<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-K

X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
--          of 1934 for the fiscal year ended December 31, 1998, or

___Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
        Act of 1934 for the period from ____________ to ______________

            Commission File Number:  1934 Act File Number: 0-25968

                   CHARLES E. SMITH RESIDENTIAL REALTY L.P.
            (Exact name of registrant as specified in its charter)

              Delaware                                54-1681657
    (State or other jurisdiction of                 (I.R.S. Employer
     incorporation or organization)                Identification No.)

            2345 Crystal Drive
        Crystal City, Arlington, VA                         22202
   (Address of principal executive offices)               (Zip Code)

      Registrant's telephone number, including area code:  (703) 920-8500

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

                 Class A Units of Limited Partnership Interest
                               (Title of Class)

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

     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. ____

                      Documents Incorporated by Reference

     Portions of the proxy  statement of Charles E. Smith Residential Realty,
Inc.  for its annual shareholders' meeting to be held in 1999 are incorporated
by reference into Part III.
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                           FORWARD-LOOKING STATEMENTS

     When used throughout this report, the words "believes", "anticipates", and
"expects" and similar expressions are intended to identify forward-looking
statements.  Such statements indicate that assumptions have been used that are
subject to a number of risks and uncertainties which could cause actual
financial results or management plans and objectives to differ materially from
those projected or expressed herein, including: the effect of national and
regional economic conditions, particularly with regard to the levels of
multifamily property occupancy and rental growth in the Washington, D.C.,
Chicago and Boston metropolitan areas; the registrant's ability to identify and
secure additional properties and sites that meet its criteria for acquisition or
development; the acceptance of the registrant's financing plans by the capital
markets, and the effect of prevailing market interest rates and the pricing of
the Company's stock; and other risks described from time-to-time in the
Registrant's filings with the Securities and Exchange Commission. Given these
uncertainties, readers are cautioned not to place undue reliance on such
statements. The Registrant undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements that may be made to
reflect any future events or circumstances.


                                     PART I

Item 1.   Business.

     Charles E. Smith Residential Realty L.P., a Delaware limited partnership
(the "Operating Partnership"), was formed in 1993 and commenced operations on
June 30, 1994. It is managed by its general partner, Charles E. Smith
Residential Realty, Inc., a Maryland corporation (the "Company"), which is a
self-administered and self-managed equity real estate investment trust("REIT").
The Company was organized in 1993 and also commenced operations on June 30, 1994
upon completion of its initial public offering (the "Initial Public Offering").

     The Operating Partnership and the Company are engaged primarily in the
acquisition, development, management and operation of multifamily properties.
The Operating Partnership, together with the Company and their respective
subsidiaries as described below, is a fully integrated real estate organization
with in-house acquisition, development, financing, marketing, leasing and
property management expertise. The Operating Partnership's primary strategy for
growth is to acquire, develop, own and manage high quality multifamily
properties for income generation and long-term value appreciation.

     The Company is the sole general partner and holds approximately 62% of the
common and preferred units of limited partnership interest ("Units") in the
Operating Partnership as of March 1, 1999. The other limited partners of the
Operating Partnership (the "Minority Interest") primarily consist of the former
limited and general partners of properties and the former owners of the property
service businesses acquired by the Operating Partnership (see "History of the
Company" below). The Operating Partnership and its subsidiaries own all of the
properties, property interests, and business assets and conduct all operations
on behalf of the Company and 

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the Operating Partnership. The Operating Partnership owns 100% of the nonvoting
common stock, which represents 99% of the total economic interest, of three
operating companies (collectively, the "Property Service Businesses") which
provide property services to the properties owned by the Operating Partnership
and to other multifamily, retail, and office properties. The three Property
Service Businesses are: Smith Realty Company, which directly provides
management, leasing, financing, development and insurance services and
indirectly provides furnished corporate apartments through a wholly-owned
subsidiary; Consolidated Engineering Services, Inc., which provides engineering
and technical services; and Smith Management Construction, Inc., which provides
construction and interior renovation services. As the sole general partner of
the Operating Partnership, the Company has the exclusive power to manage and
conduct the business of the Operating Partnership, subject to the consent of the
holders of Units in connection with the sale of all or substantially all of the
assets of the Operating Partnership. Some references made herein to the Company
include the Operating Partnership and the Property Service Businesses, as the
context requires.

     As of March 1, 1999, the Operating Partnership, directly or through its
subsidiaries, owned 50 operating multifamily apartment properties containing a
total of 19,852 units (the "Multifamily Properties"), two retail centers
containing approximately 436,000 square feet of retail space (the "Retail
Properties"), and had four properties under construction containing
approximately 2,100 units ("Development Properties"). All properties, excluding
five in Chicago, Illinois and two in Boston, Massachusetts, are located in the
Washington, D.C. metropolitan area (collectively, the "Properties").

     The executive offices of the Operating Partnership are located at 2345
Crystal Drive, Crystal City, Arlington, Virginia 22202, and its telephone number
is (703) 920-8500.

History of the Company

     The Operating Partnership was formed to succeed to the property assets of
38 partnerships (the "Property Partnerships") and certain asset management and
property service businesses of the Charles E. Smith Companies (the "Smith
Companies").  On June 30, 1994, the Company consummated an initial public
offering (the "Initial Public Offering") of 8,632,800 shares of its common
stock, $.01 par value per share (the "Common Stock"), and a private placement of
416,667 shares of its Common Stock.  The Company contributed the net proceeds of
such offerings to the Operating Partnership in return for 9,049,467 Units of
general and limited partnership interest therein.  On that same date, (i) the
Operating Partnership acquired, in exchange for 12,131,292 Units, 30  Properties
(reflects the combination of  three buildings into one for operational and
statistical purposes), partial interests in two additional properties, all of
the non-voting common stock of the Property Service Businesses (representing 99%
of the economic interest), and notes of the Property Service Businesses in the
aggregate amount of $44.5 million; (ii) the Operating Partnership, through its
partnership subsidiaries, issued $352.4 million of fixed-rate indebtedness
secured by certain of the Properties in private placements to institutional
investors and assumed certain other indebtedness (the "Mortgage Loans"); (iii)
the Operating Partnership applied the proceeds of the Mortgage Loans and the
Company's contribution of offering proceeds to repay approximately $454 million
of mortgage indebtedness, 

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$26.2 million in related party indebtedness and $11.1 million in notes payable
to a bank, to pay $13.8 million in prepayment penalties related to the early
extinguishment of debt, to pay $14.7 million in transfer taxes and other costs
associated with the formation of the Company and the Operating Partnership, and
to pay $18.5 million of mortgage recording taxes, origination fees and other
expenses associated with the Mortgage Loans, and to supply $15.4 million of
working capital; and (iv) the Operating Partnership established a $100 million
line of credit to fund development activities and property acquisitions and for
general corporate purposes (collectively, the "Formation Transactions").

     Since the Formation Transactions and through March 1, 1999, the Operating
Partnership developed one and acquired 24 operating Multifamily Properties
totaling 9,351 apartment units and sold three properties totaling 1,334 units.
In addition, the Operating Partnership had approximately 2,100 units under
construction in four Development Properties as of March 1, 1999 (see "Recent
Developments" below).

Business Strategy

     The Operating Partnership seeks growth in funds from operations (a common
measure of equity real estate investment trust performance, defined as net
income [loss] computed in accordance with generally accepted accounting
principles, excluding gains or losses from debt restructuring and other non-
recurring items, plus depreciation and amortization of assets unique to the real
estate industry) while preserving and enhancing property values by pursuing the
following strategies: (i) maximizing cash flow from operations of the Properties
by seeking to maintain high occupancy levels, obtain rent increases, manage
tenant turnover efficiently, make strategic capital investments, expand the
availability of furnished rental apartments, initiate new tenant fees and
control operating expenses; (ii) acquiring additional multifamily properties for
Common Stock, Units, or cash in situations where, in the judgment of management,
the Operating Partnership's business strengths have the potential to increase
property performance and value; (iii) developing new multifamily properties
consistent with the predecessor Smith Companies' historical policies of
constructing and maintaining high quality properties for long-term income and
value enhancement; and (iv) actively promoting the comprehensive property
services of the Property Service Businesses to unaffiliated property owners.  In
addition to its activities in the Washington, D.C. metropolitan area, the
Operating Partnership also seeks to acquire additional properties or portfolios
in Chicago, Boston, southeast Florida and other markets with characteristics
similar to the Operating Partnership's current portfolio that offer
opportunities for profitable investment and long-term growth.

Financing Strategy

     To the extent that the Company's board of directors determines to seek
additional capital for acquisitions or otherwise, the Company or the Operating
Partnership may raise such capital through additional equity offerings, debt
financing or retention of cash flow (subject to provisions of  the Internal
Revenue Code of 1986, as amended, requiring the distribution by a REIT of a
certain percentage of taxable income and taking into account taxes that would be
imposed on undistributed taxable income), or a combination of these methods.

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Equity

     During 1998 and through March 1, 1999, the Company and the Operating
Partnership completed several equity transactions.

     In January 1998, the Company sold 500 shares of Series C Cumulative
Redeemable Preferred Stock ("Series C Preferred Shares"), $0.01 par value, to
Cobalt Capital, L.L.C.  The Company contributed the net proceeds to the 
Operating Partnership in exchange for 500 units of Series C Cumulative 
Redeemable Preferred Units ("Series C Preferred Units").

     The Operating Partnership amended the Articles of Incorporation to
designate and establish the rights and privileges of the Series C Preferred
Unitholders which include certain voting, distribution and liquidation
preferences over the common unitholders.  The Series C Preferred Units have a
liquidation preference of $100,000 per unit and an initial annual distribution
of $7,910 per unit (7.91% of purchase price).  If the securities receive an
investment grade rating, the distribution will decrease to $7,660 per unit.
Distributions are cumulative and are payable quarterly. The Operating
Patrnership may redeem Series C Preferred Units after February 1, 2028, at the
liquidation price plus accrued distributions.

     In April 1998, the Company sold the remaining 978,581 shares of Series A
Cumulative Convertible Redeemable Preferred Stock ("Series A Preferred Shares")
to Security Capital Preferred Growth Inc. under the May 1997 agreement.  The 
Company contributed the net proceeds to the Operating Partnership in exchange 
for 978,581 units of Series A Cumulative Convertible Redeemable Preferred Units 
("Series A Preferred Units").

     In July 1998, the Company completed the sale of 1,400,000 shares of common
stock (par value of $0.01 per share) under its existing shelf registration
statement.  The net proceeds were contributed to the Operating Partnership in 
exchange for 1,400,000 units of common units.

     During 1998, 502,038 shares of Series B Cumulative Convertible Redeemable
Preferred Stock ("Series B Preferred Shares") were converted to common shares on
a one-for-one basis.  The Operating Partnership converted 502,038 units of 
Series B Cumulative Convertible Redeemable Preferred Units ("Series B Preferred 
Units") to common units on a one-for-one basis.

     The Company currently has on file with the Securities and Exchange
Commission an effective registration statement which allows the sale of up to
$450,000,000 in debt or equity securities, of which approximately $312,000,000
remains available. As long as the Operating Partnership is in existence, the net
proceeds of all equity capital raised by the Company will be contributed to the
Operating Partnership in exchange for limited partnership interests in the
Operating Partnership.  The Company and the Operating Partnership also may issue
securities senior to the Common Stock or Units, including additional preferred
stock or debt securities (either of which may be convertible into Common Stock
or Units or may be accompanied by warrants to purchase Common Stock or Units).

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Debt

     The Operating Partnership's policy, which is set by the Board of Directors
of the Company, is to incur debt (including debt incurred under its lines of
credit) only if upon such incurrence its ratio of debt to total market
capitalization would be 60% or less. The Operating Partnership may reevaluate or
modify this financing policy from time to time in light of economic conditions,
relative costs of debt and equity capital, market values of properties, growth
and acquisition opportunities and other factors.  At December 31, 1998, the
Operating Partnership's debt to total market capitalization ratio was 40.3%.

Property Management

     The Operating Partnership and its Property Service Businesses are
experienced in the management and leasing of multifamily and retail properties.
The Operating Partnership believes that the management and leasing of its own
portfolio has resulted in consistent income growth and reduced operating
expenses. The Property Service Businesses have provided the Operating
Partnership both with a source of cash flow and with economies of scale in
conjunction with the management and leasing of its own Properties.  These
Property Service Businesses also allow the Operating Partnership and its
subsidiaries to establish additional relationships with tenants that benefit the
Properties.

Property Service Businesses

     Multifamily Property Management Services.  The residential property
management business of Smith Realty Company ("SRC"), an operating subsidiary of
the Operating Partnership, is a long-established, integrated business with
extensive experience in leasing and managing multifamily properties. This
subsidiary has been managing and leasing multifamily housing in the Washington,
D.C. metropolitan area since 1946 and, as of March 1, 1999, manages 63 apartment
properties of which 50 are owned by the Operating Partnership. It also assists
in the development and acquisition of additional multifamily properties and
carries out a periodic inspection program that addresses all aspects of the
property and property management.

     During 1998, Multifamily and Retail Property Management Services expanded
the corporate apartment program as a result of the acquisition by Smith Realty
Company of Noel Enterprises, Inc. ( d.b.a. "Presidential Villas"), a provider of
furnished corporate apartments in Chicago, Illinois.  A portion of the total
purchase price of $8.5 million is contingent upon achievement by Presidential
Villas of certain earnings targets over the next two years.  The Operating
Partnership lent to Smith Realty Company the initial payment of $6.75 million in
exchange for a five year note.

     Retail Property Management Services.  The retail management and leasing
business, also conducted through Smith Realty Company, approaches the management
and leasing of its retail portfolio with an integrated program of regular direct
communication with retail tenants, 

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proactive assistance with marketing, merchandising and monitoring store
operations, and maintenance. A retail marketing staff works to promote the
shopping centers as a whole and to work with individual tenants to ensure the
effectiveness of store design, marketing, merchandising and sales efforts. The
retail management and leasing group, in addition to providing complete property
management and leasing services for the Operating Partnership's two Retail
Properties totaling approximately 436,000 square feet, also provides such
services for a fee to three retail properties owned by affiliated parties
totaling approximately 293,000 square feet. Smith Realty Company also provides
retail leasing and brokerage services for additional, unaffiliated third parties
on a fee-for-service basis.
 
          Financing Services.  Historically, the Operating Partnership
solicited, procured and arranged financing for a fee on behalf of commercial
office properties, the majority of which are affiliated with Robert H. Smith and
Robert P. Kogod, the Co-Chief Executives and Co-Chairmen of the Board of the
Company and the owners of approximately 13% of the Shares and Units of the
Company.  During the fourth quarter of 1997, Financing Services personnel
transferred to Charles E. Smith Commercial Realty L.P. ("CESCR"), a commercial
office partnership affiliated with Messrs. Smith and Kogod.  In 1998 most of the
remaining commercial office properties were rolled up into CESCR.  In connection
with the formation of CESCR, the Operating Partnership entered into a 14-month
agreement to continue to provide financing services for certain of the
properties of CESCR through December 31, 1998.  Management does not expect any
significant future income from Financing Services.

     Engineering and Technical Services.  The engineering and technical services
business is conducted through Consolidated Engineering Services, Inc., an
operating subsidiary of the Operating Partnership, which manages, operates,
maintains and repairs the "physical plant" of office, multifamily, and retail
properties.  Through its staff of on-site and off-site engineers, supervisors,
technical specialists and maintenance personnel, this subsidiary provides
various services, including on-site building systems operations and maintenance,
engineering and technical consulting, automated environmental monitoring and
controls, preventive maintenance, management of building environmental systems
and repair and replacement of mechanical/electrical systems.  This business
serves the Properties and also provides facilities management services for both
affiliated and unaffiliated third parties, including condominium, bank,
university and government buildings. During 1998, services were provided with
respect to approximately 46 million square feet of facilities.

     Interior Construction and Renovation Services.  The construction services
business, conducted through Smith Management Construction, Inc., an operating
subsidiary of the Operating Partnership, is a construction management and
general contracting company that provides interior construction and renovation
services to the Properties and various other affiliated and unaffiliated third
party clients.  This business focuses primarily on capital improvement projects
and office and retail tenant space construction and alteration, and provides the
expertise necessary to take a project from the initial planning and
preconstruction stage through the completion of construction. In 1998, oversight
was provided to approximately $80 million of construction activity.

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     Corporate Services. The corporate services businesses, conducted through
Smith Realty Company, enable a central office to provide supporting services in
the areas of  insurance, legal advice, accounting, information systems, human
resources, office  administration and marketing to the Operating Partnership and
its subsidiaries, as well as to other affiliated third parties, including CESCR.
Services are provided at cost (including overhead) in accordance with cost and
executive sharing agreements. In management's opinion, the allocation methods
provide reasonable estimates of the costs that would have been incurred by the
Operating Partnership had the services been provided by the Operating
Partnership.

     The accounting department is responsible for all accounting, auditing and
controls, procedures and management information systems as they relate to the
Operating Partnership and the Properties, and for certain other partnerships and
corporate entities (including affiliates of Messrs. Smith and Kogod). The legal
department provides real estate and corporate advice to management, performs
legal services and in some cases coordinates representation by outside counsel.
The marketing department develops and implements a variety of marketing programs
for the Operating Partnership and its subsidiaries.  The human resources
department administers all personnel functions.  The insurance subsidiary
provides property and casualty insurance placement services for both corporate
and individual property requirements.

Employees

     As of  March 1, 1999,  the Operating Partnership and its subsidiaries had
approximately 1,820 full-time and part-time employees, the latter primarily
employed in on-site clerical positions. This total includes 680 employees who
provide on-site property services and, in the Property Service Businesses, 690
persons in its engineering and technical services subsidiary, 120 persons in its
interior construction and renovation subsidiary, and 330 persons in its
residential and retail leasing and management, finance, and corporate services
subsidiary.

Recent Developments

     Acquisition Properties.   During 1998, the Company, through the Operating
Partnership, acquired five operating multifamily properties containing 1,942
apartment units, as further described below.

     Tunlaw Park.  In January 1998, this 120-unit mid-rise property in northwest
Washington, D.C. was acquired for $0.8 million in cash and 123,818 Operating
Partnership units valued at $4.4 million.  The property was developed and
managed by the Smith Companies and the Operating Partnership previously owned a
20% minority interest.

     Tunlaw Gardens.  In January 1998, this 167-unit, garden property in
northwest Washington, D.C.  was acquired for $6.9 million consisting of $2.5
million cash and  130,371 Operating Partnership units valued at $4.4 million.
The property was previously managed by the Operating Partnership.

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     Parc Vista.    In April 1998, this 299-unit, 16-story high-rise built in
1990 was acquired for approximately  $39 million of cash funded by $4.3 million
in proceeds from the sale of Oxford Manor with the balance drawn on the line of
credit.  During the fourth quarter of 1998, the property had an average economic
occupancy of 98.4% and average monthly rental revenue per apartment unit of
approximately $1,430.

     McClurg Court.  In May 1998, the Operating Partnership acquired a 1,075-
unit multifamily property in Chicago, Illinois.  The cost of approximately $70
million cash was funded from the line of credit and proceeds from the sale of
Series A Preferred Shares totaling $26.5 million.  Approximately 13% of the
underlying land is included in the purchase, with the balance subject to ground
leases expiring in 2067.  The total capitalized cost of approximately $74
million reflects $4 million of planned initial capital improvements.  During the
fourth quarter of 1998, the property had an average economic occupancy of 93.4%
and average monthly rental revenue per apartment unit of approximately $1,287.

     Cronin's Landing.   In July 1998, the Operating Partnership acquired a
newly-constructed 281-unit mid-rise multifamily property in Boston,
Massachusetts.  The total capitalized cost of approximately $63.5 million was
comprised of $27.0 million cash, $31.5 million in assumed debt, a fair value
adjustment to debt of $2.0 million, and 92,793 Operating Partnership units
valued at $3.0 million.  During the fourth quarter of 1998, the property had an
average economic occupancy of 89.5% and average monthly rental revenue per
apartment unit of approximately $1,733.

     In January 1999, the Company, through the Operating Partnership acquired
three additional properties as further described below.

     Buchanan House.  This 442-unit property in Crystal City, Virginia was
acquired for a total capitalized cost of $65.5 million which includes assumed
debt of $7.4 million, initial capital improvement costs of $5.0 million and $0.4
million in acquisition related costs.  Cash of $52.7 million was provided by
$17.7 million in proceeds from the sale of Marbury with the balance drawn on the
line of credit.  In February 1999, the Operating Partnership repaid the assumed
debt of $7.4 million through a draw on the line of credit.  The Operating
Partnership paid a prepayment penalty of $0.9 million which was recognized as an
extraordinary loss.

     Parkwest.  This 139-unit property in Chicago, Illinois was acquired for a
total capitalized cost of approximately $14.1 million, consisting of 201,950
Operating Partnership Units valued at $6.3 million, assumed debt of $6.0
million, a fair value adjustment to debt of $0.4 million, initial capital
improvement costs of $0.8 million, and $0.6 million in other related costs.

     Terrace.  This 427-unit property in Chicago, Illinois was acquired for a
total capitalized cost of approximately $26.1 million, consisting of 320,304
Operating Partnership Units valued at $10.0 million, assumed debt of $13.7
million, a fair value adjustment to debt of $0.7 million, initial capital
improvement costs of $0.4 million, and $1.3 million in other related costs.

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     In March 1999, the Operating Partnership acquired the land beneath the
Crystal Square property and the 5.1% net profits interest in the Crystal Plaza
property.  The purchase price of $10 million consisted of 32,258 Operating
Partnership Units valued at $1 million and $9 million cash drawn upon the line
of credit.

     Disposition Properties.  During 1998, the Operating Partnership sold two
properties (Oxford Manor and Marbury Plaza) in southeast Washington, D.C. for a
total of $22.0 million. The Operating Partnership recognized  gains on the sales
totaling  $18.2 million.

     In February 1999, the Operating Partnership sold The Manor, a 435-unit
property located in suburban Maryland for $23.0 million.   The Operating
Partnership recognized a gain on the sale of $1.9 million.

     Development Properties. During 1998, the Operating Partnership had four
properties totaling 2,146 apartment units under construction.

     Springfield Station.       The Operating Partnership is nearing completion
on the construction of its 631-unit mid-rise and garden apartment property in
Springfield, Virginia. The project is located adjacent to a new Metrorail and
commuter rail station and a regional shopping mall and offers convenient access
to major transportation routes.  Initial delivery was in May 1998, with final
delivery projected in the second quarter of 1999.

     Courthouse Place.   The Operating Partnership is nearing completion on the
construction of  its  564-unit high-rise apartment property in Arlington,
Virginia. The initial delivery of 103 units was in December 1998.   Final
delivery is expected in December 1999.

     One Superior Place.      During 1997, the Operating Partnership began
construction on a 52-story, 809-unit  high-rise apartment and commercial center
in downtown Chicago.  Initial occupancy is expected in the third quarter of 1999
with final delivery in mid-2000.

     Park Connecticut.   During 1998, the Operating Partnership began
construction on a 142-unit high- rise apartment property in downtown Washington,
D.C.  The  project is expected to deliver initial units in the fourth quarter of
1999 with stabilization in the second quarter of 2000.

As of March 1, 1999, the Operating Partnership owned $14.5 million of land for
future development.

     Prepurchase Agreements.  During 1998, the Operating Partnership entered
into four contracts to purchase to-be-constructed multifamily properties
totaling approximately 1,200 apartment units ("Prepurchase Agreements").  The
maximum aggregate purchase price totals $151 million with projected closing
dates between July 2000 and May 2001.  Further details of each project are
reflected below.

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     Reston Landing.  This 400-unit property is expected to be completed in the
fourth quarter of 1999.  The Operating Partnership expects to acquire the
property in the third quarter of 2000 at a cost of $44 million, including earn-
out payments.

     New River Village.  This 240-unit property is expected to be completed in
the second quarter of 2000.  The Operating Partnership expects to acquire the
property in the fourth quarter of 2000 at a cost of $32 million, including earn-
out payments.

     Wilson Boulevard.  This 220-unit property is expected to be completed in
the second quarter of 2000.  The Operating Partnership expects to acquire the
property in the fourth quarter of 2000 at a cost of $28 million, including earn-
out payments.

     Pollard Gardens.  This 383-unit property is expected to be completed in the
fourth quarter of 2000.  The Operating Partnership expects to acquire the
property in the second quarter of 2001 at a cost of $47 million, including earn-
out payments.

     These acquisitions are contingent upon satisfactory completion of
construction and attainment of final certificates of occupancy by the owners.
At December 31, 1998, the Operating Partnership had posted three letters-of-
credit totaling $7.7 million in accordance with three of the contracts to be
drawn upon only if the Operating Partnership defaults on its contractual
obligations to purchase the completed assets.

Financial Information

     For information relating to the Operating Partnership's operating segments,
please refer to Footnote 14 in the Financial Statements.

Executive Officers of the Company

     The following is a biographical summary of the experience of the executive
officers of the Company:

     Robert H. Smith.  Mr. Smith is Co-Chief Executive Officer and Co-Chairman
of the Board of the Company and Co-Chairman of the Board of each of the Property
Service 

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Businesses. Since 1962, Mr. Smith has been the President, Chief Executive
Officer and a director of Charles E. Smith Construction, Inc. and its
predecessor companies, where he oversees and directs all phases of development
and construction of the Smith Companies' office, retail and residential real
estate projects. He is also Co-Chairman of the Board and a director of Charles
E. Smith Commercial Realty, Inc. which together with its subsidiaries and
affiliates is engaged in the ownership, operation, and management of commercial
office buildings. Mr. Smith joined the Smith Companies in 1950. Mr. Smith is 70
years old and the brother-in-law of Robert P. Kogod.

     Robert P. Kogod.  Mr. Kogod is Co-Chief Executive Officer and Co-Chairman
of the Board of the Company and Co-Chairman of the Board of each of the Property
Service Businesses. From 1964 to 1997, Mr. Kogod was the President, Chief
Executive Officer and a director of Charles E. Smith Management, Inc., where he
oversaw and directed all phases of the leasing and management of the Smith
Companies' commercial real estate portfolio. He is now the Co-Chairman of the
Board and a director of Charles E. Smith Commercial Realty, Inc., a successor to
Charles E. Smith Management, Inc., and the owner, operator, and manager of
commercial office buildings.  He is also Secretary/Treasurer and a director of
Charles E. Smith Construction, Inc., an affiliated company that specializes in
the development and construction of office, retail and residential projects.
Mr. Kogod joined the Smith Companies in 1959. Mr. Kogod is 67 years old and the
brother-in-law of Robert H. Smith.

     Ernest A. Gerardi, Jr.  Mr. Gerardi is President, Chief Operating Officer
and  a Director of the Company, and is President, Chief Executive Officer, and a
director of each of the Property Service Businesses. From 1985 until 1994, Mr.
Gerardi was a member of the Executive Committee of Charles E. Smith Management,
Inc., where he had overall responsibility for all day-to-day business operations
and long-range planning.  From 1985 through 1993, he served as Executive Vice
President and Senior Executive Vice President of Charles E. Smith Management,
Inc. Prior to joining the Smith Companies in 1985, Mr. Gerardi was with Arthur
Andersen and Co., where he served as senior partner in charge of the firm's
accounting and financial practice for over 250 professionals in Washington, D.C.
During his 27 years with Arthur Andersen, he specialized in management
consultation and strategic planning.  He is also a member of the American
Institute of Certified Public Accountants and the D.C. Institute of Certified
Public Accountants.  Mr. Gerardi is 63 years old.

     Wesley D. Minami.  Mr. Minami is Senior Vice President and Chief  Financial
Officer of the Company and Smith Realty Company, one of the Property Service
Businesses, and is responsible for the Company's debt portfolio, corporate
financial planning, local acquisitions, and its treasury, accounting, controls
and information systems departments.  Prior to joining the Company in 1997, Mr.
Minami was the Chief Financial Officer for Ascent Entertainment Company where he
was responsible for an $86 million initial public offering spin-off  of Ascent,
which had been a wholly-owned subsidiary of Comsat Corporation.  Formerly,  he
had served as the Treasurer of Comsat Corporation.  From 1985 to 1993, Mr.
Minami held several positions, including Senior Vice President, Chief Financial
Officer at Oxford Realty Services Corporation which developed and managed a
portfolio of over 45,000 apartment units.  Mr. Minami is 42 years old.

     Robert D. Zimet.  Mr. Zimet is Senior Vice President, General Counsel and
Secretary of the Company and Smith Realty Company, one of the Property Service
Businesses.  He was the General Counsel and a Senior Vice President of Charles
E. Smith Management, Inc.,  since joining the Smith Companies in 1983, and
became a Group Senior Vice President in 1991.  He continues in these capacities
for Charles E. Smith Commercial Realty, Inc., a successor to Charles E. Smith
Management, Inc.,  and the owner, operator, and manager of commercial office
buildings. Mr. Zimet is responsible for the legal affairs of the Company and the
Smith Companies, as well as supervision of the Human Resources and Office
Services departments of Smith Realty Company.  Mr. Zimet is 60 years old.

                                       11
<PAGE>
 
     John T. Gray.  Mr. Gray is the Senior Vice President-Residential Management
of the Company and Smith Realty Company, one of the Property Service Businesses.
Prior to joining the Smith Companies in November 1998, he was President for two
years of Walter V. Clark Associates, a human resources consulting firm.  Prior
to that, Mr. Gray was with Summit Properties, Inc. for ten years.  As President
of the Management Company, he was an active participant in Summit's initial
public offering and had total responsibility for the residential portfolio of
over 20,000 apartment units.  Mr. Gray is responsible for the overall
management, leasing and operation of Smith's multifamily portfolio.  Mr. Gray is
43 years old.

     Matthew B. McCormick.  Mr. McCormick is the Senior Vice President-
Residential Marketing of the Company and Smith Realty Company, one of the
Property Service Businesses. Prior to January 1998, Mr. McCormick was the Senior
Vice President and Department Head of the Retail Group, where he was responsible
for retail property management and leasing, as well as outside retail brokerage
services.  Prior to joining the Smith Companies in 1988, Mr. McCormick was a
retail specialist with the Washington, D.C. office of Coldwell Banker.  Mr.
McCormick is 38 years old.

     Alfred G. Neely.  Mr. Neely is Senior Vice President-Development of the
Company, responsible for the zoning, planning and development of all multifamily
buildings.  Since joining Charles E. Smith Construction, Inc., in 1989 as a
Senior Vice President and now as a Group Senior Vice President, Mr. Neely has
been responsible for zoning, planning and development. Prior to joining the
Smith Companies, Mr. Neely was Executive Vice President and Managing General
Partner of the New Height Group, a real estate and development company in
Denver, Colorado.  During his nine years with this company, Mr. Neely has been
responsible for development and management of mixed-use properties.  Mr. Neely
is 53 years old.



Item 2.   Properties

General

     The 56 Properties as of March 1, 1999 consist of 50 Multifamily Properties,
four Development Properties and two Retail Properties, as described in more
detail below. Twenty-eight of the Multifamily Properties (reflecting the
combination of three buildings into one for operational and statistical
purposes) and both Retail Properties were acquired in connection with the
Formation Transactions.  In addition, the Operating Partnership held a minority
limited partnership interest in one other multifamily  property in the
Washington metropolitan area, acquired in the Formation Transactions and
increased in a subsequent transaction.

     All of the Operating Partnership's properties are located in developed
areas that include other residential and retail properties.  The number of
competitive residential properties in a particular area could have a material
effect on the Operating Partnership's ability to lease apartment units and on
the rents charged.  In addition, other forms of single and multifamily
residential properties provide housing alternatives to tenants and potential
tenants of the 

                                       12
<PAGE>
 
Operating Partnership's residential properties. The Operating Partnerships's
retail properties face similar competition with other retail properties with
respect to tenant leases. The Operating Partnership believes that the properties
are well located in their markets and are well constructed and designed. In the
opinion of management, the Operating Partnership's properties are adequately
covered by insurance.

Multifamily Properties

     The 48 operating Multifamily Properties owned as of December 31, 1998
contain a total of 19,279 garden, mid-rise, and high-rise apartment units,
ranging in size from 115 to 1,075 apartment units.  Two of the properties are
located in Chicago, Illinois, two are located in Boston, Massachusetts with the
balance in the Washington D.C. metropolitan area.  All of the Multifamily
Properties are 100% owned by the Operating Partnership and its subsidiaries.  In
1998, the average monthly rental revenue per core unit was $970 and the average
economic occupancy was 96.6% for the Core Residential Portfolio (Multifamily
Properties owned as of December 31, 1996.)  As of December 31, 1998, the average
age of the operating Multifamily Properties, weighted by 1998 revenues, was 25
years.

     Each of the Multifamily Properties is established in its local market and
provides residents with numerous amenities and services, which may include 24-
hour desk service, swimming pools, tennis courts, exercise rooms and/or saunas,
day care centers, party or meeting rooms, tenant newsletters, and laundry
facilities. Nearly all units are wired for cable television, and many units also
offer additional features, such as washer/dryer, microwave, fireplace, and
patio/balcony. The Operating Partnership maintains an ongoing program of regular
maintenance and capital improvements and renovations, including roof replacement
and exterior maintenance, kitchen and bath renovations, balcony repairs, and
replacements of various building systems.

     The following table sets forth certain additional information relating to
the Multifamily Properties as of December 31, 1998 (in the following table,
occupancy is based upon economic occupancy, which measures occupancy beginning
on the rent commencement date; monthly revenue per unit is total property
revenue divided by the number of apartment units; and certain data may be
omitted for properties not operated by the Operating Partnership for the entire
year):

                                       13
<PAGE>
 
                   CHARLES E. SMITH RESIDENTIAL REALTY L.P.
    Residential  Portfolio  Statistics for the Year Ended December 31, 1998
<TABLE>
<CAPTION>
                                                     Number of        Average       Monthly        Average
                                   Property          Apartment        Sq. Ft.       Revenue        Economic
Property Type/Property Name        Type              Units           Per Unit       Per Unit       Occupancy
---------------------------        --------          ---------       ---------      ---------      ---------
<S>                                <C>               <C>             <C>             <C>           <C>
Core Residential Portfolio

NW Washington, D.C.
  1841 Columbia Road               High-rise             115             634         $  955            99.0%
  2501 Porter Street               High-rise             202             760          1,472            97.5%
  Albemarle                        High-rise             235           1,097          1,226            98.9%
  Calvert-Woodley                  High-rise             136           1,001          1,169            99.0%
  Cleveland House                  High-rise             216             894          1,138            99.2%
  Connecticut Heights              High-rise             519             536            889            95.6%
  Corcoran House                   High-rise             138             464            832            99.2%
  Statesman                        High-rise             281             593            798            97.7%
  Van Ness South                   High-rise             625             956          1,109            98.7%
                                                      ------          ------           -----         -------
                                                       2,467             778          1,051            98.0%

Other NE & SE Washington, D.C.
  Car Barn                         Garden                196           1,311            888            96.6%
  Fort Chaplin                     Garden                549             983            673            98.2%
                                                      ------           -----         ------           ------
                                                         745           1,069            729            97.6%

Other Northern Virginia -  Inside Beltway

 Crystal City
 ------------
  The Bennington                   High-rise             348             804          1,059            96.0%
  Crystal House I                  High-rise             426             917          1,010            97.2%
  Crystal House II                 High-rise             402             938            987            96.6%
  Crystal Square                   High-rise             378           1,121          1,179            99.0%
  Crystal Place                    High-rise             180             894          1,310            97.7%
  Gateway Place                    High-rise             162             826          1,792            94.7%
  Water Park Towers                High-rise             360             881          1,436            92.9%
                                                      ------           -----         ------           ------
                                                       2,256             923          1,190            96.2%
 Rosslyn/Ballston
 ------------------
  Courthouse Plaza                 High-rise             396             772          1,299            96.9%

 Other
 --------
  Arlington Overlook               Mid-rise              711             877            780            95.6%
  Bedford Village                  Garden                752           1,070            914            95.0%
  Berkeley                         Mid-rise              138             891            744            97.4%
  Boulevard of Old Town            Garden                159             603            934            98.3%
  Columbia Crossing                Garden                247             976          1,122            95.8%
  Columbian Stratford              Mid-rise              227             942            767            97.8%
  Concord Village                  Garden                531           1,025            820            95.4%
  Newport Village                  Garden                937           1,115            911            97.1%
  Orleans Village                  Garden                851           1,061            828            94.6%
  Patriot Village                  Garden              1,065           1,162            915            96.6%
  Skyline Towers                   High-rise             940           1,221            988            95.5%
  Windsor Towers                   Mid-rise              280           1,025            812            98.0%
                                                      ------           -----         ------           ------
                                                       6,838           1,063            887            96.0%
Other Northern Virginia -  Outside Beltway
  Charter Oak                      Garden                262           1,097            956            96.8%
  Oaks of Tysons                   Garden                218             968          1,047            97.2%
  Potomac View                     Garden                192             965            791            97.8%
  Westerly at Worldgate            Garden                320             921          1,120            95.5%
                                                      ------           -----         ------           ------
                                                         992             986            997            96.6%
Suburban Maryland
  The Manor                        Garden                435            999             774            96.9%
  Suburban Tower                   High-rise             172            677             830            98.1%
                                                      ------          -----          ------           ------
                                                         607            908             790            97.2%
                                                      ------          -----          ------           ------
     Subtotal/Average                                 14,301            972          $  970            96.6%
                                                      ------          -----          ------           ------
</TABLE>

                                       14
<PAGE>

<TABLE>
<CAPTION>

                                                     Number of        Average       Monthly        Average
                                   Property          Apartment        Sq. Ft.       Revenue        Economic
Property Type/Property Name        Type              Units           Per Unit       Per Unit       Occupancy
---------------------------        --------          ---------       ---------      ---------      ---------
<S>                                <C>               <C>             <C>             <C>           <C> 
Acquisition Portfolio
 
 The Kenmore (NW Washington, D.C.)  High-rise            376            725             756            97.8%
 Crystal Plaza (Crystal City)       High-rise            540          1,129           1,254            98.4%
 Crystal Towers (Crystal City)      High-rise            912          1,107           1,139            97.5%
 Lincoln Towers (Rosslyn/Ballston)  High-rise            714            879           1,276            93.5%
 2000 Commonwealth (Boston)         High-rise            188            878           1,649            96.2%
 One East Delaware (Chicago)        High-rise            306            704           1,886            98.0%
 Tunlaw Gardens (NW Washington, 
  D.C.)                             Garden               167            850             767            97.0%
 Tunlaw Park (NW Washington, D.C.)  Mid-rise             120            856           1,105            97.8%
 Parc Vista (Crystal City)          High-rise            299            770             n/a             n/a    
 McClurg Court (Chicago)            High-rise          1,075            688             n/a             n/a  
 Cronin's Landing (Boston)          Mid-rise             281          1,129             n/a             n/a
                                                      ------          -----           -----            -----
  Sub-Total/Average                                    4,978            890             n/a             n/a
                                                      ------          -----           -----            -----
 
 
Development Portfolio
 
 Springfield Station (Other 
 Northern Virginia)                 Mid-rise / Garden              631
 Courthouse Place (Rosslyn/
 Ballston)                          High-rise            564
 One Superior Place (Chicago)       High-rise            809
 Park Connecticut (NW Washington, 
 D.C.)                              High-rise            142
                                                   ---------
  Sub-Total                                            2,146
                                                   ---------
 
All Residential Properties                            21,425
                                                   =========
</TABLE>

                                       15
<PAGE>
 
     The following table sets forth the total number of apartment units in the
Core Residential Portfolio, the economic occupancy, and the average monthly
rental revenue per unit as of the end of 1998 and in each of the previous five
years:

<TABLE>
<CAPTION>
 
Multifamily Properties
                                                              Average Monthly
Year          Number of Units       Percent Occupied*         Revenue Per Unit
-------       ---------------       ------------------        ----------------
<S>           <C>                   <C>                       <C>
 
1998               14,301                96.6%                       $970
1997               14,198                96.4%                       $901
1996               12,462                97.0%                       $883
1995               11,834                97.2%                       $862
1994               11,834                97.8%                       $845
1993               11,834                97.8%                       $818
</TABLE>

* Based on economic occupancy



Retail Properties

     The Operating Partnership's two Retail Properties, Skyline Mall and
Worldgate Centre, are enclosed malls containing a total of approximately 436,000
square feet of retail space.   Until December  1997, both Retail Properties
leased  health club facilities to entities controlled by Messrs. Smith and Kogod
pursuant to leases expiring on December 31, 2015.  In December 1997, the health
clubs were sold by Messrs. Smith and Kogod.  In conjunction with that sale, the
Operating Partnership agreed to restructure the two leases, including reduced
base rent on the Worldgate lease, and extended terms on both leases for ten
years, through 2025, in exchange for a $2.3 million cash payment.

     Worldgate Centre.  Worldgate Centre is a community retail center located in
Herndon, Virginia, at the intersection of two major Northern Virginia traffic
arteries, the Dulles Airport Access Highway and Centreville Road.  Developed by
the Smith Companies in 1991, it is a part of a mixed-use development which
includes the 320-unit Multifamily Property which the Operating Partnership
constructed  in 1995. The town of Herndon is located in Fairfax County, one of
the highest median income counties in the country. The Property contains the
108,670 square foot Worldgate Athletic Club, a Loew's Cinema, and a mix of
approximately 40 other food service, fashion and specialty retailers and various
business and general service tenants.  Worldgate Centre has 230,926 square feet
of leasable area and had an average occupancy rate of 99.5% during 1998.
Approximately 16% of the leases, based on net rentable area, are scheduled to
expire prior to the year 2003.

     Skyline Mall.  Skyline Mall is a two-level, enclosed community retail
center located on Route 7 in Northern Virginia, at the intersection of  Fairfax
County, Arlington County, and the City of Alexandria, Virginia. Originally
developed by the Smith Companies in 1977, it is part of a mixed-use community
which also includes over two million square feet of office space and over 3,300
high-rise condominium and apartment units (including Skyline Towers, a 940-unit
Multifamily Property owned by the Operating Partnership), all within walking
distance.  The Property has 204,914 square feet of leasable area and had an
average occupancy rate of 97.2% in 1998.  It contains the 79,920 

                                       16
<PAGE>
 
square foot Skyline Racquet and Health Club, an AMC Cinema, and approximately 40
other stores, including restaurants, fashion and specialty retailers, and
various business and general services. Approximately 12% of the leases, based on
net rentable area, are scheduled to expire prior to the year 2003.

     The following table sets forth certain additional information relating to
the Retail Properties as of December 31, 1998:

Retail Properties

<TABLE>
<CAPTION>
                                                  Gross                            Average       Average
                                                Leasable    Number   Average       Base Rent    Gross Rent
Property                              Year        Area       of      % Leased      Per SF       Per  SF
 Name                Location       Completed     (SF)      Stores     1998         Leased       Leased
----------------------------------------------------------------------------------------------------------
<S>               <C>               <C>         <C>         <C>      <C>          <C>          <C>
Skyline Mall      Fairfax Co., VA    1977         204,914       40       97.2 %       $12.13        $16.42
                                            
Worldgate                                   
 Centre           Herndon, VA        1991         230,926       40        99.5%       $20.19        $26.92
                                                  -------                -----        ------        ------
 
                                                  435,840                 98.4%       $16.40        $21.98
                                                  =======                =====        ======        ======
</TABLE>



Property Markets

     The Operating Partnership believes that economic trends and market
conditions in the locations where the Operating Partnership currently operates -
- Chicago, Boston, Northern Virginia, and Washington, D.C. -- and locations
where the Operating Partnership will operate -- southeast Florida --  indicate
an excellent potential for continued high occupancy and rental rate growth in
1999 and beyond.  These markets have all experienced strong employment growth in
1998, as shown in the table below, and are projected to be among the top U.S.
markets in total employment growth over the period 1993 to 2005, with a
projected  average annual increase in each market of 45,000 jobs or more,
according to projections prepared by the U.S. Dept. of Commerce, Bureau of
Economic Analysis and released in mid-1996.

<TABLE>
<CAPTION>
 
Employment Growth - 1998
 
                                  1998 Jobs      %
Market                            Increase       Increase
----------------------------      ---------     ----------
<S>                               <C>            <C>
Washington D.C. MSA                  53,500           2.2%
 - Northern Virginia                 41,300           4.1%
Chicago - MSA                        61,200           1.5%
Boston - MSA                         50,100           2.6%
Southeast Florida                    60,000           3.0%
 - Ft. Lauderdale/Broward            20,600           3.3%
USA Average                           ---             2.6%
 
</TABLE>

                                       17
<PAGE>
 
     In the Washington D.C. metropolitan area, employment and population growth
in recent years, and expected in future years, has been strongest in the
Northern Virginia segment of the metropolitan area, which is the sector where
the majority (68%) of the Operating Partnership's Properties are located.  The
growth in Northern Virginia is substantially attributable to continuing strong
growth in the technology sector, particularly the Internet technology and
telecommunications segments.  The Operating Partnership believes that this trend
will continue due to the concentration of technology firms in Northern Virginia
and the growth outlook for the Internet technology and telecommunications
industries. The outlook for the District of Columbia economy has improved
significantly due to the return to positive employment growth late in 1998 after
several years of federal government cutbacks and the election of a new mayor.

     Demand for multifamily rental apartments continues to be strong in all of
the Operating Partnership's markets as evidenced by high occupancy and rent
growth rates.  Surveys of comparable investment grade apartment properties are
conducted in each these markets annually by The REIS Reports, Inc.  The results
of these surveys are shown in the following tables:

Apartment Occupancy and Rental Rate Growth for Smith Residential Markets

<TABLE>
<CAPTION>
 
Metro area market                                 Occupancy               % Rental Rate Growth
--------------------------------             ----------------------       ---------------------
<S>                                          <C>            <C>          <C>              <C>
                                              1997            1998           1997           1998
                                             -----           -----          -----          -----
Boston                                        97.6%           98.0%          5.7%           6.7%
                                                                                          
Chicago                                       97.2%           97.3%          4.7%           3.0%
- Downtown                                    97.0%           97.2%          5.5%           7.0%
                                                                                          
Washington D.C. area                                                                    
- Northern Virginia                           96.2%           96.6%          3.5%           3.5%
- Washington D.C.                             96.9%           97.0%          3.4%           4.7%
                                                                                              
Southeast Florida                                                                      
- Fort Lauderdale                             96.1%           96.1%          4.0%           3.6%
                                                                          
</TABLE>                  
----------------------    
Source: The REIS Reports, Inc., February, 1999, and Appraisal Research Corp.,
March 1999               
                          
                          
     The supply of new rental apartment properties in the more urbanized
portions of the Operating Partnership's markets has been extremely limited in
recent years, particularly in the more desirable submarkets where the Operating
Partnership concentrates its focus.   In the Washington metro area the supply of
new multifamily properties has been increasing moderately over the past several
years and is likely to continue to do so based on multifamily permits data
compiled by the U.S. Census Bureau.  These data show that the number of
multifamily permits issued in the area were, 7,786 in 1996, 6,907 in 1997, and
8,935 in 1998, which includes both for-sale condominium and rental apartment
properties.  These levels remain well below the peak of over 13,000 in 1987.
Most of the new supply of rental apartments is occurring in the outer suburban
areas and does not compete directly with the Operating Partnership's properties,
which are predominantly in the vicinity of and within Interstate 495, the
Capital Beltway.  Downtown Chicago has actually experienced a 

                                       18
<PAGE>
 
net decrease in higher end rental apartments in recent years due to condo
conversions, and the Company's 809-unit Superior Place property is currently the
only new apartment property under construction in the downtown area.

     Overall, the Operating Partnership believes that the anticipated increases
in employment and population projected for the Boston, Chicago, Northern
Virginia, Washington D.C. and southeast Florida markets, together with limited
increases in supply of new rental units in locations competitive with the
Operating Partnership's properties, will result in the Operating Partnership's
multifamily rental submarkets remaining in a strong occupancy position for at
least the next 18-24 months.  As a result, the Operating Partnership believes
that these conditions will provide an opportunity to improve apartment rent
levels, and will also allow additional development and acquisition
opportunities.

Mortgage Financing

     As of  December 31, 1998, 30 of the 54 Properties were subject to Mortgage
Loans aggregating approximately $592,386,000. The Mortgage Loans are
collateralized by first lien mortgages or deeds of trust on Properties organized
into three pools ("Mortgage Pool Three," "FNMA" and "Prudential" as shown in the
chart below) and ten individual loans (the "Individual Mortgages").  The
Mortgage Loans bear interest at a weighted average interest rate of 7.1% at
December 31, 1998. The Properties collateralizing each Mortgage Loan, the
outstanding principal balances as of December 31, 1998, the applicable interest
rates, and the maturity dates for each Mortgage Loan are set forth in the chart
below.

                                       19
<PAGE>
 
<TABLE>
<CAPTION> 
                                                             12/31/98
Mortgage Pool/                                               Outstanding           Interest           Maturity
Collateral                                                   Location              Principal          Rate            Date
------------------------------------------------------------------------------------------------------------------------------------
                                                            (000's)
<S>                                                          <C>                   <C>                <C>             <C>
                                                        
FNMA                                                          $ 140,000              6.75%              October 30, 2013 (2)
-----
  Bedford Village             Fairfax County, Virginia
  Car Barn                    Washington, D.C.
  Concord Village             Arlington, Virginia
  Crystal Place               Arlington, Virginia
  Crystal Square              Arlington, Virginia
  Arlington Overlook (1)      Arlington, Virginia
  Fort Chaplin                Washington, D.C.
  Newport III (1)             Alexandria, Virginia
  Orleans Village             Fairfax County, Virginia

Mortgage Pool Three                                             117,000              7.99%              June 30, 2009 (3)
-------------------
  Berkeley                    Arlington, Virginia
  Calvert Woodley             Washington, D.C.
  Cleveland House             Washington, D.C.
  Columbia Crossing           Arlington, Virginia
  Courthouse Plaza            Arlington, Virginia
  Gateway Place               Arlington, Virginia
  Newport I/II (1)            Alexandria, Virginia
  Skyline Mall                Fairfax County, Virginia
  2501 Porter Street          Washington, D.C.
 
Prudential                                                       53,000              6.88%              June 5, 2008 (2)
-----------
  Waterpark                  Arlington, Virginia
  Parc Vista                 Arlington, Virginia
 
Individual Mortgages
--------------------------
   1841 Columbia Road        Washington, D.C.                     3,173             9.00%               August 1, 1999 (6)
   Crystal Towers            Arlington, Virginia                 44,198             7.16%               January 1, 2006 (6)
   2000 Commonwealth         Boston, Massachusetts               17,100             6.30%               December 3, 2006 (2)
   Connecticut Heights       Washington, D.C.                    20,000             7.10%               March 18, 2008 (2)
   Cronin's Landing          Boston, Massachusetts               33,208             6.90%               March 1, 2009 (7)
   Patriot Village           Fairfax County, Virginia            31,095             8.24%               August 1, 2009 (4)
   Crystal Plaza             Arlington, Virginia                 33,615             6.86%               November 1, 2009 (6)
   Crystal House I/II      Arlington, Virginia                   38,250             6.29%               December 30, 2010 (5)
   Skyline Towers            Fairfax County, Virginia            49,300             6.45%               December 10, 2010 (5)
   The Bennington            Arlington, Virginia                 12,447             7.50%               October 1, 2020 (7)
                                                                 ------             -----
 
                                                               $592,386             7.10%
                                                               ========            ======
 -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Operated as a single property, but divided for collateralization purposes.
(2)  Interest only.
(3)  Twenty-five year amortization begins June 30, 1999.
(4)  Thirty year amortization begins in August 2004.
(5)  Thirty year amortization begins in December 2008.
(6)  Thirty year amortization.
(7)  Twenty-five year amortization.

    The loan secured by Mortgage Pool Three is interest only through June 30,
1999, at which time amortization begins using a 25-year amortization schedule
with a balloon payment at maturity. In addition, this loan may not be prepaid
until May 1, 1999, at which time it would be subject to a yield maintenance
premium. The loan is cross-collateralized with the $83 million line of credit
from 

                                       20
<PAGE>
 
the same lender, as described below. Certain predecessor partners executed
guarantees for $42 million of the mortgage loans secured by Mortgage Pool Three.

    The Operating Partnership announced  a standby credit facility in 1998 of up
to $300 million with Fannie Mae which provides for non-recourse, long-term debt
for up to fifteen years.  The initial draw on this facility was $140 million at
6.75% for fifteen years.  The bulk of the proceeds were used to retire Mortgage
Pool Two of $125.2 million and the associated prepayment penalty of $9.5
million. Terms and rates of subsequent draws on this facility will be determined
at the time of use.  Closing of the facility is expected during the second
quarter of 1999.

    During 1998, the Operating Partnership obtained a $53 million, ten year
secured loan from Prudential at a fixed coupon rate of 6.88%.  The loan is
secured by two Multifamily Properties.  In conjunction with this loan, the
Operating Partnership terminated a $20 million (notional value) treasury lock
contract at a gain of $0.4 million which will be amortized over the term of the
new loan.

    The Individual Mortgages relate to debt secured by  individual Multifamily
Properties.  The loans  require monthly payments of interest and, in certain
cases, principal. The loan secured by Patriot Village was refinanced in
September 1996 and was obtained jointly with a ground lessor, with a portion of
the principal allocated to each of them.  The ground lessor has been allocated
$9.9 million of the refinanced loan (of the total of $41.0  million outstanding
as of December 31, 1998), for which the Operating Partnership is contingently
liable.  The loan requires the payment of interest only through August 2004, at
which time amortization begins using a 30-year amortization schedule with a
balloon payment due in August 2009.  The Operating Partnership remits full debt
service to the lender and reduces its ground rent payment by the corresponding
amount of debt service relating to the principal assigned to the ground lessor.

Lines of Credit

    The Operating Partnership terminated its $100 million line of credit in 1998
and entered into two new unsecured lines of credit -- a $100 million line and a
$185 million line --  with PNC Bank, NationsBank, and U.S. Bank, as agents,
which mature in March 2001.  Draws upon the new lines are subject to certain
unencumbered asset requirements and bear interest at a selected London Interbank
Offer Rate (LIBOR) plus 75 to 120 basis points based on the leverage ratio of
the Operating Partnership.  As of December 31, 1998, the weighted average
interest rate on outstanding draws was 6.22%.  If the Operating Partnership
receives an investment grade rating on its unsecured debt, the interest rate
will decrease to 60 to 90 basis points over LIBOR based on the rating.  The
Operating Partnership pays a fee of 0.20% on the full amount available under the
lines of credit.  The line of credit agreements contain certain restrictive
covenants, including maintenance of minimum equity value, debt to equity ratios
and debt service coverage requirements.  The maximum amounts outstanding during
1998 and 1997 were $251.5 million and $97.0 million, respectively.

    The Operating Partnership also has an $83 million acquisition credit
facility which allows for debt maturities up through July 2004.  The line of
credit provides for an interest rate that is fixed at the time of each borrowing
at 150 basis points over 10-year Treasury Bills and is cross-collateralized 

                                       21
<PAGE>
 
with Mortgage Pool Three. Debt outstanding of $30 million at December 31, 1998
bears interest at a weighted-average fixed rate of 7.27% and is collateralized
by two Properties. The agreement contains certain restrictive covenants
including a limit on debt to asset value and maintenance of debt service
coverage ratios. In February 1999, the unused portion, or $53 million, of the
line expired.

Construction Loans

    In October 1997, the Operating Partnership obtained a variable rate,
unsecured construction loan of $46.3 million to finance the construction of an
acquired development property.  The loan is recourse to the Operating
Partnership, bears interest at LIBOR plus 130 basis point (6.85% at December 31,
1998), and matures in October 2000 with three six-month extension options based
on certain conditions. The loan balance at December 31, 1998 was $31.6 million.

    During 1998, the Operating Partnership obtained a $90 million variable rate,
secured construction loan in connection with the development of One Superior
Place in Chicago, Illinois, with interest currently at LIBOR plus 135 basis
points (6.93% at December 31, 1998), payable monthly, due July 1, 2001.  At the
Operating Partnership's option, maturity may be extended for two one-year
periods based on certain conditions.  The loan is collateralized by the property
and is recourse to the Operating Partnership.  The loan balance at December 31,
1998 was $31.6 million.
 
Item 3.   Legal Proceedings.

    The Operating Partnership and/or the Property Service Businesses are
presently subject to legal actions or claims for damages that arise in the
ordinary course of business.  In the opinion of management and counsel to the
Operating Partnership, the ultimate outcome of such litigation will not have a
material adverse effect on the Operating Partnership's financial  position,
results of operations or cash flows.


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

    None.

                                       22
<PAGE>
 
                                    Part II

Item 5.   Market for Registrant's Common Equity and Related Shareholder
Matters.

    There is no established public trading market for the Units of the Operating
Partnership.  The Company's shares of Common Stock have been listed on the New
York Stock Exchange ("NYSE") since June 24, 1994, trading under the symbol
"SRW." Prior to that date, the Company's shares of Common Stock were not
publicly traded.

    In December 1998, the Company adopted a Shareholder Rights Plan (the "Rights
Plan") in which certain stock purchase rights were granted as a distribution to
holders of common stock.  The Rights Plan is designed to deter coercive or
unfair takeover tactics.  In implementing the Rights Plan, the Board of
Directors declared a distribution of one Right for each share of the Company's
outstanding common stock. Each Right initially entitles the holder thereof to
purchase one one-thousandth of a share of preferred stock for $108. One one-
thousandth of a share of preferred stock is intended to be approximately the
economic equivalent of one share of common stock. The Rights expire on December
13, 2008. At the time of adoption of the Rights Plan, the Rights are neither
exercisable nor traded separately from the common stock. The Rights are
exercisable only if a person or group in the future becomes the beneficial owner
of 15% or more of the common stock or announces a tender or exchange offer which
would result in its ownership of 15% or more of the common stock. In connection 
with these Rights, the partnership agreement of the Operating Partnership was 
amended to provide for certain purchase rights by Unitholders in the event the 
Rights become exercisable and are, in fact, exercised. These purchase rights 
would allow Unitholders to purchase additonal Units at a price which would 
prevent their dilution by the issuance of additional Units to the Company upon 
the issuance of additional Common Stock under the Right Plan.

 
                          Unregistered Unit Issuances

<TABLE>
<CAPTION> 
Issue      # of Units                         Implied Unit
Date       Issued    Consideration            Value            Redeemable
--------   -------   ----------------------   -------------    --------------
<S>        <C>       <C>                      <C>              <C> 
1/99       201,950   Interest in Parkwest       $ 6,300,843    After one year
                     Apartments                ($31.20/Unit)

1/99       320,304   Interest in Terrace        $ 9,993,499    After one year
                     Apartments                ($31.20/Unit) 
</TABLE>

     In December 1998, 259,305 units of Series B Cumulative Convertible 
Redeemable Preferred Units were converted to common units on a one-for-one 
basis.

                                       23
<PAGE>
 
     The following table sets forth the distributions made by the Operating
Partnership with respect to each such period:

<TABLE> 
<CAPTION> 
                                                               Distribution
Period                                                           Per Unit
------                                                         ------------
<S>                                                             <C>
January 1, 1997, to March 31, 1997                                 $0.505
April 1, 1997, to June 30, 1997                                    $0.505
July 1, 1997, to September 30, 1997                                $0.520
October 1, 1997, to December 31, 1997                              $0.520
                                                             
January 1, 1998, to March 31, 1998                                 $0.520
April 1, 1998, to June 30, 1998                                    $0.520
July 1, 1998, to September 30, 1998                                $0.535
October 1, 1998, to December 31, 1998                              $0.535
</TABLE>

On March 1, 1999, the Operating Partnership had approximately 750 unitholders
of record.



Item 6.   Selected Financial Data.

     The following table sets forth selected financial and operating information
on a historical basis for the Operating Partnership and the Predecessor (as
hereinafter defined in the Notes to Consolidated Financial Statements). The
following information should be read in conjunction with all of the financial
statements and notes thereto included elsewhere in this Form 10-K. The
historical operating data for the years ended December 31, 1998, 1997, 1996,
1995 and 1994 have been derived from the financial statements of the Operating
Partnership and the Predecessor audited by Arthur Andersen LLP, independent
accountants.

                                       24
<PAGE>
 
Charles E. Smith Residential Realty L.P. and CES Group
Selected Financial Data

<TABLE>
<CAPTION>
                                                                  Charles E. Smith Residential Realty L.P.               CES Group
                                                          ------------------------------------------------------------  -----------
                                                                                                             June 30,     January 1,
                                                                       Year Ended December 31,               1994 to        1994 to 
                                                          ------------------------------------------------  December 31,    June 29,
(Dollars in Thousands, Except Per Unit Data)                    1998       1997        1996      1995         1994          1994
-----------------------------------------------------------------------------------------------------------------------  -----------
<S>                                                         <C>         <C>        <C>         <C>         <C>           <C> 
OPERATING DATA
   Rental properties
      Revenues                                              $  250,211  $ 200,104   $ 163,959   $143,464   $  66,683     $ 63,496
      Expenses                                                 130,593    104,493      89,156     78,514      36,571       36,039
   Equity in income of Property Service Businesses               8,433      7,597       7,846      6,868       3,785        2,798
   Corporate general & administrative expenses                   8,947      6,563       5,255      4,768       2,089        1,550
   Interest income                                               1,257      1,063       1,029      1,424         825          970
   Interest expense                                             47,334     45,411      43,606     37,421      17,392       24,798
   Income/(loss)  before gain on sale, loss on unused                                                                
      treasury lock, and extraordinary item                     73,027     52,297      34,817     31,053      15,241      (10,700)
   Net income/(loss) of the Operating Partnership               69,870     52,210      34,817     31,053      15,241      (25,895)
                                                            ----------------------------------------------------------   ---------
                                                                                                                     
   Earnings per common unit - basic                              $1.96      $1.89       $1.59      $1.44       $0.72  
   Earnings per common unit - diluted                            $1.95      $1.88       $1.59      $1.44       $0.72  
                                                                                                                     
OTHER DATA                                                                                                           
                                                                                                                     
   Funds from Operations (1):                                                                                       
                                                                                                                     
   Net income                                               $   69,870  $  52,210   $  34,817    $31,053   $  15,241  
   Less                                                                                                              
      Perpetual preferred distributions                         (3,647)         -           -          -           -  
      Gain on sale of property                                 (18,150)         -           -          -           -  
   Plus                                                                                                              
      Depreciation and amortization of rental property          28,958     20,666      17,931     16,258       7,738  
      Amortization of goodwill                                     250          -           -          -           -  
      Loss on unused treasury lock                               4,923          -           -          -           -  
      Extraordinary item - loss on extinguishment of debt       16,384         87           -          -           -  
                                                            ----------------------------------------------------------
                                                                                                                     
   Funds from Operations                                    $   98,588  $  72,963   $  52,748    $47,311   $  22,979  
                                                            ==========================================================
                                                                                                                     
   Net cash flows provided by (used in):                                                                             
      Operating activities                                  $  118,566  $  75,223   $  50,958    $54,283   $  19,877  
      Investing activities                                    (289,995)  (196,924)    (72,742)   (68,495)    (26,666) 
      Financing activities                                     171,429    117,803      16,204      5,340      25,139  
                                                                                                                     
                                                                                                                     
   Cash dividends per unit                                      $2.095     $2.035      $1.975     $1.915      $0.480  
                                                                                                                     
   Average residential occupancy rate (2)                         96.6%      96.4%       97.0%      97.2%        97.8%  
   Number of apartment units - core portfolio (3)               14,301     14,198      12,462     11,834      11,834  
   Number of apartment units - total portfolio                  19,279     18,236      15,200     14,198      12,462  
                                                                                                                     
BALANCE SHEET DATA                                                                                                   
   Rental properties, net (4)                                $1,093,963 $ 804,323   $ 470,093   $414,490   $ 315,213  
   Total assets                                               1,185,399   865,506     522,211    469,322     391,189  
   Total mortgage loans and notes payable (5)                   790,579   610,971     546,544    483,177     404,971  
   Other Limited Partners' Interest, at redemption value (6)    426,258   502,719     351,873    288,663     310,247  
   Partners' Equity                                                                                                  
      General Partner's General and Limited                                                                          
         Partnership Interest (6)                               (56,676) (264,369)   (389,252)  (320,286)   (347,767) 
</TABLE> 

                                      25

<PAGE>
 
                     FOOTNOTES TO SELECTED FINANCIAL DATA

1.   Funds from Operations (FFO) is defined by the National Association of Real
     Estate Investment Trusts (NAREIT) as  net income (loss) (computed in
     accordance with generally accepted accounting principles) excluding gains
     (or losses) from debt restructuring and other non-recurring items, plus
     depreciation/amortization of assets unique to the real estate industry.
     Depreciation/amortization of assets not unique to the industry, such as
     amortization of deferred financing costs and non-real estate assets, is not
     added back. FFO does not represent cash flow from operating activities in
     accordance with generally accepted accounting principles (which, unlike
     Funds from Operations, generally reflects all cash effects of transactions
     and other events in the determination of net income) and should not be
     considered an alternative to net income as an indication of the Operating
     Partnership's performance or to cash flow as a measure of liquidity or
     ability to make distributions. The Operating Partnership considers FFO a
     meaningful, additional measure of operating performance because it
     primarily excludes the assumption that the value of real estate assets
     diminishes predictably over time, and because industry analysts have
     accepted it as a performance measure. Comparison of the Operating
     Partnership presentation of FFO, using the NAREIT definition, to similarly
     titled measures for other REITs may not necessarily be meaningful due to
     possible differences in the application of the NAREIT definition used by
     such REITs.

2.   Average occupancy is defined as gross potential rent for the core portfolio
     less vacancy allowance divided by gross potential rent for the period,
     expressed as a percentage.

3.   Core portfolio represents properties owned or stabilized by the Operating
     Partnership as of December 31 two years prior to the current reporting
     date.
 
4.   At the formation of the Operating Partnership, all rental properties were
     recorded at predecessor partners' historical cost basis which is
     significantly less than current value and, therefore,  results in dilution
     of  shareholders' book value. Shareholders' equity for each year presented
     is net of $(244,208) contribution by Predecessors of assets at historical
     cost, net of  liabilities.

5.   Represents mortgage loans, lines of credit and construction loans.

6.   Limited partnership units of the Other Limited Partners may be redeemed at
     the unitholder's discretion.  Consequently, the Other Limited
     Partners' Interest, measured at redemption value, is not included in
     partner's equity.  Partner's equity has been adjusted to reflect the
     redemption value of Other Limited Partners' Interest.  (See footnote 15 to
     the financial statements.)

                                       26
<PAGE>
 
Item 7.       Management's Discussion and Analysis of Financial Condition and
              Results of Operations.


BACKGROUND

     The following discussion compares historical results of operations for the
years ended December 31, 1998 and 1997 as well as the years ended December 31,
1997 and 1996.  The discussion should be read in conjunction with the "Selected
Financial Data," and the financial statements and notes thereto included
elsewhere in this annual report.

THE OPERATING PARTNERSHIP

     The Operating Partnership is engaged primarily in the acquisition,
development, management and operation of multifamily properties. Together with
its subsidiaries, the Operating Partnership is a fully integrated real estate
organization with in-house acquisition, development, financing, marketing,
leasing and property management expertise.

     On June 30, 1994, Charles E. Smith Residential Realty, Inc. (the "Company")
made a $201.4 million capital contribution to the Operating Partnership for a 1%
general partnership interest and a 41.7% limited partnership interest in the
Operating Partnership.  The Company is the sole general partner of the Operating
Partnership.

     As of December 31, 1998,  the Operating Partnership and its subsidiaries,
owned 48 operating multifamily properties, four multifamily properties under
construction and two retail shopping centers (collectively, the "Properties").
Three of the properties are located in Chicago, Illinois and two are located in
Boston, Massachusetts; all other properties are located in the Washington, D.C.
metropolitan area. The Operating Partnership also had conditional agreements to
purchase four additional to-be-constructed multifamily properties.



     The operating multifamily properties consist of the following:
<TABLE>
<CAPTION>
                                            Number of
                                       ------------------
                      Type             Properties   Units
            ------------------------   ----------   -----
<S>                                   <C>          <C>      
 
Core Portfolio
     High-Rise/Mid-Rise                  23          7,587
     Garden                              14          6,714
                                         --         ------   
                                         37         14,301
                                         --         ------
</TABLE> 

                                       27
<PAGE>
 
<TABLE> 
<CAPTION> 
<S>                                    <C>          <C> 
Acquisition Portfolio
    High-Rise/Mid-Rise                   10          4,811
    Garden                                1            167
                                         --         ------
                                         11          4,978
                                         --         ------
                                         48         19,279
                                         ==         ======
 
</TABLE>
    The Operating Partnership's two free standing retail properties are enclosed
malls containing a total of  approximately 436,000 square feet of retail space.

    Additionally, the Operating Partnership owned substantially all the equity
in the following entities (collectively, the "Property Service Businesses")
which provide a range of services to the owned Properties, essentially at cost
(including overhead), and for a fee to other properties including commercial
office partnerships which have Messrs. Smith and Kogod as the general partners
("Affiliates"):

    .  Multifamily and Retail Property Management Services provides property
       management and leasing services to multifamily and retail properties.  In
       addition, this entity leases furnished corporate apartments through a
       subsidiary.

    .  Interior Construction and Renovation Services provides construction and
       project management services for capital improvement and tenant renovation
       projects of office, retail and residential properties.

    .  Engineering and Technical Services provides on-site building systems
       operations and maintenance; engineering and technical consulting;
       automated environmental monitoring and controls; repair and replacement
       of mechanical/electrical systems; and facilities management services.

    .  Financing Services provides negotiation, administration and execution of
       debt refinancing.

                                       28
<PAGE>
 
RENTAL PROPERTIES

    Revenue, expenses and income from the multifamily and retail properties were
as follows (in thousands):
<TABLE>
<CAPTION>
                                                           Year Ended December 31,                          
                                                   ---------------------------------------- 
 
                                                      1998       1997 /(2)/    1996 /(2)/
                                                   -----------   -----------   -----------
<S>                                                <C>           <C>           <C>           
Multifamily Properties - Core/(1)/
  Revenues                                          $ 166,465    $  158,785    $  147,522    
  Expenses                                            (67,070)      (66,264)      (63,386)
                                                    ---------    ----------    ----------
  Income before depreciation                        $  99,395    $   92,521    $   84,136
                                                    =========    ==========    ==========
Multifamily Properties -
  Acquisitions/Dispositions
  Revenues                                          $  72,499    $   31,277    $    6,639
  Expenses                                            (30,061)      (13,896)       (4,308)
                                                    ---------    ----------    ----------
  Income before depreciation                        $  42,438    $   17,381    $    2,331
                                                    =========    ==========    ==========
Multifamily Properties - Development
  Revenues                                          $   1,258    $      ---    $      ---
  Expenses                                             (1,300)          (97)          ---
                                                    ---------    ----------    ----------
  Income before depreciation                        $     (42)   $      (97)   $      ---
                                                    =========    ==========    ==========
Retail Properties
  Revenues                                          $   9,989    $   10,042    $    9,798
  Expenses                                             (3,204)       (3,570)       (3,531)
                                                    ---------    ----------    ----------
  Income before depreciation                        $   6,785    $    6,472    $    6,267
                                                    =========    ==========    ==========
Total Rental Properties
  Revenues                                          $ 250,211    $  200,104    $  163,959
  Expenses                                           (101,635)      (83,827)      (71,225)
  Depreciation                                        (28,958)      (20,666)      (17,931)
                                                    ---------    ----------    ----------
Income from Rental Properties                       $ 119,618    $   95,611    $   74,803
                                                    =========    ==========    ==========
</TABLE> 
/(1)/ "Core" represents properties owned as of
 December 31, 1996.
/(2)/ Certain prior year balances have been reclassified to conform with current
year presentation.

Occupancy Rates

   Average occupancy of the Operating Partnership's core multifamily properties
in the Washington, D.C. metropolitan area, where over 90% of the Operating
Partnership's portfolio is located, is consistent with the  area's market-wide
average occupancy, based on annual surveys of approximately 80% of comparable
investment grade apartment properties conducted by The REIS Reports, Inc. as
follows:
<TABLE>
<CAPTION>
 
                      Occupancy Percent
           ----------------------------------------
                Company         Washington DC Area
           ------------------   -------------------
<S>        <C>                  <C>
 
 1998                   96.6%                 97.0%
 1997                   96.4%                 96.4%
 1996                   97.0%                 96.5%
 
</TABLE>

                                       29
<PAGE>
 
  It is important to note that market data from The REIS Reports, Inc. is
determined on a physical occupancy basis, whereas the Operating Partnership's
occupancy data is calculated on an economic basis. Physical occupancy data
commonly yields a slightly higher percentage than economic occupancy because
apartment units are considered physically rented when a rental applicant's
deposit is received, a point in time generally prior to the actual rent
commencement date used in computing economic occupancy.

Rental Revenue

  Average revenue per apartment unit for the Operating Partnership's core
multifamily  properties increased approximately 4.8% in 1998 as compared with
1997, and 3.5% in 1997 (based on properties owned as of December 31, 1995) as
compared with 1996.

  A schedule of portfolio statistics follows:

                                       30
<PAGE>
 
                   CHARLES E. SMITH RESIDENTIAL REALTY L.P.
--------------------------------------------------------------------------------
     Residential Portfolio Statistics for the Year Ended December 31, 1998
<TABLE>
<CAPTION>
                                                             Number of      Average       Monthly       Average
                                         Property            Apartment      Sq. Ft.       Revenue       Economic
Property Type/Property Name                Type              Units          Per Unit      Per Unit      Occupancy
------------------------------           --------            ---------      ----------    ----------    -----------   
<S>                                      <C>                 <C>            <C>           <C>           <C>         
 
Core Residential Portfolio
 
NW Washington, D.C.
  1841 Columbia Road                    High-rise               115             634          $  955       99.0%   
  2501 Porter Street                    High-rise               202             760           1,472       97.5%
  Albemarle                             High-rise               235           1,097           1,226       98.9%   
  Calvert-Woodley                       High-rise               136           1,001           1,169       99.0%
  Cleveland House                       High-rise               216             894           1,138       99.2%   
  Connecticut Heights                   High-rise               519             536             889       95.6%
  Corcoran House                        High-rise               138             464             832       99.2%
  Statesman                             High-rise               281             593             798       97.7%
  Van Ness South                        High-rise               625             956           1,109       98.7%
                                                             ------          ------           -----    --------
                                                              2,467             778           1,051       98.0%
Other NE & SE Washington,  D.C.
  Car Barn                              Garden                  196           1,311             888       96.6%
  Fort Chaplin                          Garden                  549             983             673       98.2%               
                                                             ------           -----          ------       -----
                                                                745           1,069             729       97.6%
Other Northern Virginia -
 Inside Beltway
 
  Crystal City
  ------------
  The Bennington                        High-rise               348             804           1,059       96.0%   
  Crystal House I                       High-rise               426             917           1,010       97.2%   
  Crystal House II                      High-rise               402             938             987       96.6%
  Crystal Square                        High-rise               378           1,121           1,179       99.0%
  Crystal Place                         High-rise               180             894           1,310       97.7%
  Gateway Place                         High-rise               162             826           1,792       94.7%
  Water Park Towers                     High-rise               360             881           1,436       92.9%
                                                             ------           -----          ------       -----
                                                              2,256             923           1,190       96.2%
  Rosslyn/Ballston
  ----------------
  Courthouse Plaza                      High-rise               396             772           1,299       96.9%
  
  Other
  -----
  Arlington Overlook                    Mid-rise                711             877             780       95.6%
  Bedford Village                       Garden                  752           1,070             914       95.0%
  Berkeley                              Mid-rise                138             891             744       97.4%   
  Boulevard of Old Town                 Garden                  159             603             934       98.3%
  Columbia Crossing                     Garden                  247             976           1,122       95.8%
  Columbian Stratford                   Mid-rise                227             942             767       97.8%   
  Concord Village                       Garden                  531           1,025             820       95.4%
  Newport Village                       Garden                  937           1,115             911       97.1%
  Orleans Village                       Garden                  851           1,061             828       94.6%   
  Patriot Village                       Garden                1,065           1,162             915       96.6%
  Skyline Towers                        High-rise               940           1,221             988       95.5%
  Windsor Towers                        Mid-rise                280           1,025             812       98.0%
                                                             ------           -----          ------       -----
                                                              6,838           1,063             887       96.0%

Other Northern Virginia -  Outside Beltway
  Charter Oak                           Garden                  262           1,097             956       96.8%
  Oaks of Tysons                        Garden                  218             968           1,047       97.2%
  Potomac View                          Garden                  192             965             791       97.8%
  Westerly at Worldgate                 Garden                  320             921           1,120       95.5%               
                                                             ------           -----          ------       -----
                                                                992             986             997       96.6%
Suburban Maryland
  The Manor                             Garden                  435             999             774       96.9%   
  Suburban Tower                        High-rise               172             677             830       98.1%
                                                             ------           -----          ------       -----             
                                                                607             908             790       97.2%
                                                             ------           -----          ------       -----
     Subtotal/Average                                        14,301             972          $  970       96.6%
                                                             ------           -----          ------       -----
</TABLE> 

                                       31
<PAGE>
 
<TABLE> 
<CAPTION> 

                                                                       Number of      Average       Monthly       Average
                                                   Property            Apartment      Sq. Ft.       Revenue       Economic
Property Type/Property Name                         Type              Units          Per Unit      Per Unit      Occupancy
------------------------------                     --------            ---------      ----------    ----------    -----------   
<S>                                               <C>                 <C>            <C>           <C>           <C>          
Acquisition Portfolio
  The Kenmore (NW Washington, D.C.)             High-rise              376             725             756         97.8%
  Crystal Plaza (Crystal City)                  High-rise              540           1,129           1,254         98.4%
  Crystal Towers (Crystal City)                 High-rise              912           1,107           1,139         97.5%
  Lincoln Towers (Rosslyn/Ballston)             High-rise              714             879           1,276         93.5%
  2000 Commonwealth (Boston)                    High-rise              188             878           1,649         96.2%
  One East Delaware (Chicago)                   High-rise              306             704           1,886         98.0%
  Tunlaw Gardens (NW Washington, D.C.)          Garden                 167             850             767         97.0%
  Tunlaw Park (NW Washington, D.C.)             Mid-rise               120             856           1,105         97.8%
  Parc Vista (Crystal City)                     High-rise              299             770             n/a           n/a    
  McClurg Court (Chicago)                       High-rise            1,075             688             n/a           n/a
  Cronin's Landing (Boston)                     Mid-rise               281           1,129             n/a           n/a
                                                                    ------           -----          ------         -----
      Sub-Total/Average                                              4,978             890             n/a           n/a
                                                                    ------           -----          ------         -----
 
Development Portfolio
 
 Springfield Station (Other Northern Virginia)  Mid-rise / Garden                      631
 Courthouse Place (Rosslyn/Ballston)            High-rise               564
 One Superior Place (Chicago)                   High-rise               809
 Park Connecticut (NW Washington, D.C.)         High-rise               142
                                                                      -----
    Sub-Total                                                         2,146
                                                                     ------

All Residential Properties                                           21,425
                                                                   ========
</TABLE> 

                                       32
<PAGE>
 
PROPERTY SERVICE BUSINESSES

     Revenues, expenses and income from the Property Service Businesses were as
follows (in thousands):
<TABLE>
<CAPTION>
 
                                               Year Ended December 31,
                                          ---------------------------------
                                            1998        1997        1996
                                          ---------   ---------   ---------
<S>                                       <C>         <C>         <C>
Multifamily and Retail Property
  Management Services/(1)/
    Revenues                              $ 28,412    $ 10,546    $ 11,465
    Expenses                               (26,441)     (9,756)     (9,169)
                                          --------    --------    --------
  Income before depreciation              $  1,971    $    790    $  2,296
                                          ========    ========    ========
 
Interior Construction and Renovation
  Services
  Net fee revenues                        $  8,267    $  6,614    $  5,650
  Expenses                                  (6,441)     (5,547)     (4,670)
                                          --------    --------    --------
 
  Income before depreciation              $  1,826    $  1,067    $    980
                                          ========    ========    ========
 
Engineering and Technical Services
  (including reimbursed costs)
  Revenues                                $ 67,988    $ 50,597    $ 42,179
  Expenses                                 (63,811)    (46,759)    (38,516)
                                          --------    --------    --------
 
  Income before depreciation              $  4,177    $  3,838    $  3,663
                                          ========    ========    ========
 
Financing Services
  Revenues                                $  2,623    $  3,798    $  2,640
  Expenses                                    (778)       (670)       (687)
                                          --------    --------    --------
 
  Income before depreciation              $  1,845    $  3,128    $  1,953
                                          ========    ========    ========
 
Total Property Service Businesses
  Revenues                                $107,290    $ 71,555    $ 61,934
  Expenses                                 (97,471)    (62,732)    (53,042)
                                          --------    --------    --------
 
  Income before depreciation                 9,819       8,823       8,892
  Depreciation                              (1,386)     (1,226)     (1,046)
                                          --------    --------    --------
  Income from Property
  Service Businesses                      $  8,433    $  7,597    $  7,846
                                          ========    ========    ========
</TABLE>
/(1)/Includes May 1998 purchase of Presidential Villas.

                                       33
<PAGE>
 
  Multifamily and Retail Property Management Services provide management
services to the Operating Partnership at cost plus 5% in accordance with the
management agreement. In addition to 50 owned Properties (operating Multifamily
and Retail), management services were also provided to 13 third-party owned
multifamily properties of approximately 3,800 apartment units and to three
third-party owned retail properties of approximately 293,000 square feet. Of the
16 third-party management agreements, eleven are with Affiliates and five are
with unaffiliated property owners. The management agreements with Affiliates are
for initial terms of three years or more while the management agreements with
unaffiliated owners generally have one-year terms.

  During 1998, Multifamily and Retail Property Management Services expanded the
corporate apartment program as a result of the acquisition by Smith Realty
Company of Noel Enterprises, Inc. ( d.b.a. "Presidential Villas"), a provider of
furnished corporate apartments in Chicago, Illinois.  A portion of the total
purchase price of $8.5 million is contingent upon achievement by Presidential
Villas of certain earnings targets over the next two years.  The Operating
Partnership lent to Smith Realty Company the initial payment of $6.75 million in
exchange for a five year note.

  Interior Construction and Renovation Services provided oversight to
approximately $80 million of gross construction activity in 1998 compared to
approximately $66 million in 1997 and $58 million in 1996. Services are provided
to the Operating Partnership at cost and to Affiliates and third parties at cost
plus a fee.

  Engineering and Technical Services provides on-site building systems
operations, maintenance and inspection to the Operating Partnership and
Affiliates at cost and to third parties at cost plus a fee. Services were
provided to approximately 46 million square feet of facilities in 1998, 30
million square feet in 1997, and 28 million square feet in 1996.

  Financing Services performed $335 million of refinancings in 1998 compared to
$489 million in 1997 and $242 million in 1996.


RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998

Comparison to Year Ended December 31, 1997

  Summary.  Net income of the Operating Partnership increased 33.8%, or $17.7
million,  from $52.2 million for the year ended December 31, 1997 to $69.9
million for the year ended December 31, 1998.  Funds from Operations ("FFO") of
the Operating Partnership increased $25.6 million, or 35.1%  during the same
period.  The increase in both net income and FFO is due to increases in income
from the rental properties, primarily the multifamily acquisition and
development properties. These increases were partially offset by higher interest
and other expenses related to acquisitions and development. The decrease in net
income per share is attributable to the loss on an unused treasury lock and
extraordinary losses associated with extinguishment of debt.

  Rental Properties.  Revenue from rental properties increased $50.1 million, or
25.0%, from $200.1 million for 1997 to $250.2 million for 1998. Expenses
(including depreciation) from all rental operations increased $26.1 million, or
25.0%, from $104.5 million in 1997 to $130.6 million in 1998.

                                       34
<PAGE>
 
  Core Portfolio.  Revenue from the core portfolio increased $7.7 million, or
4.8% over the prior year due to rent increases in all submarkets, slightly
improved occupancy and additional cable and telephone revenues.  Average monthly
revenue per core apartment unit increased from $925 in 1997  to $970 per month
during 1998. Revenue growth by submarket over 1997 ranged from 3.7% in the
Maryland properties to 6.5% in northwest Washington, D.C.  Average economic
occupancy for the portfolio increased to 96.6% in 1998 from 96.5% in 1997. The
Operating Partnership also continues to expand and aggressively market its
furnished apartment program. As a result, revenues from this program increased
$0.4 million, or 19.4%, over the prior year period.  Operating expenses on the
core portfolio increased 1.2% over the prior year.  This was primarily due to
higher personnel costs (including outsourcing) and real estate tax expenses
partially offset by utility savings and lower repair and maintenance costs both
related to a mild winter.

  Operating margins of the Operating Partnership's core portfolio of
approximately 60% and 58% for the years ended December 31, 1998 and 1997,
respectively, are generally lower in comparison to industry averages due
primarily to the Operating Partnership's method of recovering utility costs.
Apartment rents, for the most part, include utility services such as electricity
and gas since the Operating Partnership bears utility costs. The majority of the
Operating Partnership's competitors, however, require their tenants to pay
utilities directly. Management estimates that the Operating Partnership's
operating margins would be approximately 63% on a comparable basis.

  Acquisition/Disposition Portfolio. The eleven acquisition  properties and two
disposition properties, contributed $41.2 million, or 82.3%, of the total rental
revenue increase and $16.2 million, or 90.8%, of the increase in operating
expenses resulting in a contribution to net operating income of $25.0 million.
The balance of the portfolio reflects operations of the two properties sold
during 1998 - Oxford Manor and Marbury Plaza.

  Development Portfolio.  Springfield Station delivered initial units in May
1998 and has a total of 280 units delivered as of December 31, 1998.  Estimated
completion and stabilization is expected in late 1999.  Courthouse Place
delivered 103 initial units in December 1998.  Estimated completion and
stabilization is expected by early 2000.

  Retail Portfolio. Retail revenues decreased by $0.1 million, or 0.5%, during
1998 compared to the prior year due primarily to the restructuring of the
Worldgate health club lease in 1997 partially offset by other rent increases.
Average occupancy at the two retail properties increased from 97.4% in 1997 to
98.4% in 1998.

  Property Service Businesses.  Income from the Property Service Businesses
increased $0.8 million, or 11.0%, during 1998 compared to 1997.

  Income before depreciation for Multifamily and Retail Property Management
Services increased $1.2 million, or 149.5%, primarily due to the acquisition in
the second quarter of Presidential Villas.

  Income before depreciation for Interior Construction and Renovation Services
increased $0.8 million, or 71.1%, due to an increase of $1.7 million in net fee
revenue offset by an increase of $0.9 million in related expenses.  This was due
primarily to an increase in the volume of projects completed on behalf of
Affiliated commercial office property partnerships, partially offset by a loss
incurred during the first quarter of 1998 associated with cost overruns and
unrecovered owner 

                                       35
<PAGE>
 
change orders on a large outside contract. The Operating Partnership is
currently pursuing an arbitration claim which may result in a partial recovery
of the loss.

  Revenue from Engineering and Technical Services increased 34.4%, or $17.4
million, in 1998 with a corresponding increase of $17.1 million in expenses
compared to 1997 due primarily to significant additional facilities management
contracts obtained in 1997 and 1998.  Income before depreciation for Engineering
and Technical Services increased 8.8% to $4.2 million for 1998 compared to $3.8
million in 1997.  The lower margin in 1998 reflects a decrease in higher margin
HVAC repair and replacement projects.

  Income before depreciation for Financing Services decreased $1.3 million, or
41.0%,  due primarily to an unusually high level of fees in 1997 in connection
with the roll-up of Affiliated commercial properties into a single partnership -
Charles E. Smith Commercial Realty L.P. ("CESCR").  At the formation of CESCR,
the Company entered into a 14-month agreement to continue providing financing
services through December 31, 1998 for certain properties owned by CESCR.  The
1998 fees were earned in connection with debt refinancings arranged for
properties owned or managed by CESCR.  Fees on properties owned by CESCR were
earned in accordance with the Operating Partnership's agreement while fees on
properties managed by CESCR were separately negotiated.  Management does not
expect any significant future income from Financing Services.

  Other.  Corporate general and administrative expenses increased by $2.4
million, or 36.3%, due primarily to additional personnel added in mid-1997 to
expand  the Operating Partnership's acquisition and development program and
write-offs of capitalized costs on terminated acquisition and development
projects.  Interest expense increased by $1.9 million, or 4.2%, primarily due to
financing of acquisition and development activities.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997

Comparison to Year Ended December 31, 1996

  Summary. Net income of the Operating Partnership increased 50.0%, or $17.4
million, from $34.8 million for the year ended December 31, 1996 to $52.2
million for the year ended December 31, 1997. Funds from Operations of the
Operating Partnership increased $20.2 million, or 38.3%, during the same period.
The increase in both net income and FFO is due to increases in income from the
rental properties, primarily the multifamily acquisition and development
properties. These increases were partially offset by higher interest and
expenses related to acquisitions and development.

  Rental Properties.  Revenue from rental properties increased $36.1 million, or
22.0%, from $164.0 million for 1996 to $200.1 million for 1997. Expenses from
rental properties (including depreciation) increased $15.3 million, or 17.2%,
from $89.2 million in 1996 to $104.5 million in 1997.

  1997 Core Portfolio.  Revenue from the 1997 core portfolio (based on
properties owned as of December 31, 1995) increased $5.2 million, or 3.5%, from
$148.2 million in 1996 to $153.4 in 1997.  Based on the 1998 core, revenue was
$158.8 million for the year ended December 31, 1997. The difference of $5.4
million represents the transfer of three properties into core on January 1, 1998

                                       36
<PAGE>
 
and two properties out of core that were sold in 1998.  Expenses increased $0.3
million, or 0.4%, over the prior year primarily due to expected increases in
payroll and related costs, partially offset by savings from management
restructuring and the outsourcing of janitorial services.

  Average monthly revenue per apartment unit of the 1997 core portfolio
increased 3.5% from $870 in 1996 to $901 per month during 1997. Average economic
occupancy decreased slightly to 96.4% in 1997 from 96.9% in 1996. The decrease
in occupancy was not unexpected given the aggressive efforts initiated by
management to increase rents as well as the implementation during the third
quarter of 1996 of several revenue-enhancing initiatives, including a premium
for month-to-month leases and the charging of a non-refundable move-in fee in
lieu of security deposits.

  1997 Acquisition Portfolio.  The 1997 acquisition portfolio, consisting of
4,038 apartment units contributed $30.4 million, or 84.2% of the rental revenue
increase.  This growth was primarily due to the fact that six of the nine
properties, or 3,036 units, were acquired during 1997.  The acquisition
properties added $12.3 million in property operating expenses compared to the
prior year.
 
  Retail Portfolio.  Retail revenues increased by $0.2 million, or 2.5%, during
the year ended December 31, 1997 compared to the prior year due primarily to
rent increases and improved vacancy at Skyline Mall.  Average occupancy at
Skyline Mall increased from 95.1% in 1996 to 97.2% in 1997.
 
  In December 1997, Messrs. Smith and Kogod sold their health club facilities
which lease retail space from the Operating Partnership.  In conjunction with
that sale, the Operating Partnership agreed to restructure the leases by
reducing base rent on the Worldgate lease and extending the terms on both leases
by ten years, through 2025, in exchange for a $2.3 million cash payment which is
being amortized over the lives of the revised leases. The Operating Partnership
used the funds to retire 65,000 Operating Partnership units.
 
  Property Service Businesses.  Income from the Property Service Businesses
decreased $0.2 million, or 3.2%, during 1997 compared to 1996.

  Income before depreciation for Multifamily and Retail Property Management
Services decreased $1.5 million, or 65.6%, primarily due to a non-recurring fee
of $0.6 million earned in 1996 in connection with the termination of a
management agreement with a hotel owned by a related party. In addition, revenue
decreased by an additional $0.9 million due to the February 1997 acquisition of
two properties previously managed by the Operating Partnership.

  Income before depreciation for Interior Construction and Renovation Services
increased $0.1 million, or 8.9%, due to an increase of $1.0 million in net fee
revenue offset by an increase of $0.9 million in related expenses.

  Revenue from Engineering and Technical Services increased 20.0%, or $8.4
million, in 1997 with a corresponding increase of $8.2 million in expenses
compared to 1996 due primarily to additional HVAC systems operations and
preventative maintenance contracts obtained throughout 1997.  Due to start-up
costs on the new contracts, operating margins during 1997 were lower than 1996.
Consequently, income before depreciation for Engineering and Technical Services
increased a moderate 4.8% to $3.8 million for 1997 compared to $3.7 million in
1996.

                                       37
<PAGE>
 
  Income before depreciation for Financing Services increased $1.2 million, or
60.2%,  due primarily to fees earned on an unusually high level of refinancings
performed during the fourth quarter of 1997.  Such refinancings were related to
the roll-up of Affiliated commercial properties into a single partnership.  In
conjunction with the roll-up, Financing Services personnel  transferred to the
new entity, Charles E. Smith Commercial Realty L.P.

  Other.  Corporate general and administrative expenses increased by $1.3
million, or 24.9%, due primarily to additional personnel added during the year
to expand  the Operating Partnership's acquisition and development program.
Interest expense increased by $1.8 million, or 4.1%, primarily due to assumed
debt on acquisitions of multifamily properties.  Distributions in excess of
earnings allocated to Minority Interest decreased $4.8 million.  Such charges
are no longer necessary as a result of the February 1997 stock offering and the
related elimination of the Minority Interest deficit.
 

LIQUIDITY AND CAPITAL RESOURCES

Summary

  Net cash flow provided by operating activities was $118.6 million for 1998
compared to $75.2 million for 1997. The increase of $43.4 million was primarily
due to higher cash flow contributed by the acquisition portfolio as well as core
revenue growth.

  Net cash flow used by the Operating Partnership for investing activities
increased $93.1 million in 1998, from $196.9 million in 1997 to $290.0 million
in 1998 due primarily to the substantial increase in  development volume during
the year as well as increased capital expenditures.

  Net cash flow provided by financing activities was $171.4 million in 1998
compared to $117.8 million in 1997.  During 1998, the Operating Partnership
raised approximately $120 million through sales of common and preferred equity.
In addition, the Operating Partnership completed a number of debt financing
transactions which resulted in net cash inflows of $122.4 million which is net
of prepayment penalties and other related costs. In 1998, the Operating
Partnership also paid distributions of $73.5 million, or $2.095 per unit
representing three quarters of distributions at $0.52 per unit and one quarter
at $0.535, a 3.0% increase.

Equity Activity

  During 1997, the Company entered into an agreement with a private investor to
sell 2.6 million shares of Series A Cumulative Convertible Redeemable Preferred
Stock ("Series A Preferred Shares") for $71.5 million.  In 1997, the Company
issued 1.6 million shares of Series A Preferred Shares at $27.08 per share
resulting in proceeds of $44.5 million, net of underwriting discounts and other
expenses totaling $0.5 million.  The net proceeds were contributed to the
Operating Partnership in exchange for 1.6 million Series A Preferred Units.  The
Operating Partnership used the proceeds to repay on the line of credit.  In
April 1998, the Company issued the remaining 1.0 million shares of Series A
Preferred Shares at $27.08 per share resulting in proceeds of $26.1 million, net
of expenses of $0.4 million.  The net proceeds were contributed to the Operating
Partnership in 

                                       38
<PAGE>
 
exchange for 1.0 million Series A Preferred Units. These units were also used to
repay the line of credit.

  In January 1998, the Company sold 500 shares of Series C Cumulative Redeemable
Preferred Stock ("Series C Preferred Shares") for $48.6 million, net of offering
costs of $1.4 million.  The net proceeds were contributed to the Operating
Partnership in exchange for 500 units of Series C Preferred Units.  The 
Series C Preferred Shares have a liquidation preference of $100,000 per unit 
and an initial annual distribution rate of $7,910 per unit. If the securities
receive an investment grade rating, the distribution rate will decrease by 
$250 per unit. The Operating Partnership used the proceeds to repay outstanding
amounts under its lines of credit.

  In July 1998, the Company completed the sale of 1.4 million shares of common
stock (par value of $0.01 per share) under its existing shelf registration
statement at a net purchase price of $32.625 per share.  The net proceeds of
approximately $45.4 million have been used to retire outstanding debt and for
working capital needs.

  During 1998, 0.5 million Series B Cumulative Convertible Redeemable Preferred
Stock ("Series B Preferred Shares") were converted to common shares on a one-
for- one basis.  The Operating Partnership converted 0.5 million Series B 
Preferred Units to common units on a one-for-one basis.

  During 1998, the Operating Partnership issued approximately 0.3 million
Operating Partnership units valued at $11.8 million in connection with property
acquisitions.

Funds from Operations

  FFO is defined by the National Association of Real Estate Investment Trusts
("NAREIT") as net income (loss) (computed in accordance with generally accepted
accounting principles) excluding gains (or losses) from debt restructuring, and
other non-recurring items, plus depreciation/amortization of assets unique to
the real estate industry. Depreciation/amortization of assets not unique to the
industry, such as amortization of deferred financing costs and non-real estate
assets, is not added back. FFO does not represent cash flow from operating
activities in accordance with generally accepted accounting principles (which,
unlike FFO, generally reflects all cash effects of transactions and other events
in the determination of net income) and should not be considered an alternative
to net income as an indication of the Operating Partnership's performance or to
cash flow as a measure of liquidity or ability to make distributions. The
Operating Partnership considers FFO a meaningful, additional measure of
operating performance because it primarily excludes the assumption that the
value of real estate assets diminishes predictably over time, and because
industry analysts have accepted it as a performance measure. Comparison of the
Operating Partnership's presentation of FFO, using the NAREIT definition,  to
similarly titled measures for other REITs may not necessarily be meaningful due
to possible differences in the application of the NAREIT definition used by such
REITs.

  The Operating Partnership's FFO for the years ended December 31, 1998, 1997
and 1996 was as follows (in thousands):
<TABLE>
<CAPTION>
 
                                      Year Ended December 31,
                                   -----------------------------
                                     1998       1997      1996
                                   ---------   -------   -------
<S>                                <C>         <C>       <C>
 
Net Income                         $ 69,870    $52,210   $34,817
Perpetual preferred distributions    (3,647)        --        --
</TABLE> 

                                       39
<PAGE>
 
<TABLE> 
<CAPTION> 
<S>                                <C>         <C>       <C>
Gain on sale of property            (18,150)        --        --
Depreciation of real property        28,958     20,666    17,931
Amortization of goodwill                250         --        --
Loss on unused treasury lock          4,923         --        --
Extraordinary item - loss on
debt extinguishment                  16,384         87        --
                                   --------    -------   -------
 
Funds from Operations                98,588     72,963    52,748
                                   ========    =======   =======
</TABLE>

                                       40
<PAGE>
 
Acquisitions/Dispositions

  The Operating Partnership acquired the following operating properties during
1998 and 1997:
<TABLE>
<CAPTION>
 

                                       Total Cost (Dollars in Thousands)
                                       ---------------------------------
                                              1998         1997
                                              ----         ----
<S>                                          <C>        <C>     
 
   120-unit mid-rise apartment               $  6,700   $      -   
   167-unit garden apartment                    7,100          -
   299-unit high-rise apartment                39,100          -
   1,075-unit high-rise apartment /(1)/        74,100          -   
   281-unit mid-rise apartment                 63,500          -
   376-unit high-rise apartment                     -     16,300
   540-unit high-rise apartment                     -     43,000
   912-unit high-rise apartment                     -     69,800
   714-unit high-rise apartment                     -     88,900
   306-unit high-rise apartment                     -     43,100
   188-unit high-rise apartment                     -     27,500
                                             --------   --------
                                             $190,500   $288,600
                                             ========   ========
</TABLE>
/(1)/ Purchase included approximately 13% of underlying land.  Balance of land
is subject to ground leases expiring in 2067.

   During 1998, the Operating Partnership sold two properties (Oxford Manor and
Marbury Plaza) in southeast Washington, D.C. for a total of $22.0 million.  The
sales were completed as tax-deferred I.R.C. Section 1031 exchanges.  In the
financial statements, the Operating Partnership recognized gains on the sales
totaling $18.2 million.

  In January 1999, the Operating Partnership completed the acquisition of three
multifamily properties  totaling 1,008 apartment units.  The total capitalized
cost of $105.7 million was comprised of approximately $55.0 million cash,
initial capital improvement costs of $6.2 million, 0.5 million Operating
Partnership units valued at approximately $16.3 million, assumed debt of $27.1
million and fair market value adjustments of $1.1 million.

  In February, 1999, the Operating Partnership sold The Manor, a 435-unit
multifamily property located in suburban Maryland for $23.0 million.  The
Operating Partnership recognized a gain on the sale of $1.9 million.

  In March 1999, the Operating Partnership acquired the land beneath the Crystal
Square property and the 5.1% net profits interest in the Crystal Plaza property.
The purchase price of $10.0 million consisted of 32,258 Operating Partnership
Units valued at $1.0 million and $9.0 million cash drawn upon the line of
credit.

                                       41
<PAGE>
 
Development

  The Operating Partnership's development pipeline as of December 31, 1998
consists of the following projects:
<TABLE>
<CAPTION> 

                           Number      Units       Initial          Estimated    Estimated       Estimated
                           of Units    Delivered   Delivery         Completion   Stabilization   Cost
                           --------    ---------   --------------   ----------   -------------   ------------
                                                                                                 (in millions)
<S>                        <C>         <C>         <C>              <C>          <C>             <C>
Springfield Station                                                                              
  (Northern Virginia)           631       280        May, 1998        Q2  1999      Q4 1999           $ 60
Courthouse Place                             
  (Rosslyn/Ballston)            564       103        December, 1998   Q4  1999      Q1 2000             68
One Superior Place                           
  (Chicago)                     809       n/a        Q3  1999         Q2  2000      Q4 2000            115
Park Connecticut                       
  (Washington, DC)              142       n/a        Q4 1999          Q1  2000      Q2 2000             26
                              -----       ---                                                        -----
                              2,146       383                                                         $269
                              =====       ===                                                        =====

</TABLE>
Commitments

  As of December 31, 1998, the Operating Partnership had executed four contracts
to purchase to-be-constructed multifamily properties as follows:

<TABLE>
<CAPTION>
                                Number          Units           Estimated        Purchase      Estimated
                                of Units        Delivered       Completion         Date        Purchase Price
                                --------        ---------       ----------         ----        --------------
                                                                                                (in millions)
<S>                             <C>             <C>             <C>              <C>            <C>        
 
New River Village                  240              n/a           Q2 2000          Q4 2000           $ 32    
  (Ft. Lauderdale)
Wilson Boulevard                   220              n/a           Q2 2000          Q4 2000             28   
  (Rosslyn/Ballston)          
Pollard Gardens                    383              n/a           Q4 2000          Q2 2001             47    
  (Rosslyn/Ballston)
Reston Landing                     400              n/a           Q4 1999          Q3 2000             44
  (Northern Virginia)
                                 -----                                                               ----
                                 1,243                                                               $151
                                 =====                                                               ====
</TABLE>

  These contracts are contingent upon satisfactory completion of construction
and attainment of final certificates of occupancy by the owners. At December 31,
1998, the Operating Partnership had posted three letters-of-credit totaling $7.7
million in accordance with three of the contracts to be drawn upon only in the
event the Operating Partnership defaults on its contractual obligations to
purchase the completed assets.

  Numerous other acquisition and development projects are being pursued by the
Operating Partnership.  The Operating Partnership anticipates meeting the
related funding requirements through draws on its lines of credit, long-term
borrowings and public or private issuances of equity, including Operating
Partnership unit exchanges.

                                       42
<PAGE>
 
Debt

     As of December 31, 1998, the Operating Partnership had the following
mortgage indebtedness and other borrowings carrying a weighted average interest
rate of 6.97% and collateralized by 33 of the 54 Properties:

<TABLE>
<CAPTION>
                                              Dollars in
                                               Thousands   Percent of Total 
                                               ---------   -----------------
     <S>                                       <C>         <C>              
                                                                            
       Fixed rate debt:                                                     
          Mortgages                             $592,386               74.9%
          $83M Acquisition Line of Credit         30,000                3.8%
       Variable rate debt:                                                  
          $185M Line of Credit                    53,000                6.7%
          $100M  Line of Credit                   52,000                6.6%
          Construction loans                      63,193                8.0%
                                                --------              ----- 
                                                $790,579              100.0%
                                                ========              =====  
</TABLE>

     As of December 31, 1998, the Operating Partnership's Debt to Total Market
Capitalization Ratio was 40.3% (based on 31.5 million common units, 3.4 million
preferred units and 13.3 million partnership units outstanding at the Company's
stock price of $32.125 and $50 million of perpetual preferred units) versus
35.0% at December 31, 1997. The Operating Partnership's Interest Coverage Ratios
for the years ended December 31, 1998 and 1997 were 3.24:1 and 2.78:1,
respectively.

     Outstanding debt matures as follows (in thousands):

<TABLE>
 
          <S>                          <C>      
                       1999            $   3,173
                       2000               31,574
                       2001              136,621
                       2002                   --
                       2003                   --
                       Thereafter        619,211
                                       ---------
                                        $790,579
                                       ========= 
</TABLE>

     At December 31, 1998, the Operating Partnership had $306.1 million of
unused borrowing capacity available.  Amounts outstanding under lines of credit
averaged $202.9 million and $80.1 million for the years ended December 31, 1998
and 1997, respectively.

     The Operating Partnership anticipates meeting principal repayment
requirements through long-term borrowings, public or private issuances of debt
securities or public or private equity offerings.

     During 1998, the Operating Partnership completed several debt financing
transactions as follows:

     .    The Operating Partnership terminated its existing $100 million line of
          credit and entered into two new unsecured lines of credit - a $100
          million line and a $185 million line - with PNC Bank, NationsBank, and
          U.S. Bank which mature in March 2001. The Operating Partnership repaid
          the balance outstanding under the $100 

                                       43
<PAGE>
 
          million line and recognized an extraordinary loss of $0.3 million
          related to the extinguishment of such debt.

    .     The Operating Partnership repaid $110.1 million outstanding on
          Mortgage Pool One by drawing on the new line of credit. The Operating
          Partnership recognized an extraordinary loss of $4.1 million related
          to the repayment. The Operating Partnership refinanced part of the
          draw through a $53 million, ten year secured loan with Prudential at a
          fixed coupon rate of 6.88%. The loan is secured by two of the
          multifamily properties. In conjunction with this loan, the Operating
          Partnership terminated a $20 million (notional value) treasury lock
          contract at a gain of $0.4 million which will be amortized over the
          term of the new loan.

    .     The Operating Partnership repaid mortgage loans totaling $9.2 million
          and recognized an extraordinary loss of $0.3 million due to
          extinguishment of debt.

    .     In connection with the development of One Superior Place in Chicago,
          Illinois, the Operating Partnership obtained a $90 million interest-
          only construction loan in July 1998 with interest currently at LIBOR
          plus 135 basis points, payable monthly, due July 1, 2001. The loan is
          collateralized by the property.

    .     The Operating Partnership assumed a $31.5 million mortgage loan in
          connection with the Cronin's Landing acquisition in July 1998. The
          loan has an effective fixed interest rate of 6.9% with principal
          amortized using a 25-year amortization schedule and a final payment
          due March 2009. A fair value adjustment of $2.0 million was recorded
          upon assumption of this loan.

    .     In September 1998, the Operating Partnership terminated a $50 million
          (notional value) treasury lock contract at a loss of $4.9 million. The
          treasury lock was put in place in the first quarter of 1998 to hedge
          interest rate risk associated with an anticipated 10-year, unsecured
          financing which ultimately did not occur. Therefore, this amount has
          been charged to current year earnings.

    .     The Operating Partnership announced a standby credit facility of up to
          $300 million with Fannie Mae which provides for non-recourse, long-
          term debt for up to fifteen years. The initial draw on this facility
          was $140 million at 6.75% for fifteen years. The bulk of the proceeds
          were used to retire Mortgage Pool Two of $125.2 million and the
          associated prepayment penalty of $9.7 million. Terms and rates of
          subsequent draws on this facility will be determined at the time of
          use. Closing of the facility is expected during the second quarter of
          1999.

    .     The Operating Partnership obtained an interest-only $17.1 million
          mortgage on 2000 Commonwealth at a fixed interest rate of 6.3% due
          December 3, 2006.

    .     The Operating Partnership obtained a $38.3 million mortgage on Crystal
          House I & II at a fixed interest rate of 6.29%. The loan is interest
          only through December 

                                       44
<PAGE>
 
          2008, at which time principal amortization begins using a 30-year
          amortization schedule with a balloon payment due December 30, 2010.

    .     The Operating Partnership obtained a $49.3 million mortgage on Skyline
          Towers at a fixed interest rate of 6.45%. The loan is interest only
          through December 2008, at which time principal amortization begins
          using a 30-year amortization schedule with a balloon payment due
          December 10, 2010.

    .     In February 1999, the unused portion, or $53 million, of the Operating
          Partnership's $83 million line of credit with Northwestern Mutual
          expired.

    .     In February 1999, the Operating Partnership repaid $7.4 million of
          mortgage debt. The Operating Partnership paid a prepayment penalty of
          $0.9 million which was recognized as an extraordinary loss.

Other

    Capital Improvements.  In 1998, total capital improvements were $16.9
million, of which $12.4 million, or $871 per apartment unit, was for the core
portfolio.  Approximately 55% of the capital expenditures on the core portfolio
are considered by management to generate net operating income ("NOI") by
increasing revenue or decreasing expenses ("NOI generating"). The remaining
capital expenditures on the core portfolio indirectly influence the Operating
Partnership's ability to generate NOI ("non-NOI generating").  A summary of core
capital expenditures during 1998 follows:

<TABLE>
<CAPTION>
                                        Total $   Average $ Per
Expenditure Type                         Spent      Core Unit
----------------                        -------   -------------
                                     (in thousands)
<S>                                     <C>       <C>
Installations                           $ 2,643            $185
Water saving devices                      1,016              71
Renovations                               1,075              75
Redevelopment                             1,435             100
Other                                       681              48
                                        -------            ----
   NOI-Generating Improvements            6,850             479
 
   Non-NOI Generating Improvements        5,605             392
                                        -------            ----
 
Total Capital Expenditures
  - Core Portfolio                      $12,455            $871
                                        =======            ====
 
</TABLE>

     Income Taxes. The Company is taxed as a REIT under Sections 856 through 860
of the Internal Revenue Code of 1986, as amended. As such, the Company generally
is not subject to Federal corporate income taxes on net income it distributes
currently to shareholders provided that the Company distributes at least 95% of
its taxable income each year. REITs are subject to certain organizational
requirements and asset and income tests in order to

                                       45
<PAGE>
 
maintain their REIT status. The Property Service Businesses are taxable
corporations, and thus, pay Federal and state income taxes on their net income.
Such taxes amounted to $ 0.6 million, $0.4 million and $0.4 million for 1998,
1997 and 1996.

     Effect of Inflation. Substantially all of the leases at the Multifamily
Properties are for a term of one year or less, which enables the Operating
Partnership to seek increased rents upon renewal or reletting of apartments.
Retail tenant leases provide for pass-through of common area maintenance, real
estate taxes and other operating costs to tenants, which reduces the impact of
inflation.

     Year 2000.  In 1997, the Operating Partnership began a comprehensive review
of its year 2000 compliance issues utilizing an overlapping, three-phased
approach.  Phase I involves assessments of building infrastructure and internal
computer systems including both hardware and software to identify possible
compliance failures.  Phase II involves vendor compliance and actual testing of
hardware and software applications including significant electronic interfaces.
Phase III involves identifying remaining company-wide risks and development of
contingency plans.  The Operating Partnership expects to complete Phases I and
II of its year 2000 review in mid-1999. Phase III is expected to run from March
1999 through December 1999.  Based on the review plan as well as the expected
success of remediation efforts currently underway, management believes the
Operating Partnership has no material risks related to the ability of its
hardware and software to recognize the year 2000 and beyond as valid dates.

     The Operating Partnership's primary financial and operational software
programs are purchased from outside vendors who have already resolved year 2000
issues.  The Operating Partnership has received letters from these vendors
indicating that their software is year 2000 compliant.  The Operating
Partnership is in the process of replacing one computer system, however, which
is not currently year 2000 compliant at an estimated cost of approximately $1.6
million.  The new system was implemented in January 1999 and is expected to be
fully operational in early 1999. The related cost will be depreciated over its
estimated useful life.

     As part of Phase II, the Operating Partnership has initiated steps to
identify and contact key vendors whose inability to provide service in the year
2000 could have a material adverse effect on the Operating Partnership's
business operations.  With the exception of utility services, the Operating
Partnership believes that there are no other critical suppliers whose inability
to provide service would materially affect business operations.  This is due
primarily to the physical nature of the Operating Partnership's product as well
as the availability of multiple suppliers of property services.  The Operating
Partnership does not have a contingency plan to address the possibility that
utility services may not be available.  However, management believes that this
is a very unlikely scenario.  Readers are cautioned that these conclusions
involve numerous subjective assumptions and there can be no assurances that
management has adequately identified or addressed all possible contingencies.

     Excluding the replacement system, the Operating Partnership's year 2000
compliance efforts have been primarily conducted with internal staff.
Accordingly, the costs have been immaterial and are expensed as incurred.

                                       46
<PAGE>
 
Item 7a.     Quantitative and Qualitative Disclosures of Market Risk.

     None.


Item 8.      Financial Statements and Supplementary Data.

     See Index to Consolidated and Combined Financial Statements on Page F-1 of
this
     Form 10-K.


Item 9.      Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

     None.


                                    Part III


Item 10.     Directors and Executive Officers of the Registrant.

     The information required by this item with respect to directors is hereby
incorporated by reference to the material appearing under the caption "Election
of Directors" in the Company's definitive proxy statement for the annual meeting
of shareholders to be held in 1999 (the "Proxy Statement"). Information required
by this item with respect to executive officers is provided in Item 1 of this
report. See "Executive Officers of the Company."

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership of such securities with the Securities and
Exchange Commission and the NYSE.  To the best of the Company's knowledge, all
required reports were timely filed during and with respect to the fiscal year
ended December 31, 1998,  except for the following reports which were filed
late: Ernest A. Gerardi, Jr. (one report, one transaction); John T. Gray 
(Form 3); John W. Guinee (amendment to Form 3); Steven E. Gulley (Form 3 and an
amendment to Form 3); Charles R. Hagen (one report, four transactions); Matthew
B. McCormick (one report, one transaction); Alfred G. Neely (two reports, three
transactions); Roger L. Weeks (one report, one transaction); Robert D. Zimet
(one transaction, one report).

                                       47
<PAGE>
 
Item 11.  Executive Compensation.

     The information required by this item is hereby incorporated by reference
to the material appearing under the caption "Executive Compensation" in the
Proxy Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

     The information required by this item is hereby incorporated by reference
to the material appearing under the caption "Voting Securities and Principal
Holders Thereof" in the Proxy Statement.

Item 13.  Certain Relationships and Related Transactions.

     The information required by this item is hereby incorporated by reference
to the material appearing under the caption "Certain Relationships and Related
Transactions" in the Proxy Statement.

                                    Part IV


Item 14.  Exhibits, Financial Schedules, and Reports on Form 8-K.

14(a)(1)  Financial Statements

          Reference is made to the Index to Financial Statements and Schedule
on Page F-1 of this Form 10-K.

14(a)(2)  Financial Statement Schedules

          Reference is made to the Index to Financial Statements and Schedule
on Page F-1 of this Form 10-K.

          All other schedules have been omitted because the required information
     of such other schedules is not present in amounts sufficient to require
     submission of the schedule or because the required information is included
     in the consolidated  financial statements.

                                       48
<PAGE>
 
14(a)(3)  Exhibits
 
  2.1   Third Party Management and Leasing, Hotel Asset Management and Corporate
        Services Business Transfer Agreement by and between Charles E. Smith
        Residential Realty, Inc. and Smith Property Management, Inc.
        (Incorporated by reference to Exhibit No. 2.1 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

  2.2   REIT Properties Management and Leasing Business Transfer Agreement by
        and between Charles E. Smith Management, Inc. and Charles E. Smith
        Residential Realty L.P. (Incorporated by reference to Exhibit No. 2.2 of
        the Operating Partnership's Form 10-K for the year ended December 31,
        1994)

  2.3   Assignment by Robert H. Smith, Clarice R. Smith, Robert P. Kogod and
        Arlene R. Kogod to Charles E. Smith Management, Inc. of 99% of all
        Partnership Interests of Residential Associates Limited Partnership
        (Incorporated by reference to Exhibit No. 2.3 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

  2.4   Assignment and Assumption Agreement by Residential Associates Limited
        Partnership and Charles E. Smith Residential Realty L.P. (Incorporated
        by reference to Exhibit No. 2.4 of the Operating Partnership's Form 10-K
        for the year ended December 31, 1994)

  2.5   Debt Assumption Agreement and Accord and Satisfaction of Debt by Charles
        E. Smith Management, Inc. and Charles E. Smith Residential Realty L.P.
        (Incorporated by reference to Exhibit No. 2.5 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

  2.6   Debt Contribution Agreement between Charles E. Smith Management, Inc.
        and Charles E. Smith Residential Realty L.P. (the "Operating
        Partnership") (Incorporated by reference to Exhibit No. 2.6 of the
        Operating Partnership's Form 10-K for the year ended December 31, 1994)

  3.1   Amended and Restated Articles of Incorporation of Charles E. Smith
        Residential Realty, Inc. (the "Company") (Incorporated by reference to
        Exhibit No. 3.1 of the Company's Registration Statement on Form S-11, 
        No. 33-75288)

                                       49
<PAGE>
 
  3.2   Articles of Amendment to Articles of Amendment and Restatement of
        Articles of Incorporation of Charles E. Smith Residential Realty, Inc.

  3.3   Amended and Restated Bylaws of the Company (Incorporated by reference to
        Exhibit 3.2 in the Company's Registration Statement on Form S-3 
        (File No. 33-93986)

  3.4   Articles Supplementary to Amended and Restated Articles of Incorporation
        of the Company (Incorporated by reference to Exhibit No. 3.1 of
        Operating Partnership's Quarterly Report on Form 10-Q for the Quarter
        Ended June 30, 1997)

  3.5   Articles Supplementary of the Company for Classifying and Designating
        Series B Cumulative Convertible Redeemable Preferred Stock (Incorporated
        by reference to Exhibit No. 4.1 of the Operating Partnership's Report on
        Form 8-K dated October 3, 1997 and filed November 10, 1997)

  3.6   Certificate of Correction relating to Articles Supplementary for Series
        B Cumulative Convertible Redeemable Preferred Stock (Incorporated by
        reference to Exhibit No. 4.2 of the Operating Partnership's Report on
        Form 8-K dated October 3, 1997 and filed November 10, 1997)

  3.7   Articles Supplementary for Series C Cumulative Redeemable Preferred
        Stock (Incorporated by reference to Exhibit No. 3.5 in the 
        Company's Registration Statement on Form S-3, File No. 333-17053)

  3.8   Articles Supplementary of the Company for Classifying and Designating a
        Series of Preferred Stock as Series D Junior Participating Preferred
        Stock and Fixing Distribution and Other Preferences and Rights of Such
        Series

  4.1   First Amended and Restated Agreement of Limited Partnership of the
        Operating Partnership, as amended (Incorporated by reference to Exhibit
        No. 4.1 of the Operating Partnership's Form 10-K for the year ended
        December 31, 1994)

                                       50
<PAGE>
 
  4.2   Certificate of Limited Partnership of the Operating Partnership
        (Incorporated by reference to Exhibit No. 4.2 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994) 

  4.3   Ninth Amendment to Amended and Restated Agreement of Limited Partnership
        of the Operating Partnership (Incorporated by reference to Exhibit No.
        4.1 of the Operating Partnership's Quarterly Report on Form 10-Q for the
        Quarter Ended June 30, 1997) 

  4.4   Tenth Amendment to Amended and Restated Agreement of Limited Partnership
        of the Operating Partnership (Incorporated by reference to Exhibit No.
        4.4 of the Operating Partnership's Form 10-K for the year ended December
        31, 1997)

  4.5   Fifteenth Amendment to First Amended and Restated Agreement of Limited
        Partnership of the Operating Partnership (Incorporated by reference to
        Exhibit 99.1 of the Operating Partnership's Quarterly Report on Form 10-
        Q for the Quarter Ended March 31, 1998) 

  4.6   Seventeenth Amendment to First Amended and Restated Agreement of Limited
        Partnership of the Operating Partnership 

 10.1   Noncompetition Agreement by and among the Company, the Operating
        Partnership and Robert P. Kogod and Robert H. Smith (Incorporated by
        reference to Exhibit No. 10.1 of the Operating Partnership's Form 10-K
        for the year ended December 31, 1994)

 10.2   Registration Rights and Lock-up Agreement (Incorporated by reference to
        Exhibit No. 10.2 of the Operating Partnership's Form 10-K for the year
        ended December 31, 1994)

 10.3   Pledge Agreement (Incorporated by reference to Exhibit No. 10.3 of the
        Operating Partnership's Form 10-K for the year ended December 31, 1994)

 10.4   First Amended and Restated 1994 Employee Stock and Unit Option Plan
        (Incorporated by reference to Exhibit No. 10.4 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

 10.5   First Amended and Restated 1994 Employee Restricted Stock and Restricted
        Unit Plan (Incorporated by reference to Exhibit No. 10.5 of the
        Operating Partnership's Form 10-K for the year ended December 31, 1994)

                                       51
<PAGE>
 
 10.6   Non-Employee Directors Stock Option Plan (Incorporated by reference to
        Exhibit No. 10.6 of the Operating Partnership's Form 10-K for the year
        ended December 31, 1994)

 10.7   Subscription Agreement (Incorporated by reference to Exhibit No. 10.7 of
        the Operating Partnership's Form 10-K for the year ended December 31,
        1994)

 10.8   Voting Stock Partnership Agreement for Smith Property Management
        Partnership (Incorporated by reference to Exhibit No. 10.8 of the
        Operating Partnership's Form 10-K for the year ended December 31, 1994)

 10.9   Voting Stock Partnership Agreement for Smith Management Construction
        Partnership (Incorporated by reference to Exhibit No. 10.9 of the
        Operating Partnership's Form 10-K for the year ended December 31, 1994)

10.10   Voting Stock Partnership Agreement for Consolidated Engineering Services
        Partnership (Incorporated by reference to Exhibit No. 10.10 of the
        Operating Partnership's Form 10-K for the year ended December 31, 1994)

10.11   Amended and Restated Articles of Incorporation of Smith Realty Company
        (Incorporated by reference to Exhibit No. 10.11 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

10.12   By-Laws of Smith Property Management, Inc. (Incorporated by reference to
        Exhibit No. 10.12 of the Company's Registration Statement on Form S-11,
        No. 33-75288)

10.13   Articles of Incorporation of Smith Management Construction, Inc.
        (Incorporated by reference to Exhibit No. 10.13 of the Company's
        Registration Statement on Form S-11, No. 33-75288)

10.14   By-Laws of Smith Management Construction, Inc. (Incorporated by
        reference to Exhibit No. 10.14 of the Company's Registration Statement
        on Form S-11, No. 33-75288)

10.15   Articles of Incorporation of Consolidated Engineering Services, Inc.
        (Incorporated by reference to Exhibit No. 10.15 of the Company's 
        Registration Statement on Form S-11, No. 33-75288)

10.16   By-Laws of Consolidated Engineering Services, Inc. (Incorporated by
        reference to Exhibit No. 10.16 of the Company's Registration Statement
        on Form S-11, No. 33-75288)

10.17   Certificate of Incorporation of Smith One, Inc. (Incorporated by
        reference to Exhibit No. 10.17 of the Company's Registration Statement
        on Form S-11, No. 33-75288)

                                       52
<PAGE>
 
10.18   By-Laws of Smith One, Inc. (Incorporated by reference to Exhibit No.
        10.18 of the Company's Registration Statement on Form S-11, 
        No. 33-75288)

10.19   Agreement of Limited Partnership of Smith Property Holdings One L.P.
        (Incorporated by reference to Exhibit No. 10.19 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

10.20   Agreement of Limited Partnership of Smith Property Holdings One (D.C.)
        L.P. (Incorporated by reference to Exhibit No. 10.20 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

10.21   Certificate of Incorporation of Smith Two, Inc. (Incorporated by
        reference to Exhibit No. 10.21 of the Company's Registration Statement
        on Form S-11, No. 33-75288)

10.22   By-Laws of Smith Two, Inc. (Incorporated by reference to Exhibit No.
        10.22 of the Company's Registration Statement on Form S-11, 
        No. 33-75288)

10.23   Agreement of Limited Partnership of Smith Property Holdings Two
        L.P.(Incorporated by reference to Exhibit No. 10.23 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

10.24   Agreement of Limited Partnership of Smith Property Holdings Two (D.C.)
        L.P. (Incorporated by reference to Exhibit No. 10.24 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

10.25   Certificate of Incorporation of Smith Three, Inc. (Incorporated by
        reference to Exhibit No. 10.25 of the Company's Registration Statement
        on Form S-11, No. 33-75288)

10.26   By-Laws of Smith Three, Inc. (Incorporated by reference to Exhibit No.
        10.26 of the Company's Registration Statement on Form S-11, 
        No. 33-75288)

10.27   Agreement of limited Partnership of Smith Property Holdings Three L.P.
        (Incorporated by reference to Exhibit No. 10.27 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

10.28   Agreement of Limited Partnership of Smith Property Holdings Three (D.C.)
        L.P.(Incorporated by reference to Exhibit No. 10.28 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

                                       53
<PAGE>
 
10.29   Certificate of Incorporation of Smith Four, Inc. (Incorporated by
        reference to Exhibit No. 10.29 of the Company's Registration Statement
        on Form S-11, No. 33-75288)

10.30   By-Laws of Smith Four, Inc. (Incorporated by reference to Exhibit No.
        10.30 of the Company's Registration Statement on Form S-11, 
        No. 33-75288)

10.31   Agreement of Limited Partnership of Smith Property Holding Four L.P.
        (Incorporated by reference to Exhibit No. 10.31 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

10.32   Amended and Restated Certificate of Incorporation of Smith Five, Inc.
        (Incorporated by reference to Exhibit No. 10.32 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

10.33   By-Laws of Smith Five, Inc. (Incorporated by reference to Exhibit No.
        10.33 of the Company's Registration Statement on Form S-11, 
        No. 33-75288)

10.34   Agreement of Limited Partnership of Smith Property Holdings Five (D.C.)
        L.P. (Incorporated by reference to Exhibit No. 10.34 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

10.35   License Agreement between Charles E. Smith Management, Inc. and the
        Company (Incorporated by reference to Exhibit No. 10.35 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

10.36   License Agreement between Charles E. Smith Management, Inc. and the
        Operating Partnership (Incorporated by reference to Exhibit No. 10.36 of
        the Operating Partnership's Form 10-K for the year ended December 31,
        1994)

10.37   Agreement of Limited Partnership of Smith Property Holdings Five L.P.
        (Incorporated by reference to Exhibit No. 10.0 of the Operating
        Partnership's Quarterly Report on Form 10-Q for the Quarter Ended
        September 30, 1994)

10.38   Certificate of Limited Partnership of Smith Property Holdings Five L.P.
        (Incorporated by reference to Exhibit No. 10.38 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

10.39   Deed of Trust and Security Agreement between Smith Property Holdings
        Three L.P. ("Smith Three") and The Northwestern Mutual Life Insurance
        Company ("Northwestern") (Incorporated by reference to Exhibit No. 10.2
        of the Operating Partnership's Quarterly Report on Form 10-Q for the
        Quarter Ended June 30, 1994)

                                       54
<PAGE>
 
10.40   Guarantee of Recourse Obligations by Smith Three and the Operating
        Partnership (Incorporated by reference to Exhibit No. 10.3 of the
        Operating Partnership's Quarterly Report on Form 10-Q for the Quarter
        Ended June 30, 1994)

10.41   Absolute Assignment of Leases and Rents between Smith Three and
        Northwestern (Incorporated by reference to Exhibit No. 10.4 of the
        Operating Partnership's Quarterly Report on Form 10-Q for the Quarter
        Ended June 30, 1994)

10.42   Promissory Note of Smith Three to Northwestern (Incorporated by
        reference to Exhibit No. 10.5 of the Operating Partnership's Quarterly
        Report on Form 10-Q for the Quarter Ended June 30, 1994)

10.43   Purchase Money Deed of Trust and Security Agreement between Smith
        Property Holdings Three (D.C.) L.P. ("Smith Three D.C.") and
        Northwestern (Incorporated by reference to Exhibit No. 10.6 of the
        Operating Partnership's Quarterly Report on Form 10-Q for the Quarter
        Ended June 30, 1994)

10.44   Guarantee of Recourse Obligations by Smith Three D.C. and the Operating
        Partnership (Incorporated by reference to Exhibit No. 10.7 of the
        Operating Partnership's Quarterly Report on Form 10-Q for the Quarter
        Ended June 30, 1994)

10.45   Absolute Assignment of Leases and Rents between Smith Three D.C. and
        Northwestern (Incorporated by reference to Exhibit No. 10.8 of the
        Operating Partnership's Quarterly Report on Form 10-Q for the Quarter
        Ended June 30, 1994)

10.46   Purchase Money Promissory Note of Smith Three D.C. to Northwestern
        (Incorporated by reference to Exhibit No. 10.9 of the Operating
        Partnership's Quarterly Report on Form 10-Q for the Quarter Ended June
        30, 1994)

10.47   Supplemental Loan Agreement by and among Smith Property Holdings Two
        L.P. ("Smith Two"), Smith Property Holdings Two (D.C.) L.P. ("Smith Two
        D.C.") and Green Park Financial Limited Partnership ("Green Park")

10.48   Supplemental Loan Agreement by and among Smith Property Holdings One
        L.P. ("Smith One D.C."), Smith Property Holdings One (D.C.) L.P. ("Smith
        One D.C.") and GMAC (Incorporated by reference to Exhibit No. 10.13 of
        the Operating Partnership's Quarterly Report on Form 10-Q for the
        Quarter Ended June 30, 1994)

                                       55
<PAGE>
 
10.49   Multifamily Note of Smith One to GMAC (Incorporated by reference to
        Exhibit No. 10.14 of the Operating Partnership's Quarterly Report on
        Form 10-Q for the Quarter Ended June 30, 1994)

10.50   Multifamily Note of Smith One D.C. to GMAC (Incorporated by reference to
        Exhibit No. 10.15 of the Operating Partnership's Quarterly Report on
        Form 10-Q for the Quarter Ended June 30, 1994)

10.51   Absolute Assignment of Leases and Rents by Smith One D.C. to GMAC
        (Incorporated by reference to Exhibit No. 10.16 of the Operating
        Partnership's Quarterly Report on Form 10-Q for the Quarter Ended June
        30, 1994)

10.52   Property Management Agreement by and between Smith One and the Operating
        Partnership (Incorporated by reference to Exhibit No. 10.17 of the
        Operating Partnership's Quarterly Report on Form 10-Q for the Quarter
        Ended June 30, 1994)

10.53   Multifamily Deed of Trust, Assignment of Rents and Security Agreement
        between Smith One D.C. and GMAC (Incorporated by reference to Exhibit
        No. 10.18 of the Operating Partnership's Quarterly Report on Form 10-Q
        for the Quarter Ended June 30, 1994)

10.54   Commercial Leasing and Property Management Agreement between Smith Three
        and the Operating Partnership (Incorporated by reference to Exhibit No.
        10.19 of the Operating Partnership's Quarterly Report on Form 10-Q for
        the Quarter Ended June 30, 1994)

10.55   Agreement of Limited Partnership of Smith Employment Services L.P.
        (Incorporated by reference to Exhibit No. 10.58 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

10.56   Certificate of Limited Partnership of Smith Employment Services L.P.
        (Incorporated by reference to Exhibit No. 10.59 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

10.57   Second Restated and Amended Agreement of Limited Partnership of First
        Herndon Associated Limited Partnership (Incorporated by reference to
        Exhibit No. 10.1 of the Operating Partnership's Quarterly Report on Form
        10-Q for the Quarter Ended June 30, 1995)

10.58   Second Amendment to the Certificate of Limited Partnership of First
        Herndon Associates Limited Partnership (Incorporated by reference to
        Exhibit No. 10.2 of the Operating Partnership's Quarterly Report on Form
        10-Q for the Quarter Ended June 30, 1995)

                                       56
<PAGE>
 
10.59   Certificate of Incorporation of Smith Six, Inc. (Incorporated by
        reference to Exhibit No. 10.1 of the Operating Partnership's Quarterly
        Report on Form 10-Q for the Quarter Ended March 31, 1995)

10.60   By-Laws of Smith Six, Inc. (Incorporated by reference to Exhibit No.
        10.2 of the Operating Partnership's Quarterly Report on Form 10-Q for
        the Quarter Ended March 31, 1995)

10.61   Agreement of Limited Partnership of Smith Property Holdings Six L.P.
        (Incorporated by reference to Exhibit No. 10.3 of the Operating
        Partnership's Quarterly Report on Form 10-Q for the Quarter Ended March
        31, 1995)

10.62   Agreement of Limited Partnership of Smith Property Holdings Six (D.C.)
        L.P. (Incorporated by reference to Exhibit No. 10.4 of the Operating
        Partnership's Quarterly Report on Form 10-Q for the Quarter Ended March
        31, 1995)

10.63   Certificate of Incorporation of Smith Seven, Inc. (Incorporated by
        reference to Exhibit No. 10.66 of the Operating Partnership's Form 10-K
        for the year ended December 31, 1995)

10.64   By-Laws of Smith Seven, Inc. (Incorporated by reference to Exhibit No.
        10.67 of the Operating Partnership's Form 10-K for the year ended
        December 31, 1995)

10.65   Agreement of Limited Partnership of Smith Property Holdings Seven L.P.
        (Incorporated by reference to Exhibit No. 10.68 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1995)

                                       57
<PAGE>
 
10.66   Commitment for Mortgage Loan to the Operating Partnership from
        Northwestern Mutual Life Insurance Company (Incorporated by reference to
        Exhibit No. 10.69 of the Operating Partnership's Form 10-K for the year
        ended December 31, 1995)

10.67   Third Amended and Restated Credit Agreement by and between the Operating
        Partnership and PNC Bank, National Association, et. al. (Incorporated by
        reference to Exhibit No. 10.71 of the Operating Partnership's Form 10-K
        for the year ended December 31, 1997)

10.68   First Amendment to Third Amended and Restated Credit Agreement between
        the Operating Partnership and PNC Bank, National Association, et. al.
        (Incorporated by reference to Exhibit 99.1 of the Operating
        Partnership's Quarterly Report on Form 10-Q for the Quarter Ended June
        30, 1998)

10.69   Second Amendment to Third Amended and Restated Credit Agreement between
        the Operating Partnership and PNC Bank, National Association, et. al.
        (Incorporated by reference to Exhibit 99.2 of the Operating
        Partnership's Quarterly Report on Form 10-Q for the Quarter Ended June
        30, 1998)

10.70   First Amendment to First Amended and Restated Agreement of 1994 Employee
        Stock and Unit Option Plan of Charles E. Smith Residential Realty, Inc.
        (Incorporated by reference to Exhibit 4.9 in the Operating Partnership's
        Registration Statement on Form S-8, File No. 333-67421)

10.71   Second Amendment to First Amended and Restated Agreement of 1994
        Employee Stock and Unit Option Plan of Charles E. Smith Residential
        Realty, Inc.

10.72   Rights Agreement between Charles E. Smith Residential Realty, Inc. and
        First Union National Bank, as Rights Agent

   21   Subsidiaries of the Registrant

 23.1   Consent of Arthur Andersen LLP
 
   27   Financial Data Schedule

      ___________________________________

                                       58
<PAGE>
 
14(b)     Reports on Form 8-K

          A report on Form 8-K was filed on May 13, 1998 providing information
          on a Property acquired by the Operating Partnership during the second
          quarter of 1998, including certain unaudited proforma balance sheets
          and statements of operations of the Operating Partnership reflecting
          the acquisition and statements of revenue and certain expenses for the
          McClurg Court Property for the year ended December 31, 1997, and
          applicable subsequent periods.

          A report on Form 8-K was filed on July 15, 1998 providing information
          on a Property (Cronin's Landing) acquired by the Operating Partnership
          during the third quarter of 1998.

          A report on Form 8-K was filed on December 8, 1998 providing
          information on the Rights Plan.


14(c)     Exhibits

          The list of Exhibits filed with this report is set forth in response
          to Item 14(a)(3). The required exhibit index has been filed with the
          exhibits.

14(d)     Financial Statements

          See Index to Financial Statements and Schedules on Page F-1 of this
          Form 10-K.

                                       59
<PAGE>
 
                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on this
26th day of March, 1999.


                    CHARLES E. SMITH RESIDENTIAL REALTY, L.P.
                 
                    By   Charles E. Smith Residential Realty,
                         Inc., it's General Partner    


                    By   /s/Ernest A. Gerardi, Jr.
                         -------------------------------------
                         Ernest A. Gerardi, Jr.
                         President and Chief Operating Officer
 

     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on this 26th day of March, 1999.

         Signature                           Title
         ---------                           -----

    /s/Robert H. Smith                  Co-Chairman of the Board, Co-Chief
    --------------------------     
    Robert H. Smith                     Executive Officer, and Director


    /s/Robert P. Kogod                  Co-Chairman of the Board, Co-Chief
    --------------------------
    Robert P. Kogod                     Executive Officer, and Director
 

    /s/Ernest A. Gerardi, Jr.           President, Chief Operating Officer, and
    --------------------------  
    Ernest A. Gerardi, Jr.              Director


    /s/Wesley D. Minami                 Senior Vice President and
    --------------------------
    Wesley D. Minami                    Chief Financial Officer

    
    /s/ Steven E. Gulley                Vice President, Controller, and Chief
    --------------------------
    Steven E. Gulley                    Accounting Officer

                                       60
<PAGE>
 
    /s/Fred J. Brinkman                 Director
    --------------------------
    Fred J. Brinkman


    /s/Charles B. Gill                  Director
    --------------------------
    Charles B. Gill


    /s/Mandell J. Ourisman              Director
    --------------------------
    Mandell J. Ourisman


    /s/Mallory Walker                   Director
    --------------------------
    Mallory Walker

                                       61
<PAGE>
 
                   CHARLES E. SMITH RESIDENTIAL REALTY L.P.

                  Index to Financial Statements and Schedules
                  -------------------------------------------


CHARLES E. SMITH RESIDENTIAL REALTY L.P.
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT

                                                               Pages
                                                               -----
 
 
     Report of Independent Public Accountants                   F-2

     Consolidated Balance Sheets                                F-3
 
     Consolidated Statements of Operations                      F-4
 
     Consolidated Statements of Partner's Equity  and
     Other Limited Partners' Interest                           F-5
 
     Consolidated Statements of Cash Flows                      F-6
 
     Notes to Consolidated Financial Statements                 F-7 to F-33
 


SCHEDULES FILED AS PART OF THIS REPORT

     Schedule III - Real Estate and Accumulated Depreciation    S-1 to S-2



     All other Schedules have been omitted because the required information of
     such other Schedules is not present in amounts sufficient to require
     submission of the schedule or because the required information is included
     in the consolidated financial statements.

                                      F-1
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Charles E. Smith Residential Realty, L.P.:


We have audited the accompanying consolidated balance sheets of Charles E. Smith
Residential Realty L.P. (a Delaware limited partnership) and subsidiaries as of
December 31, 1998 and 1997 and the related consolidated statements of
operations, partners' equity and other limited partners' interest, and cash
flows for each of the years in the three years ended December 31, 1998. These
consolidated financial statements and the schedule referred to below are the
responsibility of the management of Charles E. Smith Residential Realty, L.P.
Our responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 Charles E. Smith
Residential Realty L.P. and subsidiaries as of December 31, 1998 and 1997, and
the consolidated results of its operations and its cash flows for each of the
years in the three years ended December 31, 1998, in conformity with generally
accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to financial
statements is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

                                                   Arthur Andersen LLP
Washington, D.C.
February 9, 1999

                                      F-2
<PAGE>
                   CHARLES E. SMITH RESIDENTIAL REALTY L.P.
CONSOLIDATED STATEMENTS OF PARTNER'S EQUITY AND OTHER LIMITED PARTNERS' INTEREST
                 (Dollars in Thousands, Except Per Unit Data)

<TABLE> 
<CAPTION> 

                                                                                                             Other     
                                                               General Partner's General and            Limited Partners'       
                                                                    Limited Interest                       Interest                
                                                  ----------------------------------------------------  -----------------
                                                     Series A    Series B     Series C                                       
                                                    Preferred    Preferred    Preferred      Common         Common                  
                                                      Units        Units        Units         Units          Units 
                                                   ----------    ----------   ---------    -----------    -----------
<S>                                                <C>           <C>          <C>          <C>            <C>  
Balance, December 31, 1995                         $        -    $       -    $       -    $  (320,286)   $   288,663           
   Units exchanged for acquisition                          -            -            -              -          2,403          
   Adjustment for unit grants                               -            -            -              -            333          
   Net income                                               -            -            -         15,755         19,062          
   Distributions                                            -            -            -        (19,469)       (23,840)          
   Adjustment to reflect Other Limited Partners' 
           interest at redemption value                     -            -            -        (65,252)        65,252          
                                                   ----------    ----------   ---------    -----------    -----------
                                                                                           
Balance, December 31, 1996                                  -            -            -       (389,252)       351,873          
                                                                                                                               
   Units exchanged for acquisition                          -            -            -              -         75,019          
   Adjustment for unit grants                               -            -            -              -            579          
   Net income                                               -            -            -         26,593         25,617          
   Contribution by Charles E. Smith Residential 
           Realty, Inc.                                45,000       34,675            -        124,180              -
   Offering costs                                           -            -            -           (562)             -
   Repurchase and cancellation of Operating 
           Partnership units                                -            -            -              -         (2,206)          
   Distributions                                            -            -            -        (27,151)       (26,369)          
   Other                                                    -            -            -            244            110          
   Adjustment to reflect Other Limited Partners' 
           interest at redemption value                     -            -            -        (78,096)        78,096          
                                                   ----------    ----------   ---------    -----------    -----------
                                                                                                                               
Balance, December 31, 1997                             45,000       34,675            -       (344,044)       502,719          
                                                                                                                               
   Units exchanged for acquisition                          -            -            -              -         11,820    
   Adjustment for unit grants                               -            -            -              -            521    
   Net income                                               -            -            -         41,129         28,741    
   Contribution by Charles E. Smith Residential                                                                          
      Realty, Inc.                                     26,500            -       50,000         45,454              -    
   Conversion of Preferred units to Common Units            -      (14,308)           -         14,308              -    
   Offering costs                                           -            -            -         (1,874)             -    
   Repurchase and cancellation of Operating                                                                              
      Partnership units                                     -            -            -              -           (594)   
   Distributions                                            -            -            -        (44,498)       (28,962)   
   Other                                                    -            -            -            121          2,874    
   Adjustment to reflect Other                                                                                           
           Limited Partners' interest                                                                                    
           at redemption value                              -            -            -         90,861        (90,861)   
                                                   ----------    ----------   ---------    -----------    -----------
                                                                                                                                
Balance, December 31, 1998                         $   71,500   $   20,367    $  50,000    $  (198,543)   $   426,258           
                                                   ==========   ==========    =========    ===========    ===========  
                                                                                                                               
Units issued and outstanding at December 31, 1998   2,640,325      714,628          500     18,212,600     13,268,740          
                                                   ==========   ==========    =========    ===========    ===========  
                                                                                                                               
Units issued and outstanding at December 31, 1997   1,661,743    1,216,666            -     14,942,429     14,161,102           
                                                   ==========   ==========    =========    ===========    ===========  
</TABLE>

       The accompanying notes are an integral part of these statements.

                                      F-5
<PAGE>

                   CHARLES E. SMITH RESIDENTIAL REALTY L.P.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Dollars in Thousands)
<TABLE> 
<CAPTION> 
                                                                                         Year Ended December 31,
                                                                         --------------------------------------------------------
                                                                                1998               1997                 1996    
                                                                         ---------------     ---------------     ---------------
<S>                                                                        <C>             <C>                 <C>               
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                            
        Net income                                                       $       69,870     $       52,210       $      34,817     
        Adjustments to reconcile net income                                                                                        
          to net cash provided by operating activities:                                                                            
             Extraordinary Item-Loss on extinguishment of debt                   16,384                  -                   -
             Loss on unused treasury lock                                         4,923                  -                   -
             Gain on sale of property                                           (18,150)                 -                   -
             Depreciation and amortization                                       31,118             23,543              21,039     
             (Increase) decrease in escrow funds                                  1,490             (1,519)               (716)    
             (Increase) decrease in other assets                                  3,833             (3,218)             (1,014)    
             (Decrease) increase in accounts payable and                                                                           
                  accrued expenses                                                9,098              4,207              (3,168)    
                                                                        ---------------     --------------     ---------------     
                  Net cash provided by operating activities                     118,566             75,223              50,958     
                                                                        ---------------     --------------     ---------------     
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                              
        Acquisitions and development of rental property                        (255,695)          (173,205)            (60,173)    
        Additions to rental property                                            (16,852)           (12,811)             (7,425)    
        Decrease in related party payables                                            -                  -              (1,441)
        (Increase) decrease in investment in and advances                                                                          
             to Property Service Businesses and other                           (14,492)            (5,111)             (2,408)    
        Acquisition deposits and other                                           (2,956)            (5,797)             (1,295)    
                                                                        ---------------     --------------     ---------------     
                  Net cash used by investing activities                        (289,995)          (196,924)            (72,742)    
                                                                        ---------------     --------------     ---------------     
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                              
        Additions to deferred charges                                            (6,149)            (1,033)               (402)    
        Capital contributions by Charles E. Smith                                                                                  
             Residential Realty, Inc.:                                                                                             
             Common units                                                        45,454            124,180                   -     
             Preferred units                                                     74,626             79,113                   -     
        Mortgages:                                                                                                                 
             Proceeds                                                           317,650             34,000              31,095     
             Repayments                                                        (259,155)           (43,847)            (31,520)    
        Lines of credit:                                                                                                           
             Proceeds                                                           296,000             92,350              75,500     
             Repayments                                                        (266,000)           (99,400)            (16,000)    
        Construction loans:                                                                                                        
             Proceeds                                                            66,157              5,536               1,032     
             Repayments                                                          (8,500)           (17,686)                  -     
        Prepayment penalties                                                    (12,672)                 -                   -
        Loss on unused treasury lock                                             (4,923)                 -                   -
        Repurchase of units                                                        (594)            (2,206)                  -     
        Distributions                                                           (73,460)           (53,520)            (43,309)    
        Other, net                                                                2,995                316                (192)    
                                                                        ---------------     --------------     ---------------     
                  Net cash provided by financing activities                     171,429            117,803              16,204     
                                                                        ---------------     --------------     ---------------     
NET DECREASE IN CASH AND CASH EQUIVALENTS                                             -             (3,898)             (5,580)    
                                                                                                                                   
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                        -              3,898               9,478     
                                                                        ---------------     --------------     ---------------     
CASH AND CASH EQUIVALENTS, END OF PERIOD                                $             -                  -     $         3,898     
                                                                        ===============     ===============     ===============     
</TABLE> 


       The accompanying notes are an integral part of these statements.

                                      F-6
<PAGE>
                   CHARLES E. SMITH RESIDENTIAL REALTY L.P.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 (Dollars in Thousands, Except Per Unit Data)



<TABLE> 
<CAPTION> 
                                                                                Year Ended December 31,
                                                                 ----------------------------------------------------- 
                                                                     1998               1997                 1996
                                                                 ------------        -------------        ------------
<S>                                                               <C>              <C>               <C> 
Rental Properties:
     Revenues                                                    $   250,211         $    200,104         $   163,959

     Expenses
         Operating costs                                             (84,381)             (71,425)            (60,796)
         Real estate taxes                                           (17,254)             (12,402)            (10,429)
         Depreciation and amortization                               (28,958)             (20,666)            (17,931)
                                                                 ------------        -------------        ------------
             Total expenses                                         (130,593)            (104,493)            (89,156)

Equity in income of Property Service Businesses                        8,433                7,597               7,846

Corporate general and administrative expenses                         (8,947)              (6,563)             (5,255)
Interest income                                                        1,257                1,063               1,029
Interest expense                                                     (47,334)             (45,411)            (43,606)
                                                                 ------------       --------------        ------------   
Income before gain on sale, loss on unused treasury lock,
     and extraordinary item                                           73,027               52,297              34,817

Gain on sale of property                                              18,150                    -                   -

Loss on unused treasury lock                                          (4,923)                   -                   -
                                                                 ------------       --------------        ------------
 
Income before extraordinary item                                      86,254               52,297              34,817

Extraordinary item - loss on extinguishment of debt                  (16,384)                 (87)                  -
                                                                 ------------       --------------        ------------
Net income                                                            69,870               52,210              34,817

Less:    Income attributable to preferred units                      (10,722)              (1,881)                  -
                                                                 ------------       --------------        ------------ 
Net income attributable to common units                         $     59,148         $     50,329         $    34,817
                                                                =============       ==============        ============ 


Earnings per common unit - basic

     Income before extraordinary item                           $       2.50         $       1.89         $      1.59
     Extraordinary item                                                 0.54                    -                   -
                                                                 ------------        -------------        ------------
   
        Net income                                              $       1.96         $       1.89         $       1.59
                                                                =============        =============        ============
Earnings per common unit - diluted

        Income before extraordinary item                        $       2.49         $       1.88         $       1.59
        Extraordinary item                                              0.54                    -                    -
                                                                -------------        -------------        -------------   
        Net income                                              $       1.95         $       1.88         $       1.59
                                                                =============        =============        ============= 
</TABLE>

       The accompanying notes are an integral part of these statements.

                                      F-4
<PAGE>

                   CHARLES E. SMITH RESIDENTIAL REALTY L.P. 
                         CONSOLIDATED BALANCE SHEETS
                              AS OF DECEMBER 31,
                            (Dollars in Thousands)
<TABLE> 
<CAPTION> 

                                                                             1998                     1997
                                                                          -----------              -----------  
<S>                                                                        <C>                       <C>   
               ASSETS

Rental property, net                                                      $   926,749              $   751,230
Rental property under construction                                            167,214                   53,093
Escrow funds                                                                   23,819                    7,606
Investment in and advances to Property Service Businesses                      28,633                   14,141
Deferred charges, net                                                          18,081                   16,047
Security deposits                                                               2,408                    2,453
Other assets                                                                   18,495                   20,936
                                                                           ----------                 -------- 
                                                                          $ 1,185,399              $   865,506
                                                                           ----------                 --------
                                                                                                                
               LIABILITIES AND EQUITY                                                                   
                                                                                                        
Liabilities                                                                                             
    Mortgage loans                                                        $   592,386              $   500,435
    Lines of credit                                                           135,000                  105,000
    Construction loans                                                         63,193                    5,536
    Accounts payable and accrued expenses                                      22,830                   13,732
    Security deposits                                                           2,408                    2,453
                                                                           ----------                 --------
               Total liabilities                                              815,817                  627,156
                                                                           ----------                 --------
                                                                                                        
Commitments and contingencies                                                                           
                                                                                                        
Other Limited Partners' Interest                                                                        
    13,268,740 and 14,161,102 common units issued and outstanding                                           
    at December 31, 1998 and 1997, respectively, at redemption value          426,258                  502,719 
                                                                           ----------                 --------

Partner's Equity
    General Partner's General and Limited Partnership Interest
        Preferred units - Series A Cumulative Convertible
             Redeemable Preferred Units, 2,640,325 and 1,661,743 units
             issued and outstanding at December 31, 1998 and 1997,
             respectively                                                      71,500                   45,000
        Prererred units - Series B Cumulative Convertible
             Redeemable Preferred Units, 714,628 and 1,216,666 units
             issued and outstanding at December 31, 1998 and 1997,
             respectively                                                      20,367                   34,675
        Preferred units - Series C Cumulative Redeemable Preferred
             Units, 500 units issued and outstanding                           50,000                        -
        Common units - 18,212,600 and 14,942,429 units issued and
             outstanding at December 31, 1998 and 1997, respectively         (198,543)                (344,044)
                                                                           ----------                 --------
                 Total partner's equity                                       (56,676)                (264,369)
                                                                           ----------                 --------

                                                                          $ 1,185,399              $   865,506
                                                                           ==========                 ========


</TABLE>


       The accompanying notes are an integral part of these statements.

                                      F-3
<PAGE>
 
                   CHARLES E. SMITH RESIDENTIAL REALTY, L.P.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  ORGANIZATION AND FORMATION OF COMPANY

          Charles E. Smith Residential Realty L.P. (The "Operating Partnership")
was organized in Delaware in 1993.  The Operating Partnership had no operations
prior to the completion of the business combination (discussed below) which
occurred on June 30, 1994.  Charles E. Smith Residential Realty, Inc. (the
"Company"), formed in June 1993, is a self-administered and self-managed equity
real estate investment trust ("REIT").  On June 30, 1994, the Company raised
equity through an initial public offering and a private placement (the
"Offerings"), and issued debt in a series of concurrent private financing
transactions. The proceeds from the Offerings were used to acquire the 1.0% sole
general partnership and a 41.7% limited partnership interest in the Operating
Partnership.

      Simultaneous with the Offerings, the entities that owned the properties
and the related service businesses included in the CES Group contributed the
properties (the "Predecessor Properties") and the management, development,
leasing, interior construction, engineering, and financing services business
segments of the Predecessor to the Operating Partnership (or corporations in
which the Operating Partnership owns substantially all of the equity) and
received in exchange, directly or indirectly, units of limited partnership in
the Operating Partnership. (The contributing entities and their owners, which
include Robert H. Smith and Robert P. Kogod and their families, and other former
owners of indirect interests in contributed properties, are referred to
collectively as the "Other Limited Partners"). The contributed assets and
liabilities were recorded at historical net book value which transferred a net
carry-over deficit of $244.2 million to the Operating Partnership.

     The Operating Partnership and its subsidiaries are engaged in the
ownership, operation, management, leasing, acquisition, and development of real
estate properties, primarily residential multifamily properties.  As of December
31, 1998, the Operating Partnership owned 48 operating multifamily properties
containing 19,279 apartment units (the "Properties"), had approximately 2,100
units under construction at four owned sites and had agreements to purchase
approximately 1,200 units at four additional sites.  In addition, the Operating
Partnership owned two free-standing community retail shopping centers
aggregating 436,000 square feet.  The properties are located in the following
metropolitan areas:
<TABLE>
<CAPTION>
 
 
                                 Washington, D.C.
                                      Area           Chicago   Boston   Ft. Lauderdale   Total
-----------------------          ---------------     -------   ------   --------------   -----
<S>                              <C>                <C>       <C>      <C>              <C>              
Multi-Family
------------           
  Operating                              44             2          2            -         48
  Under Construction                      6             1          -            1          8
</TABLE> 

                                      F-7

<PAGE>
 
<TABLE> 
<S>                                   <C>             <C>        <C>          <C>        <C>  
Retail Centers                           2              -          -            -          2  
--------------                          --             --         --           --         --      
                                        52              3          2            1         58
                                        ==             ==         ==           ==         ==  
</TABLE>

     Additionally, the Operating Partnership owned substantially all of the
equity in entities which provide multifamily and retail property management and
leasing, furnished corporate apartments, interior construction and renovation,
building engineering and technical services, and financial advisory services
(collectively, the "Property Service Businesses").


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

     The accompanying consolidated financial statements include all of the
accounts of the Operating Partnership and its subsidiaries and affiliates.  The
Operating Partnership uses the equity method of accounting for its 99% non-
voting interest in the Property Service Businesses.

     All significant intercompany balances and transactions have been
eliminated.

Rental Property

     The Operating Partnership recorded the contributed Predecessor Properties
at the Predecessor's historical cost.  Rental property subsequently acquired or
developed is recorded at the Operating Partnership's actual cost, including
interest and real estate taxes incurred during development.  Ordinary repairs
and maintenance, such as minor replacements and painting, are expensed as
incurred.  Major improvements, such as new HVAC equipment and kitchen/bath
renovations, are capitalized when they extend the useful life, increase capacity
or improve the efficiency of the asset. Depreciation on buildings and
improvements is computed using the straight-line method over estimated useful
asset lives as follows:

<TABLE> 
<S>                                    <C> 
Base building                          40 years
Land improvements                      20 years
Building improvements                  7 to 20 years
Tenant improvements                    Shorter of remaining lease term or useful life
Furniture, fixtures and equipment      5 to 10 years
</TABLE> 

Deferred Charges

    Deferred charges consist primarily of permanent loan fees, which are
amortized to interest expense over the terms of the notes using the effective
interest rate method, and retail lease acquisition costs, which are amortized
over the terms of the related leases.

                                      F-8

<PAGE>
 
Revenue Recognition

     Rental income attributable to residential leases is recognized when due
from tenants. The Operating Partnership requires residential tenants to
initially execute a one-year lease. At the expiration of the lease term, if not
renewed, the lease converts to a month-to-month basis.

     Minimum rental income attributable to retail leases is recognized on a
straight-line basis over the term of the lease regardless of when payments are
due. Minimum rental income recognized in excess of payments due was $5.4 million
and $5.0 million at December 31, 1998 and 1997, respectively, and is included in
other assets. The lease agreements contain provisions that provide for
additional rentals based on the tenants' sales volume and reimbursement from the
tenants for their share of real estate taxes and certain common area maintenance
costs. Additional rentals are recognized on the accrual basis.

     The future minimum lease payments to be received by the Operating
Partnership under noncancelable retail leases as of December 31, 1998, are as
follows (in thousands):
<TABLE>
<CAPTION>
 
            Year Ending
            December 31,
            ------------            
            <S>                          <C>
                1999                      $  7,162
                2000                         6,980
                2001                         6,822
                2002                         7,102
                2003                         6,808
             Thereafter                     87,684
                                          --------
                                          $122,558
                                          ========
 
</TABLE>

Income Taxes

     These financial statements contain no provision for Federal income taxes
since the entity is a partnership and, therefore, all Federal income tax
liabilities and/or tax benefits are passed through to the individual partners in
accordance with the partnership agreement and the Internal Revenue Code.

     The Operating Partnership's income tax basis in its assets and liabilities
was $966 million and $879 million, respectively, at December 31, 1998 and $702
million and $635 million, respectively, at December 31, 1997.



Cash and Cash Equivalents

                                      F-9

<PAGE>
 
     Cash and cash equivalents include all cash and cash equivalent investments
with original maturities of three months or less.

Use of Estimates in the Financial Statements

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions related to the net realizable value of rental property, the
collectibility of accounts and notes receivable, and the outcome of asserted and
unasserted claims that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods.  Actual results could differ from those estimates.

Impairment of Long-Lived Assets

     Management assesses for impairment any property whenever events or
circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognized when the sum of the estimated undiscounted future
cash flows before interest charges is less than its carrying value. The loss is
measured as the difference between the carrying value and the fair value of the
property.

Stock-based compensation

     The Company accounts for stock-based compensation programs under Accounting
Principles Board Opinion No. 25 whereby compensation expense is equal to the
excess, if any, of the quoted market price of the stock at the grant date over
the exercise price.

New Accounting Pronouncements

     During 1998, the Company implemented Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income", which had no
impact, and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information", which is reflected in Note 14.

     During 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" which is
effective for years beginning after June 15, 1999.  The standard is not expected
to have a significant impact on the Operating Partnership's financial statements
since the Operating Partnership has no derivative instruments.

Reclassifications

     Certain  reclassifications of the prior years' information have been made
to conform to the current year's presentation.

3.  RENTAL PROPERTY

                                     F-10

<PAGE>
 
Rental Property
     Rental property consists of the following as of December 31 (in thousands):
<TABLE>
<CAPTION>
 
                                              1998         1997
                                              ----         ---- 
<S>                                         <C>          <C>          
 
          Land                             $  157,337   $  129,213
          Buildings and improvements          997,868      832,203
          Property under construction         167,441       53,093      
                                            ---------    ---------
                                            1,322,646    1,014,509

        Less: Accumulated depreciation       (228,683)    (210,186)  
                                            ---------    ---------   
                                           $1,093,963   $  804,323 
                                           ==========   ==========  
</TABLE>

     Depreciation expense of the Operating Partnership was $28.6 million,  $20.3
million and $17.7 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Repairs and maintenance expense of the Operating Partnership was
$13.6  million, $13.2 million and $11.8 million for the years ended December 31,
1998, 1997 and 1996, respectively.

Acquisitions

     During 1998, the Operating Partnership acquired five properties for $190.5
million, adding 1,942 apartment units.  The Operating Partnership issued a total
of approximately 0.3 million Operating Partnership units valued at $11.8 million
and assumed a $31.5 million mortgage loan which was adjusted to its fair value
of $33.5 million.  The balance was funded from available cash and draws on the
line of credit.  The conversion of these Operating Partnership units into
Company common stock is restricted for up to two years.  One of the properties
acquired included 13% of the underlying land with the balance subject to ground
leases expiring in 2067.

     During 1997, the Operating Partnership acquired six properties for $288.6
million, adding 3,036 apartment units.  The Operating Partnership issued a total
of approximately 2.1 million Operating Partnership units valued at $61.1 million
and assumed $93.5 million in mortgage loans. The balance was funded from
available cash and draws on the line of credit. The conversion of these
Operating Partnership units into Company common stock is restricted for up to
one year.

     During 1996, the Operating Partnership acquired four properties for $64.1
million, adding 1,049 apartment units.  The Operating Partnership issued a total
of approximately 0.1 million Operating Partnership units valued at approximately
$2.4 million and assumed a $3.3 million mortgage loan. The balance was funded
from available cash and draws on the line of credit.

Dispositions

     During 1998, the Operating Partnership sold two properties in southeast
Washington, D.C. for a total of $22.0 million.  The sales were completed as tax-
deferred I.R.C. Section 1031 exchanges. Under generally accepted accounting
principles, the Operating Partnership recognized  gains on the sales totaling
$18.2 million.

                                     F-11

<PAGE>
 
Development
 
     At December 31, 1998, the Operating Partnership had approximately 2,100
apartment units under construction at four sites.  Total estimated cost
(including land) is approximately $269 million.


4.  INVESTMENT IN AND ADVANCES TO PROPERTY SERVICE BUSINESSES

     The Operating Partnership uses the equity method of accounting for its 99%
non-voting interest in the Property Service Businesses, which include Smith
Realty Company ("SRC"), Consolidated Engineering Services, Inc. ("CES") and
Smith Management Construction, Inc. ("SMC"). These companies provide services
which include property management, leasing, engineering and technical, financing
and property construction and renovation. Under the equity method, the Operating
Partnership's investment is adjusted for its proportionate share of earnings or
losses of the Property Service Businesses and by dividends received. The
Operating Partnership recognized its 99% interest in the earnings of each of the
Property Service Businesses which aggregated $8.4 million, $7.6 million and $7.8
million for the years ended December 31, 1998, 1997 and 1996, respectively. The
Operating Partnership received distributions aggregating $10.5 million, $8.9
million and $8.9 million for the years ended December 31, 1998, 1997 and 1996,
respectively.

     The Property Service Businesses provide services to the Operating
Partnership under one-year agreements which are automatically renewable. Such
services are generally provided at cost (including a proportionate share of
total overhead) except property management and leasing services which are
provided at cost plus five percent. The Property Service Businesses also provide
services to certain partnerships which own multifamily and commercial office
properties and have Messrs. Smith and Kogod as the general partners
("Affiliates"). Such services are generally provided at cost (including
overhead) plus a fee, except for certain engineering and technical services
which are provided at cost and overhead.

     In November 1997, certain commercial office Affiliates combined into a
single partnership, Charles E. Smith Commercial Realty L.P. ("CESCR").  In
conjunction with the combination, CES and SMC each entered into eight-year
agreements with CESCR to continue providing services under the same terms and
conditions in place prior to the business combination.  In addition, certain
Financing Services personnel of SRC transferred to CESCR.  SRC entered into an
agreement which expired December 31, 1998 to provide Financing Services for
certain properties owned by CESCR. Services were  provided by SRC in 1998
utilizing CESCR personnel on a negotiated cost basis.  SRC separately negotiated
revenue and cost sharing agreements for Financing Services provided to
properties managed but not owned by CESCR.

     In addition to the above, SRC provided administrative services such as
accounting, systems and human resources services to the Operating Partnership
and Affiliates at cost and overhead in accordance with cost and executive
sharing agreements. In management's opinion, the allocation

                                     F-12

<PAGE>
 
methods provide reasonable estimates of the costs that would have been incurred
had the services been provided by the Operating Partnership.

    Total fees and administrative services charged by the Property Service
Businesses to the Operating Partnership and Affiliates follows (in thousands):
<TABLE>
<CAPTION>
                                                             Year Ended December 31
                                                         -------------------------------
                                                           1998       1997       1996
                                                         --------   --------   ---------
<S>                                                      <C>        <C>        <C>
Fees Charged by Property Services Businesses to:
------------------------------------------------      
 
Operating Partnership                                    $12,789    $ 8,762     $ 7,969
Affiliates                                                32,512     29,841      31,321
 
Costs of Administrative Services Charged by SRC to:
---------------------------------------------------
 
Operating Partnership                                     11,845      9,629       7,459
Affiliates                                                 4,806      5,632       5,630
</TABLE>

    The Operating Partnership had net working capital advances to the Property
Service Businesses of $25.9 million and $10.6 million at December 31, 1998 and
1997, respectively, which are reflected in the investment balance.
 
Combined summarized balance sheet information for the Property Service
Businesses follows (in thousands):
<TABLE> 
 
                                          As of December 31,
                                        -----------------------             
                                          1998          1997
                                        ---------     ---------
     <S>                                <C>           <C> 
     Assets/(1)/
       Accounts receivable               $42,356       $27,827   
       Property, net                       6,910         5,475
       Other, net                          7,123         3,091        
                                         -------       ------- 
                                         $56,389       $36,393
                                         =======       =======
     Liabilities/(1)/
       Accounts payable                  $19,468       $17,422
       Deferred revenue                    5,050         5,120
       Due to related parties             29,800        11,529
       Other                               3,403         1,552
     Equity                               (1,332)          770
                                         -------       -------
                                         $56,389       $36,393
                                         =======       =======
</TABLE>
  /(1)/  Balance sheets exclude $44.5 million of notes due to the Operating
Partnership which, under the equity method, are eliminated for  purposes of
carry-over basis accounting.

                                     F-13

<PAGE>
  Combined summarized income statement information for the Property Service
Businesses follows (in thousands):
<TABLE> 
<CAPTION> 
 
                                                         Year Ended December 31,
                                               --------------------------------------------
                                                 1998              1997              1996
                                               --------          --------          --------
 <S>                                           <C>               <C>               <C> 
 Revenues                                      $108,199          $ 72,277          $ 62,559
 Operating expenses                             (98,072)          (62,976)          (53,245)
 Depreciation/amortization                       (1,401)           (1,238)           (1,056)
 Other expense, net                                (274)             (447)             (391)
                                               --------          --------          --------
  Net income/(1)/                              $  8,452          $  7,616          $  7,867
                                               ========          ========          ========
</TABLE>

/(1)/ Represents 100% of the Property Service Businesses' net income, of which
the Operating Partnership's share was  $8.4 million, $7.6 million and $7.8
million, respectively, for the years ended December 31, 1998, 1997 and 1996.


5.  DEFERRED CHARGES
     Deferred charges consist of the following as of December 31 (in thousands):
<TABLE>
<CAPTION>
 
 
                                                       1998       1997
                                                     --------   ---------
<S>                                                  <C>        <C>    
 
        Permanent loan fees                          $16,619     $20,513   
        Retail lease acquisition costs                 4,395       4,170
        Acquisition/development costs and other        2,258       1,742
                                                     -------     -------
                                                      23,272      26,425
        Less: Accumulated amortization                (5,191)    (10,378) 
                                                     -------     -------
                                                     $18,081     $16,047
                                                     =======     =======
</TABLE>

     Amortization of permanent loan fees (which is charged to interest expense)
was $1.6 million, $2.3 million and $2.7 million for the years ended December 31,
1998, 1997 and 1996, respectively. Other amortization expense was $0.3 million,
$0.4 million and $0.2 million for the years ended December 31, 1998, 1997 and
1996, respectively.

                                     F-14

<PAGE>
 
6.  MORTGAGE LOANS AND NOTES PAYABLE

     The Operating Partnership, through its subsidiary financing partnerships,
has mortgage loans and notes payable as follows as of December 31:
<TABLE>
<CAPTION>
 
                                           
                                Balance as of December 31,
                                --------------------------
                                                            Interest
                                 1998          1997         Rate                Maturity
                                ------        ------        ---------           --------
                                                     (in thousands)
<S>                             <C>          <C>            <C>             <C>   
Mortgage Pools
--------------
   Pool One                           --         $110,140         --               --    
   Pool Two                           --          125,214         --               -- 
   Pool Three                   $117,000          117,000       7.99%            June 30, 2009
   FNMA                          140,000             --         6.75%            October 30, 2013
   Prudential                     53,000             --         6.88%            June 5, 2008
 
Individual Mortgages
--------------------
   1841 Columbia Road              3,173            3,211       9.00%            August 1, 1999
   Kenmore                            --            1,165         --              --
   Crystal Towers                 44,198           44,610       7.16%            January 1, 2006
   2000 Commonwealth              17,100           13,310       6.30%            December 3, 2006
   Connecticut Heights            20,000            8,053       7.10%            March 18, 2008
   Cronin's Landing               33,208              --        6.90%            March 1, 2009
   Patriot Village                31,095           31,095       8.24%            August 1, 2009
   Crystal Plaza                  33,615           33,971       6.86%            November 1, 2009
   Crystal House I & II           38,250               --       6.29%            December 30, 2010
   Skyline Towers                 49,300               --       6.45%            December 10, 2010
   Bennington                     12,447           12,666       7.50%            October 1, 2020
 
Secured Construction Loans
--------------------------
   One Superior Place             31,620               --       6.93%            July 1, 2001
 
Secured Lines of Credit
-----------------------
   $83 million
    Northwestern Mutual           30,000           30,000       7.27%            July 1, 2004
 
Unsecured Lines of Credit
-------------------------
   $185 million
    PNC revolver                  53,000               --       6.31%            March 1, 2001
   $100 million
    PNC revolver                  52,000           75,000       6.12%            March 1, 2001
 
Unsecured Construction Loans
-----------------------------
   Courthouse Place               31,573            5,536       6.85%            October 9, 2000
                                  ------           ------
 
                                $790,579         $610,971
                                ========        =========
</TABLE>

     These loans require monthly interest and, where applicable, principal
payments and are collateralized by first lien mortgages or deeds of trust on 33
of the 54 Properties, bear interest at a weighted-average interest rate of 6.97%
as of December 31, 1998 and have a weighted-average maturity of 9.3 years.

Mortgage Pools

                                     F-15
<PAGE>
 
     The $110.1 million principal balance of Mortgage Pool One was partially
repaid on February 28, 1998, in conjunction with the sale of Oxford Manor, and
fully repaid on March 31, 1998.  An extraordinary loss of $4.1 million was
recognized which consisted of a $2.9 million yield maintenance premium and a
$1.2 million non-cash write-off of unamortized loan fees.

     The $125.2 million principal balance of Mortgage Pool Two was repaid on
October 31, 1998. An  extraordinary loss of $11.7 million was recognized
consisting of  a $9.7 million prepayment penalty and a $2.0 million non-cash
write-off of unamortized loan fees.

     The loan for Mortgage Pool Three is interest only, at a fixed rate of 7.99%
paid monthly, through June 30, 1999, at which time principal amortization begins
using a 25-year amortization schedule with a balloon payment due June 30, 2009.
The loan requires a capital and repair escrow. Certain Predecessor partners
guaranteed $42 million of the mortgage loan secured by Mortgage Pool Three.

     During 1998, the Operating Partnership obtained a $53 million, ten year
secured loan from Prudential at a fixed coupon rate of 6.88%.  The loan is
secured by two of the multifamily properties with an aggregate book value of
$71.7 million.  In conjunction with this loan, the Operating Partnership
terminated a $20 million (notional value) treasury lock contract at a gain of
$0.4 million which will be amortized over the term of the new loan.

     The Operating Partnership announced  a standby credit facility in 1998 of
up to $300 million with Fannie Mae which provides for non-recourse, long-term
debt for up to fifteen years.  The initial draw on this facility was $140
million at 6.75% for fifteen years.  The bulk of the proceeds were used to
retire Mortgage Pool Two of $125.2 million and the associated prepayment penalty
of $9.7 million. Terms and rates of subsequent draws on this facility will be
determined at the time of use.  Closing of the facility is expected during the
second quarter of 1999.

Individual Mortgages

      Individual mortgages have fixed interest rates ranging from 6.3% to 9.0%.

      During 1998, in connection with the Cronin's Landing acquisition, the
Operating Partnership assumed a $31.5 million mortgage loan which was adjusted
to its fair value of $33.5 million.  The loan has  an effective fixed interest
rate of 6.9% with principal amortized using a 25-year amortization schedule and
a final payment due March 2009.

     During 1998, the Operating Partnership also obtained a $38.3 million
mortgage on the Crystal House properties at a fixed interest rate of 6.29% and a
$49.3 million mortgage on the Skyline Towers property at a fixed interest rate
of 6.45%.  The Crystal House loan is interest only through December 2008, at
which time principal amortization begins using a 30-year amortization schedule 
with a balloon payment due December 30, 2010. The Skyline loan is interest only 
through December 2008, at which time principal amortization begins using a 
30-year amortization schedule

                                     F-16

<PAGE>
 
with a balloon payment due December 30, 2010.  The Skyline  loan is interest
only through December 2008, at which time principal amortization begins using a
30-year amortization schedule with a balloon payment due December 10, 2010.  The
Operating Partnership also refinanced mortgages on 2000 Commonwealth and
Connecticut Heights in 1998.

     In September, 1998, the Operating Partnership terminated a $50 million
(notional value) treasury lock contract at a loss of $4.9 million.  The treasury
lock was put in place in the first quarter of 1998 to hedge interest rate risk
associated with an anticipated 10-year, unsecured financing which ultimately did
not occur.  Therefore, this amount has been charged to current year earnings.

     In September 1996, the outstanding loan balance of $40.6 million for
Mortgage Pool Four was refinanced for a new loan amount of $41 million.  The
ground lessor (see Note 8) has been allocated $9.9 million of the refinanced
loan for which the Operating Partnership is contingently liable. The remaining
$31.1 million of debt is allocated to the Operating Partnership.  The loan bears
interest at a fixed rate of 8.24%, paid monthly through August, 2004, at which
time principal amortization begins, using a 30-year amortization schedule with a
final payment due August 1, 2009.

Lines of Credit

     The Operating Partnership terminated its $100 million line of credit in
1998 and entered into two new   unsecured lines of credit -- a $100 million line
and a $185 million line -- with PNC Bank, NationsBank, and U.S. Bank, as agents,
which mature in March 2001.  Draws upon the new lines are subject to certain
unencumbered asset requirements and bear interest at a selected London Interbank
Offer Rate (LIBOR) plus 75 to 120 basis points based on the leverage ratio of
the Operating Partnership.  As of December 31, 1998, the weighted average
interest rate on outstanding draws was 6.22%.  If the Operating Partnership
receives an investment grade rating on its unsecured debt, the interest rate
will decrease to 60 to 90 basis points over LIBOR based on the rating.  The
Operating Partnership pays a fee of 0.20% on the full amount available under the
line of credit.  The line of credit agreements contain certain restrictive
covenants, including maintenance of minimum equity value, debt to equity ratios
and debt service  coverage requirements.  The maximum amounts outstanding during
1998 and 1997 were $251.5 million and $97.0 million, respectively.

     The Operating Partnership also has an $83 million acquisition credit
facility which allows for debt maturities up through July 2004.  The line of
credit provides for an interest rate that is fixed at the time of each borrowing
at 150 basis points over 10-year Treasury Bills and is cross-collateralized with
Mortgage Pool Three.  Borrowings outstanding of $30 million at December 31, 1998
bear interest at a weighted-average fixed rate of 7.27% and are collateralized
by two Properties with an aggregate book value of $30.5 million.  The agreement
contains certain restrictive covenants including a limit on debt to asset value
and maintenance of debt service coverage ratios.



Construction Loans

                                     F-17

<PAGE>
 
     In October 1997, the Operating Partnership obtained a variable rate,
unsecured construction loan of $46.3 million to finance the construction of an
acquired development property.  The loan is recourse to the Operating
Partnership, bears interest at LIBOR plus 130 basis point (6.85% at December 31,
1998), and matures in October 2000 with three six-month extension options based
on certain conditions. The loan balance at December 31, 1998 was $31.6 million.

     During 1998, the Operating Partnership obtained a $90 million interest-only
construction loan in connection with the development of One Superior Place in
Chicago, Illinois, with interest currently at LIBOR plus 135 basis points (6.93%
at December 31, 1998), payable monthly, due July 1, 2001. At the Operating
Partnership's option, maturity may be extended for two one-year periods based on
certain conditions.  The loan is collateralized by the property, which has a net
book value of $54.8 million, and is recourse to the Operating Partnership  The
loan balance at December 31, 1998 was $31.6 million.

     The scheduled principal payments for all mortgage loans and notes payable
are as follows (in thousands):
<TABLE>
<CAPTION>
 
                  Year Ending
                  December 31,
                  ------------
                     <S>                   <C> 
                       1999                $  5,960 
                       2000                  35,000 
                       2001                 140,317 
                       2002                   3,984 
                       2003                   4,294 
                      Thereafter            601,024 
                                           --------  
                                           $790,579
                                           ========
</TABLE>
 
7.  PARTNERS' EQUITY

     During the first quarter of 1997, the Company completed an equity offering
and issued 3.1 million shares of common stock at $28.375 per share totaling
$82.9 million, net of underwriting discount and other expenses totaling $5.2
million. The net proceeds of the offering was contributed to the Operating 
Partnership in exchange for 3.1 million common units and were used to repay 
$72.1 million of notes payable and $9 million of mortgage debt and to fund
property acquisitions.

     In May 1997, the Company entered into an agreement with Security Capital
Preferred Growth Inc. ("Security Capital") to sell 2.6 million shares of Series
A Cumulative Convertible Redeemable Preferred Stock ("Series A Preferred
Shares"), $0.01 par value (liquidation preference of $27.08 per share), at
$27.08 per share for a total of $71.5 million. During 1997, the Company sold 1.6
million Series A Preferred Shares for proceeds of $44.5 million, net of $0.5
million in offering costs. In April 1998, the Company sold the remaining 1.0
million shares of Series A Preferred Shares for $26.1 million, which is net of
offering costs of $0.4 million. The net proceeds of the Sale was contributed to
the Operating Partnership in exchange for 2.6 million Series A Preferred Units.

     Series A Preferred Unitholders have certain voting, distribution and
liquidation preferences over the common unitholders. Distributions are
cumulative from the date of original issue and are payable quarterly at the
greater of the rate declared on the common units or the annual rate of $2.02 per
unit. The Series A Preferred Units are not redeemable prior to May 15, 2003. On
or after May

                                     F-18

<PAGE>
 
15, 2003, the Operating Partnership, at its option, may redeem the Series A
Preferred Units for cash at a redemption price of $27.08 per unit, plus accrued
and unpaid distributions. Under certain circumstances, the Operating Partnership
may elect to make such redemption with common units at the then market price of
the Company's common stock. On or after January 31, 1999, Security Capital may
convert the Series A Preferred Shares into shares of common stock on a one-for-
one basis subject to certain limitations. Prior to January 31, 1999, the Series
A Preferred Shares will not be convertible unless the Company undergoes a change
in control, as defined by the agreement, or fails to qualify as a REIT for tax
purposes.

     In October 1997, the Company sold 1.45 million shares of common stock and
1.22 million shares of Series B Cumulative Convertible Redeemable Preferred
Stock ("Series B Preferred Shares"), $0.01 par value, to the Prudential
Insurance Company of America ("Prudential") for approximately $76 million in
connection with a property acquisition. The net proceeds were contributed to the
Operating Partnership in exchange for 1.45 million common units and 1.22 million
Series B Preferred Units. During 1998, 0.5 million shares of Series B Preferred
Shares were converted to common shares on a one-for-one basis. The Operating
Partnership converted 0.5 million units of Series B Preferred Units to common
shares on a one-for-one basis.

     Series B Preferred Unitholders have certain voting, distribution and
liquidation preferences over the common unitholders.  The Series B Preferred
Units have a liquidation preference of $28.50 per unit.  Distributions are
cumulative and are payable quarterly at the greater of the rate declared on the
common units or the annual rate of $2.02 per unit. Prudential may convert the
Series B Preferred Shares into shares of common stock on a one-for-one basis,
subject to certain adjustments and limitations related to its ownership of
common stock of the Company. The Operating Partnership may redeem Series B
Preferred Units at any time for common units, plus accrued and unpaid
distributions.

     In January 1998, the Company sold 500 shares of Series C Cumulative
Redeemable Preferred Stock ("Series C Preferred Shares"), $0.01 par value, for
$48.6 million, net of offering costs of $1.4 million. The net proceeds were
contributid to the Operating Partnership in exchange for 500 units of Series C
Preferred Units. The Operating Partnership amended the Articles of Incorporation
to designate and establish the rights and privileges of the Series C Preferred
Unitholders which include certain voting, distribution and liquidation
preferences over the common unitholders. The Series C Preferred Units have a
liquidation preference of $100,000 per unit and an initial annual distribution
rate of $7,910 per unit. If the securities receive an investment grade rating,
the distribution rate will decrease by $250 per unit. Distributions are
cumulative and are payable quarterly. The Operating Partnership may redeem
Series C Preferred Units after February 1, 2028, at the liquidation price plus
accrued distributions.

     In July 1998, the Company completed the sale of 1.4 million shares of
common stock (par value of $0.01 per share) under its existing shelf
registration statement at a net purchase price of $32.625 per share. The net
proceeds were contributed to the Operating Partnership in exchange for 1.4
million common units and proceeds of approximately $45.4 million have been used
to retire outstanding debt and for working capital needs.

     In December 1998, the Company adopted a Shareholder Rights Plan (the
"Rights Plan") in which certain stock purchase rights were granted as a
distribution to holders of common stock.  The Rights allow the holder to
purchase preferred stock only if a person or group becomes the owner of

                                     F-19

<PAGE>
 
15% or more of the common stock or announces an offer to acquire 15% or more of
the common stock. The Rights expire on December 13, 2008.

     During 1998, the Operating Partnership issued approximately 0.3 million
Operating Partnership units valued at $11.8 million in connection with property
acquisitions.

     As of December 31, 1998, approximately 17.3 million shares of the Company's
authorized common stock had been reserved for redemption of Operating
Partnership units and 1.0 million shares were reserved under the Company's
Dividend and Distribution Investment and Share Purchase Plan, respectively.


8.  COMMITMENTS AND CONTINGENCIES

Purchase Commitments

     As of December 31, 1998, the Operating Partnership had executed four
contracts to purchase to-be-constructed multifamily properties totaling
approximately 1,200 apartment units.  The maximum aggregate purchase price
totals $151 million with projected closing dates between July 2000 and May 2001.
 
     These contracts are contingent upon satisfactory completion of construction
and attainment of final certificates of occupancy by the owners.  At December
31, 1998, the Operating Partnership had posted three letters-of-credit totaling
$ 7.7 million in accordance with three of the contracts to be drawn upon only if
the Operating Partnership defaults on its contractual obligations to purchase
the completed assets.

Land Leases

     Eight of the Properties have ground leases expiring at various dates
between December 2032 and April 2067.  (See Note 17 for related subsequent
event.)  Generally, each ground lease provides for a nominal annual rental and
an additional rental calculated from the results of Property operations after
capital expenditures.

     The base rental expense to the Operating Partnership under the ground
leases was $1.7 million for 1998 and $0.5 million for each of the years ended
December 31, 1997 and 1996. The

                                     F-20

<PAGE>
 
additional rental expense to the Operating Partnership under the ground leases
was $4.1 million, $3.2 million and $2.6 million for the years ended December 31,
1998, 1997 and 1996, respectively. At the expiration of the ground leases, the
land and all of the improvements thereon will revert to the land owner. In most
cases, the leases are subordinated to the mortgage debt on the related rental
property.

     The future nominal base annual rentals as of December 31, 1998 for the
ground leases are as follows (in thousands):
<TABLE>
<CAPTION>
 
 
                      Year Ending
                      December 31,
                      ------------
                       <S>               <C> 
                         1999            $  1,630 
                         2000               1,630 
                         2001               1,630 
                         2002               1,630 
                         2003               1,630 
                      Thereafter           93,718 
                                         -------- 
                                         $101,868 
                                         ========  
</TABLE>
Net Profits Interest

    An unaffiliated third party has a 5.1% interest in the net profits of one of
the Properties acquired in 1997. Net profit is calculated based on the results
of Property operations less capital expenditures.  (See Note 16 for related
subsequent event).

Litigation

    The Operating Partnership and/or the Property Service Businesses are
presently subject to legal actions or claims for damages that arise in the
ordinary course of business. In the opinion of management and counsel to the
Operating Partnership, the ultimate outcome of such litigation will not have a
material adverse effect on the Operating Partnership's financial position,
results of operations or cash flows.

401 (k)  Retirement Plan

    Substantially all of the personnel employed at the Properties are eligible
and participate in the Charles E. Smith 401 (k)  Retirement Plan, a defined
contribution, tax-qualified savings  plan (the "Plan"). These personnel are
employed by Smith Employment Services, L.P. ("Employment Services"), a limited
partnership owned by the Operating Partnership, which is the primary employer in
the Plan. Previously, such employees were participants in the Charles E. Smith
Building Employees Retirement Plan which was merged into the Plan effective July
1, 1998.  Employment Services generally  contributes 4% of employee-qualified
earnings. The total contributions were $0.2 million in 1998, $ 0.4 million in
1997, and $ 0.3 million in 1996. Employees of the Property Service Businesses
are also covered by the Plan.

                                     F-21

<PAGE>
 
9.  RELATED-PARTY TRANSACTIONS

    The Operating Partnership conducts business with entities in which Messrs.
Smith and Kogod exercise control.  In each case, the Company's Board of
Directors reviews the transaction and obtains, as required, independent
assurance as to the arms-length nature of the terms.  The following is a
description of these transactions.

 . For the years ended December 31, 1998, 1997 and 1996, the Operating
  Partnership paid approximately $2.3 million, $0.7 million and $0.7 million,
  respectively,  in payroll reimbursements to an entity controlled by Messrs.
  Smith and Kogod for efforts on development properties and potential
  development sites.  The increase in 1998 reflects the higher level of activity
  associated with expanding the Operating Partnership's development pipeline
  during the year.

 .In January, 1998, the Operating Partnership purchased a multifamily property
  (Tunlaw Park) for $6.7 million from a partnership in which Messrs. Smith and
  Kogod had ownership interests.

 .In connection with the development of Springfield Station, a contract was
  executed with an entity controlled by Messrs. Smith and Kogod to manage the
  construction of the apartments at a fee of 4% of hard construction costs.
  Construction management fees were $0.7 million and $0.4 million for the years
  ended December 31, 1998 and 1997, respectively.

 .In November 1998, the Operating Partnership purchased land for future
  development for $5.4 million from a partnership in which Messrs. Smith and
  Kogod had ownership interests.

 .Prior to December 1997, the two retail properties leased health club
  facilities to entities controlled by Messrs. Smith and Kogod. Rental income
  earned under these leases approximated $5.0 million for each of the years
  ended December 31, 1997 and 1996.  In December 1997, the health clubs were
  sold.  In conjunction with that sale, the Operating Partnership agreed to
  restructure the leases by reducing base rent on the Worldgate lease and
  extending the  terms of  both leases for ten years, through 2025, in exchange
  for a $2.3 million cash payment which is amortized over the lives of the
  revised leases.


10.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments. Based on the borrowing rates
currently available to the Operating Partnership for mortgages with similar
terms and remaining maturities, the fair value of mortgages payable was
approximately $619 million and $527 million at December 31, 1998 and 1997,
respectively. The fair values of lines of credit and construction loans
approximate the carrying values.

                                     F-22

<PAGE>
 
11.  EARNINGS PER UNIT

     For the years ended December 31, 1998, 1997 and 1996, basic earnings per
common unit is computed based on 30.2 million, 26.7 million and 21.9 million
weighted average units outstanding during the year, respectively, and diluted
earnings per common unit is computed based on 30.3 million, 26.8 million, and
21.9 million weighted average units outstanding during the year adjusted for the
assumed conversion of dilutive securities, respectively.  In 1998, the per-share
impact of the extraordinary item was $0.54 per common unit (basic and diluted).

     A reconciliation of income (before extraordinary item) and units used to
calculate basic and diluted earnings per common unit for 1998 and 1997 follows
(dilutive securities had no effect on earnings in 1996):
<TABLE>
<CAPTION>
 
                                                                   Weighted             Per-Unit
                                                  Income           Avg. Units            Amount
                                              --------------     --------------         -------
Year Ended December 31, 1998                  (In Thousands)     (In Thousands)               
----------------------------                                                                  
<S>                                           <C>              <C>                    <C>     
Income before extraordinary item                   $ 86,254                                   
Income Attributable to Preferred Units              (10,722)                                  
                                                   --------                                   
                                                                                              
Earnings per unit - Basic                                                                     
   Income attributable to common                                                              
   unitholders before extraordinary item           $ 75,532           30,184           $  2.50
Effect of Dilutive Securities                                                                 
    Options                                               -              165              (.01)
                                                   --------           ------          --------
Earnings per unit - Diluted                        $ 75,532           30,349           $  2.49
                                                   ========           ======          ========
                                                                                              
Year Ended December 31, 1997                                                                  
----------------------------                                                                  
Income before extraordinary item                   $ 52,297                                   
Income attributable to Preferred Units               (1,881)                                  
                                                   --------                                   
                                                                                              
Earnings per Unit - Basic                                                                     
   Income attributable to common                                                              
   unitholders before extraordinary item           $ 50,416           26,670           $  1.89
                                                                                              
Effect of Dilutive Securities                                                                 
   Options                                                               161              (.01)
                                                   --------           ------          --------
Earnings per share - Diluted                       $ 50,416           26,831           $  1.88
                                                   ========           ======          ======== 
 
</TABLE>

     Options to purchase 771,750 shares of the Company's common stock were not 
included in the computation of diluted earnings per unit because the options' 
exercise price was higher than the average price of the Company's common shares.
All convertible preferred units were also excluded from the calculation of 
diluted earnings per unit since the preferred distributions paid per unit 
exceeded basic earnings per unit.


12.  INCENTIVE PLANS

                                     F-23

<PAGE>
 
     The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related interpretations in accounting for its
plans.  Accordingly, no compensation expense has been recognized for its stock-
based compensation plans other than for restricted stock and performance-based
awards.  Had compensation cost for the Company's other stock option plans been
determined based on the fair value at the grant date consistent with the
methodology prescribed under SFAS 123, the Operating Partnership's net income
would have been reduced by approximately $499,000 for the year ended December
31, 1998 ($0.02 per basic and diluted common unit), $65,000 (less than $0.01
per basic and diluted common unit) for the year ended December 31, 1997 and
$8,000 for the year ended December 31, 1996.  The fair value of options granted
during 1998,  1997 and 1996 is estimated at approximately $305,000, $2,111,000
and $23,000, respectively, based on the date of grant using the Black-Scholes
option-pricing model. The following assumptions were used:
<TABLE>
<CAPTION>
 
                               1998       1997       1996
                             --------   --------   --------
<S>                          <C>        <C>        <C>
 
Dividend yield                   6.2%       6.8%       8.3%
Volatility                       13%        14%        9%
Risk-free interest rate          5.1%       5.7%       6.3%
Expected life                    4 years    3 years    7 years
</TABLE>

Option Plans

  The Company with the Operating Partnership maintains an employee stock and
unit option plan designed for executive officers and other key employees of the
Company, the Operating Partnership and the Property Service Businesses.  The
Company also maintains a Director's stock option plan which provides for
automatic grants of vested options, exercisable for 5,000 shares of common
stock, to newly appointed non-employee directors.  The plans authorize the
issuance of up to 3,150,000 shares of common stock  and/or units pursuant to
options granted.  Options outstanding under both plans are as follows:

                                     F-24


<PAGE>


<TABLE>
<CAPTION> 

                                                                  Weighted Average          Options
                                                     Number         Exercise Price       Exercisable/(1)/
                                                     ------       ----------------       -----------     
<S>                                                   <C>              <C>                   <C>
 Shares/units under option, December 31, 1995        895,000            $     24              199,000
 
 Options granted                                      40,000                  24
 Options canceled                                   (100,000)                 24
                                                   ---------
 
 Shares/units under option, December 31, 1996        835,000                  24              351,000
 
 Options granted                                     918,000                  34
 Options canceled                                    (12,000)                 24
 Options exercised                                   (25,000)                 24
                                                   ---------
 
 Shares/units under option, December 31, 1997      1,716,000                  29              677,000
 
 Options granted                                     189,000                  31
 Options canceled                                   (164,000)                 32
 Options exercised                                  (125,000)                 24
                                                   ---------
 
 Shares/units under option, December 31, 1998      1,616,000                 $30/(2)/         707,000
                                                   =========
</TABLE>

/(1)/Weighted average exercise price is $27
/(2)/ Range of exercise prices is $24-$35

     The exercise price of options granted under the plans may not be less than
the fair market value of the common stock on the date of grant. Payment for
shares and/or units granted under the plans may be made either in cash, or, if
permitted by the option agreement, by exchanging shares of common stock of the
Company having a fair market value equal to the option exercise price. The
weighted average remaining contractual life of options outstanding as of
December 31, 1998 was 7.7 years.

     Options granted under the employee plan have a maximum term of ten years
and vest generally in three to five equal annual installments beginning on the
first anniversary of the date of grant. Generally, options terminate three
months after the optionee's termination of employment with the Company. The
Executive Compensation Committee of the Board of Directors may provide, however,
that an option may be exercised over a longer period following termination of
employment, but in no event beyond the expiration date of the option.


Restricted Stock and Unit Plan

     The Company, with the Operating Partnership, maintains a restricted stock
and unit plan for executive officers and other key employees of the Company, the
Operating Partnership and the Property Service Businesses.  Messrs. Smith and
Kogod are not eligible to participate under the plan. A maximum of 300,000
shares of common stock and/or units may be issued under the plan. Restricted
shares and/or units that have not vested at the time of an employee's
termination of employment with the Company will be forfeited, except where such
termination occurs by reason of death or disability. Any restricted shares
and/or units forfeited pursuant to the vesting provisions of the plan will again
be available for award under the plan.  During 1998, 21,823 grants were awarded
and 28,801 units vested.  During 1997, 24,000 grants were awarded and 20,700
units vested.  During 1996, 7,500 grants were canceled and 23,750 units vested.
During 1995, 23,750 units vested.  During 1994, 95,000 grants were awarded.  For
the years ended December 31, 1998, 1997

                                     F-25

<PAGE>
 
and 1996, compensation expense relating to the plan was $0.5 million, $0.6
million and $0.5 million, respectively, based on the market value of the
Company's stock at the date of grant.



13.  SUPPLEMENTAL CASH FLOW DATA

     Information on non-cash investing and financing activities and cash
interest paid is as follows (in thousands):
<TABLE>
<CAPTION>
 
                                             Year Ended December 31,
                                             -----------------------       
<S>                                        <C>       <C>       <C>
 
                                              1998      1997      1996
                                           -------   -------   -------
Cash paid during the period
 for interest                              $52,242   $44,420   $41,078
Capitalized interest                         6,520     1,306        60
Purchase of properties
 for Operating Partnership units            11,820    75,019     2,403
Assumption of debt on acquisitions          33,456    93,474     3,260
Sale proceeds held in 1031 escrow           22,011       -         -
Purchase of property with 1031 escrow
  proceeds                                   4,308       -         -
 
</TABLE>

14.  OTHER LIMITED PARTNERS' INTEREST

     Limited partnership units of the Other Limited Partners may be redeemed at 
the unitholders' discretion. At the option of the Company, such redemption may 
be made for cash, at the then fair value of the Company's stock, or for shares 
of common stock of the Company on a one-for-one basis. As of December 31, 1998, 
approximately 17.3 million shares of the Company's authorized common stock had 
been reserved for possible issuance upon redemption of limited partnership 
units.

     In accordance with generally accepted accounting principles, the Other 
Limited Partners' redemption rights are not included in partner's equity. 
Consequently, the accompanying consolidated balance sheets and statements of 
partner's equity reflect the Other Limited Partners' Interest in the Operating 
Partnership, measured at redemption value. Such interest is deducted from 
partner's equity.




15.  SEGMENT REPORTING

     The Operating Partnership adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information", during 1998. SFAS No. 131 established
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to unitholders. It also established standards for
related disclosures about products and services, and geographic areas. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by senior
management in deciding how to allocate resources and in assessing performance.



Property Segments

     The Operating Partnership's primary business is the ownership and operation
of multifamily residential real estate.  As such, the residential rental
properties constitute the three primary operating segments -- Core, Acquisition
and Development portfolios -- depending upon the maturity of each property.
Core consists of all multifamily properties which have been owned more than one
full calendar year.  Therefore, the 1998 Core represents properties owned as of
December 31, 1996. Acquisition consists of purchased properties which have not
yet reflected one full calendar year of operations.  Development consists of
properties which the Operating Partnership has constructed or

                                     F-26

<PAGE>
 
is in the process of constructing which have not yet had a full calendar year of
stabilized operating results. On the first of January each year, Acquisition and
Development properties that meet the one year requirements are transferred to
the Core portfolio.

     The Operating Partnership's fourth property segment is the Retail portfolio
which consists of the two free-standing retail properties.

     The Operating Partnership evaluates performance for the Property Segments
based on Net Operating Income ("NOI") which is the difference between Rental
Revenue and Operating Expenses (which primarily excludes interest expense,
general and administrative costs and depreciation.)

Property Service Business Segments

     The Operating Partnership also evaluates the separate financial information
of its equity investment in the Property Service Businesses.  Therefore, the
Operating Partnership has three additional segments based on service type --
Multifamily and Retail Management, Engineering and Technical Services and
Interior Construction and Renovation.  The Operating Partnership evaluates
performance for the Property Service Business segments based on Funds from
Operations ("FFO"). Funds from Operations is defined under the revised
definition adopted by the National Association of Real Estate Investment Trusts
("NAREIT") as net income (loss) (computed in accordance with generally accepted
accounting principles) excluding gains (or losses) from debt restructuring and
sale of property, plus depreciation/amortization of assets unique to the real
estate industry. Depreciation/amortization of assets not unique to the industry,
such as amortization of deferred financing costs and non-real estate assets, is
not added back.

     The accounting policies for all seven segments are the same as those
described in the summary of significant accounting policies.

     Information concerning operations by segment for each of the three years
ended December 31, was as follows (in thousands):

                                     F-27

<PAGE>
 
<TABLE>
<CAPTION>
 
Property Segments
 
                                                       1998         1997          1996
                                                    ----------   ----------    ----------
Net Operating Income
--------------------
<S>                                                  <C>           <C>           <C> 
Core Portfolio                                       $   99,395    $   92,521    $  84,136
Acquisition Portfolio                                    42,438        17,381        2,331
Development Portfolio                                       (42)          (97)          --
Retail Portfolio                                          6,785         6,472        6,267
                                                     ----------    ----------    ---------
 Sub-total                                              148,576       116,277       92,734
Adjustments                                                  --            --           --
                                                     ----------    ----------    ---------
 
 Consolidated total                                     148,576       116,277       92,734
 
Depreciation and amortization                           (28,958)      (20,666)     (17,931)
Equity in income of Property Service Businesses           8,433         7,597        7,846
Corporate general and administrative expenses            (8,947)       (6,563)      (5,255)
Net interest expense                                    (46,077)      (44,348)     (42,577)
                                                     ----------    ----------    ---------
 
 Income before gain on sale, loss on unused
  treasury lock, and extraordinary item              $   73,027    $   52,297    $  34,817
                                                     ==========    ==========    =========
 
Revenues
--------
 
Core Portfolio                                       $  166,465    $  158,785    $ 147,522
Acquisition Portfolio                                    72,499        31,277        6,639
Development Portfolio                                     1,258            --           --
Retail Portfolio                                          9,989        10,042        9,798
                                                     ----------    ----------    ---------
 Sub-total                                              250,211       200,104      163,959
Adjustments                                                  --            --           --
                                                     ----------    ----------    ---------
 
 Consolidated total                                  $  250,211    $  200,104    $ 163,959
                                                     ==========    ==========    =========
 
Real Estate Assets, gross
-------------------------                         
 
Core Portfolio                                       $  610,066    $  597,611    $ 586,807
Acquisition Portfolio                                   485,108       303,904       13,548
Development Portfolio                                   167,441        53,093           --
Retail Portfolio                                         60,031        59,901       59,645
                                                     ----------    ----------    ---------
 Sub-total                                            1,322,646     1,014,509      660,000
Accumulated Depreciation                               (228,683)     (210,186)    (189,907)
                                                     ----------    ----------    ---------
 
 Consolidated total, net                             $1,093,963    $  804,323    $ 470,093
                                                     ==========    ==========    =========
</TABLE>

                                     F-28

<PAGE>
 
Property Service Business Segments
<TABLE>
<CAPTION>
 
 
                                            1998      1997      1996
                                          --------   -------   -------
<S>                                       <C>        <C>       <C>
 
Funds from Operations
---------------------
 
Multifamily and Retail Management         $  1,464   $    22   $ 1,590
Interior Construction and Renovation         1,763     1,027       948
Engineering and Technical Services           3,611     3,420     3,355
Other                                        1,845     3,128     1,953
                                          --------   -------   -------
     Total                                $  8,683   $ 7,597   $ 7,846
                                          ========   =======   =======
 
Revenues
--------
 
Multifamily and Retail Management         $ 28,412   $10,546   $11,465
Interior Construction and Renovation         8,267     6,614     5,650
Engineering and Technical Services          67,988    50,597    42,179
Other                                        2,623     3,798     2,640
                                          --------   -------   -------
     Total                                $107,290   $71,555   $61,934
                                          ========   =======   =======
 
Depreciation
------------
 
Multifamily and Retail Management         $    757   $   768   $   706
Interior Construction and Renovation            63        40        32
Engineering and Technical Services             566       418       308
                                          --------   -------   -------
     Total                                $  1,386   $ 1,226   $ 1,046
                                          ========   =======   =======
 
</TABLE>
16.  EXTRAORDINARY ITEM

     The Operating Partnership recognized an extraordinary loss of $16.4 million
in connection with debt extinguishments in 1998.  Losses of $4.1 million and
$11.7 million were recognized in connection with the repayment of Mortgage Pool
One and Mortgage Pool Two, respectively.  The losses consisted of $2.9 million
and $9.7 million in yield maintenance premiums and $1.2 million and $2.0 million
in  non-cash write-offs of unamortized loan fees. In addition, a loss of $0.6
million was recognized on the write-off of unamortized loan fees associated with
the termination of the $100 million line of credit and the refinancing of $9.2
million of mortgage loans.


17.  SUBSEQUENT EVENTS (Unaudited)

    In January 1999, the Operating Partnership acquired a 442-unit multifamily
property in Crystal City, Virginia ("Buchanan House") for a capitalized cost of
$65.5  million which includes assumed debt of $7.4 million, initial capital
improvement costs of $5.0 million, $0.4 million in acquisition related costs and
$17.7 million in proceeds from the sale of Marbury.  The balance was funded by
the Operating Partnership's bank line of credit.  In February 1999, the
Operating Partnership repaid the assumed debt through a draw on its line of
credit.  The Operating Partnership paid a prepayment penalty of $0.9 million
which was recognized as an extraordinary loss.

                                     F-29

<PAGE>
 
     In January 1999, the Operating Partnership acquired a 139-unit multifamily
property in Chicago, Illinois ("Parkwest") for a capitalized cost of
approximately $14.1 million, consisting of 201,950 Operating Partnership Units
valued at $6.3 million, assumed debt of $6.0 million, a fair value adjustment to
debt of $0.4 million, initial capital improvement costs of $0.8 million, and
$0.6 million in other related costs.

     In January 1999, the Operating Partnership acquired a 427-unit multifamily
property in Chicago, Illinois ("Terrace") for a capitalized cost of
approximately $26.1 million, consisting of 320,304 Operating Partnership Units
valued at $10.0 million, assumed debt of $13.7 million, a fair value adjustment
to debt of $0.7 million, initial capital improvement costs of $0.4 million, and
$1.3 million in other related costs.

     In February 1999, the Operating Partnership sold The Manor, a 435-unit
multifamily property located in suburban Maryland for $23.0 million.  The
Operating Partnership recognized a gain on the sale of $1.9 million.

     In February 1999, the unused portion, or $53 million, of the Operating
Partnership's $83 million line of credit with Northwestern Mutual expired.

     In March 1999, the Operating Partnership acquired the land beneath the
Crystal Square property and the 5.1% net profits interest in the Crystal Plaza
property.  The purchase price of $10 million consisted of 32,258 Operating
Partnership Units valued at $1 million and $9 million cash drawn upon the line
of credit.  This transaction was reviewed and approved by the Operating
Partnership's Board of Directors as it was completed concurrently with the
purchase by CESCR of commercial land and partnership interests.

                                     F-30 

<PAGE>
 
17.  QUARTERLY FINANCIAL INFORMATION (Unaudited)

  Quarterly financial information for 1998 and 1997 is as follows (in thousands
except per share data):
<TABLE>
<CAPTION>
                                                                   Three Months Ended
                                                 -------------------------------------------------------
                                                 March 31,    June 30,    September 30,    December 31,
                                                 ----------   ---------   --------------   -------------
                                                    1998        1998           1998            1998
                                                 ----------   ---------   --------------   -------------
<S>                                              <C>          <C>         <C>              <C>
Revenues                                          $ 55,831    $ 62,063         $ 66,449        $ 67,125
Operating expenses
 (including depreciation)                          (28,685)    (32,212)         (35,752)        (33,944)
Equity in income of Property
 Service Businesses                                    664       2,227            2,693           2,849
Interest expense                                   (10,888)    (11,601)         (12,582)        (12,263)
Corporate general and administrative
 expenses                                           (2,025)     (2,203)          (2,177)         (2,542)
                                                  --------    --------         --------        --------
Income before gain on sale, loss on unused
 treasury lock, and extraordinary item              14,897      18,274           18,631          21,225
Gain on sale of property                             3,120          --               --          15,030
Loss on unused treasury lock                            --          --           (4,923)             --
                                                  --------    --------         --------        --------
Income before extraordinary item                    18,017      18,274           13,708          36,255
Extraordinary item - loss on extinguishment
 of debt                                            (4,702)         --               --         (11,682)
                                                  --------    --------         --------        --------
Net Income                                          13,315      18,274           13,708          24,573
Income attributable to preferred
    units                                           (1,490)     (3,580)          (2,868)         (2,784)
                                                  --------    --------         --------        --------
Net income attributable to common
 units                                            $ 11,825    $ 14,694         $ 10,840        $ 21,789
                                                  ========    ========         ========        ========
 
Earnings per common unit-basic                       $0.39    $   0.46            $0.32           $0.68
                                                  ========    ========         ========        ========
 
Earnings per common unit-diluted                     $0.39    $   0.45            $0.32           $0.68
                                                  ========    ========         ========        ========
</TABLE>

                                     F-31

<PAGE>
 
<TABLE>
<CAPTION>
 
 
                                                                 Three Months Ended
                                            ---------------------------------------------------------------
                                                 March 31,        June 30,    September 30,     December 31,
                                            -------------------   ---------   --------------    ------------
                                                   1997             1997           1997           1997
                                                   ----             ----           ----           ----    
<S>                                         <C>                   <C>         <C>              <C>
Revenues                                         $ 45,007         $ 49,784        $ 51,065       $ 55,311
Operating expenses                                                                           
  (including depreciation)                        (24,202)         (25,708)        (26,688)       (27,895)
Equity in income of Property                                                                 
  Service Businesses                                  809              896           1,931          3,961
Interest expense                                  (11,427)         (11,256)        (10,981)       (11,747)
Corporate general and                                                                        
  administrative expenses                          (1,391)          (1,648)         (1,544)        (1,980)
                                                 --------         --------        --------       --------
Income before extraordinary item                    8,796           12,068          13,783         17,650
Extraordinary item -                                                                         
 Loss on extinguishment of debt                         -                -               -            (87)
                                                 --------         --------        --------       --------
Net income                                          8,796           12,068          13,783         17,563
Income attributable to preferred units                  -                -            (384)        (1,497)
                                                 --------         --------        --------       --------
Net income attributable to                                                                   
  common units                                   $  8,796         $ 12,068        $ 13,399       $ 16,066
                                                 ========         ========        ========       ========
                                                                                             
Earnings per common unit-basic                   $   0.40         $   0.50        $   0.36       $   0.70
                                                 ========         ========        ========       ========
                                                                            
Earnings per common unit-diluted                 $   0.40         $   0.50         $   0.36      $   0.69
                                                 ========         ========         ========      ========
</TABLE>

                                     F-32

<PAGE>
                    CHARLES E. SMITH RESIDENTIAL REALTY L.P.
                                  SCHEDULE III
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                                December 31, 1998
                          (DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                         Capitalized Costs Before
                                                                        Accumulated Depreciation at
                                 Initial Cost              Costs             December 31, 1998
                         -----------------------------  Capitalized    -----------------------------
                                       Building and    Subsequent To                  Building and
Properties                   Land      Improvements     Acquisition         Land      Improvements        Total
------------------------------------------------------ --------------------------------------------- --------------
<S>                       <C>         <C>              <C>              <C>           <C>            <C>  
Operating Properties:
Albemarle                        $418               -           $5,311        $418         $5,311         $5,729
Bedford Village                 1,062               -           14,214       1,062         14,214         15,276
Bennington                      6,922          22,641              458       6,922         23,099         30,021
Berkeley                          108               -            2,074         108          2,074          2,182
Boulevard of Old Town           2,653           6,391              256       2,653          6,647          9,300
Calvert-Woodley                   172               -            2,613         172          2,613          2,785
Car Barn                        3,576               -           13,998       3,576         13,998         17,574
Charter Oaks                    4,387          10,058              838       4,387         10,896         15,283
Cleveland House                   325               -            4,578         325          4,578          4,903
Columbia Crossing               4,701               -           18,607       4,701         18,607         23,308
Columbian-Stratford               242               -            4,672         242          4,672          4,914
2000 Commonwealth               3,827          23,703              113       3,827         23,816         27,643
Concord Village                     -               -            9,230           -          9,230          9,230
Connecticut Heights             6,956          18,700            1,167       6,956         19,867         26,823
Corcoran House                    230               -            2,199         230          2,199          2,429
Courthouse Plaza                    -               -           44,349           -         44,349         44,349
Cronin's Landing               $9,114         $54,427               44       9,114         54,471         63,585
Crystal House I                     -               -           11,579           -         11,579         11,579
Crystal House II                    -               -           10,007           -         10,007         10,007
Crystal Place                   1,245               -           18,794       1,245         18,794         20,039
Crystal Plaza                   7,710          35,355              738       7,710         36,093         43,803
Crystal Square                      -               -           15,229           -         15,229         15,229
Crystal Towers                 12,607          57,189            1,808      12,607         58,997         71,604
1841 Columbia Road              3,611           2,000              376       3,611          2,376          5,987
Arl Overlook Central              262               -           14,757         262         14,757         15,019
Arl Overlook North                245               -              299         245            299            544
Arl Overlook South                303               -              773         303            773          1,076
Fort Chaplin                       97               -            8,163          97          8,163          8,260
Gateway Place                   1,660               -           17,755       1,660         17,755         19,415
Kenmore                         4,456          11,837              363       4,456         12,200         16,656
Lincoln Towers                 12,471          76,480              700      12,471         77,180         89,651
Manor                           5,809          15,576            1,144       5,809         16,720         22,529
McClurg Court                  10,637          63,487              810      10,637         64,297         74,934
Newport Village                   281               -           16,850         281         16,850         17,131
Oakwood                         3,819          12,567              592       3,819         13,159         16,978
One East Delaware               6,851          36,576              212       6,851         36,788         43,639
Orleans Village                   700               -           14,654         700         14,654         15,354
Parc Vista                      5,830          33,222              149       5,830         33,371         39,201
Patriot Village                     -               -           29,667           -         29,667         29,667
Potomac View                    2,520           6,449              714       2,520          7,163          9,683
Skyline Mall                      482               -           14,617         482         14,617         15,099
Skyline Towers                    360               -           27,342         360         27,342         27,702
Statesman                         600               -            4,599         600          4,599          5,199
Suburban Tower                  1,815           5,027              244       1,815          5,271          7,086
Tunlaw Gardens                  1,530           5,609              192       1,530          5,801          7,331
Tunlaw Park                     1,251           5,414              144       1,251          5,558          6,809
2501 Porter Street              1,126               -           18,400       1,126         18,400         19,526
Van Ness                       12,699          29,997              498      12,699         30,495         43,194
Water Park Towers               2,500               -           42,064       2,500         42,064         44,564
Westerly                        4,700          19,313              240       4,700         19,553         24,253
Windsor Towers                    362               -            5,827         362          5,827          6,189
Worldgate Centre                4,105               -           40,829       4,105         40,829         44,934
Development Properties:
Courthouse Place                7,130          45,920                -       7,130         45,920         53,050
One Superior Place              8,471          46,293                -       8,471         46,293         54,764
Park Connecticut                3,160           3,561                -       3,160          3,561          6,721
Springfield Station             9,100          38,382                -       9,100         38,382         47,482
Undeveloped Land                5,424               -                -       5,424              0          5,424
                         ----------------------------------------------------------------------------------------
                             $190,622        $686,174         $445,850    $190,622     $1,132,024     $1,322,646
                         ========================================================================================
<CAPTION>
                           Accumulated             Net            Date of         Date      Depreciable
Properties                 Depreciation           Property      Construction     Acquired       Lives
------------------------- ----------------     -----------------------------------------------------------
<S>                        <C>                 <C>              <C>           <C>          <C>
Operating Properties:     
Albemarle                         ($3,677)             $2,052       1966             -      5 - 40 years
Bedford Village                    (9,117)              6,159       1967             -      5 - 40 years
Bennington                         (1,882)             28,139         -            1995     5 - 40 years
Berkeley                           (1,644)                538       1961             -      5 - 40 years
Boulevard of Old Town                (566)              8,734         -            1995     5 - 40 years
Calvert-Woodley                    (1,974)                811       1962             -      5 - 40 years
Car Barn                           (5,528)             12,046     1982/1986          -      5 - 40 years
Charter Oaks                         (818)             14,465       1970           1996     5 - 40 years
Cleveland House                    (3,240)              1,663       1962             -      5 - 40 years
Columbia Crossing                  (4,905)             18,403     1990/1991          -      5 - 40 years
Columbian-Stratford                (3,508)              1,406       1959             -      5 - 40 years
2000 Commonwealth                    (720)             26,923         -            1997     5 - 40 years
Concord Village                    (6,117)              3,113       1967             -      5 - 40 years
Connecticut Heights                (1,769)             25,054         -            1995     5 - 40 years
Corcoran House                     (1,695)                734       1961             -      5 - 40 years
Courthouse Plaza                  (12,415)             31,934     1988/1990          -      5 - 40 years
Cronin's Landing                     (611)             62,974       1997           1998     5 - 40 years
Crystal House I                    (6,694)              4,885       1969             -      5 - 40 years
Crystal House II                   (6,687)              3,320       1964             -      5 - 40 years
Crystal Place                      (6,945)             13,094       1986             -      5 - 40 years
Crystal Plaza                      (1,692)             42,111         -            1997     5 - 40 years
Crystal Square                     (8,714)              6,515       1975             -      5 - 40 years
Crystal Towers                     (2,748)             68,856         -            1997     5 - 40 years
1841 Columbia Road                   (126)              5,861       1923           1996     5 - 40 years
Arl Overlook Central              (10,617)              4,402       1960             -      5 - 40 years
Arl Overlook North                   (532)                 12       1960             -      5 - 40 years
Arl Overlook South                   (621)                455       1960             -      5 - 40 years
Fort Chaplin                       (6,397)              1,863       1963             -      5 - 40 years
Gateway Place                      (5,627)             13,788       1987             -      5 - 40 years
Kenmore                              (542)             16,114         -            1997     5 - 40 years
Lincoln Towers                     (2,321)             87,330         -            1997     5 - 40 years
Manor                              (1,848)             20,681         -            1994     5 - 40 years
McClurg Court                      (1,136)             73,798       1972           1998     5 - 40 years
Newport Village                   (10,019)              7,112       1971             -      5 - 40 years
Oakwood                            (1,010)             15,968         -            1995     5 - 40 years
One East Delaware                  (1,103)             42,536         -            1997     5 - 40 years
Orleans Village                    (9,953)              5,401     1965/1966          -      5 - 40 years
Parc Vista                           (592)             38,609       1990           1998     5 - 40 years
Patriot Village                   (16,060)             13,607  1973/1975/1977        -      5 - 40 years
Potomac View                         (828)              8,855         -            1994     5 - 40 years
Skyline Mall                       (8,275)              6,824       1977             -      5 - 40 years
Skyline Towers                    (16,705)             10,997       1972             -      5 - 40 years
Statesman                          (3,659)              1,540       1961             -      5 - 40 years
Suburban Tower                       (517)              6,569         -            1995     5 - 40 years
Tunlaw Gardens                       (112)              7,219       1941           1998     5 - 40 years
Tunlaw Park                          (111)              6,698       1953           1998     5 - 40 years
2501 Porter Street                 (5,475)             14,051     1987/1988          -      5 - 40 years
Van Ness                           (1,842)             41,352       1970           1996     5 - 40 years
Water Park Towers                 (11,448)             33,116       1989             -      5 - 40 years
Westerly                           (1,615)             22,638       1995             -      5 - 40 years
Windsor Towers                     (4,350)              1,839       1965             -      5 - 40 years
Worldgate Centre                  (11,349)             33,585       1990             -      5 - 40 years
Development Properties:   
Courthouse Place                     ($12)             53,038 Under construction     -           N/A
One Superior Place                      -              54,764 Under construction     -           N/A
Park Connecticut                        -               6,721 Under construction     -           N/A
Springfield Station                 ($215)             47,267 Under construction     -           N/A
Undeveloped Land                        -               5,424 Future development     -           N/A
                         ------------------------------------
                                ($228,683)         $1,093,963
                         ====================================
</TABLE> 

                           S-1 
                     
<PAGE>
 
  The aggregate cost for Federal income tax purposes of the Operating
Partnership's investment in real estate was approximately $1,054 million and
$896 million at December 31, 1998 and 1997, respectively. The changes in total
real estate and accumulated depreciation for the three years ended December 31
are as follows (in thousands):
<TABLE>
<CAPTION>
 
                                       Total Real Estate Assets
                                 -------------------------------------
                                     1998          1997        1996
                                     ----          ----        ----   
<S>                              <C>            <C>          <C>
 
BALANCE, beginning of year        $1,014,509    $  660,000   $587,114
 Acquisitions                        190,933       288,605     65,836
 Development                         114,347        53,093         --
 Improvements                         16,852        12,811      7,425
 Retirements and write-offs          (13,995)           --       (375)
                                  ----------    ----------   --------
BALANCE, end of year              $1,322,646    $1,014,509   $660,000
                                  ==========    ==========   ========
 
 
                                        Accumulated Depreciation
                                  -----------------------------------
                                     1998          1997       1996
                                     ----          ----       ----   
 
BALANCE, beginning of year        $  210,186    $  189,907   $172,624
 Depreciation expense                 28,616        20,279     17,658
 Retirements and write-offs          (10,119)            -       (375)
                                  ----------    ----------   --------
 
BALANCE, end of year              $  228,683    $  210,186   $189,907
                                  ==========    ==========   ========
 
</TABLE>

                                     S-2

<PAGE>
 
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 Item                                  Document                                   Page
 ----                                  --------                                   ----
<S>     <C>                                                                     <C>
  2.1   Third Party Management and Leasing, Hotel Asset Management                 -
        and Corporate Services Business Transfer Agreement by and
        between Charles E. Smith Residential Realty, Inc. and Smith
        Property Management, Inc. (Incorporated by reference to Exhibit
        No. 2.1 of the Operating Partnership's Form 10-K for the year
        ended December 31, 1994)

  2.2   REIT Properties Management and Leasing Business Transfer                   -
        Agreement by and between Charles E. Smith Management, Inc.
        and Charles E. Smith Residential Realty L.P. (Incorporated by
        reference to Exhibit No. 2.2 of the Operating Partnership's Form
        10-K for the year ended December 31, 1994)

  2.3   Assignment by Robert H. Smith, Clarice R. Smith, Robert P.                 -
        Kogod and Arlene R. Kogod to Charles E. Smith Management,
        Inc. of 99% of all Partnership Interests of Residential Associates
        Limited Partnership (Incorporated by reference to Exhibit No. 2.3
        of the Operating Partnership's Form 10-K for the year ended
        December 31, 1994)

  2.4   Assignment and Assumption Agreement by Residential Associates              -
        Limited Partnership and Charles E. Smith Residential Realty L.P.
        (Incorporated by reference to Exhibit No. 2.4 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

  2.5   Debt Assumption Agreement and Accord and Satisfaction of                   -
        Debt by Charles E. Smith Management, Inc. and Charles E. Smith
        Residential Realty L.P. (Incorporated by reference to Exhibit No.
        2.5 of the Operating Partnership's Form 10-K for the year ended
        December 31, 1994)

  2.6   Debt Contribution Agreement between Charles E. Smith                       -
        Management, Inc. and Charles E. Smith Residential Realty L.P.
        (the "Operating Partnership") (Incorporated by reference to
        Exhibit No. 2.6 of the Operating Partnership's Form 10-K for the
        year ended December 31, 1994)

  3.1   Amended and Restated Articles of Incorporation of Charles E.               -
        Smith Residential Realty, Inc. (the "Company") (Incorporated by
        reference to Exhibit No. 3.1 of the Company's Registration 
        Statement on Form S-11, No. 33-75288)

</TABLE>
<PAGE>
 
<TABLE>
 Item                      Document                                                Page
 ----                      --------                                                ----
<S>     <C>                                                                        <C>
  3.2   Articles of Amendment to Articles of Amendment and                         E-1
        Restatement of Articles of Incorporation of Charles E. Smith
        Residential Realty, Inc.

  3.3   Amended and Restated Bylaws of the Company (Incorporated by
        reference to Exhibit 3.2 in the Company's Registration                     -
        Statement on Form S-3 (File No. 33-93986)

  3.4   Articles Supplementary to Amended and Restated Articles of
        Incorporation of the Company (Incorporated by reference to
        Exhibit No. 3.1 of Operating Partnership's Quarterly Report on            -
        Form 10-Q for the Quarter Ended June 30, 1997)

  3.5   Articles Supplementary of the Company for Classifying and
        Designating Series B Cumulative Convertible Redeemable
        Preferred Stock (Incorporated by reference to Exhibit No. 4.1 of
        the Operating Partnership's Report on Form 8-K dated October               -
        3, 1997 and filed November 10, 1997)

  3.6   Certificate of Correction relating to Articles Supplementary for
        Series B Cumulative Convertible Redeemable Preferred Stock
        (Incorporated by reference to Exhibit No. 4.2 of the Operating
        Partnership's Report on Form 8-K dated October 3, 1997 and                 -
        filed November 10, 1997)

  3.7   Articles Supplementary for Series C Cumulative Redeemable
        Preferred Stock (Incorporated by reference to Exhibit No. 3.5 in
        the Company's Registration Statement on Form S-3, File No. 333-17053)

  3.8   Articles Supplementary of the Company for Classifying and                  E-2
        Designating a Series of Preferred Stock as Series D Junior
        Participating Preferred Stock and Fixing Distribution and Other
        Preferences and Rights of Such Series

  4.1   First Amended and Restated Agreement of Limited Partnership of             -
        the Operating Partnership, as amended (Incorporated by reference
        to Exhibit No. 4.1 of the Operating Partnership's Form 10-K for
        the year ended December 31, 1994)
</TABLE>
<PAGE>
 
<TABLE>

 Item                        Document                                             Page
 ----                        --------                                             ----
<S>    <C>                                                                       <C>
  4.2   Certificate of Limited Partnership of the Operating Partnership           -
        (Incorporated by reference to Exhibit No. 4.2 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

  4.3   Ninth Amendment to Amended and Restated Agreement of                       -
        Limited Partnership of the Operating Partnership (Incorporated
        by reference to Exhibit No. 4.1 of the Operating Partnership's
        Quarterly Report on Form 10-Q for the Quarter Ended June 30,
        1997)
  4.4                                                                              -
        Tenth Amendment to Amended and Restated Agreement of
        Limited Partnership of the Operating Partnership (Incorporated
        by reference to Exhibit No. 4.4 of the Operating Partnership's
        Form 10-K for the year ended December 31, 1997)
  4.5                                                                              -
        Fifteenth Amendment to First Amended and Restated Agreement
        of Limited Partnership of the Operating Partnership (Incorporated
        by reference to Exhibit 99.1 of the Operating Partnership's
        Quarterly Report on Form 10-Q for the Quarter Ended March 31,
  4.6   1998)                                                                      E-3

        Seventeenth Amendment to First Amended and Restated
        Agreement of Limited Partnership of the Operating Partnership

 10.1   Noncompetition Agreement by and among the Company, the                     -
        Operating Partnership and Robert P. Kogod and Robert H. Smith
        (Incorporated by reference to Exhibit No. 10.1 of the Operating
        Partnership's Form 10-K for the year ended December 31, 1994)

 10.2   Registration Rights and Lock-up Agreement (Incorporated by                 -
        reference to Exhibit No. 10.2 of the Operating Partnership's
        Form 10-K for the year ended December 31, 1994)

 10.3   Pledge Agreement (Incorporated by reference to Exhibit No. 10.3            -
        of the Operating Partnership's Form 10-K for the year ended
        December 31, 1994)

 10.4   First Amended and Restated 1994 Employee Stock and Unit                    -
        Option Plan (Incorporated by reference to Exhibit No. 10.4 of the
        Operating Partnership's Form 10-K for the year ended December
        31, 1994)

 10.5   First Amended and Restated 1994 Employee Restricted Stock and              -
        Restricted Unit Plan (Incorporated by reference to Exhibit No.
        10.5 of the Operating Partnership's Form 10-K for the year ended
        December 31, 1994)

</TABLE> 
<PAGE>
<TABLE> 
<CAPTION> 
 
 Item                      Document                                               Page
 ----                      --------                                               ----
<S>     <C>                                                                       <C> 
 10.6   Non-Employee Directors Stock Option Plan (Incorporated by                  -
        reference to Exhibit No. 10.6 of the Operating Partnership's Form
        10-K for the year ended December 31, 1994)

 10.7   Subscription Agreement (Incorporated by reference to Exhibit               -
        No. 10.7 of the Operating Partnership's Form 10-K for the year
        ended December 31, 1994)

 10.8   Voting Stock Partnership Agreement for Smith Property                      -
        Management Partnership (Incorporated by reference to Exhibit
        No. 10.8 of the Operating Partnership's Form 10-K for the year
        ended December 31, 1994)

 10.9   Voting Stock Partnership Agreement for Smith Management                    -
        Construction Partnership (Incorporated by reference to Exhibit
        No. 10.9 of the Operating Partnership's Form 10-K for the year
        ended December 31, 1994)

10.10   Voting Stock Partnership Agreement for Consolidated                        -
        Engineering Services Partnership (Incorporated by reference to
        Exhibit No. 10.10 of the Operating Partnership's Form 10-K for
        the year ended December 31, 1994)

10.11   Amended and Restated Articles of Incorporation of Smith Realty             -
        Company (Incorporated by reference to Exhibit No. 10.11 of the
        Operating Partnership's Form 10-K for the year ended December
        31, 1994)

10.12   By-Laws of Smith Property Management, Inc. (Incorporated by                -
        reference to Exhibit No. 10.12 of the Company's Registration 
        Statement on Form S-11, No. 33-75288)

10.13   Articles of Incorporation of Smith Management Construction,                -
        Inc. (Incorporated by reference to Exhibit No. 10.13 of the
        Company's Registration Statement on Form S-11, No. 33-75288)

10.14   By-Laws of Smith Management Construction, Inc. (Incorporated               -
        by reference to Exhibit No. 10.14 of the Company's Registration 
        Statement on Form S-11, No. 33-75288)

10.15   Articles of Incorporation of Consolidated Engineering Services,            -
        Inc. (Incorporated by reference to Exhibit No. 10.15 of the
        Company's Registration Statement on Form S-11, No. 33-75288)

10.16   By-Laws of Consolidated Engineering Services, Inc.                         -
        (Incorporated by reference to Exhibit No. 10.16 of the Company's
        Registration Statement on Form S-11, No. 33-75288)
</TABLE>
<PAGE>
 
<TABLE>

 Item                         Document                                             Page
 ----                         --------                                             ----
<S>     <C>                                                                      <C>
10.17   Certificate of Incorporation of Smith One, Inc. (Incorporated by           -
        reference to Exhibit No. 10.17 of the Company's Registration
        Statement on Form S-11, No. 33-75288)

10.18   By-Laws of Smith One, Inc. (Incorporated by reference to Exhibit           -
        No. 10.18 of the Company's Registration Statement on Form S-11,
        No. 33-75288)

10.19   Agreement of Limited Partnership of Smith Property Holdings                -
        One L.P. (Incorporated by reference to Exhibit No. 10.19 of the
        Operating Partnership's Form 10-K for the year ended December
        31, 1994)

10.20   Agreement of Limited Partnership of Smith Property Holdings                -
        One (D.C.) L.P. (Incorporated by reference to Exhibit No. 10.20
        of the Operating Partnership's Form 10-K for the year ended
        December 31, 1994)

10.21   Certificate of Incorporation of Smith Two, Inc. (Incorporated by           -
        reference to Exhibit No. 10.21 of the Company's Registration 
        Statement on Form S-11, No. 33-75288)

10.22   By-Laws of Smith Two, Inc. (Incorporated by reference to                   -
        Exhibit No. 10.22 of the Company's Registration Statement on 
        Form S-11, No. 33-75288)

10.23   Agreement of Limited Partnership of Smith Property Holdings                -
        Two L.P.(Incorporated by reference to Exhibit No. 10.23 of the
        Operating Partnership's Form 10-K for the year ended December
        31, 1994)

10.24   Agreement of Limited Partnership of Smith Property Holdings                -
        Two (D.C.) L.P. (Incorporated by reference to Exhibit No. 10.24
        of the Operating Partnership's Form 10-K for the year ended
        December 31, 1994)

10.25   Certificate of Incorporation of Smith Three, Inc. (Incorporated by         -
        reference to Exhibit No. 10.25 of the Company's Registration Statement 
        on Form S-11, No. 33-75288)

10.26   By-Laws of Smith Three, Inc. (Incorporated by reference to                 -
        Exhibit No. 10.26 of the Company's Registration Statement on Form S-11, 
        No. 33-75288)

10.27   Agreement of limited Partnership of Smith Property Holdings                -
        Three L.P. (Incorporated by reference to Exhibit No. 10.27 of the
        Operating Partnership's Form 10-K for the year ended December
        31, 1994)
</TABLE>
<PAGE>
 
<TABLE>

 Item                         Document                                            Page
 ----                         --------                                            ----
<S>     <C>                                                                     <C>
10.28   Agreement of Limited Partnership of Smith Property Holdings                -
        Three (D.C.) L.P.(Incorporated by reference to Exhibit No. 10.28
        of the Operating Partnership's Form 10-K for the year ended
        December 31, 1994)

10.29   Certificate of Incorporation of Smith Four, Inc. (Incorporated by          -
        reference to Exhibit No. 10.29 of the Company's Registration
        Statement on Form S-11, No. 33-75288)

10.30   By-Laws of Smith Four, Inc. (Incorporated by reference to                  -
        Exhibit No. 10.30 of the Company's Registration Statement on 
        Form S-11, No. 33-75288)

10.31   Agreement of Limited Partnership of Smith Property Holding                 -
        Four L.P. (Incorporated by reference to Exhibit No. 10.31 of the
        Operating Partnership's Form 10-K for the year ended December
        31, 1994)

10.32   Amended and Restated Certificate of Incorporation of Smith Five,           -
        Inc. (Incorporated by reference to Exhibit No. 10.32 of the
        Operating Partnership's Form 10-K for the year ended December
        31, 1994)

10.33   By-Laws of Smith Five, Inc. (Incorporated by reference to                  -
        Exhibit No. 10.33 of the Company's Registration Statement
        on Form S-11, No. 33-75288)

10.34   Agreement of Limited Partnership of Smith Property Holdings                -
        Five (D.C.) L.P. (Incorporated by reference to Exhibit No. 10.34
        of the Operating Partnership's Form 10-K for the year ended
        December 31, 1994)

10.35   License Agreement between Charles E. Smith Management, Inc.                -
        and the Company (Incorporated by reference to Exhibit No. 10.35
        of the Operating Partnership's Form 10-K for the year ended
        December 31, 1994)

10.36   License Agreement between Charles E. Smith Management, Inc.                -
        and the Operating Partnership (Incorporated by reference to
        Exhibit No. 10.36 of the Operating Partnership's Form 10-K for
        the year ended December 31, 1994)

10.37   Agreement of Limited Partnership of Smith Property Holdings                -
        Five L.P. (Incorporated by reference to Exhibit No. 10.0 of the
        Operating Partnership's Quarterly Report on Form 10-Q for the
        Quarter Ended September 30, 1994)
</TABLE>
<PAGE>
 
<TABLE> 
 
 Item                        Document                                             Page
 ----                        --------                                             ----
<S>     <C>                                                                      <C>
10.38   Certificate of Limited Partnership of Smith Property Holdings              -
        Five L.P. (Incorporated by reference to Exhibit No. 10.38 of the
        Operating Partnership's Form 10-K for the year ended December
        31, 1994)

                                                                                   -

10.39   Deed of Trust and Security Agreement between Smith Property                -
        Holdings Three L.P. ("Smith Three") and The Northwestern
        Mutual Life Insurance Company ("Northwestern") (Incorporated
        by reference to Exhibit No. 10.2 of the Operating Partnership's
        Quarterly Report on Form 10-Q for the Quarter Ended June 30,
        1994)

10.40   Guarantee of Recourse Obligations by Smith Three and the                   -
        Operating Partnership (Incorporated by reference to Exhibit No.
        10.3 of the Operating Partnership's Quarterly Report on Form 10-
        Q for the Quarter Ended June 30, 1994)

10.41   Absolute Assignment of Leases and Rents between Smith Three                -
        and Northwestern (Incorporated by reference to Exhibit No. 10.4
        of the Operating Partnership's Quarterly Report on Form 10-Q for
        the Quarter Ended June 30, 1994)

10.42   Promissory Note of Smith Three to Northwestern (Incorporated               -
        by reference to Exhibit No. 10.5 of the Operating Partnership's
        Quarterly Report on Form 10-Q for the Quarter Ended June 30,
        1994)

10.43   Purchase Money Deed of Trust and Security Agreement between                -
        Smith Property Holdings Three (D.C.) L.P. ("Smith Three D.C.")
        and Northwestern (Incorporated by reference to Exhibit No. 10.6
        of the Operating Partnership's Quarterly Report on Form 10-Q for
        the Quarter Ended June 30, 1994)

10.44   Guarantee of Recourse Obligations by Smith Three D.C. and the              -
        Operating Partnership (Incorporated by reference to Exhibit No.
        10.7 of the Operating Partnership's Quarterly Report on Form 10-
        Q for the Quarter Ended June 30, 1994)

10.45   Absolute Assignment of Leases and Rents between Smith Three                -
        D.C. and Northwestern (Incorporated by reference to Exhibit No.
        10.8 of the Operating Partnership's Quarterly Report on Form 10-
        Q for the Quarter Ended June 30, 1994)

10.46   Purchase Money Promissory Note of Smith Three D.C. to                      -
        Northwestern (Incorporated by reference to Exhibit No. 10.9 of
        the Operating Partnership's Quarterly Report on Form 10-Q for
        the Quarter Ended June 30, 1994)
</TABLE>
<PAGE>
 
<TABLE>

 Item                      Document                                               Page
 ----                      --------                                               ----
<S>     <C>                                                                       <C>
10.47   Supplemental Loan Agreement by and among Smith Property                   E-4
        Holdings Two L.P. ("Smith Two"), Smith Property Holdings
        Two (D.C.) L.P. ("Smith Two D.C.") and Green Park Financial
        Limited Partnership ("Green Park")

10.48   Supplemental Loan Agreement by and among Smith Property                    -
        Holdings One L.P. ("Smith One D.C."), Smith Property Holdings
        One (D.C.) L.P. ("Smith One D.C.") and GMAC (Incorporated
        by reference to Exhibit No. 10.13 of the Operating Partnership's
        Quarterly Report on Form 10-Q for the Quarter Ended June 30,
        1994)

10.49   Multifamily Note of Smith One to GMAC (Incorporated by                     -
        reference to Exhibit No. 10.14 of the Operating Partnership's
        Quarterly Report on Form 10-Q for the Quarter Ended June 30,
        1994)

10.50   Multifamily Note of Smith One D.C. to GMAC (Incorporated by                -
        reference to Exhibit No. 10.15 of the Operating Partnership's
        Quarterly Report on Form 10-Q for the Quarter Ended June 30,
        1994)

10.51   Absolute Assignment of Leases and Rents by Smith One D.C. to              -
        GMAC (Incorporated by reference to Exhibit No. 10.16 of the
        Operating Partnership's Quarterly Report on Form 10-Q for the
        Quarter Ended June 30, 1994)

10.52   Property Management Agreement by and between Smith One and                -
        the Operating Partnership (Incorporated by reference to Exhibit
        No. 10.17 of the Operating Partnership's Quarterly Report on
        Form 10-Q for the Quarter Ended June 30, 1994)

10.53   Multifamily Deed of Trust, Assignment of Rents and Security               -
        Agreement between Smith One D.C. and GMAC (Incorporated
        by reference to Exhibit No. 10.18 of the Operating Partnership's
        Quarterly Report on Form 10-Q for the Quarter Ended June 30,
        1994)

10.54   Commercial Leasing and Property Management Agreement                       -
        between Smith Three and the Operating Partnership
        (Incorporated by reference to Exhibit No. 10.19 of the Operating
        Partnership's Quarterly Report on Form 10-Q for the Quarter
        Ended June 30, 1994)

10.55   Agreement of Limited Partnership of Smith Employment Services              -
        L.P. (Incorporated by reference to Exhibit No. 10.58 of the
        Operating Partnership's Form 10-K for the year ended December
        31, 1994)
</TABLE>
<PAGE>
 
<TABLE>

 Item                         Document                                            Page
 ----                         --------                                            ----
<S>     <C>                                                                     <C>
10.56   Certificate of Limited Partnership of Smith Employment Services            -
        L.P. (Incorporated by reference to Exhibit No. 10.59 of the
        Operating Partnership's Form 10-K for the year ended December
        31, 1994)

10.57   Second Restated and Amended Agreement of Limited Partnership               -
        of First Herndon Associated Limited Partnership (Incorporated by
        reference to Exhibit No. 10.1 of the Operating Partnership's
        Quarterly Report on Form 10-Q for the Quarter Ended June 30,
        1995)

10.58   Second Amendment to the Certificate of Limited Partnership of              -
        First Herndon Associates Limited Partnership (Incorporated by
        reference to Exhibit No. 10.2 of the Operating Partnership's
        Quarterly Report on Form 10-Q for the Quarter Ended June 30,
        1995)

10.59   Certificate of Incorporation of Smith Six, Inc. (Incorporated by             -
        reference to Exhibit No. 10.1 of the Operating Partnership's
        Quarterly Report on Form 10-Q for the Quarter Ended March 31,
        1995)

10.60   By-Laws of Smith Six, Inc. (Incorporated by reference to Exhibit           -
        No. 10.2 of the Operating Partnership's Quarterly Report on
        Form 10-Q for the Quarter Ended March 31, 1995)

10.61   Agreement of Limited Partnership of Smith Property Holdings Six            -
        L.P. (Incorporated by reference to Exhibit No. 10.3 of the
        Operating Partnership's Quarterly Report on Form 10-Q for the
        Quarter Ended March 31, 1995)

10.62   Agreement of Limited Partnership of Smith Property Holdings Six            -
        (D.C.) L.P. (Incorporated by reference to Exhibit No. 10.4 of the
        Operating Partnership's Quarterly Report on Form 10-Q for the
        Quarter Ended March 31, 1995)

10.63   Certificate of Incorporation of Smith Seven, Inc. (Incorporated by         -
        reference to Exhibit No. 10.66 of the Operating Partnership's
        Form 10-K for the year ended December 31, 1995)

10.64   By-Laws of Smith Seven, Inc. (Incorporated by reference to                 -
        Exhibit No. 10.67 of the Operating Partnership's Form 10-K for
        the year ended December 31, 1995)

10.65   Agreement of Limited Partnership of Smith Property Holdings                -
        Seven L.P. (Incorporated by reference to Exhibit No. 10.68 of the
        Company's Form 10-K for the year ended December 31, 1995)
</TABLE>
<PAGE>
 
<TABLE> 
 Item                   Document                                                  Page
 ----                   --------                                                  ----
<S>     <C>                                                                     <C>
10.66   Commitment for Mortgage Loan to the Operating Partnership                  -
        from Northwestern Mutual Life Insurance Company
        (Incorporated by reference to Exhibit No. 10.69 of the Operating 
        Partnership's Form 10-K for the year ended December 31, 1995)

10.67   Third Amended and Restated Credit Agreement by and between                 -
        the Operating Partnership and PNC Bank, National Association,
        et. al. (Incorporated by reference to Exhibit No. 10.71 of the
        Operating Partnership's Form 10-K for the year ended December 31, 1997)

10.68   First Amendment to Third Amended and Restated Credit
        Agreement between the Operating Partnership and PNC Bank,                  -
        National Association, et. al. (Incorporated by reference to Exhibit
        99.1 of the Operating Partnership's Quarterly Report on Form 10-Q for the
        Quarter Ended June 30, 1998)
                                                                                   -
10.69   Second Amendment to Third Amended and Restated Credit
        Agreement between the Operating Partnership and PNC Bank,
        National Association, et. al. (Incorporated by reference to Exhibit
        99.2 of the Operating Partnership's Quarterly Report on Form 10-Q 
        for the Quarter Ended June 30, 1998)                                       -

10.70   First Amendment to First Amended and Restated Agreement of
        1994 Employee Stock and Unit Option Plan of Charles E. Smith
        Residential Realty, Inc. (Incorporated by reference to Exhibit 4.9
        in the Operating Partnership's Registration Statement on Form S-8, 
        File No. 333-67421)                                                        -

10.71   Second Amendment to First Amended and Restated Agreement                  E-5
        of 1994 Employee Stock and Unit Option Plan of Charles E.
        Smith Residential Realty, Inc.

10.72   Rights Agreement between Charles E. Smith Residential Realty,             E-6
        Inc. and First Union National Bank, as Rights Agent


   21   Subsidiaries of the Registrant                                            E-7

 23.1   Consent of Arthur Andersen LLP                                            E-8

   27   Financial Data Schedule                                                    -
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</TABLE>