003

[ ] 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)

100 S. Charles Street
Baltimore, Maryland                                     21201
---------------------------------------    -------------------------------------
(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]

                                       1
<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, 2003: $379,912,719.

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practical date:

         17,416,797 Common Shares of Beneficial Interest, $.01 Par Value, at
March 8, 2004

                       DOCUMENTS INCORPORATED BY REFERENCE

<TABLE>
<CAPTION>
                                           Part of Form 10-K Document
         Document                            In Which Incorporated
         --------                          -----------------------------
<S>                                        <C>
Portions of the Registrant's                        I and III
Notice of Annual Meeting and
Proxy Statement for the annual
meeting of shareholders to be
held on May 5, 2004
</TABLE>

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 to be held on May 5, 2004 shall be deemed
incorporated by reference herein.

                                       2
<PAGE>

                              SAFE HARBOR STATEMENT

The matters discussed in this Annual Report on Form 10-K 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 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,
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; and local economic
and business conditions, including, without limitation, conditions which 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
Trust 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.

                                     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


                                       3
<PAGE>

partnership, The TC Operating Limited Partnership (the "Operating Partnership"),
in which it holds an 88% general partnership interest at March 8, 2004. 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 estate of the late Alfred Lerner, the Trust's former
Chairman, and Harvey Schulweis, the Trust's Chairman of the Board, President and
Chief Executive Officer. At December 31, 2003, the Company owned 38 apartment
communities (the "Properties") with 13,065 apartment units located in selected
markets in the Mid-Atlantic and Florida that were held for investment. The
Company also owned 2 apartment communities with 580 units in Charlotte, North
Carolina that were held for sale at December 31, 2003.

The Company's headquarters are located at 100 South Charles Street, Suite 1700,
Baltimore Maryland 21201 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 such material is 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 selected 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, 2003, approximately 37% of the Company's
apartments were located in the greater Baltimore metropolitan area and an
additional 25% 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 fiscal 2003, the Company acquired three apartment communities, comprising 733
units, for an aggregate consideration of $117.4 million, including acquisition
costs. Two of those acquisitions were funded using borrowings under the
Company's lines of credit. The third acquisition was funded with proceeds
generated from the Company's recent sale of its 5.375% Convertible Senior Notes
due 2023 in August and September of 2003. Each of the acquisitions was
structured to qualify under the "like-kind exchange" provisions of Section 1031
of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations
thereunder (the "Tax Laws"). In that regard, the Company identified and sold
five apartment communities in fiscal 2003, termed "relinquished properties,"
within the time periods specified in the applicable Tax Laws, comprising 2,325
units, for an aggregate consideration of $117.2 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 an ongoing program of reinvesting significant
capital in its existing portfolio. During 2003, the Company continued
renovations to five of its communities containing 2,901 units. The renovations
include the installation of new kitchens and baths, washers and dryers, new
entranceways and windows. In addition, at one of these communities a brand new
clubhouse is being constructed. Renovations at 507 units were completed during
2003 bringing the total units completed to date to 750.

PROPERTY MANAGEMENT

The Company manages each of its apartment communities through 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 personnel are supervised by district
managers and regional vice presidents.

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 apartments 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 seven properties are encumbered by individual
mortgage loans from Freddie Mac.

In April 2003, the Company expanded its credit facility with Fannie Mae by $49.2
million to $488.2 million based upon increases in the valuation of the
properties in the collateral pool. This collateralized facility matures in 2008.
At December 31, 2003, outstanding borrowings, including amounts allocated to
properties held for disposition, under the facility totaled $375 million. Of
this amount, $300 million bears interest at a fixed rate of 6.91%. The remaining
$75 million outstanding has a weighted-average variable rate of 1.81% at
December 31, 2003 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 2003, the Company renewed this line of credit
through October 2004 and at the Company's option the


                                       5
<PAGE>

line may be extended through October 2005. As of December 31, 2003, no amounts
were outstanding under the line.

In August 2003, the Company sold $74.75 million aggregate principal amount of
5.375% Convertible Senior Notes due 2023 in a private offering pursuant to Rule
144A under the Securities Act of 1933, as amended. 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 over a specified
trading period. The initial conversion rate of the notes 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. Concurrent with the offering, the
Company used approximately $15.0 million of the proceeds to repurchase and
retire 646,800 of its common shares ($23.19 per share) in privately negotiated
transactions.

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 4.57%. 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.


                                       6
<PAGE>

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.

EMPLOYEES

As of December 31, 2003, the Company had 425 employees.

RECENT DEVELOPMENTS

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 $34.9 million. The offering and sale of the
Shares was made pursuant to a prospectus supplement dated January 29, 2004
relating to the prospectus dated January 12, 2000 included in the Company's
registration statement on Form S-3 (File No. 333-93097).

ITEM 2. PROPERTIES.

The Properties consist of 40 multifamily properties comprising 13,645 apartment
units located in suburban Baltimore, Maryland; suburban Washington, D.C. and
northern Virginia; southeastern Pennsylvania; Delaware; Charlotte, North
Carolina; and Florida.

The average occupancy rate for all Properties for fiscal 2003 and fiscal 2002
was 93.3% and 93.4%, respectively. Tenant leases are generally for one-year
terms, with automatic two-month renewals after the completion of the first year,
and often require security deposits. Approximately 96% of the apartments in the
Properties are one-bedroom and two-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 substantially all of the Properties are located in
mature, fully-developed neighborhoods.

The following table presents certain additional information concerning the
Properties

<TABLE>
<CAPTION>
                                                                                           2003
                                                                         NUMBER          AVERAGE
PROPERTY NAME                       PROPERTY LOCATION                   OF UNITS      OCCUPANCY (2)
-------------                       -----------------                   --------      -------------
<S>                                 <C>                                 <C>           <C>
BALTIMORE
Bowleys Quarters                    Baltimore, Maryland                      462         93.9%
Excalibur at Avalon (1)             Pikesville, Maryland                     147         90.9%
Greensview/West                     Ellicott City, Maryland                1,350         93.8%
Hallfield                           Perry Hall, Maryland                      75         97.5%
Harford                             Carney, Maryland                         336         94.2%
Hollows                             Glen Burnie, Maryland                    336         93.8%
Ridgeview                           Rossville, Maryland                      257         91.7%
</TABLE>

                                       7
<PAGE>

<TABLE>
<CAPTION>
                                                                                           2003
                                                                         NUMBER          AVERAGE
PROPERTY NAME                       PROPERTY LOCATION                   OF UNITS      OCCUPANCY (2)
-------------                       -----------------                   --------      -------------
<S>                                 <C>                                 <C>           <C>
Rossville                           Rossville, Maryland                      692         91.0%
Steeplechase                        Cockeysville, Maryland                   540         93.0%
The Courts of Avalon (1)            Pikesville, Maryland                     258         93.4%
Versailles                          Towson, Maryland                         210         92.6%
Woodhill                            Glen Burnie, Maryland                    334         93.5%

WASHINGTON, D.C.
Barton's Crossing                   Alexandria, Virginia                     532         93.6%
Carlyle Station                     Manassas, Virginia                       408         95.1%
Fox Run                             Germantown, Maryland                     218         93.5%
Lionsgate (1)                       Herndon, Virginia                        328         91.5%
Tall Oaks                           Laurel, Maryland                         352         92.6%
The Glen                            Leesburg, Virginia                       134         95.9%
The Village at McNair Farms         Herndon, Virginia                        283         95.5%
University Heights                  Ashburn, Virginia                        466         93.6%
Willow Lake                         Laurel, Maryland                         456         93.9%
Watkins Station                     Gaithersburg, Maryland                   210         91.1%

PENNSYLVANIA
Colonial Crest Emmaus               Emmaus, Pennsylvania                     329         94.7%
Hanover                             Hanover, Pennsylvania                    215         95.6%
Hidden Village                      Allentown, Pennsylvania                  264         95.2%
Lancaster East                      Lancaster, Pennsylvania                  272         94.1%
Lancaster West                      Lancaster, Pennsylvania                  413         95.6%
Rolling Hills                       York, Pennsylvania                       184         94.8%
York                                York, Pennsylvania                       396         91.4%

NEWARK, DELAWARE
Christina Mill                      Newark, Delaware                         228         96.6%
Stonegate                           Elkton, Maryland                         260         92.2%

CHARLOTTE
Fairington                          Charlotte, North Carolina                250         88.7%
Forest Ridge                        Charlotte, North Carolina                330         88.2%

FLORIDA
Gardens East Apartments             Palm Beach Gardens, Florida              448         94.3%
Heron's Run                         Sarasota, Florida                        274         93.7%
Kirkman                             Orlando, Florida                         370         91.3%
McIntosh                            Sarasota, Florida                        212         93.5%
Perico                              Bradenton, Florida                       256         92.4%
Twelve Oaks                         Orlando, Florida                         284         92.8%
Windermere Lakes                    Orlando, Florida                         276         91.1%

Total                                                                     13,645         93.3%
                                                                          ------         -----
</TABLE>

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

(1)  Property was acquired during the year ended December 31, 2003.


                                       8
<PAGE>

(2)  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.

ITEM 3. LEGAL PROCEEDINGS

There were no legal proceedings pending at December 31, 2003 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.

EXECUTIVE OFFICERS OF THE REGISTRANT

The age (as of March 8, 2004), 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 5, 2004, 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 41. Mr. Brodie has served as Executive Vice President --
Co-Chief Operating Officer of the Registrant since February 2003. Prior thereto,
he served as Senior Vice President and Chief Investment Officer of the
Registrant since May 2001. 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.

James Dolphin: Age 54. Mr. Dolphin has served as Executive Vice President --
Co-Chief Operating Officer and Assistant Secretary of the Registrant since
February 2003. Prior thereto, he served as Senior Vice President, Chief
Financial Officer of the Registrant since May 2001. During 1999 and 2000, Mr.
Dolphin pursued personal business interests. Previously, he served as a director
and the Executive Vice President and Chief Financial Officer of United Dominion
Realty Trust, Inc., Richmond, Virginia. Mr. Dolphin serves on the Board of
Directors of the National Multi-Housing Council.

Gerald Haak: Age 50. Mr. Haak has served as Senior Vice President -- Property
Operations of the Registrant since February 2003. Prior thereto, he served as
Senior Vice President -- Operations of the Registrant since March 2001, Senior
Vice President/Regional Manager of the Registrant since 1991 and Vice President
of the Registrant since 1982. Mr. Haak holds the CPM designation (Certified
Property Manager) from the Institute of Real Estate Management, is on the Board
of Directors of the National Multi-Housing Council, and is a Real Estate
Associate Broker in Pennsylvania.


                                       9
<PAGE>

Alan W. Lasker: Age 57. 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.


                                       10
<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, 2002               $  22.15         $   20.50           $.43
June 30, 2002                $  23.69         $   19.70           $.43
September 30, 2002           $  23.30         $   17.71           $.43
December 31, 2002            $  21.50         $   17.85           $.43
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
</TABLE>

On February 18, 2004, a cash dividend of $.43 per share was declared, payable
March 10, 2004, to shareholders of record as of March 1, 2004.

At December 31, 2003, the approximate number of record holders of the Trust's
shares was 540. 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, 2003.

<TABLE>
<CAPTION>
                                                                                          Number of Securities
                                Number of Securities                                      Remaining Available
                                To be Issued Upon            Weighted-Average             for Future Issuance
                                Exercise of                  Exercise Price of            Under Equity
                                Outstanding Options          Outstanding Options          Compensation Plans
-----------------------------   -----------------------      ---------------------        -----------------------
<S>                             <C>                          <C>                          <C>
Equity Compensation
Plans Approved by
the Shareholders                        572,578                      $18.28                       439,200
</TABLE>

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
(In thousands, except per share data) / Year ended December 31,          2003         2002        2001          2000        1999
<S>                                                                    <C>          <C>          <C>          <C>          <C>
OPERATING DATA
Rental income                                                          $118,017     $110,232     $107,401     $100,238     $ 91,538
Operating expenses                                                       49,756       44,311       41,640       37,161       34,730
                                                                       --------     --------     --------     --------     --------
  Net operating income                                                   68,261       65,921       65,761       63,077       56,808
Depreciation and amortization                                            21,387       18,483       17,645       18,721       20,758
Interest expense                                                         28,785       25,216       24,387       27,148       23,842
General and administrative expenses                                       5,658        5,262        4,820        3,883        3,331
Separation expense                                                           --           --        3,338           --           --
Gain on sales of operating properties                                        --           --           --        9,461        7,073
                                                                       --------     --------     --------     --------     --------
Income before discontinued operations and
  minority interest                                                      12,431       16,960       15,571       22,786       15,950
Income allocated to minority interest
  from continuing operations                                             (1,681)      (2,269)      (2,110)      (3,108)      (2,185)
Minority interest distributions less than
  (in excess of) earnings                                                   576         (576)          --           --           --
                                                                       --------     --------     --------     --------     --------
Income from continuing operations                                        11,326       14,115       13,461       19,678       13,765
Discontinued operations:
  Income from discontinued operations                                     2,054        3,669        1,730        3,026        2,117
  Gain on sales of properties                                            80,081           --           --           --           --
  Impairment of assets held for disposition                              (4,000)          --           --           --           --
  Income allocated to minority interest
    from discontinued operations                                        (10,693)        (492)        (235)        (413)        (290)
                                                                       --------     --------     --------     --------     --------
Income from discontinued operations                                      67,442        3,177        1,495        2,613        1,827
                                                                       --------     --------     --------     --------     --------
Net income(1)                                                          $ 78,768     $ 17,292     $ 14,956     $ 22,291     $ 15,592
                                                                       ========     ========     ========     ========     ========
Basic earnings per share:
  Income from continuing operations                                    $    .72     $    .88     $    .86     $   1.26     $    .88
  Income from discontinued operations                                      4.27          .20          .09          .17          .12
                                                                       --------     --------     --------     --------     --------
    Net income                                                         $   4.99     $   1.08     $    .95     $   1.43     $   1.00
                                                                       ========     ========     ========     ========     ========
Diluted earnings per share:
  Income from continuing  operations                                   $    .70     $    .87     $    .84     $   1.24     $    .87
  Income from discontinued operations                                      4.20          .20          .09          .16          .12
                                                                       --------     --------     --------     --------     --------
  Net income                                                           $   4.90     $   1.07     $    .93     $   1.40     $    .99
                                                                       ========     ========     ========     ========     ========
</TABLE>

<TABLE>
<CAPTION>
(In thousands)                                                           2003          2002        2001         2000          1999
----------------------------------------------------------------       ---------    ---------    --------     --------     ---------
<S>                                                                    <C>          <C>          <C>          <C>          <C>
BALANCE SHEET DATA AT YEAR-END
Real estate assets, at cost                                            $ 814,766    $ 671,519    $ 648,646    $ 629,207    $ 606,182
Net real estate assets                                                   538,163      415,665      411,189      409,261      392,142
Real estate and other assets held for disposition                         32,561       73,336       74,119       75,419       74,755
Total assets                                                             588,990      503,785      498,962      498,552      480,522
Mortgage notes payable                                                   427,318      422,003      390,587      390,946      376,125
Notes payable - unsecured                                                     --           --       16,000        5,000           --
5.375% Convertible Senior Notes                                           74,750           --           --           --           --
Mortgage notes payable and other liabilities
  held for disposition                                                    23,734       71,346       70,175       70,191       70,050
Minority interest                                                          7,556           --          905        2,803        3,424
Shareholders' equity (deficit)                                            39,362       (1,610)       9,492       20,052       22,049
</TABLE>

<TABLE>
<CAPTION>
(In thousands, except per share data) / Year ended December 31,        2003         2002         2001         2000          1999
----------------------------------------------------------------     ---------    ---------    --------     --------     ----------
<S>                                                                  <C>          <C>          <C>          <C>          <C>
SUPPLEMENTAL INFORMATION

Dividends declared per share                                         $    1.72    $    1.72    $    1.72    $    1.68    $    1.64
                                                                     =========    =========    =========    =========    =========
Net cash provided by operating activities                            $  43,107    $  42,875    $  42,221    $  38,875    $  35,488
Net cash used in investing activities                                  (30,585)     (25,615)     (21,335)     (30,474)     (65,734)
Net cash (used in) provided by
  financing activities                                                 (12,896)     (16,311)     (20,456)      (9,419)      28,742
Reconciliation of net income to funds
  from operations:
  Net income(1)                                                      $  78,768    $  17,292    $  14,956    $  22,291     $ 15,592
  Income allocated to minority interest                                 11,798        3,337        2,345        3,521        2,475
  Gain on involuntary conversion                                          (621)          --           --           --           --
  Gain on sales of properties                                          (80,081)          --           --       (9,461)      (7,073)
  Real estate depreciation                                              23,175       21,153       20,359       21,809       24,718
                                                                     ---------    ---------    ---------    ---------    ---------
  Funds from operations(1,2)                                         $  33,039    $  41,782    $  37,660    $  38,160    $  35,712
                                                                     =========    =========    =========    =========    =========
</TABLE>

(1)  Net income and funds from  operations  for the year ended December 31, 2003
     include a $4,000,000  impairment charge on one of the Charlotte  properties
     held for  disposition.  Net income and funds from  operations  for the year
     ended  December  31,  2001  include a charge of  $3,338,000  related to the
     departure of two senior executives and one other officer.

(2)  Funds from operations ("FFO") is computed as net income (loss) (computed in
     accordance  with  accounting  principles  generally  accepted in the United
     States)  ("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.



                                       11

<PAGE>

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

Overview

The Town and Country Trust, organized in 1993, is a real estate investment trust
("REIT") focused on the ownership and operation of middle income multifamily
apartment communities in selected markets in the Mid-Atlantic and Southeast
regions of the U. S. The Company seeks to acquire additional apartments in
certain of its existing markets, particularly in the Greater Washington, D. C.
and Baltimore metropolitan areas. The Company is also interested in pursuing
multifamily investment opportunities in other "high barrier to entry" markets
within its operating region. 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. The newly acquired assets are
expected to have more predictable operating expenses and reduced capital
expenditure requirements that will lead to better sustainable operating cash
flows. At December 31, 2003, the Company owned 38 apartment communities with
13,065 apartment homes classified as real estate held for investment and 2
apartment communities with 580 apartment homes classified as real estate held
for disposition.

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 accounting principles generally accepted in the
United States. 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.

                                       12
<PAGE>

REAL ESTATE The Company capitalizes expenditures made to acquire new assets,
substantially improve the value of an existing asset or extend its useful life.
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 the acquisition 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 when due from
tenants. 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 is 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 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.

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.

Results of Operations

The Company's results include the results of both continuing and discontinued
operations. Discontinued operations reflect operations of two apartment
communities (580 apartment homes) that are being marketed for sale at December
31, 2003, and five apartment communities (2,325 apartment homes) that were sold
during the year. Results from these properties are reflected in the caption
"Income from Discontinued Operations" in the accompanying statement of
operations. 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
2003 and 2002. Results from new acquisitions include results from three
communities (733 apartment homes) acquired in 2003.

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 is an $80,081,000 gain resulting from the sale of
three communities in July 2003 and two communities in November 2003. Also
included in net income is a $4,000,000 impairment charge recorded on a property
held for disposition. The increase in operating and other expenses exceeded the
increase in rental income for the year, despite the acquisition of three
properties, resulting in a decrease in income before discontinued operations and
minority interest. The increase in expenses was primarily attributable to an
increase in interest costs related to the issuance of the convertible senior
notes and the effect of floating to fixed interest rate swaps, abnormally high
weather related expenses associated with the harsh winter of 2003, significantly
higher energy costs, principally associated with natural

                                       13
<PAGE>

gas rates, real estate tax increases and significantly increased insurance costs
related to the 2002 annual renewal of the Company's insurance program. Net
income available to common shareholders 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                                  47,656       44,311        3,345      7.5%
                                                  -------------------------------------------
Net operating income                              $ 65,004     $ 65,921     $   (917)    (1.4)%
                                                  ===========================================
</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                                   $ 65,004        $65,921
(Add) deduct:
  Real estate depreciation                                          20,675         17,797
  Interest expense                                                  28,785         25,216
  General and administrative                                         5,658          5,262
  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>

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.

                                       14
<PAGE>

Same Store operating expenses for the year ended December 31, 2003, increased
7.5%, or $3,345,000, to $47,656,000 from $44,311,000 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. Other expense increased $538,000, or 5.3%, to $10,682,000
from $10,144,000 as the Company continues 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 (i.e., rental income less operating expenses) decreased $917,000, or
1.4%, to $65,004,000 from $65,921,000.

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 During the year ended December 31, 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 last year. This increase
reflects an increase in the average amount of outstanding debt attributable to
continuing operations during the year to $455.4 million versus $410.0 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 the current year, the weighted average interest rate
attributable to the Company's average amount of continuing debt outstanding,
excluding the Convertible Senior Notes was 5.74% compared to 6.01% for last
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 last year. The income from discontinued operations 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. It also includes a
$4,000,000 impairment charge recorded on one of the Charlotte properties held
for disposition at December 31, 2003.

DISTRIBUTIONS TO MINORITY INTEREST (LESS THAN) IN EXCESS OF EARNINGS Accounting
principles generally accepted in the United States 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.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001 Net income
for 2002 was $17,292,000, or $1.07 per diluted share, an increase of $2,336,000
from $14,956,000, or $.93 per diluted share, for the year ended December 31,
2001. Net income for 2001 includes a charge of $3,338,000 related to the
departure of two senior executives and one other officer.

CONTINUING OPERATIONS The Company had no acquisition activity during 2002 and
2001 and, therefore, the Company's results from continuing operations represent
results on a Same Store basis. Operating results for continuing operations are
set forth in the table below:

<TABLE>
<CAPTION>
(In thousands) / Year ended December 31,              2002            2001               Change
----------------------------------------------------------------------------------------------------
<S>                                                <C>             <C>             <C>           <C>
Rental income                                      $ 110,232       $ 107,401       $ 2,831       2.6%
Operating expenses                                    44,311          41,640         2,671       6.4%
                                                   -------------------------------------------------
Net operating income                               $  65,921        $ 65,761         $ 160       0.2%
                                                   =================================================
</TABLE>

                                       15
<PAGE>


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

<TABLE>
<CAPTION>
(In thousands) / Year ended December 31,       2002          2001
-------------------------------------------------------------------
<S>                                          <C>           <C>
Net operating income                         $ 65,921      $ 65,761
(Add) deduct:
  Real estate depreciation                     17,797        17,154
  Interest expense                             25,216        24,387
  General and administrative                    5,262         4,820
  Other depreciation and amortization             686           491
  Income from discontinued operations          (3,669)       (1,730)
  Separation expense                               --         3,338
  Income allocated to minority interest         3,337         2,345
                                             ----------------------
Net income                                   $ 17,292      $ 14,956
                                             ======================
</TABLE>

Rental income in 2002 grew by $2,831,000, or 2.6%, reflecting average rental
rate increases of 3.5% and a 0.9% decline in physical occupancy to 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)      2002       2001     Change        2002       2001    Change
----------------------------------------------------------------------------------------------------------------
<S>                           <C>                   <C>         <C>      <C>           <C>        <C>     <C>
Baltimore, Maryland                37.2%            $  703      $ 660      6.5%        93.9%      95.6%    (1.7)%
Metropolitan Washington DC
  Northern Virginia                14.8%             1,045      1,051     (0.6)%       93.0%      93.9%    (0.9)%
  Maryland Suburbs                 10.0%               869        803      8.2%        93.7%      94.3%    (0.6)%
Pennsylvania                       16.8%               632        624      1.3%        94.4%      95.3%    (0.9)%
Orlando, Florida                    7.6%               721        733     (1.6)%       91.5%      91.5%     0.0%
Sarasota/Bradenton, Florida         6.0%               746        722      3.3%        92.9%      93.2%    (0.3)%
Newark, Delaware                    4.0%               858        822      4.4%        95.0%      96.3%    (1.3)%
Palm Beach Gardens, Florida         3.6%               883        865      2.1%        95.7%      92.2%     3.5%
                                  -----------------------------------------------------------------------------
  Total                           100.0%            $  775      $ 749      3.5%        93.6%      94.5%    (0.9)%
                                  =============================================================================
</TABLE>

(1) Based on number of apartment homes

Total operating expenses increased 6.4%, or $2,671,000, to $44,311,000 from
$41,640,000 in 2001. Operating expenses for the period were affected by an
increase in real estate taxes and insurance of $879,000, or 8.7%, to $10,945,000
from $10,066,000 due to the approximate $693,000 increase in insurance premiums
as well as increased deductibles related to the Company's July 1, 2002 insurance
program renewal. Repairs and maintenance increased $1,110,000, or 9.4%, to
$12,898,000 from $11,788,000 as the Company experienced increases in maintenance
payroll and related benefit expense and increased apartment turnover costs.
Weaker markets in 2002 caused a $399,000, or 11.2%, increase in marketing and
advertising expense to $3,964,000 from $3,565,000. Other expense increased
$694,000, or 7.3%, to $10,144,000 from $9,450,000 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. Utility costs in 2002 decreased $411,000, or 6.1%, due to reduced energy
costs, primarily natural gas, associated with mild weather and decreased
consumption.

INTEREST EXPENSE Interest expense from continuing operations for the year ended
December 31, 2002 increased $829,000, or 3.4%, to $25,216,000 from $24,387,000
in the prior year as the Company benefited from a 6.01% weighted average
interest rate attributable to mortgage debt compared to 6.52% during 2001,
despite an increase of $15.5 million in average borrowings.

DISCONTINUED OPERATIONS For the year ended December 31, 2002, income from
discontinued operations was $3,177,000, compared to $1,495,000 for the year
ended December 31, 2001, primarily due to a decrease in interest expense as a
result of lower interest rates.

                                       16
<PAGE>

DISTRIBUTIONS TO MINORITY INTEREST (LESS THAN) IN EXCESS OF EARNINGS Accounting
principles generally accepted in the United States 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. An additional allocation of $576,000 was made to minority
interest shareholders for the year ended December 31, 2002.

Funds from Operations

Funds from operations ("FFO") is computed as net income (loss) (computed in
accordance with accounting principles generally accepted in the United States)
("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
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
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,        2003          2002          2001
----------------------------------------------------------------------------------
<S>                                           <C>           <C>           <C>
Net Income                                    $ 78,768      $ 17,292      $ 14,956
Income allocated to minority interest           11,798         3,337         2,345
Gain on involuntary conversion                    (621)           --            --
Gain on sales of operating properties          (80,081)           --            --
Real estate depreciation                        23,175        21,153        20,359
                                              ------------------------------------
Funds from operations(1,2)                    $ 33,039      $ 41,782      $ 37,660
                                              ====================================

Other Data:

Net cash provided by operating activities     $ 43,107      $ 42,875      $ 42,221
Net cash used in investing activities          (30,585)      (25,615)      (21,335)
Net cash used in financing activities          (12,896)      (16,311)      (20,456)
</TABLE>

(1) Funds from operations for 2003 includes a $4,000,000 impairment charge on
one of the Charlotte properties held for disposition at December 31, 2003.

(2)Funds from operations for 2001 includes a $3,338,000 charge for separation
expense relating to the departure of two senior executives and one other
officer.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET COMMITMENTS The following table
summarizes the Company's contractual obligations as of December 31, 2003:

<TABLE>
<CAPTION>
(In thousands)                              Total    Less than 1 year    1-3 years      3-5 years    More than 5
----------------------------------------------------------------------------------------------------------------
<S>                                       <C>        <C>                 <C>            <C>          <C>
Long-term debt obligations                $525,543        $  661          $ 1,433        $399,139      $124,310
Operating lease obligations                  1,829           511              586             586           146
</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.

                                       17
<PAGE>

Liquidity and Capital Resources

Operating activities provided unrestricted cash for 2003 of $43,107,000 of which
$31,839,000 was paid out in dividends and distributions.

     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. Capital improvements of $30,658,000 ($1,959 per apartment
home) were made during 2003. Of this amount, $7,719,000 ($493 per apartment
home) was considered to be of a normal, recurring nature. These 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
recurring capital expenditures such as landscaping, parking lot sealing and
striping, HVAC equipment and various interior and exterior building
improvements. The remaining $22,939,000 ($1,466 per apartment home) of capital
improvements was considered to be non-recurring or revenue-enhancing in nature
and generally relates 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. The Company
finances its capital improvements through a revolving credit facility and
working capital.

     On April 30, 2003, the Company acquired two apartment communities
containing a total of 405 apartment homes in Pikesville, Maryland, a Baltimore
suburb, for approximately $64.4 million, including acquisition costs. The
properties were acquired through an intermediary in anticipation of the
completion of a like-kind exchange under Section 1031 of the Internal Revenue
Code. The Company funded the acquisitions using its existing credit facilities
during the period the properties were held with the intermediary. That exchange
was completed on July 31, 2003 with the sale of three apartment communities in
the Baltimore suburbs containing 1,449 apartment homes for $64.4 million, net of
disposition costs, and the acquisition properties were substituted as collateral
in the Fannie Mae credit facility.

     In April 2003, the Company refinanced two of its properties with new
mortgage debt aggregating $25.2 million. The loans, which bear interest at a
weighted average rate of 4.15%, mature in April 2007 and the maturity may be
extended to April 2008 at the Company's option.

     In April 2003, the Company expanded its existing credit facility with
Fannie Mae by $49.2 million to $488.2 million based upon increases in the
valuation of the properties in the collateral pool. This collateralized facility
matures in 2008. At December 31, 2003, outstanding borrowings, including amounts
allocated to properties held for disposition, under the facility were $375
million. Of the $375 million, $300 million bears interest at a fixed rate of
6.91%. The remaining $75 million outstanding has a weighted-average variable
rate of 1.81% at December 31, 2003 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 $40 million of its floating
rate debt, changing the weighted average rate at December 31, 2003 to 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. In October 2003, the Company renewed this line of
credit through October 2004 and at the Company's option the line may be extended
through October 2005. As of December 31, 2003, no amounts were outstanding under
the line.

     In August 2003, the Company sold $74.75 million aggregate principal amount
of 5.375% Convertible Senior Notes due 2023 in a private offering pursuant to
Rule 144A under the Securities Act of 1933, as amended. The notes mature on
August 15, 2023 and are convertible into the Company's common shares under
certain circumstances, including if the share price exceeds $30.61 for a
specified period of time. The initial conversion rate of the notes is 39.20185
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 will be considered in diluted
earnings per share when the conditions that permit conversion have occurred. 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, the
Company used approximately $15.0 million of the proceeds to repurchase and
retire 646,800 of its common shares ($23.19 per share) in privately negotiated
transactions.

                                       18
<PAGE>

    On September 29, 2003, the Company acquired an apartment community
containing 328 apartment homes in Herndon, Virginia, for approximately $53.0
million, including acquisition costs. The property was acquired through an
intermediary in anticipation of the completion of a like-kind exchange under
Section 1031 of the Internal Revenue Code. The Company funded the acquisition,
during the period the property was held with the intermediary, using proceeds
from the issuance of its Convertible Senior Notes. The exchange was completed on
November 5, 2003, with the sale of two apartment communities in the Baltimore
suburbs containing 876 apartment homes for $52.8 million and the acquisition
property was substituted as collateral in the Fannie Mae credit facility.

The following table sets forth certain information regarding the Company's
outstanding indebtedness as of December 31, 2003:

<TABLE>
<CAPTION>
(Dollar amounts in thousands)                           Amount           % of Debt   Interest Rate(2)     Maturity
------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                <C>         <C>                 <C>
Fixed Rate Debt:
Secured facility(1)                                   $ 340,000            64.7%           6.64%              2008
Conventional mortgages                                   52,318             9.9%           6.18%         2007-2009
                                                      -----------------------------------------
  Total fixed                                           392,318            74.6%           6.55%
Floating Rate Debt:
Revolving credit facility(1)                             35,000             6.7%           2.06%              2008
                                                      -----------------------------------------
  Total floating                                         35,000             6.7%           2.06%
Convertible Senior Notes                                 74,750            14.2%           5.38%              2023
Mortgage notes payable held for disposition              23,475             4.5%           6.81%              2009
                                                      -----------------------------------------
Total debt                                            $ 525,543           100.0%           6.09%
                                                      =========================================
</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 4.57% from January 2003 to April 2007.

(2) Weighted average

INTEREST RATE SENSITIVITY 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)               2004      2005       2006        2007        2008         Thereafter    Total   at 12/31/03
----------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>       <C>        <C>       <C>         <C>            <C>         <C>       <C>
Long-term Debt
  Fixed Rate                           $ 661     $ 697      $ 736     $ 23,841    $300,298        $124,310   $450,543   $492,225
  Avg. Interest Rate                     6.8%      6.8%       6.8%         6.8%        6.7%            6.1%
  Floating Rate                           --        --         --           --      75,000              --     75,000     75,000
  Avg. Interest Rate                      (1)       (1)        (1)          (1)         (1)             --
Interest Rate Derivative Financial
  Instruments Related to Debt
Interest Rate Swaps
  Pay Fixed/Receive Variable              --        --         --       40,000          --              --     40,000     (1,708)
  Avg. Pay Rate                         4.16%     4.16%      4.16%        4.16%         --              --
  Avg. Receive Rate                       (2)       (2)        (2)          (2)         --              --
Interest Rate Caps
  Notional Amount                         --        --         --      148,172          --              --    148,172        209
  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.

     At December 31, 2002, the Company had fixed rate debt outstanding of
$360,614,000, which had a fair value of $404,690,000.

                                       19
<PAGE>


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 $35 million in variable rate debt
outstanding at December 31, 2003, including amounts allocated to properties held
for disposition, but excluding amounts on which the interest rates are
effectively fixed by floating to fixed interest rate swap agreements. A
hypothetical 100 basis point increase in interest rates in 2004 over the rates
in effect during 2003 would result in an increase of interest expense and a
corresponding decrease in income before discontinued operations and minority
interest of approximately $245,000. This estimate incorporates only those
exposures that exist as of December 31, 2003 and does not consider exposures
that could arise after that date. This estimate takes into consideration that
the interest rate related to the $75 million revolving credit facility has
different tranches with various rollover dates throughout 2004 that effectively
fix the interest rate through the rollover dates.

     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
4.57%. 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.

     In July 2002, the Company adopted 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. During 2003, the Plan acquired a
total of 145,720 shares, including 144,135 newly issued shares purchased
directly from the Company at an average per share price of $23.50 for an
aggregate of $3,387,000.

     Management believes that the Company has and will have access to the
capital resources necessary to adequately fund its business. 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 inconsequential. Substantially all of the leases of the
properties 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.

                                       20
<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 Resources" 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

                           The Town and Country Trust

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
            (In thousands, except share data) / December 31,                       2003         2002
--------------------------------------------------------------------------      ---------    ---------
<S>                                                                             <C>          <C>
ASSETS

Real estate held for investment (Note 3):
  Land                                                                          $ 103,325    $  90,521
  Buildings and improvements                                                      702,352      573,003
  Other                                                                             9,089        7,995
                                                                                ---------    ---------
                                                                                  814,766      671,519
Less accumulated depreciation                                                     276,603      255,854
                                                                                ---------    ---------
                                                                                  538,163      415,665
Real estate and other assets held for disposition (Note 4)                         32,561       73,336
Cash and cash equivalents                                                           2,267        2,641
Restricted cash (Note 2)                                                            2,415        2,660
Deferred financing costs, net                                                       6,628        3,652
Other assets                                                                        6,956        5,831
                                                                                ---------    ---------
  Total assets                                                                  $ 588,990    $ 503,785
                                                                                =========    =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Mortgage notes payable (Note 5)                                                  $427,318    $ 422,003
5.375% Convertible Senior Notes (Note 6)                                           74,750            -
Mortgage notes payable and other liabilities held for disposition (Note 4)         23,734       71,346
Accrued interest                                                                    4,021        1,835
Accounts payable and other liabilities                                              9,157        7,521
Security deposits                                                                   3,092        2,690
Minority interest                                                                   7,556            -
                                                                                ---------    ---------
  Total liabilities                                                               549,628      505,395
Shareholders' equity (deficit) (Notes 1 and 9):
  Common shares of beneficial interest ($0.01 par value),
    500,000,000 shares authorized, 15,858,619 and 16,259,065 issued
    and outstanding at December 31, 2003 and 2002, respectively                       159          163
  Additional paid-in capital                                                      316,926      326,789
  Distributions in excess of accumulated earnings                                (272,370)    (323,541)
  Deferred compensation - restricted stock                                         (3,299)      (2,997)
  Accumulated other comprehensive loss                                             (2,054)      (2,024)
                                                                                ---------    ---------
    Total shareholders' equity (deficit)                                           39,362      (1,610)
                                                                                ---------    ---------
  Total liabilities and shareholders' equity (deficit)                          $ 588,990    $ 503,785
                                                                                =========    =========
</TABLE>

See accompanying notes.

                                       21
<PAGE>

                           The Town and Country Trust

                      CONSOLIDATED STATEMENTS OF OPERATIONS

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

Rental income                                                       $118,017       $110,232    $107,401

EXPENSES:

Operating expenses:
  Real estate taxes and insurance                                     12,647         10,945      10,066
  Utilities                                                            7,181          6,360       6,771
  Repairs and maintenance                                             14,664         12,898      11,788
  Marketing and advertising                                            4,172          3,964       3,565
  Other                                                               11,092         10,144       9,450
                                                                    --------       --------    --------
  Total operating expenses                                            49,756         44,311      41,640
Real estate depreciation                                              20,675         17,797      17,154
Interest expense                                                      28,785         25,216      24,387
General and administrative                                             5,658          5,262       4,820
Other depreciation and amortization                                      712            686         491
Separation expense (Note 8)                                                -              -       3,338
                                                                    --------       --------    --------
                                                                     105,586         93,272      91,830
                                                                    --------       --------    --------
Income before discontinued operations and minority interest           12,431         16,960      15,571
Income allocated to minority interest from continuing operations      (1,681)        (2,269)     (2,110)
Minority interest distribution less than (in excess of)
  earnings (Note 12)                                                     576           (576)          -
                                                                    --------       --------    --------
Income from continuing operations                                     11,326         14,115      13,461
                                                                    --------       --------    --------
Discontinued operations:
  Income from discontinued operations                                  2,054          3,669       1,730
  Gain on sales of properties (Note 4)                                80,081              -           -
  Impairment of assets held for disposition (Note 4)                  (4,000)             -           -
  Income allocated to minority interest from
    discontinued operations                                          (10,693)          (492)       (235)
                                                                    --------       --------    --------
  Income from discontinued operations                                 67,442          3,177       1,495
                                                                    --------       --------    --------
Net income                                                          $ 78,768       $ 17,292    $ 14,956
                                                                    ========       ========    ========
Basic earnings per share (Note 1):

  Income from continuing operations                                 $   0.72       $   0.88    $   0.86
  Income from discontinued operations                                   4.27           0.20        0.09
                                                                    --------       --------    --------
  Net income                                                        $   4.99       $   1.08    $   0.95
                                                                    ========       ========    ========
Diluted earnings per share (Note 1):

  Income from continuing operations                                 $   0.70       $   0.87     $  0.84
  Income from discontinued operations                                   4.20           0.20        0.09
                                                                    --------       --------    --------
  Net income                                                        $   4.90       $   1.07    $   0.93
                                                                    ========       ========    ========
Weighted average common shares outstanding - basic                    15,773         15,961      15,727
Dilutive effect of outstanding options and restricted shares             298            253         370
                                                                    --------       --------    --------
Weighted average common shares outstanding - diluted                  16,071         16,214      16,097
                                                                    ========       ========    ========
Dividends declared and paid per share outstanding                   $   1.72       $   1.72    $   1.72
                                                                    ========       ========    ========
</TABLE>

See accompanying notes.

                                       22
<PAGE>

                           The Town and Country Trust

            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                        Common Shares                  Distributions
                                     of Beneficial Invest  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, 2001            16,009    $    160   $ 322,962   $ (300,194)    $     (2,876)          $  -   $   20,052
Comprehensive income:
  Net income                               -            -           -        14,956              -              -       14,956
                                      ------    ---------  ----------  ------------   ------------  -------------   ----------
Comprehensive income                       -            -           -        14,956              -              -       14,956
Dividends declared ($1.72 per share)       -            -           -       (27,654)             -              -      (27,654)
Amortization of deferred
  compensation                             -            -           -             -          1,284              -        1,284
Share options exercised                   59            1         853             -              -              -          854
Issuance of restricted share awards       20            -         378             -           (378)             -            -
                                      ------    ---------  ----------  ------------   ------------  -------------   ----------
Balance at December 31, 2001          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 (Note 14)        -            -           -             -              -         (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 (Note 11)                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 (Note 14)        -            -           -             -              -            (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 (Note 11)              144            1       3,386             -              -              -        3,387

Repurchase of common shares of
  beneficial interest (Note 6)          (647)          (6)    (14,993)            -              -              -      (14,999)
                                      ------    ---------  ----------  ------------   ------------  -------------   ----------
Balance at December 31, 2003          15,859    $     159  $  316,926  $   (272,370)  $     (3,299) $     (2,054)   $   39,362
                                      ======    =========  ==========  ============   ============  =============   ==========
</TABLE>

See accompanying notes.

                                       23
<PAGE>

                           The Town and Country Trust

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
           (In thousands) / Year ended December 31,                    2003       2002        2001
----------------------------------------------------------------     --------   --------    --------
<S>                                                                  <C>        <C>         <C>
OPERATING ACTIVITIES
 Net income                                                          $ 78,768   $ 17,292    $ 14,956
 Adjustments to reconcile net income to net cash provided by
   operating activities:
      Depreciation and amortization                                    22,442     19,122      18,138
      Depreciation and amortization from discontinued operations        2,606      3,461       3,292
      Income allocated to minority interest                            11,798      3,337       2,345
     Amortization of deferred compensation                                738        597       1,284
      Gain on sales of properties                                     (80,081)         -           -
      Impairment on assets held for disposition                         4,000          -           -
      Changes in operating assets and liabilities:
        Decrease (increase) in restricted cash                            245       (200)       (250)
        (Increase) decrease in other assets                              (530)     1,074         101
        Increase (decrease) in accounts payable, other
        liabilities, accrued interest and security deposits             3,121     (1,808)      2,355
                                                                     --------   --------    --------
   Net cash provided by operating activities                           43,107     42,875      42,221
 INVESTING ACTIVITIES

 Acquisitions of operating properties                                (117,435)         -           -
 Net proceeds from disposition of properties                          117,209          -           -
 Capital expenditures, net                                            (30,359)   (25,615)    (21,335)
                                                                     --------   --------    --------
 Net cash used in investing activities                                (30,585)   (25,615)    (21,335)
 FINANCING ACTIVITIES
 Net (payments) borrowings on mortgage notes payable                  (41,224)    32,613        (359)
 Net (payments) borrowings on notes payable - unsecured                     -    (16,000)     11,000
 Proceeds from issuance of Convertible Senior Notes                    74,750          -           -
 Payment of financing costs                                            (3,676)    (1,715)        (54)
 Proceeds from issuance of shares under share purchase plan             3,387         41           -
 Proceeds from exercise of share options                                  705        933         854
 Repurchase of common shares of beneficial interest                   (14,999)         -           -
 Dividends paid to shareholders                                       (27,597)   (27,941)    (27,654)
 Distributions to minority interest holders                            (4,242)    (4,242)     (4,243)
                                                                     --------   --------    --------
 Net cash used in financing activities                                (12,896)   (16,311)    (20,456)
                                                                     --------   --------    --------
 (Decrease) increase in cash and cash equivalents                        (374)       949         430
 Cash and cash equivalents at beginning of period                       2,641      1,692       1,262
                                                                     --------   --------    --------
 Cash and cash equivalents at end of period                          $  2,267   $  2,641    $  1,692
                                                                     ========   ========    ========
 Cash interest paid                                                  $ 29,074   $ 28,814    $ 30,397
                                                                     ========   ========    ========
</TABLE>

See accompanying notes.

                                       24


<PAGE>

                           The Town and Country Trust

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 01 Organization and Significant Accounting Policies

ORGANIZATION The Town and Country Trust (the "Trust"), a Maryland business
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 Trust, through its Operating Partnership, The TC Operating Limited
Partnership (collectively, the "Company"), owned 13,645 apartment homes in 40
apartment communities (including two apartment communities held for sale at
December 31, 2003) in selected markets in the Mid-Atlantic and Southeast at
December 31, 2003.

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 2003, 2002 or 2001 on any of
its properties held for investment. However, as discussed in Note 4, the Company
recognized an impairment loss in 2003 related to a property held for disposition
as of December 31, 2003.

         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. Depreciation expense was $21,387,000, $18,483,000 and $17,645,000
for 2003, 2002 and 2001, respectively. Intangible assets relating to the value
of in-place leases for community acquisitions are amortized over the remaining
term of the tenant leases.

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.

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, 2003 and 2002 are presented net of accumulated
amortization of $3,272,000 and $2,394,000, respectively. Amortization of
deferred financing costs are included in interest expense and totaled
$1,055,000, $638,000 and $494,000, during 2003, 2002 and 2001, respectively.

INTEREST RATE RISK MANAGEMENT SFAS No. 133, Accounting for Certain Derivative
Instruments and Hedging Activities, as amended, was adopted by the Company on
January 1, 2001. SFAS No. 133, 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 meas-

                                       25
<PAGE>

                           THE TOWN AND COUNTRY TRUST

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ured 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 is 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, 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 is 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 when due from
tenants. 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 is 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, 2003, 2002 and 2001 was $1,110,000, $1,171,000 and $1,162,000,
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.

MINORITY INTEREST There were 2,466,535 limited partnership units in The TC
Operating Limited Partnership at December 31, 2003 and 2002 not held by the
Company which were outstanding and could be exchanged for cash, or, at the
Company's option, common shares of beneficial interest of the Company 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 accounting principles generally accepted in the United States.
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 The Company accounts for its stock based employee
compensation plans using the intrinsic value method under the recognition and
measurement principle of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees. Under APB 25, since the exercise price
of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, and other criteria are met, no
compensation expense is recognized.

NEW ACCOUNTING PRONOUNCEMENTS In April 2003, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities, which clarifies the accounting and reporting
for derivative instruments, including derivative instruments that are embedded
in contracts. This statement is effective for contracts entered into or modified
after June 30, 2003. The Company's adoption of this pronouncement, effective
July 1, 2003, did not have a material impact on the Company's financial
condition or results of operations.

         In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. This
statement establishes standards for the classification and measurement of
financial instruments

                                       26
<PAGE>

that possess characteristics similar to both liability and equity instruments.
SFAS No. 150 also addresses the classification of certain financial instruments
that include an obligation to issue equity shares. This statement is effective
for financial instruments entered into or modified after May 31, 2003 and
otherwise is effective at the beginning of the first interim period commencing
after June 15, 2003. The Company's adoption of this pronouncement, effective
July 1, 2003, had no impact on the Company's financial condition or results of
operations.

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

NOTE 02 Restricted Cash

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

NOTE 03 Real Estate

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

<TABLE>
<CAPTION>
   (In thousands)          2003       2002       2001
----------------------   --------   --------   --------
<S>                      <C>        <C>        <C>
Balance at January 1     $671,519   $648,646   $629,207
Real estate purchased     117,435          -          -
Improvements               26,491     22,991     19,439
Real estate sold             (679)      (118)         -
                         --------   --------   --------
Balance at December 31   $814,766   $671,519   $648,646
                         ========   ========   ========
</TABLE>

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   $295,526   $    120,358    $175,168        $     153,414
Metropolitan Washington D.C.
  Northern Virginia                       6    192,239         48,654     143,585              102,075
  Maryland suburbs                        4     67,487         31,647      35,840               42,974
Delaware                                  2     31,351          8,340      23,011               18,225
Pennsylvania                              7     85,852         50,279      35,573               40,500
Orlando, Florida                          3     63,297          8,599      54,698               34,650
Sarasota/Bradenton, Florida               3     43,861          5,285      38,576               23,855
Palm Beach Gardens, Florida               1     35,153          3,441      31,712               11,625
                                         --   --------   ------------    --------        -------------
                                         38   $814,766   $    276,603    $538,163        $     427,318
                                         ==   =======    ============    ========        =============
</TABLE>

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

(2) 33 properties are cross-collateralized with $375 million outstanding at
    December 31, 2003 under the Company's existing credit facility.

On April 30, 2003, the Company acquired two apartment communities containing a
total of 405 apartment homes in Baltimore, Maryland, for approximately $64.4
million, including acquisition costs. On September 29, 2003, the Company
acquired another apartment community containing 328 apartment homes in Herndon,
Virginia, for approximately $53.0 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

                                       27

<PAGE>


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, 2002, and 2001.

<TABLE>
<CAPTION>
(In thousands, except per share data)          2003             2002             2001
                                           -----------      -----------      -----------
<S>                                        <C>              <C>              <C>
Revenues                                   $   123,737      $   121,668      $   118,628
Net income                                 $    78,619      $    16,823      $    14,602
Income per share - basic                   $      4.98      $      1.05      $      0.93
Income per share - diluted                 $      4.89      $      1.04      $      0.91
                                           ===========      ===========      ===========
</TABLE>

Note 04 Discontinued Operations

The Company sold five of its apartment communities in 2003 with aggregate sale
proceeds of approximately $117,209,000. For financial reporting purposes, the
Company recorded a gain of $80,081,000.

      The Company has classified two of its apartment communities as held for
disposition at December 31, 2003, as it is actively marketing the sale of these
two communities. Based on the carrying value of one of these apartment
communities and the Company's estimate of its fair value less costs to sell, the
Company recorded an impairment charge of $4,000,000 during 2003.

      The results of operations for these seven properties are classified on the
Consolidated Statements of Operations as, "Income from discontinued operations"
and the assets and liabilities 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. Condensed financial
information of the results of operations of the seven apartment communities is
as follows:

<TABLE>
<CAPTION>
(In thousands)                             2003         2002         2001
                                         -------      -------      -------
<S>                                      <C>          <C>          <C>
Rental income                            $15,132      $20,186      $19,530
Operating expenses                         7,475        8,759        8,204
Real estate depreciation                   2,500        3,356        3,205
Interest expense                           3,724        4,402        6,391
Gain on involuntary conversion               621           --           --
-----------------------------------      -------      -------      -------
Income from discontinued operations      $ 2,054      $ 3,669      $ 1,730
                                         =======      =======      =======
</TABLE>

Condensed balance sheet information for the apartment communities classified as
discontinued operations consisted of the following at December 31,
2003 and 2002:

<TABLE>
<CAPTION>
(In thousands)                                                            2003            2002
                                                                       ---------       ---------
<S>                                                                    <C>             <C>
Land                                                                   $   6,032       $  12,265
Building and improvements                                                 32,901         119,187
Other                                                                         78             495
Accumulated depreciation                                                  (6,694)        (59,911)
Other assets                                                                 244           1,300
                                                                       ---------       ---------
Real estate and other assets held for disposition                      $  32,561       $  73,336
                                                                       =========       =========
Mortgage notes payable                                                 $  23,475       $  70,014
Other liabilities                                                            259           1,332
                                                                       ---------       ---------
Mortgage notes payable and other liabilities held for disposition      $  23,734       $  71,346
                                                                       =========       =========
</TABLE>


                                       28

<PAGE>
Note 05 Mortgage Notes Payable

In April 2003, the Company expanded its existing credit facility with Fannie Mae
by $49.2 million to $488.2 million based upon increases in the valuation of the
properties in the collateral pool. The collateralized facility matures in April
2008. At December 31, 2003, total outstanding borrowings under the facility were
$375,000,000. Of the $375,000,000 outstanding at December 31, 2003, $300,000,000
bears interest at a fixed rate of 6.91%. The remaining $75,000,000 is
outstanding at variable rates and can be converted to a fixed-rate term loan at
the Company's option. The Company executed floating to fixed rate interest rate
swap agreements, to effectively fix the interest rate on $40 million of its
floating rate debt from January 2003 through March 2007. After giving effect to
the swaps, the weighted average interest rate on the Company's $75 million of
floating rate debt at December 31, 2003 was 3.40%.

      Total outstanding borrowings under the facility as of December 31, 2002
were $415,152,000 of which $46,538,000 was allocated to properties held for
disposition. Of the $415,152,000, $300,000,000 bears interest at a fixed rate of
6.91%. The remaining $115,152,000 was outstanding at a weighted-average variable
rate of 2.85% at December 31, 2002.

      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 2003, the Company renewed this line of
credit through October 2004 and at the Company's option the line may be extended
through October 2005. As of December 31, 2003 and 2002, 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
4.57%. 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         2003            2002
----               -------------   --------         ----            ----
<S>                <C>             <C>         <C>               <C>
Amortizing                 7.74%     2003      $         --      $ 9,570,000
Amortizing         4.11% - 4.18%     2007      $ 24,950,000      $        --
Non-amortizing             6.81%     2009      $ 33,175,000*     $33,175,000*
Amortizing                 7.85%     2009      $ 17,668,000      $17,689,000
</TABLE>

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

All of the Company's 40 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 $6,450,000 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, 2003, the Company was in compliance with these covenants.

      The following is a summary of scheduled debt maturities including
$23,475,000 of debt allocated to properties held for disposition:

<TABLE>
<S>                                  <C>
(In thousands)
2004                                 $    661
2005                                      697
2006                                      736
2007                                   23,841
2008                                  375,298
Thereafter                            124,310
                                     --------
Total scheduled debt maturities      $525,543
                                     ========
</TABLE>


                                       29
<PAGE>
Note 06 5.375% Convertible Senior Notes

In August 2003, the Company sold $74.75 million aggregate principal amount of
5.375% Convertible Senior Notes due 2023 in a private offering pursuant to Rule
144A under the Securities Act of 1933, as amended. 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 will be considered in diluted
earnings per share when the conditions that permit conversion have occurred. 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. The shares will be considered in
diluted earnings per share when the conditions that permit conversion have
occurred. Concurrent with the offering, the Company used approximately $15.0
million of the proceeds to purchase and retire 646,800 of its common shares at
$23.19 per share in privately negotiated transactions.

Note 07 Income Taxes

Since its inception, the Trust 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 Trust 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 Trust has qualified as a REIT for 2003, 2002 and
2001. Accordingly, no provision has been made for Federal income taxes. Although
the Trust 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.

      The Company 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, 2003, 2002 and 2001:

<TABLE>
<CAPTION>
(In thousands, unaudited)                                     2003           2002           2001
                                                            --------       --------       --------
<S>                                                         <C>            <C>            <C>
GAAP net income                                             $ 78,768       $ 17,292       $ 14,956
Book/tax depreciation and amortization difference                404           (272)           (69)
Book/tax gain on 1031 tax deferred exchange difference       (80,036)            --             --
Book impairment on property held for disposition               4,000             --             --
Separation expense, timing differences                          (406)        (1,982)         2,388
Deferred compensation, timing differences                        734         (1,666)           419
Other operating book/tax differences, net                     (1,417)        (1,219)        (1,187)
Book/tax minority interest allocation difference              14,925          5,757          3,354
                                                            --------       --------       --------
REIT taxable income before dividends                        $ 16,972       $ 17,910       $ 19,861
                                                            --------       --------       --------
Dividends paid                                              $ 27,597       $ 27,941       $ 27,654
                                                            ========       ========       ========
</TABLE>

For income tax purposes, dividends to common shareholders consist of ordinary
income and return of capital. For the years ended December 31, 2003, 2002 and
2001, dividends paid per share were taxable as follows:

<TABLE>
<CAPTION>
                               2003                  2002                   2001
                               ----                  ----                   ----
(Unaudited)            Amount        %        Amount        %        Amount        %
-----------            ------        -        ------        -        ------        -
<S>                    <C>        <C>         <C>        <C>         <C>        <C>
Ordinary income        $ 1.10       64.2%     $ 1.13       65.9%     $ 1.29       74.8%
Return of capital         .62       35.8%        .59       34.1%        .43       25.2%
                       ------     ------      ------     ------      ------     ------
Total dividend         $ 1.72      100.0%     $ 1.72      100.0%     $ 1.72      100.0%
                       ======      =====      ======      =====      ======      =====
</TABLE>


                                       30
<PAGE>
Note 08 Separation Expenses

During the first quarter of 2001, the Company recorded a nonrecurring charge of
approximately $3.3 million, relating to the departure of two senior executives
and one non-executive officer. Included in this charge is approximately $1.2
million of non-cash items relating principally to the vesting of restricted
stock grants made in prior years.

Note 09 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
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, 2003 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, 2001               289,013        243,433        $13.50 - $22.00       $14.98
Granted                                   40,990         45,010        $19.125 - $19.36      $19.34
Exercised                                (47,923)       (11,365)       $14.00 - $15.25       $14.75
Forfeited                                   (666)            --                 $15.25       $15.25
                                         -------        -------
Balance at December 31, 2001             281,414        277,078        $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             274,717        360,121        $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             220,457        352,121        $13.50 - $21.28       $18.28
                                         =======        =======

Shares exercisable at December 31:
  2003                                   143,628        263,619        $14.00 - $21.28       $17.11
                                         =======        =======
  2002                                   151,143        201,361        $13.50 - $22.00       $15.66
                                         =======        =======
  2001                                   221,460        223,700        $13.50 - $22.00       $15.05
                                         =======        =======
</TABLE>

An additional 439,200, 500,950 and 814,000 common shares have been authorized
for issuance in future grants of options under the Plans as of December 31,
2003, 2002 and 2001, respectively. 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 Statement
148, which also requires that the information be determined as if the Company
had


                                       31
<PAGE>

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)                    2003             2002             2001
                                                             ----------       ----------       ----------
<S>                                                          <C>              <C>              <C>
Net income, as reported                                      $   78,768       $   17,292       $   14,956
Add: Total stock compensation expense included
  in reported net income                                            738              597            1,284
Less: Total stock based compensation expense determined
  under the fair value method for all awards                       (844)            (688)          (1,356)
                                                             ----------       ----------       ----------
Pro forma net income                                         $   78,662       $   17,201       $   14,884
                                                             ==========       ==========       ==========
Earnings per share:
  Basic, as reported                                         $     4.99       $     1.08       $      .95
  Basic, pro forma                                           $     4.99       $     1.08       $      .95
  Diluted, as reported                                       $     4.90       $     1.07       $      .93
  Diluted, pro forma                                         $     4.89       $     1.06       $      .92
</TABLE>

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>
                                                 2003          2002          2001
                                               -------       -------       -------
<S>                                            <C>           <C>           <C>
Risk free interest rate                            4.6%          4.3%          4.9%
Dividend yield                                     8.8%          8.1%          8.9%
Volatility factor                                  .18           .17           .18
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, 2003, 2002 and 2001 was $.87, $1.10 and $.94,
respectively. The weighted average remaining contractual life of options granted
is 5.58 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. Effective January 1, 2001, the
401(k) Plan was amended to comply with Internal Revenue Service requirements to
qualify as a 401(k) Safe Harbor Plan whereby discretionary contributions made by
the Company are 100% vested. Prior to the amendment, the Plan provided for
vesting over a five-year period beginning with the completion of three years of
service. The aggregate cost of the Company's contributions to the 401(k) Plan
was $483,000, $472,000, and $403,000 for the years ended December 31, 2003,
2002, and 2001, respectively.

RESTRICTED SHARES From 1995 through 2002, the Company granted 429,250 restricted
common shares to certain officers, pursuant to the 1993 and 1997 Plans. In
January 2003, the Company granted an additional 54,750 restricted shares under
the 1997 Plan. The stock price on the date of grant was $20.51. 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
2003 grants, the shares become vested 20% per year in years four through eight
of the restricted stock agreement. Should the officer-


                                       32

<PAGE>
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 ($3,299,000 and $2,997,000 at December 31, 2003 and 2002,
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 $738,000, $597,000 and $1,284,000 for the years ended
December 31, 2003, 2002 and 2001, respectively. Amortization for 2001 includes
accelerated vesting of $865,000 classified as separation expense (See Note 8).

SUPPLEMENTAL EMPLOYEES RETIREMENT PLAN The Company has a split-dollar life
insurance plan for certain officers. The Company advances the premiums on life
insurance policies for certain officers where such advances are not considered
loans under the Sarbanes-Oxley Act of 2002. 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 cash surrender values of the policies totaled $447,000 and
$404,000 as of December 31, 2003 and 2002 respectively, and are recorded as an
asset to the Company. In 2004, the Company elected to discontinue paying
premiums on all split dollar policies. The cash surrender values will remain in
place until the officers covered under the plan retire or leave the Company's
employment.

Note 10 Leases

The Company leases certain office facilities and equipment under noncancellable
operating leases. Future minimum rental commitments under noncancellable leases
with remaining terms in excess of one year are as follows at December 31, 2003:

<TABLE>
<CAPTION>
                           (In thousands)
<S>                        <C>
2004                          $  511
2005                             293
2006                             293
2007                             293
2008                             293
Thereafter                       146
                              ------
Total rental commitments      $1,829
                              ======
</TABLE>

Total rent expense for the years ended December 31, 2003, 2002, and 2001 was
approximately $552,000, $483,000 and $488,000, respectively.

Note 11 Dividend Reinvestment and Share Purchase Plan

In July 2002, the Company adopted 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,                 2003         2002
                                      -------      -------
<S>                                   <C>            <C>
Total shares acquired                 145,720        3,951
Shares purchased from Company         144,135        1,865
Weighted average price per share      $ 23.50      $ 21.93
</TABLE>

At December 31, 2003, 604,000 shares remain available for future purchases under
the Plan.


                                       33
<PAGE>

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. Accounting principles generally
accepted in the United States 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 the minority interests and,
therefore, the Company reallocated the $576,000 that had previously been so
allocated to the minority interests.

Note 13 Related Party Transactions

At December 31, 2003 and 2002, the Company had unsecured loans receivable from
one officer in the aggregate amount of $85,000 and $106,000, respectively. The
loans bear interest at rates comparable to the rate earned on the Company's
invested funds.

Until December 2002, a Trustee of the Company was a partner in a law firm that
serves as general counsel to the Company. The Company incurred fees of $302,000
and $411,000 for legal services provided by this firm during 2002 and 2001,
respectively.

Note 14 Financial Instruments

The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments as of December 31, 2003 and 2002. FASB
Statement 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, 2003                 December 31, 2002
                                             -----------------                 -----------------
(In thousands)                        Carrying Amount     Fair Value     Carrying Amount      Fair Value
--------------                        ---------------     ----------     ---------------      ----------
<S>                                   <C>                 <C>            <C>                  <C>
Fixed rate mortgages                     $375,793          $417,781          $360,614          $404,690
Floating rate mortgages                  $ 75,000          $ 75,000          $131,402          $131,402
5.375% Convertible Senior Notes          $ 74,750          $ 74,444          $     --          $     --
</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" 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,
2003.


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

                                       34

<PAGE>
The following is a summary of the derivative transactions for years ended
December 31, 2003 and 2002. There were no derivative transactions for the year
ended December 31, 2001.

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

The Company expects to reclassify approximately $1,101,000 of unrealized losses
into earnings in the next twelve months.

Note 15 Unaudited Quarterly Results of Operations

The following is a summary of quarterly results of operations for the years
ended December 31, 2003 and 2002.

<TABLE>
<CAPTION>
(In thousands, except per share data) / Quarter ended      March 31         June 30      September 30    December 31
                                                           --------         -------      ------------    -----------
<S>                                                       <C>             <C>            <C>             <C>
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
                                                          ==========      ==========      ==========      ==========
2002
Revenues                                                  $   26,818      $   27,455      $   27,979      $   27,980
Income before discontinued operations
  and minority interest                                        3,905           4,327           4,420           4,308
Income from continuing operations                              3,376           3,748           3,628           3,363
Income from discontinued operations                              816             848             760             753
Net income                                                     4,192           4,596           4,388           4,116
Basic earnings per share
  Income from continuing operations                       $      .21      $      .24      $      .22      $      .21
  Income from discontinued operations                            .05             .05             .05             .05
                                                          ----------      ----------      ----------      ----------
  Net income                                              $      .26      $      .29      $      .27      $      .26
                                                          ==========      ==========      ==========      ==========
Diluted earnings per share
  Income from continuing operations                       $      .21      $      .23      $      .22      $      .21
  Income from discontinued operations                            .05             .05             .05             .04
                                                          ----------      ----------      ----------      ----------
  Net income                                              $      .26      $      .28      $      .27      $      .25
                                                          ==========      ==========      ==========      ==========
</TABLE>


                                       35

<PAGE>

Note 16 Subsequent Events

On February 3, 2004, the Company sold 1.41 million shares 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 $34.9 million. The sale was made
pursuant to the Company's existing shelf registration statement as previously
filed with the Securities and Exchange Commission.

      On February 18, 2004, 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 ownership distribution of
approximately $1,100,000 will be made to the minority interest holders. The
dividend and distribution will be paid on March 10, 2004 to holders of record as
of March 1, 2004.

                         Report of Independent Auditors

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 and subsidiaries (the "Company") as of December 31, 2003 and 2002,
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, 2003. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Town and
Country Trust and subsidiaries at December 31, 2003 and 2002, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States.


                                            /s/ ERNST & YOUNG LLP

Baltimore, Maryland
February 18, 2004



                                       36

<PAGE>

(b)      SUPPLEMENTARY DATA

             Schedule III--Real Estate and Accumulated Depreciation
                           The Town and Country Trust
                                December 31, 2003
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                        GROSS AMOUNT AT WHICH
                                           INITIAL COST (c)                           CARRIED AT CLOSE OF PERIOD
                                       ------------------------                    --------------------------------
                         NON-RECOURSE             BUILDINGS       IMPROVEMENTS                BUILDINGS              ACCUMULATED
        PROPERTY           MORTGAGE                  AND        MADE SUBSEQUENT                  AND        TOTAL    DEPRECIATION
     DESCRIPTION (a)       DEBT (b)      LAND    IMPROVEMENTS  TO ACQUISITION (d)    LAND    IMPROVEMENTS    (e)          (f)
---------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>           <C>       <C>           <C>                 <C>       <C>           <C>       <C>
MARYLAND
   West/Greensview/
       West Commercial   $     43,089  $  8,822  $     37,785     $     21,331     $  8,822    $ 59,116    $ 67,938    $ 31,134
   Watkins Station              7,762     1,505         6,889            5,310        1,505      12,199      13,704       5,955
   Hollows                      8,850     1,424        10,401            2,183        1,424      12,584      14,008       8,579
   Woodhill                     8,400     1,317        10,097            3,249        1,317      13,346      14,663       8,609
   Hallfield                    1,837       320         2,240            1,234          320       3,474       3,794       1,892
   Ridgeview                    5,400     1,138         7,513            1,505        1,138       9,018      10,156       6,272
   Bowley's Quarters            8,925     1,795        10,549            3,766        1,795      14,315      16,110       8,717
   Harford                      8,925     1,474        10,511            7,900        1,474      18,411      19,885       9,072
   Tall Oaks                   11,550     1,397         9,845            4,355        1,397      14,200      15,597       8,122
   Willow Lake                 14,550     1,781        14,088            7,295        1,781      21,383      23,164      12,161
   Steeplechase                19,762     2,749        18,151           10,479        2,749      28,630      31,379      15,985
   Rossville                   14,588     3,136        19,944            5,802        3,136      25,746      28,882      16,416
   Versailles                   8,813     1,599        10,921            5,712        1,599      16,633      18,232       9,422
   Fox Run                      9,112     2,498        11,412            1,112        2,498      12,524      15,022       5,409
   Stonegate                    9,975     2,887        13,261            1,205        2,887      14,466      17,353       4,707
   Excalibur at Avalon          7,387     2,166        19,493              196        2,166      19,689      21,855         516
   The Courts of Avalon        17,438     4,277        38,490              236        4,277      38,726      43,003         961
PENNSYLVANIA
   Hidden Village               5,175     1,229         7,447            2,173        1,229       9,620      10,849       6,575
   Emmaus                       8,100     1,394         9,577            3,280        1,394      12,857      14,251       8,412
   Hanover                      3,750       590         4,946            1,629          590       6,575       7,165       4,422
   Lancaster East               5,175       812         8,249            3,341          812      11,590      12,402       7,439
   Lancaster West               7,988     1,285        12,794            4,879        1,285      17,673      18,958      11,457
   York                         6,862     1,951        10,622            1,671        1,951      12,293      14,244       8,926
   Rolling Hills                3,450     1,282         5,842              859        1,282       6,701       7,983       3,048
VIRGINIA
   Barton's Crossing           27,750     7,320        33,845            4,122        7,320      37,967      45,287      17,048
   The Glen                     4,800     1,157         5,269            1,544        1,157       6,813       7,970       2,785
   McNair Farms                11,700     3,564        16,237            3,066        3,564      19,303      22,867       8,326
   University Heights          21,600     5,789        26,371            2,757        5,789      29,128      34,917      12,959
   Carlyle Station             17,738     4,259        19,610            4,178        4,259      23,788      28,047       6,911
   Lionsgate                   18,487     6,361        46,649              141        6,361      46,790      53,151         625
DELAWARE
   Christina Mill               8,250     2,288        10,454            1,256        2,288      11,710      13,998       3,633
FLORIDA
   Windermere                   9,700     2,809        12,797            1,774        2,809      14,571      17,380       2,459
   Twelve Oaks                  9,563     3,100        13,711            1,618        3,100      15,329      18,429       2,611
   Heron's Run                  6,188     2,795        12,754            1,200        2,795      13,954      16,749       2,046
   Kirkman                     15,387     4,565        20,795            2,128        4,565      22,923      27,488       3,529
   Perico                      10,082     2,491        11,248            1,120        2,491      12,368      14,859       1,770
   McIntosh                     7,585     2,029         9,194            1,030        2,029      10,224      12,253       1,469
   Gardens East                11,625     5,970        27,182            2,001        5,970      29,183      35,153       3,441
OTHER                               -         -           814            4,807            -       5,621       5,621       2,783
                         ------------------------------------------------------------------------------------------------------
   Total                 $    427,318  $103,325  $    577,997     $    133,444     $103,325    $711,441    $814,766    $276,603
                         ======================================================================================================
</TABLE>

<TABLE>
<CAPTION>
        PROPERTY           YEAR     USEFUL
     DESCRIPTION (a)     ACQUIRED    LIFE
------------------------------------------
<S>                      <C>        <C>
MARYLAND
   West/Greensview/
       West Commercial   1993 (h)     (g)
   Watkins Station       1993 (h)     (g)
   Hollows               1993 (h)     (g)
   Woodhill              1993 (h)     (g)
   Hallfield             1993 (h)     (g)
   Ridgeview             1993 (h)     (g)
   Bowley's Quarters     1993 (h)     (g)
   Harford               1993 (i)     (g)
   Tall Oaks             1993 (h)     (g)
   Willow Lake           1993 (h)     (g)
   Steeplechase          1993 (h)     (g)
   Rossville             1993 (h)     (g)
   Versailles            1993 (h)     (g)
   Fox Run                 1993       (g)
   Stonegate               1994       (g)
   Excalibur at Avalon     2003       (g)
   The Courts of Avalon    2003       (g)
PENNSYLVANIA
   Hidden Village        1993 (h)     (g)
   Emmaus                1993 (h)     (g)
   Hanover               1993 (h)     (g)
   Lancaster East        1993 (h)     (g)
   Lancaster West        1993 (h)     (g)
   York                  1993 (h)     (g)
   Rolling Hills           1993       (g)
VIRGINIA
   Barton's Crossing       1993       (g)
   The Glen                1993       (g)
   McNair Farms            1993       (g)
   University Heights      1993       (g)
   Carlyle Station         1994       (g)
   Lionsgate               2003       (g)
DELAWARE
   Christina Mill          1994       (g)
FLORIDA
   Windermere              1998       (g)
   Twelve Oaks             1998       (g)
   Heron's Run             1999       (g)
   Kirkman                 1999       (g)
   Perico                  1999       (g)
   McIntosh                1999       (g)
   Gardens East            2000       (g)
OTHER                      1993       (g)
   Total
</TABLE>

                                       37
<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 West/Greensview/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 $705,446 at December 31, 2003.

(e)      Reconciliation of Real Estate Properties

<TABLE>
<S>                                                              <C>
 Balance at January 1, 2001                                      $ 629,207
 Other additions                                                    19,439
                                                                 ---------
 Balance at December 31, 2001                                      648,646
 Other additions                                                    22,991
 Other dispositions                                                   (118)
                                                                 ---------
 Balance at December 31, 2002                                      671,519
 Acquisition of new partnerships                                   117,435
 Other additions                                                    26,491
 Other dispositions                                                   (679)
                                                                 ---------
 Balance at December 31, 2003                                    $ 814,766
                                                                 =========
</TABLE>

(f)      Reconciliation of Accumulated Depreciation

<TABLE>
<S>                                                              <C>
Balance at January 1, 2001                                       $ 219,946
2001 depreciation expense, net of retirements                       17,511
                                                                 ---------
Balance at December 31, 2001                                       237,457
2002 depreciation expense, net of retirements                       18,397
                                                                 ---------
Balance at December 31, 2002                                       255,854
2003 depreciation expense, net of retirements                       20,749
                                                                 ---------
Balance at December 31, 2003                                     $ 276,603
                                                                 =========
</TABLE>

(g)      Depreciation is computed based upon the following estimated lives:

<TABLE>
<CAPTION>
                                     Assets acquired          Assets acquired
                                      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>

                                       38
<PAGE>

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


ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

As of December 31, 2003, 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, 2003. 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, 2003.



                                       39
<PAGE>
                                    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 5, 2004, 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.

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 5, 2004, 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 5, 2004, 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 5, 2004, which information is incorporated
herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

                                       40

<PAGE>
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 5, 2004, 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.

                                     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:


      (1)   Financial Statements:

            Report of Independent Auditors

            Consolidated Balance Sheets of
            the Registrant at December 31, 2003
            and at December 31, 2002

            Consolidated Statements of
            Operations of the Registrant for
            the years ended December 31, 2003,
            December 31, 2002 and December 31, 2001

            Consolidated Statements of
            Shareholders' Equity of the
            Registrant for the years ended
            December 31, 2003, December 31,
            2002 and December 31, 2001

            Consolidated Statements of Cash
            Flows of the Registrant for the
            years ended December 31, 2003,
            December 31, 2002 and
            December 31, 2001

            Notes to Consolidated Financial
            Statements of the Registrant

      (2)   Financial Statement Schedules:

            Schedule III--Real Estate and

                                       41

<PAGE>
            Accumulated Depreciation

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

      (3)   Exhibits

<TABLE>
<CAPTION>
Exhibit
Number
------
<S>         <C>
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.
            33-63150)).

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.

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
</TABLE>


                                       42
<PAGE>
<TABLE>
<S>         <C>
            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.

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.

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.

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 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).

12          Computation of Ratio of Earnings to 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 Auditors

24          Powers of Attorney

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

32          Section 1350 Certifications
</TABLE>

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

(b)   Reports on Form 8-K

            -     A current report on Form 8-K reporting under items 2 and 7 was
                  filed on October 14, 2003.

            -     A current report on Form 8-K reporting under items 7 and 12
                  was filed on November 7, 2003.

            -     A current report on Form 8-K reporting under items 2 and 7 was
                  filed on November 12, 2003, which included a Pro Forma
                  Consolidated Balance Sheet as of June 30, 2003 (Unaudited), a
                  Pro Forma Consolidated Statement of Operations for the six
                  months ended June 30, 2003 (Unaudited) and a Pro Forma
                  Consolidated Statement of Operations for the year ended
                  December 31, 2002 (Unaudited).


                                       43
<PAGE>
            -     A current report on Form 8-K/A reporting under items 2 and 7
                  was filed on November 12, 2003, which included a Report of
                  Independent Auditors, a Combined Statement of Certain Revenues
                  and Certain Operating Expenses, a Pro Forma Consolidated
                  Balance Sheet as of June 30, 2003 (Unaudited), a Pro Forma
                  Consolidated Statement of Operations for the six months ended
                  June 30, 2003 (Unaudited) and a Pro Forma Consolidated
                  Statement of Operations for the year ended December 31, 2002
                  (Unaudited).

            -     A current report on Form 8-K reporting under Item 5 was filed
                  on January 23, 2004, which included amendments to Item 6
                  (Selected Financial Data), Item 7 (Management's Discussion and
                  Analysis of Financial Condition and Results of Operations) and
                  Item 8 (Financial Statements) of the Company's Annual Report
                  on Form 10-K for the year ended December 31, 2002.

            -     A current report on Form 8-K reporting under Items 5 and 7 was
                  filed on January 26, 2004, which included a Pro Forma
                  Consolidated Balance Sheet as of September 30, 2003
                  (Unaudited), a Pro Forma Consolidated Statement of Operations
                  for the nine months ended September 30, 2003 (Unaudited) and a
                  Pro Forma Consolidated Statement of Operations for the year
                  ended December 31, 2002 (Unaudited).

            -     A current report on Form 8-K reporting under Items 5 and 7 was
                  filed on January 29, 2004.


                                       44
<PAGE>
                                   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
                                        President

Dated:  March 15, 2004

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

<TABLE>
<CAPTION>
Signature                                Title                      Date
---------                                -----                      ----
<S>                                 <C>                          <C>
/s/ Harvey Schulweis                Principal Executive          March 15, 2004
------------------------------
Harvey Schulweis                    Officer and Trustee

/s/Alan W. Lasker                   Senior Vice President-       March 15, 2004
------------------------------
Alan W. Lasker                      Chief Financial Officer
                                    and Principal Financial
                                    Officer

/s/ William J. Fishell              Vice President -             March 15, 2004
------------------------------
William J. Fishell                  Treasurer and Principal
                                    Accounting Officer

James H. Berick*                    Trustee

H. Grant Hathaway*                  Trustee

Milton A. Wolf*                     Trustee

Nancy F. Beck*                      Trustee

                              *By:  /s/ Harvey Schulweis         March 15, 2004
                                    ----------------------
                                    Harvey Schulweis
                                    Attorney-in-Fact
</TABLE>

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


                                      S-1