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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION


Washington, DC 20549


FORM 10-K

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31,
    2003                                             
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|           |  | For the transition period
    from           to           .                                 

Commission file number 1-16755

Archstone-Smith Trust

(Exact name of Registrant as Specified in Its
Charter)


|                                                                   |  |                                      
|------------------------------------------------------------------ |  | -------------------------------------
|MARYLAND                                                           |  | 84-1592064                           
|(State or other jurisdiction of
    incorporation or organization) |  | (IRS employer
    identification no.)

9200 E. Panorama Circle,
Suite 400

Englewood, Colorado 80112


(Address of principal executive offices and
zip code)


(303) 708-5959

(Registrants telephone number, including
area code)


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

|                                                                                                      |  |                         
|----------------------------------------------------------------------------------------------------- |  | ------------------------
|                                                                                                      |  | Name of each exchange on
|Title of each class                                                                                   |  | which registered        
|                                                                                                      |  |                         
|Common Shares of Beneficial Interest, par value
    $0.01 per share                                   |  | New York Stock Exchange 
|Series D Cumulative Redeemable Preferred
    Shares of Beneficial Interest, $0.01 par value per share |  | New York Stock Exchange 

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 þ          No o

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

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

Based on the closing price of the
registrants Common Shares on June 30, 2003, the
aggregate market value of the voting common equity held by
non-affiliates of the registrant was approximately
$4,511,036,832.

At February 13, 2004, there were
approximately 194,482,885 of the registrants Common Shares
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants definitive
proxy statement for the 2004 annual meeting of its shareholders
are incorporated by reference in Part III of this report.









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|                                                  |  |                                                                                                        |  |                                     |    |  |    | 
|------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | ----------------------------------- | -- |  | -- | 
|Item                                              |  | Description                                                                                            |  | Page                               
|                                                  |  |                                                                                                        |  |                                    
|PART I                                           
|                                                  |  |                                                                                                        |  | Glossary                            |    |  | 3  | 
|1.                                                |  | Business                                                                                               |  |                                     | 7  | 
|                                                  |  |                                                                                                        |  | The Company                         |    |  | 8  | 
|                                                  |  |                                                                                                        |  | Officers of
    Archstone-Smith     |    |  | 10 | 
|                                                  |  |                                                                                                        |  | Employees                           |    |  | 12 | 
|                                                  |  |                                                                                                        |  | Insurance                           |    |  | 12 | 
|                                                  |  |                                                                                                        |  | Risk Factors                        |    |  | 13 | 
|2.                                                |  | Properties                                                                                             |  |                                     | 17 | 
|                                                  |  |                                                                                                        |  | Geographic Distribution             |    |  | 17 | 
|                                                  |  |                                                                                                        |  | Real Estate Portfolio               |    |  | 19 | 
|3.                                                |  | Legal Proceedings                                                                                      |  |                                     | 21 | 
|4.                                                |  | Submission of Matters to a
    Vote of Security Holders                                                |  |                                     | 22 | 
|PART II                                          
|5.                                                |  | Market for the
    Registrants Common Equity and Related Stockholder
    Matters                      |  |                                     | 22 | 
|6.                                                |  | Selected Financial Data                                                                                |  |                                     | 24 | 
|7.                                                |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations              |  |                                     | 26 | 
|                                                  |  |                                                                                                        |  | Results of Operations               |    |  | 27 | 
|                                                  |  |                                                                                                        |  | Liquidity and Capital
    Resources |    |  | 34 | 
|                                                  |  |                                                                                                        |  | Litigation and
    Contingencies    |    |  | 38 | 
|                                                  |  |                                                                                                        |  | Critical Accounting
    Policies    |    |  | 39 | 
|                                                  |  |                                                                                                        |  | Off Balance Sheet
    Arrangements  |    |  | 41 | 
|                                                  |  |                                                                                                        |  | Contractual Commitments             |    |  | 42 | 
|                                                  |  |                                                                                                        |  | Related Party
    Transactions      |    |  | 43 | 
|                                                  |  |                                                                                                        |  | New Accounting
    Pronouncements   |    |  | 44 | 
|7A.                                               |  | Quantitative and Qualitative
    Disclosures About Market Risk                                         |  |                                     | 44 | 
|8.                                                |  | Financial Statements and
    Supplementary Data                                                        |  |                                     | 46 | 
|9.                                                |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure               |  |                                     | 46 | 
|9A.                                               |  | Controls and Procedures                                                                                |  |                                     | 46 | 
|PART III                                         
|10.                                               |  | Trustees and Executive
    Officers of the Registrant                                                  |  |                                     | 47 | 
|11.                                               |  | Executive Compensation                                                                                 |  |                                     | 47 | 
|12.                                               |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters |  |                                     | 47 | 
|13.                                               |  | Certain Relationships and
    Related Transactions                                                     |  |                                     | 47 | 
|14.                                               |  | Principal Accountants Fees
    and Services                                                            |  |                                     | 47 | 
|PART IV                                          
|15.                                               |  | Exhibits, Financial
    Statement Schedules and Reports on Form 8-K                                    |  |                                     | 48 | 
|EX-4.4 Rights Agreement dated as of 12-1-03      
|EX-10.6 Form of Indemnification Agreement        
|EX-10.12 Amended and Restated Credit Agreement   
|EX-12.1 Computation of Ratio of Earnings         
|EX-12.2 Computation of Ratio of Earnings         
|EX-21 Subsidiaries of Archstone-Smith            
|EX-23.1 Consent of KPMG LLP                      
|EX-31.1 Certification of CEO pursuant to Sec. 302
|EX-31.2 Certification of CFO pursuant to Sec. 302
|EX-32.1 Certification of CEO pursuant to Sec. 906
|EX-32.2 Certification of CFO pursuant to Sec. 906



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GLOSSARY

The following abbreviations, acronyms or defined
terms used in this document are defined below:

|                                         |  |                                                                                                                                                                                                                                                                                                                                                                            
|---------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Abbreviation, Acronym or Defined Term    |  | Definition/Description                                                                                                                                                                                                                                                                                                                                                     
|                                         |  |                                                                                                                                                                                                                                                                                                                                                                            
|A-1 Common Unitholders                   |  | Holders of A-1 Common Units.                                                                                                                                                                                                                                                                                                                                               
|A-1 Common Units                         |  | Operating Trust Class A-1 common units of
    beneficial interest, which are redeemable for cash, or at the
    option of Archstone-Smith, Common Shares. A-1 Common Units are
    the only common units of the Operating Trust not held by
    Archstone-Smith and represent a minority interest of 11.5% in
    the Operating Trust at December 31, 2003.                
|A-2 Common Units                         |  | Operating Trust Class A-2 common units of
    beneficial interest. Archstone-Smith is the sole holder of A-2
    Common Units, which represent approximately an 88.5% interest in
    the Operating Trust at December 31, 2003.                                                                                                                                            
|A-1 Minority Interest                    |  | The A-1 Common Unitholders share of net
    earnings.                                                                                                                                                                                                                                                                                                                     
|Ameriton                                 |  | AMERITON Properties Incorporated, which is a
    taxable REIT subsidiary that engages in the opportunistic
    acquisition, development and eventual disposition of real estate
    with a shorter-term investment horizon.                                                                                                                                                
|Ameriton Holdings                        |  | Ameriton Holdings LLC, owned 100% of the voting
    stock of Ameriton. During September 2003, the Operating Trust
    purchased the voting membership interest in Ameriton Holdings.                                                                                                                                                                                       
|Annual Report                            |  | This Annual Report on Form 10-K filed with
    the Securities and Exchange Commission for the fiscal year ended
    December 31, 2003.                                                                                                                                                                                                                                     
|Archstone                                |  | Archstone Communities Trust, the predecessor
    registrant to Archstone-Smith.                                                                                                                                                                                                                                                                                            
|Archstone-Smith                          |  | Archstone-Smith Trust. Unless indicated
    otherwise, financial information and references throughout this
    document are labeled, Archstone-Smith for periods
    before and after the Smith Merger.                                                                                                                                                                 
|Board                                    |  | Archstone-Smiths Board of Trustees.                                                                                                                                                                                                                                                                                                                                       
|Class B Common Units                     |  | Operating Trust common units of beneficial
    interest issued in connection with contributions of property
    between dividend distribution dates; they are entitled to
    receive a pro-rata distribution with respect to the quarter in
    which the property is contributed and, after that distribution
    date, they automatically convert into A-1 Common Units.
|Common Share(s)                          |  | Archstone-Smith common shares of beneficial
    interest, par value $0.01 per share.                                                                                                                                                                                                                                                                                       
|Consolidated Engineering Services or CES |  | Consolidated Engineering Services, Inc. was a
    taxable REIT subsidiary in the business of delivering mission
    critical facilities management services for corporate,
    government and institutional customers. CES was sold to a third
    party in December 2002 for $178 million.                                                                                
|Convertible Preferred Shares             |  | Collectively, the Series A, H, J, K and L
    Preferred Shares.                                                                                                                                                                                                                                                                                                            
|Declaration of Trust                     |  | Archstone-Smiths Amended and Restated
    Declaration of Trust as filed with the State of Maryland on
    October 26, 2001, as amended and supplemented.                                                                                                                                                                                                                  
|DEU                                      |  | Dividend Equivalent Unit; an amount credited to
    certain options and RSUs under our long-term incentive
    plan.                                                                                                                                                                                                                                                      

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|                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Abbreviation, Acronym or Defined Term |  | Definition/Description                                                                                                                                                                                                                                                                                                                                                                                                                
|                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                       
|DownREIT OP Units                     |  | Operating Partnership Units issued by Atlantic
    Multifamily Limited Partnership  I, Archstone
    Communities Limited Partnership and Archstone Communities
    Limited Partnership II, which were convertible into Common
    Shares. The DownREIT OP units were converted into A-1 Common
    Units in August 2002.                                                                                                             
|DownREIT Perpetual Preferred Units    |  | Collectively, the Series E, F, and G
    Preferred Units issued by Archstone Communities Limited
    Partnership and Archstone Communities Limited
    Partnership II. These Units were convertible into a
    corresponding series of Preferred Shares. The DownREIT Perpetual
    Preferred Units were converted into Operating Trust Perpetual
    Preferred Units in August 2002.                                                 
|EPS                                   |  | Earnings Per Share determined in accordance with
    GAAP.                                                                                                                                                                                                                                                                                                                                                                            
|FASB                                  |  | Financial Accounting Standards Board.                                                                                                                                                                                                                                                                                                                                                                                                 
|Fannie Mae                            |  | Federal National Mortgage Association.                                                                                                                                                                                                                                                                                                                                                                                                
|Freddie Mac                           |  | Federal Home Loan Mortgage Corporation.                                                                                                                                                                                                                                                                                                                                                                                               
|GAAP                                  |  | Generally accepted accounting principles in the
    United States.                                                                                                                                                                                                                                                                                                                                                                    
|In Planning                           |  | Parcels of land owned or Under Control, which are
    in the development planning process, upon which construction of
    apartments is expected to commence within 36 months.                                                                                                                                                                                                                                                        
|Lease-Up                              |  | The phase during which newly constructed
    apartment units are being leased for the first time, but prior
    to the community becoming Stabilized.                                                                                                                                                                                                                                                                                 
|LIBOR                                 |  | London Interbank Offered Rate.                                                                                                                                                                                                                                                                                                                                                                                                        
|Long-Term Unsecured Debt              |  | Collectively, Archstone-Smiths long-term
    unsecured senior notes payable and tax-exempt unsecured bonds.                                                                                                                                                                                                                                                                                                                          
|NAREIT                                |  | National Association of Real Estate Investment
    Trusts.                                                                                                                                                                                                                                                                                                                                                                            
|Net Operating Income or NOI           |  | Represents rental revenues less rental expenses
    and real estate taxes. We rely on NOI for purposes of making
    decisions about resource allocations and assessing segment
    performance. We also believe NOI is a valuable means of
    comparing period-to-period property performance. See a
    reconciliation of NOI to Earnings from Operations in this Annual
    Report under caption Apartment Community Operations.
|NYSE                                  |  | New York Stock Exchange.                                                                                                                                                                                                                                                                                                                                                                                                              
|Outside Trustees                      |  | Members of the Board with no employment
    relationship.                                                                                                                                                                                                                                                                                                                                                                             
|Operating Trust                       |  | Archstone-Smith Operating Trust, the entity
    through which we conduct all property ownership and business
    operations.                                                                                                                                                                                                                                                                                                          
|Perpetual Preferred Shares            |  | Collectively, the Series B, C, D and I
    Preferred Shares. These shares are not convertible, but are
    redeemable at the option of Archstone-Smith at certain future
    dates.                                                                                                                                                                                                                                                   
|Preferred Shares                      |  | Collectively, the Series A, B, C, D,
    H, I, J, K, and L Preferred Shares.                                                                                                                                                                                                                                                                                                                                                          
|REIT                                  |  | Real estate investment trust.                                                                                                                                                                                                                                                                                                                                                                                                         
|Restricted Share Unit or RSU          |  | A unit representing an interest in one Common
    Share, subject to certain vesting provisions, through our
    long-term incentive plan.                                                                                                                                                                                                                                                                                             

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|                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Abbreviation, Acronym or Defined Term |  | Definition/Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Same-Store                            |  | Term used to refer to a group of operating
    communities that had attained stabilization and were fully
    operating during the entire time two periods are being compared.
    Excludes communities which were not eligible for inclusion due
    to (i) recent acquisition or development, (ii) major
    redevelopment, or (iii) a significant number of non-
    operational units (fires, floods, etc.). Also excludes the
    Ameriton properties due to their short-term holding periods.
|Series A Preferred Shares             |  | Archstone-Smith Series A Cumulative
    Preferred Shares of Beneficial Interest, par value
    $0.01 per share, which were redeemed in full in November
    2003.                                                                                                                                                                                                                                                                                                                                  
|Series B Preferred Shares             |  | Archstone-Smith Series B Cumulative
    Perpetual Preferred Shares of Beneficial Interest, par value
    $0.01 per share, which were redeemed in full in May 2001.                                                                                                                                                                                                                                                                                                                                 
|Series C Preferred Shares             |  | Archstone-Smith Series C Cumulative
    Perpetual Preferred Shares of Beneficial Interest, par value
    $0.01 per share, which were redeemed in full in August 2002.                                                                                                                                                                                                                                                                                                                              
|Series D Preferred Shares             |  | Archstone-Smith Series D Cumulative
    Perpetual Preferred Shares of Beneficial Interest, par value
    $0.01 per share.                                                                                                                                                                                                                                                                                                                                                                          
|Series E Perpetual Preferred Units    |  | 8.375% Cumulative Perpetual Preferred Units.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Series F Perpetual Preferred Units    |  | 8.125% Cumulative Perpetual Preferred Units.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Series G Perpetual Preferred Units    |  | 8.625% Cumulative Perpetual Preferred Units.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Series H Preferred Shares             |  | Archstone-Smith Series H Cumulative
    Convertible Perpetual Preferred Shares of Beneficial Interest,
    par value $0.01 per share, which were converted into Common
    Shares in full in May 2003.                                                                                                                                                                                                                                                                                             
|Series I Preferred Shares             |  | Archstone-Smith Series I Cumulative
    Perpetual Preferred Shares of Beneficial Interest, par value
    $0.01 per share.                                                                                                                                                                                                                                                                                                                                                                          
|Series J Preferred Shares             |  | Archstone-Smith Series J Cumulative
    Convertible Perpetual Preferred Shares of Beneficial Interest,
    par value $0.01 per share, which were converted into Common
    Shares in full in July 2002.                                                                                                                                                                                                                                                                                            
|Series K Preferred Shares             |  | Archstone-Smith Series K Cumulative
    Convertible Perpetual Preferred Shares of Beneficial Interest,
    par value $0.01 per share.                                                                                                                                                                                                                                                                                                                                                              
|Series L Preferred Shares             |  | Archstone-Smith Series L Cumulative
    Convertible Perpetual Preferred Shares of Beneficial Interest,
    par value $0.01 per share.                                                                                                                                                                                                                                                                                                                                                              
|Service Businesses                    |  | Collectively, Consolidated Engineering Services
    and Smith Management Construction. Both of these entities were
    taxable REIT subsidiaries and were acquired in the Smith Merger.                                                                                                                                                                                                                                                                                                            
|Smith Management Construction or SMC  |  | Smith Management Construction Incorporated was a
    taxable REIT subsidiary in the business of providing
    construction management and building maintenance services. SMC
    was sold to members of its senior management in February 2003.                                                                                                                                                                                                                                                    
|Smith Merger                          |  | The series of merger transactions in October 2001
    whereby Archstone-Smith merged with Smith Residential and
    Archstone merged with Smith Partnership.                                                                                                                                                                                                                                                                                                                                       
|Smith Partnership                     |  | Charles E. Smith Residential Realty, L.P.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Smith Residential                     |  | Charles E. Smith Residential Realty, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|SFAS                                  |  | Statement of Financial Accounting Standards.                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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|                                      |  |                                                                                                                                                                                                                                                                                                                                        
|------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Abbreviation, Acronym or Defined Term |  | Definition/Description                                                                                                                                                                                                                                                                                                                 
|                                      |  |                                                                                                                                                                                                                                                                                                                                        
|Stabilized or Stabilization           |  | The classification assigned to an apartment
    community that has achieved 93% occupancy, and for which the
    redevelopment, new management and new marketing programs (or
    development and marketing in the case of a newly developed
    community) have been completed.                                                       
|Total Expected Investment             |  | For development communities, represents the total
    expected investment at completion; for operating communities,
    represents the total expected investment plus planned capital
    expenditures.                                                                                                                                
|Trustees                              |  | Members of the Board of Trustees of
    Archstone-Smith.                                                                                                                                                                                                                                                                               
|Under Control                         |  | Land parcels which Archstone-Smith does not own,
    yet has an exclusive right (through contingent contract or
    letter of intent) during a contractually agreed upon time period
    to acquire for the future development of apartment communities,
    subject to approval of contingencies during the due diligence
    process.
|UPREIT                                |  | Umbrella Partnership Real Estate Investment Trust.                                                                                                                                                                                                                                                                                     

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Forward-Looking Statements

Certain statements in this Annual Report that
are not historical facts are forward-looking
statements as that term is defined under the Private
Securities Litigation Reform Act of 1995. These forward-looking
statements are based on our current expectations, beliefs,
assumptions, estimates and projections about the industry and
markets in which we operate. Words such as expects,
anticipates, intends, plans,
believes, seeks, estimates
and variations of such words and similar expressions are
intended to identify such forward-looking statements.
Information concerning expected investment balances, expected
funding sources, planned investments, forecasted dates and
revenue and expense growth assumptions are examples of
forward-looking statements. These statements are not guarantees
of future performance and involve certain risks, uncertainties
and assumptions, which are difficult to predict and many of
which are beyond our control. Therefore, actual outcomes and
results may differ materially from what is expressed, forecasted
or implied in such forward-looking statements. We undertake no
obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or
otherwise, except as required by applicable law.

Our operating results depend primarily on
income from apartment communities, which is substantially
influenced by supply and demand for apartment units, operating
expense levels, property level operations and the pace and price
at which we develop, acquire or dispose of apartment
communities. Capital and credit market conditions, which affect
our cost of capital, also influence operating results. See
Risk Factors in Item 1 of this Annual Report
for a complete discussion of the various risk factors that could
affect our future performance.




PART I






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

Archstone-Smith (NYSE: ASN) is a recognized
leader in apartment investment and operations. The company owns
and operates an irreplaceable portfolio of high-rise and garden
apartment communities concentrated in many of the most desirable
neighborhoods in the greater Washington, D.C. metropolitan
area, Southern California, the San Francisco Bay area,
Chicago, Boston, Seattle, the greater New York City
metropolitan area and Southeast Florida. The company continually
upgrades the quality of its portfolio through the selective sale
of assets, using proceeds to fund investments with higher
anticipated growth prospects. Through its two customer-facing
brands, Archstone and Charles E. Smith, Archstone-Smith
defines the standard for apartment operations. As of
December 31, 2003, Archstone-Smith owned or had an
ownership position in 249 communities, representing
88,183 units, including units under construction.

As of December 31, 2003, our operating
portfolio was concentrated in protected locations in the
following core markets, based on net operating income, excluding
amounts associated with communities that are owned by Ameriton
was as follows:

|                                           |        |  |      |       |  
|------------------------------------------ | ------ |  | ---- | ----- | -
|Greater Washington, D.C. metropolitan area |        |  | 40.0 | %    
|Southern California                        |        |  | 15.2 |      
|San Francisco Bay Area, California         |        |  | 9.8  |      
|Chicago, Illinois                          |        |  | 7.6  |      
|Boston, Massachusetts                      |        |  | 5.0  |      
|Southeast Florida                          |        |  | 4.2  |      
|Seattle, Washington                        |        |  | 3.3  |      
|Greater New York City metropolitan area    |        |  | 2.5  |      
|Other                                      |        |  | 12.4 |      
|                                           |        |  |      |      
|                                           | Total: |  |      | 100.0 | %
|                                           |        |  |      |      

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The Company

Archstone-Smith is a public equity REIT engaged
primarily in the operation, development, redevelopment,
acquisition, management and long-term ownership of apartment
communities throughout the United States. The company is
structured as an UPREIT, under which all property ownership and
business operations are conducted through the Operating Trust.
Archstone-Smith is the sole trustee and owned 88.5% of the
Operating Trust at December 31, 2003.

We focus on creating value for our shareholders
by:



| |   |                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Maximizing the performance of our apartment
    communities by (i) generating long-term sustainable growth
    in operating cash flow, (ii) strengthening our operating
    platform, (iii) leveraging the equity of our brands,
    (iv) investing in technology that improves our core
    business, (v) and solidifying our reputation for
    operational leadership;
|
| |  | Acquiring, developing and operating apartments in
    markets characterized by: (i) protected locations with
    limited land on which to build new housing; (ii) expensive
    single-family home prices; and (iii) a strong, diversified
    economic base and job growth potential; and                                                                               
|
| |  | The selective sale of assets, which allows us to
    continually upgrade our portfolio by using proceeds to fund
    investments with higher anticipated growth prospects.                                                                                                                                                                                               

Customer-focused Operations

We believe that our long-term cash flow growth is
enhanced by the Archstone and Charles E. Smith brands, our
efficient operating platform, robust and scalable technology,
and the continued investment in our associates:

Powerful brands.An
essential component of our strategy is to consistently offer a
higher level of service at all our apartment communities.
Through Archstones Seal of ServiceTM and
Charles E. Smiths Smith Advantage, we offer our residents
convenience and flexibility all backed by written guarantees.
These programs help to create customer loyalty and trust, and
increase the likelihood of renewals and referrals.

Strengthening our
operations.We believe that we can
create a distinct competitive advantage by identifying and
implementing the best practices for our most critical processes
and standardizing them at each of our communities. To do this,
we assembled a core process project (CPP) team to focus on
three important customer touch-points: (i) customer
inquiries and leasing, (ii) the move-in experience, and
(iii) renewal, transfer or move-out. To capture best
practices, the CPP team conducts extensive field research with
front-line associates to translate proven tactics into scalable
tools that ensure consistency in our day-to-day customer
interactions. We believe that by enhancing our customers
experiences with us, we will ultimately increase customer
acquisition, retention and referrals.

Investing in technology.We invest in technology to improve our
core operations and make it easier for our customers to do
business with us. In 2003, we completed the implementation of a
revenue and pricing management system and launched a new
web-based property management system that we believe will
redefine the way customers lease an apartment and how we manage
our apartment communities.

We pioneered the use of Lease Rent
OptionsTM (LRO), the first pricing and revenue
management software system in the apartment industry. LRO
enables us to more precisely forecast and analyze market demand
and unit availability by taking into account multiple variables
that are difficult to compile manually to optimize pricing for
our apartments, thereby enhancing total revenues for the
company. In addition, LRO allows us to offer flexible lease
terms to new and renewing customers, creating a level of
flexibility that has never been available in the apartment
industry.

We are also upgrading our existing property
management system to MRI Residential Management
(RM) software. Developed in conjunction with MRI, an Intuit
company (NASDAQ: INTU), RM is a customer-centric, web-based
property management software system that allows us to fully
integrate LRO, our pricing and revenue management software, into
our operating platform and automate virtually all of our daily

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on-site leasing and reporting tasks. This allows
us to execute leases more smoothly and quickly  and
improve our customers experience.


In addition, RM provides a seamless online
interface with our customers via resident-only web sites,
allowing customers 24/7 access to us to complete new and renewed
leases, pay rent online, submit service requests and more. The
systems automated work order solution allows us to
directly enhance our customer service offering by improving our
ability to manage and execute service requests, one of our most
important customer functions. Equally important, the system
gives us the ability to accurately track resident histories to
better understand and serve our customers. We expect to complete
the rollout of RM across our entire portfolio in 2005.

Investing in our associates.A critical component to ensuring the
integrity of our brand offering is attracting, training and
retaining the best professionals in our industry  and
giving them the support and tools to provide an exceptional
customer experience.

Each of our on-site associates receives extensive
training in their first year through our Customer-centered Sales
Excellence (CCSE) training program. CCSEs seven
training modules cover the various aspects of our sales process
and are offered to associates in manageable half-day classes.

In 2003, we introduced The Practice of Leadership
training program to on-site, corporate and regional managers to
give them the tools to become better leaders. This three-day
program focuses on six leadership practices consistent with our
company culture and values that we believe drive our success.
This program is complemented by a 360-Degree Feedback Program,
through which direct reports, supervisors and peers evaluate
corporate managers to identify strengths and opportunities for
improvement.

Investment Strategy

Protected markets.We invest our capital in protected markets in locations where
there is a very limited amount of land on which new housing can
be developed, which minimizes competition. In addition to supply
constraints, our core markets  the greater
Washington, D.C. metropolitan area, Southern California,
the San Francisco Bay area, Chicago, Boston, Seattle, the
greater New York City metropolitan area and Southeast
Florida  are characterized by (i) relatively
stable demand, (ii) a diverse economic base and
(iii) expensive single-family home prices, which we believe
maximize our ability to maintain occupancy and produce
sustainable long-term cash flow growth.

Capital recycling program.We utilize a sophisticated capital
allocation strategy, using the selective sale of assets to
redeploy disposition proceeds into investments with higher
anticipated long-term growth prospects. We believe that
concentrating our portfolio in protected markets improves our
growth rate, value creation and long-term business fundamentals.

In 2003, Archstone-Smith sold $1.4 billion
of apartment communities (excluding Ameriton) representing
15,599 units, generating GAAP gains of $310.9 million
and an average unleveraged internal rate of return of 13.0%.
Additionally, we acquired $508.9 million of operating
communities, representing 2,893 units, essentially all of
which were funded by disposition proceeds. We believe the
quality of our portfolio is continually upgraded by redeploying
disposition proceeds into new investments.

Development and redevelopment.We believe we create significant value
through the development of new apartment communities and the
redevelopment of existing operating communities. At
December 31, 2003, we had 2,607 units, representing a
Total Expected Investment of $636.9 million, of development
communities under construction in markets that include Southern
California, downtown Boston and the greater
Washington, D.C. metropolitan area. Of the total amount,
$301.6 million is already funded. In 2003, we completed
$171.5 million of new development communities, representing
861 units.

We also dramatically reposition assets by
upgrading interiors, exteriors, leasing offices, parking
facilities, landscaping, and amenities that we believe can
produce attractive returns on invested capital. In addition, we
invest in revenue-enhancing and expense-reducing capital
expenditures such as building garages/carports, additional
storage facilities, and adding utility sub-metering systems.

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Conservative Balance Sheet
Management

One of our primary financial objectives is to
structure our balance sheet to enhance our financial flexibility
in order to have access to capital when others in the industry
do not. We have a significant equity base, with a total equity
market capitalization of $6.4 billion as of
December 31, 2003. Our investment-grade debt ratings from
Standard & Poors (BBB+), Moodys Investors
Service (Baa1) and Fitch, Inc. (BBB+) are indicative of our
solid financial position.

During 2003, we financed our investment activity
primarily through internally generated cash flow from operations
and asset dispositions. Our dispositions for the year ended
December 31, 2003, totaled $1.4 billion. We used a
portion of the proceeds to repay $400 million of debt,
which reduced our ratio of
debt-to-undepreciated-book-capitalization from 47% at
December 31, 2002 to 42% at the end of 2003. We also
reduced our secured debt levels by $250 million and
increased our unencumbered asset base to $5.8 billion as of
December 31, 2003. As of February 13, 2004, we had
approximately $1.2 billion of liquidity, including cash on
hand, liquid assets, restricted cash in escrows and capacity on
unsecured credit facilities.

Our long-term debt is structured to create a
relatively level principal maturity schedule, without
significant repayment obligations in any year. We have only
$113.5 million of long-term debt maturing in 2004,
representing 1.1% of our total market capitalization. The
following summarizes our long-term debt maturity profile for
2004 through 2008, and thereafter, as of December 31, 2003
(dollar amounts in thousands):

|           |       |       |           |                   |  |  |      |      |  
|---------- | ----- | ----- | --------- | ----------------- |  |  | ---- | ---- | -
|           |       |       |           | % of Total Market
|Year       |       | Total |           | Capitalization(1)
|           |       |       |           |                  
|2004       |       | $     | 113,522   |                   |  |  | 1.1  | %   
|2005       |       |       | 319,944   |                   |  |  | 3.1  | %   
|2006       |       |       | 355,642   |                   |  |  | 3.5  | %   
|2007       |       |       | 515,312   |                   |  |  | 5.0  | %   
|2008       |       |       | 461,393   |                   |  |  | 4.5  | %   
|Thereafter |       |       | 2,033,777 |                   |  |  | 19.7 | %   
|           |       |       |           |                   |  |  |      |     
|           | Total |       | $         | 3,799,590         |  |  |      | 36.9 | %
|           |       |       |           |                   |  |  |      |     



---



|    |                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Total market capitalization as of
    December 31, 2003, represents the market capitalization
    based on the closing share price on the last trading day of the
    period for publicly traded securities and liquidation value for
    private securities as well as the book value of total debt.

Consistent dividend
growth.We paid dividends of
$1.71 per Common Share in 2003 and announced our
anticipated 2004 dividend level of $1.72 per share, a 169%
increase since 1991, the year we began to focus exclusively on
multifamily communities. With the 2004 increase, we have raised
our annual dividend for 12 consecutive years. We have paid
114 consecutive quarterly dividends.

Management

We have several senior executives who possess the
leadership, operational, investment and financial skills and
experience to oversee the overall operation of our company.
Several of our senior officers could serve as the principal
executive officer and continue our strong performance. Our
management team emphasizes active training and organizational
development initiatives for associates at all levels of our
company in order to build long-term management depth and
facilitate succession planning.




Officers of Archstone-Smith

In October 2001, Archstone completed the Smith
Merger and was reorganized into an UPREIT structure with
Archstone-Smith Trust becoming the successor registrant.
References throughout this section are labeled
Archstone-Smith for the post-merger period as a
result of this name change. Pre-merger periods will be
referenced as follows: (i) as Archstone-Smith
for individuals who were associated with Archstone and/or its
affiliates; and (ii) as Smith Residential for
individuals who were associated with Smith

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Residential and/or its affiliates. See
Note 2 of Archstone-Smiths audited financial
statements in this Annual Report or in Managements
Discussion and Analysis of Financial Condition and Results of
Operations in this Annual Report for additional information on
the Smith Merger.




| |                                       
| | --------------------------------------
| | Senior Officers of
    Archstone-Smith

The senior officers of Archstone-Smith are:

|                        |  |                                                        
|----------------------- |  | -------------------------------------------------------
|Name                    |  | Title                                                  
|                        |  |                                                        
|R. Scot Sellers         |  | Chairman and Chief Executive Officer                   
|J. Lindsay Freeman      |  | Chief Operating Officer                                
|Charles E. Mueller, Jr. |  | Chief Financial Officer                                
|Al Neely                |  | Chief Development Officer                              
|James D. Rosenberg      |  | President  High Rise Division                         
|Dana K. Hamilton        |  | Executive Vice President  National
    Operations     
|Caroline Brower         |  | General Counsel and Secretary                          
|Daniel E. Amedro        |  | Senior Vice President and Chief Information
    Officer
|Mark A. Schumacher      |  | Senior Vice President and Controller                   



| |                                   
| | ----------------------------------
| | Biographies of Senior
    Officers

R. Scot Sellers 
47 Trustee, Chairman and
Chief Executive Officer of Archstone-Smith since June 1997, with
overall responsibility for Archstone-Smiths strategic
direction, investments and operations; Co-Chairman and Chief
Investment Officer of Archstone-Smith from July 1998 to December
1998. From September 1994 to June 1997, Managing Director of
Archstone-Smith, where he had overall responsibility for
Archstone-Smiths investment strategy and implementation;
Senior Vice President of Archstone-Smith from May 1994 to
September 1994. Mr. Sellers is a member of the Executive
Committee and Second Vice Chairman of the Board Governors of
NAREIT; a member of the Executive Committee of the Board of
Directors of the National Multi Housing Council; Director of
Christian International Scholarship Foundation; Director of
Alliance for Choice in Education.

J. Lindsay Freeman 
58 Chief Operating Officer
since September 2002, with responsibility for managing all
investment and operating activities for Archstone-Smith;
President-East Division of Archstone-Smith from October 2001 to
September 2002, with responsibility for all investments and
operations of the East Division; from July 1998 to October 2001,
Managing Director of Archstone-Smith, with responsibility for
investments and operations in the East and Central Regions;
Managing Director of Security Capital Atlantic Incorporated from
December 1997 to July 1998; Senior Vice President of Security
Capital Atlantic Incorporated from May 1994 to November 1997;
previously, Senior Vice President and Operating Partner of
Lincoln Property Company in Atlanta, Georgia, where he was
responsible for acquisitions, financing, construction and
management of apartment communities within the Atlantic region
and oversaw operations of 16,000 apartment units.

Charles E. Mueller, Jr. 
40 Chief Financial Officer
of Archstone-Smith since December 1998, with responsibility for
the planning and execution of the companys financial
strategy and balance sheet management; Mr. Mueller oversees
the companys accounting/financial reporting, corporate
finance, investor relations, corporate and property tax, due
diligence and risk management functions. Vice President of
Archstone-Smith from September 1996 to December 1998; prior
thereto, he held various financial positions with Security
Capital, where he provided financial services to Security
Capital and its affiliates.

Al
Neely  58
Chief Development Officer of Archstone-Smith since April 2003,
with responsibility for the oversight and direction of all
Archstone-Smith residential development projects; Executive Vice
President of Archstone-Smith and Charles E. Smith Residential
Realty, Inc. from April 1989 to April 2003 with responsibility
for oversight and direction of High-Rise residential development
projects; Executive Vice

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President and Managing General Partner of the New
Height Group from August 1981 to April 1989 with responsibility
for the development and management of 2.5 million square
feet of mixed-use property; General Manager of a 1,100-acre
mixed-use business park from October 1973 to April 1989 where he
managed the development of 3.5 million square feet of
corporate user buildings.


James D.
Rosenberg  46
President-Charles E. Smith Residential Division of
Archstone-Smith since November 2002, with responsibility for all
investments and operations of the Division; President and Chief
Operating Officer of Winston Hotels from January 1998 to
November 2002; Senior Vice President for Holiday Inn Worldwide
from January 1994 to January 1998, where he was responsible for
the operations of 85 hotel properties, including nearly 50
high-rise properties in urban areas; Mr. Rosenberg started
his career with the public accounting firm of Price Waterhouse.

Dana K.
Hamilton  35
Executive Vice President-National Operations for Archstone-Smith
since May 2001, with responsibility for corporate services,
including human resources, training and development, marketing
and corporate communications, and new business development;
Senior Vice President of Archstone-Smith from December 1998 to
May 2001; Vice President from December 1996 to December 1998,
with responsibility for new product development and revenue
enhancement through portfolio-wide initiatives.

Caroline Brower 
55 General Counsel and
Secretary of Archstone-Smith since September, 1999, with
responsibility for legal and corporate governance; from
September 1998 to September 1999, President of Ameriton
Properties Incorporated; prior thereto, Ms. Brower was a
partner of Mayer, Brown & Platt (now Mayer, Brown,
Rowe & Maw, LLP) where she practiced transaction and
real estate law.

Daniel E. Amedro 
47 Chief Information
Officer and Senior Vice President of Archstone-Smith since
January 1999, with primary responsibility for the companys
information technology functions and initiatives; Chief
Information Officer and Vice President from May 1998 to January
1999; from September 1996 to March 1998, Vice President of
Information Services for American Medical Response, the largest
private ambulance operation in the United States; prior thereto,
Vice President of Information Services for Hyatt Hotels and
Resorts, where he was responsible for all strategic information
systems including Spirit, Hyatts worldwide
reservation system, which supported over 50,000 users and was
recognized as the leading reservations system in the hospitality
industry.

Mark A. Schumacher 
45 Senior Vice President
and Corporate Controller of Archstone-Smith since January 2002,
with principal responsibility for accounting and financial
reporting; prior thereto, Vice President and Corporate
Controller of Qwest Communications International from December
2000 to December 2001 where he had principal responsibility for
accounting and financial reporting; from April 1991 to December
2000, held various senior and executive level positions in the
accounting and financial reporting departments of US West; from
April 1984 to April 1991 he held various managerial level
positions in the accounting and financial reporting department
of US West.




Employees

We currently employ approximately 2,730
individuals, of whom approximately 2,160 are focused on the
site-level operation of our garden communities and high-rise
properties. Of the site-level associates, approximately 85 are
subject to collective bargaining agreements with four unions in
Illinois and New York. The balance are professionals who
manage corporate and regional operations, including our
investment program, property operations, financial reporting and
other support functions. We consider our relationship with our
employees to be very good.




Insurance

We carry comprehensive general liability coverage
on our owned communities, with limits of liability customary
within the industry to insure against liability claims and
related defense costs. Similarly, we are insured against the
risk of direct physical damage in amounts necessary to reimburse
the company on a replacement cost basis for costs incurred to
repair or rebuild each property, including loss of rental income
during the reconstruction period. Our property policies for all
operating and development communities include

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coverages for the perils of flood and earthquake
shock with limits and deductibles customary in the industry. We
also obtain title insurance policies when acquiring new
properties, which insure fee title to our real properties. We
currently have coverage for losses incurred in connection with
both domestic and foreign terrorist-related activities. The
terms of our property and general liability policies after
June 30, 2002, may exclude certain mold-related claims.
Should an uninsured loss arise against the company, we would be
required to use our own funds to resolve the issue, including
litigation costs.


Competition

There are numerous commercial developers, real
estate companies and other owners of real estate that we compete
with in seeking land for development, apartment communities for
acquisition and disposition and residents for apartment
communities. All of our apartment communities are located in
developed areas that include other apartment communities. The
number of competitive apartment communities in a particular area
could have a material adverse effect on our ability to lease
units and on the rents charged. In addition, single-family homes
and other residential properties provide housing alternatives to
residents and potential residents of our apartment communities.

Available Information and Code of
Ethics

Our web site is
http://www.archstonesmith.com. We make available free of
charge, on or through our web site, our annual, quarterly and
current reports, as well as any amendments to these reports, as
soon as reasonably practicable after electronically filing these
reports with the Securities and Exchange Commission. The
reference to our web site does not incorporate by reference the
information contained in the web site and such information
should not be considered a part of this report. We have adopted
a code of ethics and business conduct applicable to our Board
and officers and employees, including our principal executive
officer, principal financial officer and principal accounting
officer or controller. A copy of our code of ethics and business
conduct is included as an exhibit to this report and is
available through our web site. In addition, copies of the code
of ethics and business conduct can be obtained, free of charge,
upon written request to Investor Relations, 9200 East
Panorama Circle, Suite 400, Englewood, Colorado 80112. Any
amendments to or waivers of our code of ethics and business
conduct that apply to the principal executive officer, principal
financial officer and principal accounting officer or controller
and that relate to any matter enumerated in Item 406(b) of
Regulation S-K, will be disclosed on our web site.




Risk Factors

The following factors could affect our future
financial performance:

We are
restricted in our ability to sell the properties located in the
Crystal City area of Arlington, Virginia, unless they are all
sold as a single transaction, without the consent of
Messrs. Smith and Kogod, which could result in our
inability to sell these properties at an opportune time without
incurring additional costs.

A sale of any of the properties acquired in the
Smith Merger prior to January 1, 2022, could result in
increased costs to us in light of the tax-related obligations
made to the former Smith Partnership unitholders. Under the
shareholders agreement between Archstone-Smith, the
Operating Trust, Robert H. Smith and Robert P. Kogod, we are
restricted from transferring specified high-rise properties
located in the Crystal City area of Arlington, Virginia until
October 31, 2016, without the consent of Messrs. Smith
and Kogod, which could result in our inability to sell these
properties at an opportune time and at increased costs to us.
However, we are permitted to transfer these properties in
connection with a sale of all of the properties in a single
transaction or pursuant to a bona fide mortgage of any or all of
such properties in order to secure a loan or other financing.

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We depend on
our key personnel.

Our success depends on our ability to attract and
retain the services of executive officers, senior officers and
company managers. There is substantial competition for qualified
personnel in the real estate industry and the loss of several of
our key personnel could have an adverse effect on us.

Debt
financing could adversely affect our performance.

We are subject to risks associated with debt
financing and preferred equity. These risks include the risks
that we will not have sufficient cash flow from operations to
meet required payments of principal and interest or to pay
distributions on our securities at expected rates, that we will
be unable to refinance current or future indebtedness, that the
terms of any refinancing will not be as favorable as the terms
of existing indebtedness, and that we will be unable to make
necessary investments in new business initiatives due to lack of
available funds. Increases in interest rates could increase
interest expense, which would adversely affect net earnings and
cash available for payment of obligations. If we are unable to
make required payments on indebtedness that is secured by a
mortgage on our property, the asset may be transferred to the
lender with a consequent loss of income and value to us.

Additionally, our debt agreements contain
customary covenants which, among other things, restrict our
ability to incur additional indebtedness and, in certain
instances, restrict our ability to engage in material asset
sales, mergers, consolidations and acquisitions. These debt
agreements also require us to maintain various financial ratios.
Failure to comply with these covenants could result in a
requirement to repay the indebtedness prior to its maturity,
which could have an adverse effect on our operations and ability
to make distributions to shareholders.

Some of our debt instruments bear interest at
variable rates. Increases in interest rates would increase our
interest expense under these instruments and would increase the
cost of refinancing these instruments and issuing new debt. As a
result, higher interest rates would adversely affect cash flow
and our ability to service our indebtedness.

We had $3.9 billion in total debt
outstanding as of December 31, 2003, of which
$1.9 billion was secured by real estate assets and
$599.8 million was subject to variable interest rates,
including $103.8 million outstanding on our short-term
credit facilities.

We may not
have access to equity capital.

A prolonged period in which real estate operating
companies cannot effectively access the public equity markets
may result in heavier reliance on alternative financing sources
to undertake new investment activities. These alternative
sources of financing may be more costly than raising funds in
the public equity markets.

We could be
subject to acts of terrorism

Periodically, we receive alerts from government
agencies that apartment communities could be the target of both
domestic and foreign terrorism. Although we currently have
insurance coverage for losses incurred in connection with
terrorist-related activities, losses could exceed our coverage
limits and have a material adverse affect on our operating
results.

We are
subject to risks inherent in ownership of real
estate.

Real estate cash flows and values are affected by
a number of factors, including changes in the general economic
climate, local, regional or national conditions (such as an
oversupply of communities or a reduction in rental demand in a
specific area), the quality and philosophy of management,
competition from other available properties and the ability to
provide adequate property maintenance and insurance and to
control operating costs. Real estate cash flows and values are
also affected by such factors as government regulations,
including zoning, usage and tax laws, interest rate levels, the
availability of financing, property tax rates, utility expenses,
potential liability under environmental and other laws and
changes in environmental and other laws.

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Although we seek to minimize these risks through
our market research and property management capabilities, they
cannot be totally eliminated.


We are
subject to risks inherent in real estate
development.

We have developed or commenced development on a
substantial number of apartment communities and expect to
develop additional apartment communities in the future. Real
estate development involves risks in addition to those involved
in the ownership and operation of established communities,
including the risks that financing, if needed, may not be
available on favorable terms, construction may not be completed
on schedule, contractors may default, estimates of the costs of
developing apartment communities may prove to be inaccurate and
communities may not be leased or rented on profitable terms or
in the time frame anticipated. Timely construction may be
affected by local weather conditions, local moratoria on
construction, local or national strikes and local or national
shortages in materials, building supplies or energy and fuel for
equipment. These risks may cause the development project to fail
to perform as expected.

Real estate
investments are relatively illiquid and we may not be able to
sell properties when appropriate.

Equity real estate investments are relatively
illiquid, which may tend to limit our ability to react promptly
to changes in economic or other market conditions. Our ability
to dispose of assets in the future will depend on prevailing
economic and market conditions.

Compliance
with environmental regulations may be costly.

We must comply with certain environmental and
health and safety laws and regulations related to the ownership,
operation, development and acquisition of apartments. Under
those laws and regulations, we may be liable for, among other
things, the costs of removal or remediation of certain hazardous
substances, including asbestos-related liability. Those laws and
regulations often impose liability without regard to fault. As
part of our due diligence procedures, we have conducted
Phase I environmental assessments on each of our
communities prior to acquisition; however, we cannot give any
assurance that those assessments have revealed all potential
liabilities.

Costs
associated with moisture infiltration and resulting mold
remediation may be costly.

As a general matter, concern about indoor
exposure to mold has been increasing as such exposure has been
alleged to have a variety of adverse effects on health. As a
result, there has been an increasing number of lawsuits in our
industry against owners and managers of apartment communities
relating to moisture infiltration and resulting mold. We have
implemented guidelines and procedures to address moisture
infiltration and resulting mold issues if and when they arise.
We believe that these measures will minimize the potential for
any adverse effect on our residents. The terms of our property
and general liability policies after June 30, 2002, may
exclude certain mold-related claims. Should an uninsured loss
arise against the company, we would be required to use our own
funds to resolve the issue, including litigation costs. We can
make no assurance that liabilities resulting from moisture
infiltration and the presence of or exposure to mold will not
have a future material impact on our financial results.

Changes in
laws may result in increased cost.

We may not be able to pass on increased costs
resulting from increases in real estate taxes, income taxes or
other governmental requirements, such as the enactment of
regulations relating to internal air quality, directly to our
residents. Substantial increases in rents, as a result of those
increased costs, may affect the ability of a resident to pay
rent, causing increased vacancy. Changes in laws increasing
potential liability for environmental conditions or increasing
the restrictions on discharges or other environmental conditions
may result in significant unanticipated expenditures.

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Archstone-Smiths
failure to qualify as a REIT would have adverse
consequences.

We believe that we have qualified for taxation as
a REIT under the Internal Revenue Code and we plan to continue
to meet the requirements for taxation as a REIT. We cannot,
however, guarantee that we will continue to qualify in the
future as a REIT. We cannot give any assurance that new
legislation, regulations, administrative interpretations or
court decisions will not significantly change the requirements
relating to Archstone-Smiths qualification. If we fail to
qualify as a REIT, we would be subject to federal income tax at
regular corporate rates. Also, unless the Internal Revenue
Service granted us relief, we would remain disqualified as a
REIT for four years following the year in which it failed to
qualify. In the event that we failed to qualify as a REIT, we
would be required to pay significant income taxes and would have
less money available for operations and distributions to
shareholders. This would likely have a significant adverse
effect on the value of our securities and our ability to raise
additional capital. In order to maintain its qualification as a
REIT under the Internal Revenue Code, our declaration of trust
limits the ownership of its shares by any person or group of
related persons to 9.8%, unless special approval is granted by
our Board.

The Operating
Trust intends to qualify as a partnership, but we cannot
guarantee that the Operating Trust will qualify.

The Operating Trust intends to qualify as a
partnership for federal income tax purposes. However, the
Operating Trust will be treated as an association taxable as a
corporation for federal income tax purposes if it is deemed to
be a publicly traded partnership, unless at least 90% of its
income is qualifying income as defined in the tax code.
Qualifying income for the 90% test generally includes passive
income, such as real property rents, dividends and interest. The
income requirements applicable to REITs and the definition of
qualifying income for purposes of this 90% test are similar in
most respects. We believe that the Operating Trust will meet
this qualifying income test, but cannot guarantee that it will.
If the Operating Trust were to be taxed as a corporation, it
will incur substantial tax liabilities, Archstone-Smith would
fail to qualify as a REIT for tax purposes and
Archstone-Smiths and the Operating Trusts ability to
raise additional capital would be impaired.

We are
subject to losses that may not be covered by
insurance.

There are certain types of losses (such as from
war) that may be uninsurable or not economically insurable.
Additionally, many of our communities in California are located
in the general vicinity of active earthquake fault lines.
Although we maintain insurance to cover most reasonably likely
risks, including earthquakes, if an uninsured loss or a loss in
excess of insured limits occurs, we could lose both our invested
capital in, and anticipated profits from, one or more
communities. We may also be required to continue to repay
mortgage indebtedness or other obligations related to such
communities. The terms of our property and general liability
policies after June 30, 2002, may exclude certain
mold-related claims. We can make no assurance that liabilities
resulting from moisture infiltration and the presence of or
exposure to mold will not have a future material impact on our
financial results. Should an uninsured loss arise against the
company, we would be required to use our own funds to resolve
the issue, including litigation costs. Any such loss could
materially adversely affect our business, financial condition
and results of operations.

We have a
concentration of investments in certain markets.

At December 31, 2003, approximately 40.0% of
our apartment communities are located in the Greater
Washington, D.C. Metropolitan Area, based on NOI.
Approximately 15.2% of our apartment communities are located in
Southern California at December 31, 2003, based on NOI.
Southern California is the geographic area comprised of the Los
Angeles, Inland Empire, Orange County, San Diego and
Ventura County markets. Additionally, approximately 9.8% of our
apartment communities are located in the San Francisco Bay
Area of California at December 31, 2003, based on NOI. We
are, therefore, subject to increased exposure (positive or
negative) to economic and other competitive factors specific to
protected markets within these geographic areas.

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Our business
is subject to extensive competition.

There are numerous commercial developers, real
estate companies and other owners of real estate that we compete
with in seeking land for development, apartment communities for
acquisition and disposition and residents for apartment
communities. All of our apartment communities are located in
developed areas that include other apartment communities. The
number of competitive apartment communities in a particular area
could have a material adverse effect on our ability to lease
units and on the rents charged. In addition, single-family homes
and other residential properties provide housing alternatives to
residents and potential residents of our apartment communities.




Item 2.Properties




Geographic Distribution

At December 31, 2003, the geographic
distribution for our eight core markets based on NOI, excluding
properties owned by Ameriton, was as follows:

|                                           |       |  |      |      |  
|------------------------------------------ | ----- |  | ---- | ---- | -
|Greater Washington, D.C. Metropolitan Area |       |  | 40.0 | %   
|Southern California                        |       |  | 15.2 |     
|San Francisco Bay Area, California         |       |  | 9.8  |     
|Chicago, Illinois                          |       |  | 7.6  |     
|Boston, Massachusetts                      |       |  | 5.0  |     
|Southeast Florida                          |       |  | 4.2  |     
|Seattle, Washington                        |       |  | 3.3  |     
|Greater New York City Metropolitan Area    |       |  | 2.5  |     
|                                           |       |  |      |     
|                                           | Total |  |      | 87.6 | %
|                                           |       |  |      |     

17



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##### Table of Contents



The following table summarizes the geographic
distribution at December 31, 2003 based on NOI:

|                 |                                            |                        |                   |      |      |       |   |      |      |       |   |      |      |       |  
|---------------- | ------------------------------------------ | ---------------------- | ----------------- | ---- | ---- | ----- | - | ---- | ---- | ----- | - | ---- | ---- | ----- | -
|                 |                                            |                       
|                 |                                            | Total Portfolio(1)(2) 
|                 |                                            |                       
|                 |                                            | 2003                   |                   | 2002 |      | 2001 
|                 |                                            |                        |                   |      |      |      
|Core Markets     |                                            |                        |                   |      |      |       |   |      |      |       |   |     
|                 | Greater Washington, D.C. Metropolitan Area |                        |                   | 40.0 | %    |       |   | 35.1 | %    |       |   | 33.2 | %   
|                 | Southern California                        |                        |                   | 15.2 |      |       |   | 13.2 |      |       |   | 11.8 |     
|                 | San Francisco Bay Area, California         |                        |                   | 9.8  |      |       |   | 9.0  |      |       |   | 9.8  |     
|                 | Chicago, Illinois                          |                        |                   | 7.6  |      |       |   | 8.5  |      |       |   | 9.0  |     
|                 | Boston, Massachusetts                      |                        |                   | 5.0  |      |       |   | 5.2  |      |       |   | 5.1  |     
|                 | Southeast Florida                          |                        |                   | 4.2  |      |       |   | 6.6  |      |       |   | 7.2  |     
|                 | Seattle, Washington                        |                        |                   | 3.3  |      |       |   | 3.4  |      |       |   | 4.0  |     
|                 | Greater New York City Metropolitan Area    |                        |                   | 2.5  |      |       |   | 2.2  |      |       |   |     |     
|                 |                                            |                        |                   |      |      |       |   |      |      |       |   |     
|                 |                                            | Total Core Markets     |                   |      | 87.6 | %     |   |      | 83.2 | %     |   |      | 80.1 | %    
|                 |                                            |                        |                   |      |      |       |   |      |      |       |   |     
|Non-Core Markets |                                            |                        |                   |      |      |       |   |      |      |       |   |     
|                 | Atlanta, Georgia                           |                        |                   | 2.5  | %    |       |   | 3.1  | %    |       |   | 3.3  | %   
|                 | Denver, Colorado                           |                        |                   | 2.2  |      |       |   | 2.4  |      |       |   | 2.7  |     
|                 | Houston, Texas                             |                        |                   | 1.4  |      |       |   | 1.0  |      |       |   | 1.4  |     
|                 | Phoenix, Arizona                           |                        |                   | 1.4  |      |       |   | 2.1  |      |       |   | 2.3  |     
|                 | Raleigh, North Carolina                    |                        |                   | 1.1  |      |       |   | 1.4  |      |       |   | 1.8  |     
|                 | Other                                      |                        |                   | 3.8  |      |       |   | 6.8  |      |       |   | 8.4  |     
|                 |                                            |                        |                   |      |      |       |   |      |      |       |   |     
|                 |                                            | Total Non-Core Markets |                   |      | 12.4 | %     |   |      | 16.8 | %     |   |      | 19.9 | %    
|                 |                                            |                        |                   |      |      |       |   |      |      |       |   |     
|                 |                                            |                        | Total All Markets |      |      | 100.0 | % |      |      | 100.0 | % |      |      | 100.0 | %
|                 |                                            |                        |                   |      |      |       |   |      |      |       |   |     



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on NOI for the fourth quarter of each
    calendar year, excluding NOI from communities disposed of during
    the period. For 2001, includes an entire quarter of NOI for the
    assets acquired in the Smith Merger, which closed
    October 31, 2001. See Item 7 under the caption
    Apartment Community Operations for a
    discussion on why we believe NOI is a meaningful measure and a
    reconciliation of NOI to Earnings from Operations.
|   
|(2) | Excludes all Ameriton properties.                                                                                                                                                                                                                                                                                                                                                                                                                                 

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##### Table of Contents






Real Estate Portfolio

We are a leading real estate operating company
focused on the operation, development, redevelopment,
acquisition, management and long-term ownership of apartment
communities in protected markets throughout the United States.
The following information summarizes our real estate portfolio
as of December 31, 2003 (dollar amounts in thousands).
Additional information on our real estate portfolio is contained
in Schedule III, Real Estate and Accumulated
Depreciation and in our audited financial statements
contained in this Annual Report:

|                                 |                                            |                                    |  |           |     |            |  |            |        |  |   |           |           |  |  |      |      |  
|-------------------------------- | ------------------------------------------ | ---------------------------------- |  | --------- | --- | ---------- |  | ---------- | ------ |  | - | --------- | --------- |  |  | ---- | ---- | -
|                                 |                                            |                                    |  |           |     | Archstone- |  |           
|                                 |                                            | Number of                          |  | Number of |     | Smith      |  | Percentage
|                                 |                                            | Communities                        |  | Units     |     | Investment |  | Leased(1) 
|                                 |                                            |                                    |  |           |     |            |  |           
|OPERATING APARTMENT COMMUNITIES: |                                            |                                    |  |           |     |            |  |            |        |  |   |           |           |  |  |     
|Garden Communities:              |                                            |                                    |  |           |     |            |  |            |        |  |   |           |           |  |  |     
|                                 | Albuquerque, New Mexico                    |                                    |  | 2         |     |            |  | 664        |        |  | $ | 42,374    |           |  |  | 95.8 | %   
|                                 | Atlanta, Georgia                           |                                    |  | 9         |     |            |  | 2,659      |        |  |   | 215,689   |           |  |  | 97.0 | %   
|                                 | Austin, Texas                              |                                    |  | 2         |     |            |  | 714        |        |  |   | 34,187    |           |  |  | 93.8 | %   
|                                 | Boston, Massachusetts                      |                                    |  | 6         |     |            |  | 1,308      |        |  |   | 220,713   |           |  |  | 98.2 | %   
|                                 | Chicago, Illinois                          |                                    |  | 4         |     |            |  | 1,313      |        |  |   | 143,681   |           |  |  | 93.6 | %   
|                                 | Dallas, Texas                              |                                    |  | 5         |     |            |  | 1,282      |        |  |   | 67,162    |           |  |  | 96.3 | %   
|                                 | Denver, Colorado                           |                                    |  | 6         |     |            |  | 1,949      |        |  |   | 166,094   |           |  |  | 96.0 | %   
|                                 | Greater Washington, D.C. Metropolitan Area |                                    |  | 22        |     |            |  | 8,735      |        |  |   | 1,120,293 |           |  |  | 97.0 | %   
|                                 | Houston, Texas                             |                                    |  | 2         |     |            |  | 1,408      |        |  |   | 73,945    |           |  |  | 96.2 | %   
|                                 | Inland Empire, California                  |                                    |  | 4         |     |            |  | 1,594      |        |  |   | 96,901    |           |  |  | 96.3 | %   
|                                 | Los Angeles County, California             |                                    |  | 8         |     |            |  | 2,304      |        |  |   | 393,355   |           |  |  | 96.1 | %   
|                                 | Orange County, California                  |                                    |  | 7         |     |            |  | 1,647      |        |  |   | 179,768   |           |  |  | 98.0 | %   
|                                 | Orlando, Florida                           |                                    |  | 1         |     |            |  | 312        |        |  |   | 21,622    |           |  |  | 96.8 | %   
|                                 | Phoenix, Arizona                           |                                    |  | 3         |     |            |  | 1,212      |        |  |   | 74,454    |           |  |  | 95.7 | %   
|                                 | Portland, Oregon                           |                                    |  | 2         |     |            |  | 576        |        |  |   | 37,695    |           |  |  | 97.6 | %   
|                                 | Raleigh, North Carolina                    |                                    |  | 5         |     |            |  | 1,324      |        |  |   | 96,730    |           |  |  | 97.3 | %   
|                                 | San Antonio, Texas                         |                                    |  | 1         |     |            |  | 224        |        |  |   | 12,826    |           |  |  | 96.0 | %   
|                                 | San Diego, California                      |                                    |  | 7         |     |            |  | 2,559      |        |  |   | 290,329   |           |  |  | 98.0 | %   
|                                 | San Francisco Bay Area, California         |                                    |  | 14        |     |            |  | 5,454      |        |  |   | 708,897   |           |  |  | 95.4 | %   
|                                 | Seattle, Washington                        |                                    |  | 7         |     |            |  | 2,808      |        |  |   | 234,773   |           |  |  | 95.4 | %   
|                                 | Southeast Florida                          |                                    |  | 6         |     |            |  | 1,566      |        |  |   | 163,239   |           |  |  | 96.5 | %   
|                                 | Stamford, Connecticut                      |                                    |  | 1         |     |            |  | 160        |        |  |   | 36,390    |           |  |  | 97.5 | %   
|                                 | West Coast Florida                         |                                    |  | 3         |     |            |  | 746        |        |  |   | 44,021    |           |  |  | 98.3 | %   
|                                 | Ventura County, California                 |                                    |  | 2         |     |            |  | 770        |        |  |   | 69,803    |           |  |  | 97.5 | %   
|                                 |                                            |                                    |  |           |     |            |  |            |        |  |   |           |           |  |  |     
|                                 |                                            | Garden Community Subtotal/ Average |  |           | 129 |            |  |            | 43,288 |  |   | $         | 4,544,941 |  |  |      | 96.5 | %
|                                 |                                            |                                    |  |           |     |            |  |            |        |  |   |           |           |  |  |     

19



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|                                                    |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |      |      |      |   | 
|--------------------------------------------------- | ------------------------------------------ | ----------------------------------------------------------------------- | -------------------------------------------------------------- | ---------------------------------------------------------- | -- | ---------- | ----- | ---------- | ------ | ------ | ------ | --------- | --------- | --------- | --------- | ---- | ---- | ---- | - | 
|                                                    |                                            |                                                                         |                                                                |                                                            |    | Archstone- |       |           
|                                                    |                                            | Number of                                                               |                                                                | Number of                                                  |    | Smith      |       | Percentage
|                                                    |                                            | Communities                                                             |                                                                | Units                                                      |    | Investment |       | Leased(1) 
|                                                    |                                            |                                                                         |                                                                |                                                            |    |            |       |           
|High-Rise Properties:                               |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|                                                    | Boston, Massachusetts                      |                                                                         |                                                                | 3                                                          |    |            |       | 693        |        |        | $      | 177,681   |           |           |           | 98.7 | %   
|                                                    | Chicago, Illinois                          |                                                                         |                                                                | 6                                                          |    |            |       | 3,516      |        |        |        | 625,274   |           |           |           | 94.6 | %   
|                                                    | Greater New York City Metropolitan Area    |                                                                         |                                                                | 1                                                          |    |            |       | 506        |        |        |        | 211,823   |           |           |           | 96.2 | %   
|                                                    | Greater Washington, D.C. Metropolitan Area |                                                                         |                                                                | 31                                                         |    |            |       | 11,325     |        |        |        | 1,959,200 |           |           |           | 96.5 | %   
|                                                    | Southeast Florida                          |                                                                         |                                                                | 5                                                          |    |            |       | 4,520      |        |        |        | 548,156   |           |           |           | 97.1 | %   
|                                                    |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|                                                    |                                            | High-Rise Subtotal/ Average                                             |                                                                |                                                            | 46 |            |       |            | 20,560 |        |        | $         | 3,522,134 |           |           |      | 96.4 | %   
|                                                    |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|                                                    |                                            |                                                                         | Operating Apartment Communities Subtotal/ Average              |                                                            |    | 175        |       |            |        | 63,848 |        |           | $         | 8,067,075 |           |      |      | 96.4 | %
|                                                    |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|APARTMENT COMMUNITIES UNDER
    CONSTRUCTION:       |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|Garden Communities:                                 |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|                                                    | Boston, Massachusetts                      |                                                                         |                                                                | 1                                                          |    |            |       | 134        |        |        | $      | 17,933    |           |           |           | N/A  |     
|                                                    | Long Island, New York                      |                                                                         |                                                                | 1                                                          |    |            |       | 396        |        |        |        | 32,828    |           |           |           | N/A  |     
|                                                    | Los Angeles County, California             |                                                                         |                                                                | 4                                                          |    |            |       | 1,129      |        |        |        | 200,666   |           |           |           | 66.1 | %   
|                                                    | Ventura County, California                 |                                                                         |                                                                | 1                                                          |    |            |       | 316        |        |        |        | 14,208    |           |           |           | N/A  |     
|                                                    |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|                                                    |                                            | Garden Community Subtotal/ Average                                      |                                                                |                                                            | 7  |            |       |            | 1,975  |        |        | $         | 265,635   |           |           |      | N/A  |     
|                                                    |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|High Rise Properties:                               |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|                                                    | Boston, Massachusetts                      |                                                                         |                                                                | 1                                                          |    |            |       | 420        |        |        | $      | 26,768    |           |           |           | N/A  |     
|                                                    | Greater Washington, D.C. Metropolitan Area |                                                                         |                                                                | 1                                                          |    |            |       | 212        |        |        |        | 9,231     |           |           |           | N/A  |     
|                                                    |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|                                                    |                                            | High Rise Property Subtotal/ Average                                    |                                                                |                                                            | 2  |            |       |            | 632    |        |        | $         | 35,999    |           |           |      | N/A  |     
|                                                    |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|                                                    |                                            |                                                                         | Apartment Communities Under Construction
    Subtotal/ Average |                                                            |    | 9          |       |            |        | 2,607  |        |           | $         | 301,634   |           |      |      | N/A  |  
|                                                    |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|APARTMENT COMMUNITIES IN PLANNING AND
    OWNED(3): |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|Garden Communities:                                 |                                            |                                                                         | 6                                                              |                                                            |    |            | 2,633 |            |        | $      | 95,911 |           |           |           |           |     
|                                                    |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|                                                    |                                            | Total Apartment Communities In Planning and Owned
    Subtotal/ Average |                                                                |                                                            | 6  |            |       |            | 2,633  |        |        | $         | 95,911    |           |           |      |      |     
|                                                    |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|                                                    |                                            |                                                                         |                                                                | Total Apartment Communities Owned at
    December 31, 2003 |    |            | 190   |            |        |        | 69,088 |           |           | $         | 8,464,620 |      |      |      |   | 
|                                                    |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|OTHER REAL ESTATE ASSETS (2)                        |                                            |                                                                         |                                                                |                                                            |    |            |      |            |        |        | 17,352 |           |           |           |           |     
|                                                    |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|HOTEL ASSET                                         |                                            |                                                                         |                                                                |                                                            |    |            |      |            |        |        | 22,870 |           |           |           |           |     
|                                                    |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|AMERITON PORTFOLIO:                                 |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|                                                    |                                            | Operating Apartment Communities                                         |                                                                |                                                            | 10 |            |       |            | 2,526  |        |        |           | 283,319   |           |           |      |      |     
|                                                    |                                            | Apartment Communities Under Construction                                |                                                                |                                                            | 7  |            |       |            | 2,385  |        |        |           | 171,125   |           |           |      |      |     
|                                                    |                                            | Apartment Communities In Planning and Owned and
    Other               |                                                                |                                                            | 3  |            |       |            | 735    |        |        |           | 39,894    |           |           |      |      |     
|                                                    |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|                                                    |                                            |                                                                         |                                                                | Subtotal/ Average                                          |    |            | 20    |            |        |        | 5,646  |           |           |           | 494,338   |      |      |      |   | 
|                                                    |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     
|                                                    |                                            |                                                                         |                                                                | Total Real Estate Owned at December 31, 2003               |    |            | 210   |            |        |        | 74,734 |           |           | $         | 8,999,180 |      |      |      |   | 
|                                                    |                                            |                                                                         |                                                                |                                                            |    |            |       |            |        |        |        |           |           |           |           |     



---



|    |                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the percentage leased as of
    December 31, 2003. For communities in Lease-Up, the
    percentage leased is based on leased units divided by total
    number of units in the community (completed

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##### Table of Contents



|    |                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | and under construction) as of December 31,
    2003. A N/A indicates markets with communities under
    construction where Lease-Up has not yet commenced.                                                                                                       
|   
|(2) | Includes land that is not In Planning.                                                                                                                                                                                                                             
|   
|(3) | As of December 31, 2003, we had one
    investment representing 112 units classified as In Planning
    and Under Control. Our actual investment in this community was
    $1.1 million, which is reflected in the Other
    assets caption of our Balance Sheet.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

We are subject to the following claims in
connection with moisture infiltration and resulting mold issues
at high-rise properties in Southeast Florida.

Henriques, et al. v. Archstone-Smith
Operating Trust, et al.,filed on
August 27, 2002 (the Henriques Claim), in the
Circuit Court of the Eleventh Judicial Circuit in and for
Miami-Dade County, Florida, on behalf of a class of residents at
Harbour House. We have reached a court-approved settlement with
the plaintiffs in this matter. The case alleged that water
infiltration and resulting mold contamination at the property
had been caused by faulty air-conditioning and had resulted in
both personal injuries to the plaintiffs and damage to their
property. Based on the settlement, we have recorded a liability
for estimated legal fees associated with known and anticipated
costs for our counsel and plaintiffs counsel, as well as
estimated settlement costs. Not all plaintiffs have accepted the
court-approved settlement, which could result in further court
proceedings and potential legal fees and damages not
contemplated in our current accrual. See Managements
Discussion and Analysis of Financial Conditions and Results of
Operations in this Annual Report for further discussion
regarding this accrual.

Santos, et al. v. Archstone-Smith
Operating Trust et al.,filed on
February 13, 2003, in the Circuit Court of the Eleventh
Judicial Circuit in and for Miami-Dade County, Florida, on
behalf of a class of residents at Harbour House. The plaintiffs
in this case make substantially the same allegations as those
made in the Henriques claim and seek both injunctive
relief and unspecified monetary and punitive damages. Although
we believe this case to be without merit, we are currently in
settlement discussions with the individuals who have retained
counsel. Based on the status of these discussions, we have
recorded a liability for estimated legal fees associated with
known and anticipated costs for our counsel and plaintiffs
counsel, as well as estimated settlement costs. See
Managements Discussion and Analysis of Financial
Conditions and Results of Operations in this Annual Report for
further discussion regarding this accrual.

Michel, et al, v. Archstone-Smith
Operating Trust, et al.,was
filed on May 9, 2003, in the Circuit Court of the Eleventh
Judicial Circuit in and for Miami-Dade County, Florida, on
behalf of the class of residents at the property. The plaintiffs
in this case make substantially the same allegations as those
made in the Henriques claim and seek both injunctive
relief and unspecified monetary and punitive damages. We believe
this suit is without merit, and intend to vigorously contest the
claims asserted in this litigation. No assurances can be given
that this lawsuit, if adversely determined, will not have a
material adverse effect on the company.

Semidey, et al., v. Archstone-Smith
Operating Trust et al.,was filed on
June 9, 2003, in the Circuit Court of the Eleventh Judicial
Circuit in and for Miami-Dade County, Florida, on behalf of the
class of residents at the property. The plaintiffs in this case
make substantially the same allegations as those made in the
Henriques claim and seek both injunctive relief and
unspecified monetary and punitive damages. We were never served
with this complaint, but we have reached a settlement with a
majority of the represented residents and are in discussions
with the remaining plaintiffs. As a result, this complaint has
been voluntarily dismissed without prejudice. Based on the
status of these discussions, we have recorded a liability for
estimated legal fees associated with known and anticipated costs
for our counsel and plaintiffs counsel, as well as
estimated settlement costs. No assurances can be given that the
claims of the remaining represented residents will not result in
additional lawsuits, or that if any such lawsuits were adversely
determined, it would not have a material adverse effect on the
company.

We are party to various other claims and routine
litigation arising in the ordinary course of business. We do not
believe that the results of any such claims and litigation,
individually or in the aggregate, will have a material adverse
effect on our business, financial position or results of
operations.

21



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

None




PART II






|        |                                                                              
|------- | -----------------------------------------------------------------------------
|Item 5. | Market for the Registrants Common
    Equity and Related Stockholder Matters

Our Common Shares are listed on the NYSE under
the symbol ASN. The following table sets forth the
high and low sales prices of our Common Shares, as reported on
the NYSE Composite Tape, and cash distributions per Common Share
for the periods indicated.

|      |                                           |      |   |       |  |               |   |       |  |  |   |        | 
|----- | ----------------------------------------- | ---- | - | ----- |  | ------------- | - | ----- |  |  | - | ------ | 
|      |                                           |      |   |       |  | Cash         
|      |                                           | High |   | Low   |  | Distributions
|      |                                           |      |   |       |  |              
|2002: |                                           |      |   |       |  |               |   |       |  |  |   |       
|      | First Quarter                             |      | $ | 27.15 |  |               | $ | 24.30 |  |  | $ | 0.425  | 
|      | Second Quarter                            |      |   | 29.19 |  |               |   | 25.80 |  |  |   | 0.425  | 
|      | Third Quarter                             |      |   | 26.66 |  |               |   | 21.31 |  |  |   | 0.425  | 
|      | Fourth Quarter                            |      |   | 24.15 |  |               |   | 21.49 |  |  |   | 0.425  | 
|2003: |                                           |      |   |       |  |               |   |       |  |  |   |       
|      | First Quarter                             |      | $ | 24.42 |  |               | $ | 20.94 |  |  | $ | 0.4275 | 
|      | Second Quarter                            |      |   | 24.90 |  |               |   | 21.73 |  |  |   | 0.4275 | 
|      | Third Quarter                             |      |   | 26.87 |  |               |   | 23.90 |  |  |   | 0.4275 | 
|      | Fourth Quarter                            |      |   | 28.35 |  |               |   | 25.77 |  |  |   | 0.4275 | 
|2004: |                                           |      |   |       |  |               |   |       |  |  |   |       
|      | First Quarter (through February 13, 2004) |      | $ | 28.05 |  |               | $ | 26.63 |  |  | $ | 0.4300 | 

As of February 13, 2004, we had
approximately 194,482,885 Common Shares outstanding,
approximately 3,462 record holders of Common Shares and
approximately 25,255 beneficial holders of Common Shares.

To qualify as a REIT, we are required to make
annual shareholder distributions of 90% of our taxable income.
The payment of distributions is also subject to the discretion
of the Board and is dependent upon our strategy, financial
condition and operating results. Our long-term objective is to
increase annual distributions per Common Share while maximizing
the amount of internally generated cash flow from operations to
fund future investment opportunities.

We announce the following years projected
annual distribution level after the Boards annual budget
review and approval in December of each year. At our December
2003 Board meeting, the Board announced an anticipated increase
in the annual distribution level from $1.71 to $1.72 per
Common Share. In January 2004 the Board declared the first
quarter 2004 distribution of $0.43 per Common Share payable
on February 27, 2004, to shareholders of record on
February 13, 2004. This dividend marks our
114th consecutive quarter of dividends declared and paid.
All future Common Share distributions are subject to approval by
our Board of Trustees.

We are restricted from declaring or paying any
distribution with respect to our Common Shares unless all
Preferred Shares cumulative distributions have been paid and
sufficient funds have been set aside for Preferred Share
distributions that have been declared and not paid. All of our
declared distributions have been paid on schedule.

For federal income tax purposes, distributions
may consist of ordinary income, capital gains, non-taxable
return of capital or a combination thereof. Distributions that
exceed our current and accumulated earnings and profits
constitute a return of capital rather than ordinary income and
reduce the shareholders basis in the Common Shares. To the
extent that a distribution exceeds both current and accumulated
earnings and profits and the shareholders basis in the
Common Shares, it will generally be treated as a gain from the
sale or exchange of that shareholders Common Shares. We
notify our shareholders annually of the taxability of

22



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##### Table of Contents



distributions paid during the preceding year. The
following table summarizes the taxability of cash distributions
paid on the Common Shares in 2003, 2002 and 2001:


|                  |                 |       |   |      |      |      |   |      |      |  |   |      |      | 
|----------------- | --------------- | ----- | - | ---- | ---- | ---- | - | ---- | ---- |  | - | ---- | ---- | 
|                  |                 | 2003  |   | 2002 |      | 2001
|                  |                 |       |   |      |      |     
|Per Common Share: |                 |       |   |      |      |      |   |      |      |  |   |     
|                  | Ordinary income |       | $ | 0.77 |      |      | $ | 1.33 |      |  | $ | 0.89 |     
|                  | Capital gains   |       |   | 0.94 |      |      |   | 0.37 |      |  |   | 0.75 |     
|                  |                 |       |   |      |      |      |   |      |      |  |   |     
|                  |                 | Total |   | $    | 1.71 |      |   | $    | 1.70 |  |   | $    | 1.64 | 
|                  |                 |       |   |      |      |      |   |      |      |  |   |     

For federal income tax purposes, the following
summaries reflect the taxability of dividends paid on our
Preferred Shares:

|                                             |                 |       |   |      |      |      |   |      |      |  |   |      |      | 
|-------------------------------------------- | --------------- | ----- | - | ---- | ---- | ---- | - | ---- | ---- |  | - | ---- | ---- | 
|                                             |                 | 2003  |   | 2002 |      | 2001
|                                             |                 |       |   |      |      |     
|Per Series A Convertible Preferred Share(1): |                 |       |   |      |      |      |   |      |      |  |   |     
|                                             | Ordinary income |       | $ | 0.95 |      |      | $ | 1.79 |      |  | $ | 1.19 |     
|                                             | Capital gains   |       |   | 1.16 |      |      |   | 0.50 |      |  |   | 1.02 |     
|                                             |                 |       |   |      |      |      |   |      |      |  |   |     
|                                             |                 | Total |   | $    | 2.11 |      |   | $    | 2.29 |  |   | $    | 2.21 | 
|                                             |                 |       |   |      |      |      |   |      |      |  |   |     

|                                 |                 |       |   |      |   |      |   |   |   |  |   |      |      | 
|-------------------------------- | --------------- | ----- | - | ---- | - | ---- | - | - | - |  | - | ---- | ---- | 
|                                 |                 | 2003  |   | 2002 |   | 2001
|                                 |                 |       |   |      |   |     
|Per Series B Preferred Share(2): |                 |       |   |      |   |      |   |   |   |  |   |     
|                                 | Ordinary income |       | $ |     |   |      | $ |  |   |  | $ | 0.42 |     
|                                 | Capital gains   |       |   |     |   |      |   |  |   |  |   | 0.37 |     
|                                 |                 |       |   |      |   |      |   |   |   |  |   |     
|                                 |                 | Total |   | $    |  |      |   | $ |  |  |   | $    | 0.79 | 
|                                 |                 |       |   |      |   |      |   |   |   |  |   |     

|                                 |                 |       |   |      |   |      |   |      |      |  |   |      |      | 
|-------------------------------- | --------------- | ----- | - | ---- | - | ---- | - | ---- | ---- |  | - | ---- | ---- | 
|                                 |                 | 2003  |   | 2002 |   | 2001
|                                 |                 |       |   |      |   |     
|Per Series C Preferred Share(3): |                 |       |   |      |   |      |   |      |      |  |   |     
|                                 | Ordinary income |       | $ |     |   |      | $ | 1.08 |      |  | $ | 1.16 |     
|                                 | Capital gains   |       |   |     |   |      |   | 0.30 |      |  |   | 1.00 |     
|                                 |                 |       |   |      |   |      |   |      |      |  |   |     
|                                 |                 | Total |   | $    |  |      |   | $    | 1.38 |  |   | $    | 2.16 | 
|                                 |                 |       |   |      |   |      |   |      |      |  |   |     

|                              |                 |       |   |      |      |      |   |      |      |  |   |      |      | 
|----------------------------- | --------------- | ----- | - | ---- | ---- | ---- | - | ---- | ---- |  | - | ---- | ---- | 
|                              |                 | 2003  |   | 2002 |      | 2001
|                              |                 |       |   |      |      |     
|Per Series D Preferred Share: |                 |       |   |      |      |      |   |      |      |  |   |     
|                              | Ordinary income |       | $ | 0.99 |      |      | $ | 1.71 |      |  | $ | 1.18 |     
|                              | Capital gains   |       |   | 1.20 |      |      |   | 0.48 |      |  |   | 1.01 |     
|                              |                 |       |   |      |      |      |   |      |      |  |   |     
|                              |                 | Total |   | $    | 2.19 |      |   | $    | 2.19 |  |   | $    | 2.19 | 
|                              |                 |       |   |      |      |      |   |      |      |  |   |     

|                                          |                 |       |   |      |      |      |   |      |      |  |   |   |   | 
|----------------------------------------- | --------------- | ----- | - | ---- | ---- | ---- | - | ---- | ---- |  | - | - | - | 
|                                          |                 | 2003  |   | 2002 |      | 2001
|                                          |                 |       |   |      |      |     
|Per Series H, K, L Preferred Share(4)(5): |                 |       |   |      |      |      |   |      |      |  |   |  
|                                          | Ordinary income |       | $ | 1.52 |      |      | $ | 2.62 |      |  | $ |  |  
|                                          | Capital gains   |       |   | 1.86 |      |      |   | 0.74 |      |  |   |  |  
|                                          |                 |       |   |      |      |      |   |      |      |  |   |  
|                                          |                 | Total |   | $    | 3.38 |      |   | $    | 3.36 |  |   | $ |  | 
|                                          |                 |       |   |      |      |      |   |      |      |  |   |  

23



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##### Table of Contents



|                                    |                 |       |   |          |          |      |   |          |          |  |   |   |   | 
|----------------------------------- | --------------- | ----- | - | -------- | -------- | ---- | - | -------- | -------- |  | - | - | - | 
|                                    |                 | 2003  |   | 2002     |          | 2001
|                                    |                 |       |   |          |          |     
|Per Series I Preferred Share(4)(6): |                 |       |   |          |          |      |   |          |          |  |   |  
|                                    | Ordinary income |       | $ | 3,447.00 |          |      | $ | 5,982.46 |          |  | $ |  |  
|                                    | Capital gains   |       |   | 4,213.00 |          |      |   | 1,677.54 |          |  |   |  |  
|                                    |                 |       |   |          |          |      |   |          |          |  |   |  
|                                    |                 | Total |   | $        | 7,660.00 |      |   | $        | 7,660.00 |  |   | $ |  | 
|                                    |                 |       |   |          |          |      |   |          |          |  |   |  

|                                    |                 |       |   |      |   |      |   |      |      |  |   |   |   | 
|----------------------------------- | --------------- | ----- | - | ---- | - | ---- | - | ---- | ---- |  | - | - | - | 
|                                    |                 | 2003  |   | 2002 |   | 2001
|                                    |                 |       |   |      |   |     
|Per Series J Preferred Share(4)(7): |                 |       |   |      |   |      |   |      |      |  |   |  
|                                    | Ordinary income |       | $ |     |   |      | $ | 1.34 |      |  | $ |  |  
|                                    | Capital gains   |       |   |     |   |      |   | 0.37 |      |  |   |  |  
|                                    |                 |       |   |      |   |      |   |      |      |  |   |  
|                                    |                 | Total |   | $    |  |      |   | $    | 1.71 |  |   | $ |  | 
|                                    |                 |       |   |      |   |      |   |      |      |  |   |  



---



|    |                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Series A Preferred Shares were called
    for redemption during the fourth quarter of 2003.                                                                                                                                                                      
|   
|(2) | The Series B Preferred Shares were redeemed
    in full plus accrued dividends during May 2001.                                                                                                                                                                      
|   
|(3) | The Series C Preferred Shares were redeemed
    in full plus accrued dividends during August 2002.                                                                                                                                                                   
|   
|(4) | The Series H, I, J, K and L Preferred
    Shares were issued as a result of the Smith Merger.                                                                                                                                                                        
|   
|(5) | The Series H Preferred Shares were converted
    into Common Shares on May 15, 2003. The dividend paid on
    the Series H Preferred Shares prior to conversion was
    $1.27, the taxability of which is proportionate to Series K
    and L Preferred Shares above.
|   
|(6) | The Series I Preferred Shares have a par
    value of $100,000 per share.                                                                                                                                                                                            
|   
|(7) | The Series J Preferred Shares were converted
    into Common Shares during July 2002.                                                                                                                                                                                

Our tax return for the year ended
December 31, 2003 has not been filed, and the taxability
information for 2003 is based upon the best available data we
have. Our tax returns for prior years have not been examined by
the Internal Revenue Service and, therefore, the taxability of
the dividends may be subject to change.

In July 2002, 684,931 Series J Preferred
Shares were converted to Common Shares. In August 2002, we
redeemed 1,965,315 Series C Preferred Shares at liquidation
value plus accrued dividends. In addition,
3,000,000 Series E, F, and G Perpetual Preferred Units
converted to Operating Trust Perpetual Preferred Units and
870,523 DownREIT Operating Partnership Units converted to A-1
Common Units in August 2002. In September 2002, 480,000 of the
Series E Preferred Units were redeemed at liquidation value
plus accrued dividends. The Series H Preferred Shares were
converted into Common Shares during May 2003. In October 2003,
we called the Series A Preferred Shares for redemption. Of
the 2.9 million Series A Convertible Preferred Shares
outstanding, 2.8 million were converted to common shares
and the remaining were redeemed for cash and retired. During
2003 and 2002 we issued 1,955,908 and 339,727 Common Units of
the Operating Trust as partial consideration for real estate
respectively. All units were issued in transactions exempt from
registration under Section 4(2) of the Securities Act of
1933 and the rules thereunder.






|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following table provides selected financial
data relating to our historical financial condition and results
of operations as of and for each of the years ending
December 31, 1999 to 2003. We believe that net earnings
attributable to Common Shares and NOI are the most relevant
measures of our operating performance and allow investors to
evaluate our business against our industry peers and against all
publicly traded companies as a whole. We rely on NOI for
purposes of making decisions about resource allocations and
assessing segment performance. We also believe NOI is a valuable
means of comparing period-to-period property performance. See
Item 7 of this Annual Report under the caption
Apartment Community Operations for a
reconciliation of NOI to Earnings from Operations. This data is
qualified in its entirety by, and should be read in conjunction
with, Item 7. Managements Discussion and
Analysis of Financial

24



---



##### Table of Contents



Condition and Results of Operations and the
financial statements and related notes that have been included
or incorporated by reference in this Annual Report (in
thousands, except per share data):


|                                                                        |                                          |                          |         |          |  |      |         |          |  |      |         |         |  |   |         |         |  |   |         |         | 
|----------------------------------------------------------------------- | ---------------------------------------- | ------------------------ | ------- | -------- |  | ---- | ------- | -------- |  | ---- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                                                        |                                          |                         
|                                                                        |                                          | Years Ended December 31,
|                                                                        |                                          |                         
|                                                                        |                                          | 2003                     |         | 2002     |  | 2001 |         | 2000     |  | 1999
|                                                                        |                                          |                          |         |          |  |      |         |          |  |     
|Operations Summary(1)(2):                                               |                                          |                          |         |          |  |      |         |          |  |      |         |         |  |   |         |         |  |   |         |        
|Total revenues(3)                                                       |                                          | $                        | 900,375 |          |  | $    | 861,757 |          |  | $    | 555,968 |         |  | $ | 585,495 |         |  | $ | 552,638 |        
|Property operating expenses (rental expenses and
    real estate taxes) |                                          |                          | 319,681 |          |  |      | 303,925 |          |  |      | 177,415 |         |  |   | 185,136 |         |  |   | 181,947 |        
|Net Operating Income                                                    |                                          |                          | 561,360 |          |  |      | 548,370 |          |  |      | 366,648 |         |  |   | 368,952 |         |  |   | 343,710 |        
|Depreciation on real estate investments                                 |                                          |                          | 187,677 |          |  |      | 167,029 |          |  |      | 102,477 |         |  |   | 115,658 |         |  |   | 109,676 |        
|Interest expense                                                        |                                          |                          | 186,832 |          |  |      | 190,005 |          |  |      | 88,081  |         |  |   | 107,231 |         |  |   | 94,471  |        
|General and administrative expense                                      |                                          |                          | 49,838  |          |  |      | 45,710  |          |  |      | 27,434  |         |  |   | 24,303  |         |  |   | 21,975  |        
|Earnings from operations                                                |                                          |                          | 108,262 |          |  |      | 127,619 |          |  |      | 130,070 |         |  |   | 139,295 |         |  |   | 140,920 |        
|Gains on dispositions of depreciated real estate,
    net(4)            |                                          |                          |        |          |  |      | 35,950  |          |  |      | 108,748 |         |  |   | 101,251 |         |  |   | 63,121  |        
|Income from unconsolidated entities                                     |                                          |                          | 5,745   |          |  |      | 53,602  |          |  |      | 10,998  |         |  |   | (449    | )       |  |   |        |        
|Net earnings from discontinued apartment
    communities(5)             |                                          |                          | 335,208 |          |  |      | 126,905 |          |  |      | 22,834  |         |  |   | 29,334  |         |  |   | 26,098  |        
|Preferred Share dividends                                               |                                          |                          | 20,997  |          |  |      | 32,185  |          |  |      | 25,877  |         |  |   | 25,340  |         |  |   | 23,733  |        
|Net earnings attributable to Common Shares:                             |                                          |                          |         |          |  |      |         |          |  |      |         |         |  |   |         |         |  |   |         |        
|                                                                        |  Basic                                  |                          |         | 412,660  |  |      |         | 282,630  |  |      |         | 232,115 |  |   |         | 236,045 |  |   |         | 204,526 | 
|                                                                        |  Diluted                                |                          |         | 426,192  |  |      |         | 282,830  |  |      |         | 243,401 |  |   |         | 244,625 |  |   |         | 204,526 | 
|Common Share dividends                                                  |                                          |                          | 322,555 |          |  |      | 303,083 |          |  |      | 221,196 |         |  |   | 201,257 |         |  |   | 208,018 |        
|Per Share Data:                                                         |                                          |                          |         |          |  |      |         |          |  |      |         |         |  |   |         |         |  |   |         |        
|Net earnings attributable to Common Shares:                             |                                          |                          |         |          |  |      |         |          |  |      |         |         |  |   |         |         |  |   |         |        
|                                                                        |  Basic                                  |                          | $       | 2.20     |  |      | $       | 1.59     |  |      | $       | 1.78    |  |   | $       | 1.79    |  |   | $       | 1.46    | 
|                                                                        |  Diluted                                |                          |         | 2.18     |  |      |         | 1.58     |  |      |         | 1.77    |  |   |         | 1.78    |  |   |         | 1.46    | 
|Common Share cash dividends paid                                        |                                          |                          | 1.71    |          |  |      | 1.70    |          |  |      | 1.64    |         |  |   | 1.54    |         |  |   | 1.48    |        
|Cash dividends paid per share:                                          |                                          |                          |         |          |  |      |         |          |  |      |         |         |  |   |         |         |  |   |         |        
|                                                                        | Series A Preferred Share(6)              |                          |         | 2.11     |  |      |         | 2.29     |  |      |         | 2.21    |  |   |         | 2.07    |  |   |         | 1.99    | 
|                                                                        | Series B Preferred Share(7)              |                          |         |         |  |      |         |         |  |      |         | 0.79    |  |   |         | 2.25    |  |   |         | 2.25    | 
|                                                                        | Series C Preferred Share(8)              |                          |         |         |  |      |         | 1.38     |  |      |         | 2.16    |  |   |         | 2.16    |  |   |         | 2.16    | 
|                                                                        | Series D Preferred Share                 |                          |         | 2.19     |  |      |         | 2.19     |  |      |         | 2.19    |  |   |         | 2.19    |  |   |         | 0.88    | 
|                                                                        | Series H, J, K and L Preferred Shares(9) |                          |         | 3.38     |  |      |         | 3.36     |  |      |         |        |  |   |         |        |  |   |         |        | 
|                                                                        | Series I Preferred Share(9)(10)          |                          |         | 7,660.00 |  |      |         | 7,660.00 |  |      |         |        |  |   |         |        |  |   |         |        | 
|Weighted average Common Shares outstanding:                             |                                          |                          |         |          |  |      |         |          |  |      |         |         |  |   |         |         |  |   |         |        
|                                                                        |  Basic                                  |                          |         | 187,170  |  |      |         | 177,757  |  |      |         | 130,331 |  |   |         | 131,874 |  |   |         | 139,801 | 
|                                                                        |  Diluted                                |                          |         | 195,640  |  |      |         | 178,780  |  |      |         | 137,832 |  |   |         | 137,730 |  |   |         | 139,829 | 



---



| |     |                                                                                                                                                                                                   
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Includes Ameriton for all years presented.                                                                                                                                                        
|
| | (2) | Net earnings from discontinued operations have
    been reclassified for all years presented.                                                                                                     
|
| | (3) | Annual revenues inclusive of discontinued
    operations for 2003, 2002, 2001, 2000 and 1999 were
    $1.03 billion, $1.01 billion, $737 million,
    $732 million and $675 million, respectively.
|
| | (4) | Gains on the disposition of real estate
    investments classified as held for sale after January 1,
    2002 are included in discontinued operations.                                            

25



---



##### Table of Contents





| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) | Represents property-specific components of net
    earnings and gains/losses on the disposition of real estate
    classified as held for sale subsequent to January 1, 2002.                                                                                                                                                                                                                                                                             
|
| | (6) | The Series A Preferred Shares were called
    for redemption during the fourth quarter of 2003; of the
    2.9 million Preferred Shares outstanding, 2.8 million
    were converted to Common Shares and the remaining were redeemed                                                                                                                                                                                                                      
|
| | (7) | All of the outstanding Series B Preferred
    Shares were redeemed on May 7, 2001. During 2001, cash
    dividends of $0.79 per share were paid for the period from
    January 1, 2001 to May 7, 2001.                                                                                                                                                                                                                                                   
|
| | (8) | All of the outstanding Series C Preferred
    Shares were redeemed at liquidation value plus accrued dividends
    in August 2002.                                                                                                                                                                                                                                                                                                                        
|
| | (9) | The Series H Preferred Shares were converted
    into Common Shares during May 2003 and the dividend paid during
    2003 prior to conversion was $1.27. In July 2002, Series J
    Preferred Shares were converted into Common Shares. During the
    fourth quarter 2001, we paid approximately $5.8 million of
    dividends on the Series H, I, J, K and L Preferred
    Shares that were declared by Smith Residential prior to the
    Smith Merger.



|     |                                                                      
|---- | ---------------------------------------------------------------------
|(10) | Series I Preferred Shares have a par value
    of $100,000 per share.

|                                                           |  |              |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |           | 
|---------------------------------------------------------- |  | ------------ | --------- | ---- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- |  |  | - | --------- | 
|                                                           |  |             
|                                                           |  | December 31,
|                                                           |  |             
|                                                           |  | 2003         |           | 2002 |  | 2001 |           | 2000 |  | 1999
|                                                           |  |              |           |      |  |      |           |      |  |     
|Financial Position:                                        |  |              |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |           | 
|Real estate owned, at cost                                 |  | $            | 8,738,116 |      |  | $    | 7,406,437 |      |  | $    | 6,755,786 |  |  | $ | 4,113,206 |  |  | $ | 4,198,420 | 
|Real estate held for sale(1)                               |  |              | 261,064   |      |  |      | 1,891,298 |      |  |      | 1,856,427 |  |  |   | 1,200,394 |  |  |   | 1,030,988 | 
|Investments in and advances to unconsolidated
    entities |  |              | 86,367    |      |  |      | 116,594   |      |  |      | 240,719   |  |  |   | 64,993    |  |  |   | 39,868    | 
|Total assets                                               |  |              | 8,921,695 |      |  |      | 9,096,026 |      |  |      | 8,700,722 |  |  |   | 5,117,459 |  |  |   | 5,360,477 | 
|Unsecured credit facilities                                |  |              | 103,790   |      |  |      | 365,578   |      |  |      | 188,589   |  |  |   | 193,719   |  |  |   | 493,536   | 
|Long-Term Unsecured Debt                                   |  |              | 1,871,965 |      |  |      | 1,776,103 |      |  |      | 1,333,890 |  |  |   | 1,401,262 |  |  |   | 1,276,572 | 
|Total liabilities                                          |  |              | 4,184,592 |      |  |      | 4,704,299 |      |  |      | 4,305,117 |  |  |   | 2,767,774 |  |  |   | 2,735,729 | 
|Preferred shares                                           |  |              | 148,940   |      |  |      | 294,041   |      |  |      | 374,114   |  |  |   | 286,856   |  |  |   | 297,635   | 
|Total shareholders equity                                 |  |              | 4,144,687 |      |  |      | 3,843,818 |      |  |      | 3,801,144 |  |  |   | 2,251,606 |  |  |   | 2,567,506 | 
|Number of Common Shares outstanding                        |  |              | 194,762   |      |  |      | 180,706   |      |  |      | 174,517   |  |  |   | 122,838   |  |  |   | 139,008   | 

|                                      |                      |                          |   |          |   |      |   |          |   |      |   |          |   |  |   |          |   |  |   |          |  
|------------------------------------- | -------------------- | ------------------------ | - | -------- | - | ---- | - | -------- | - | ---- | - | -------- | - |  | - | -------- | - |  | - | -------- | -
|                                      |                      |                         
|                                      |                      | Years Ended December 31,
|                                      |                      |                         
|                                      |                      | 2003                     |   | 2002     |   | 2001 |   | 2000     |   | 1999
|                                      |                      |                          |   |          |   |      |   |          |   |     
|Other Data:                           |                      |                          |   |          |   |      |   |          |   |      |   |          |   |  |   |          |   |  |   |         
|Net cash flows provided by (used in): |                      |                          |   |          |   |      |   |          |   |      |   |          |   |  |   |          |   |  |   |         
|                                      | Operating activities |                          | $ | 349,441  |   |      | $ | 438,709  |   |      | $ | 332,153  |   |  | $ | 322,077  |   |  | $ | 295,654  |  
|                                      | Investing activities |                          |   | 422,421  |   |      |   | (191,003 | ) |      |   | 387,694  |   |  |   | 71,789   |   |  |   | (274,236 | )
|                                      | Financing activities |                          |   | (779,478 | ) |      |   | (241,887 | ) |      |   | (721,897 | ) |  |   | (394,861 | ) |  |   | (21,465  | )



---



|    |                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Previous years have been restated to include all
    assets that were classified as sold or held for sale after
    January 1, 2002 and sold in subsequent years.






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



| |            
| | -----------
| | The Company

We are engaged primarily in the acquisition,
development, management and operation of apartment communities
throughout the United States. We are structured as an UPREIT,
under which substantially all property ownership and business
operations are conducted through the Operating Trust and our
subsidiaries

26



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##### Table of Contents



and affiliates. Archstone-Smith is the sole
trustee of the Operating Trust and owned approximately 88.5% of
our Common Units at December 31, 2003.




| |                 
| | ----------------
| | The Smith Merger

During October 2001, shareholders of both
Archstone and Smith Residential (a publicly traded REIT which
primarily developed, owned and managed high-rise apartment
properties and garden apartment communities in Washington, D.C.,
Chicago, Boston and Southeast Florida) approved the Smith
Merger. The combined company operates under the name
Archstone-Smith Operating Trust. Our Common Shares are traded on
the New York Stock Exchange (NYSE: ASN). The total purchase
price paid for Smith Residential aggregated approximately
$4.0 billion and corresponds to a purchase price of
approximately $136,000 per operating apartment unit
acquired. This transaction was structured as a tax-free merger
and was accounted for under the purchase method of accounting.




Results of Operations



| |         
| | --------
| | Overview

In conjunction with our capital recycling
strategy, rental revenues and rental expense, including real
estate taxes will fluctuate based upon the timing and amount of
dispositions, acquisitions and development lease-ups. As a
result, in addition to the performance of our same store
portfolio, disposition gains, and the corresponding loss of
ongoing income from disposed assets, as well as the new income
generated from acquisitions and developments, all contribute to
the overall financial performance of Archstone-Smith.

Basic net earnings attributable to Common Shares
increased approximately $130.0 million, or 46.0%, in 2003
as compared to 2002. This increase is largely attributable to:



| |   |                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An increase in gains during 2003 of
    $353.6 million as compared to $139.6 million during
    2002, associated with an increase in the dispositions of
    depreciated real estate assets;                                                                                                       
|
| |  | Lower interest expense associated with lower debt
    extinguishment costs and lower debt balances during 2003 and a
    reduction in interest rates on floating rate debt and refinanced
    debt;                                                                                                
|
| |  | A reduction in preferred share dividends during
    2003 due to the conversion of Series A and Series H
    Preferred Shares into Common Shares in 2003 and the conversion
    of Series J Preferred Shares into Common Shares and the
    redemption of Series A Preferred Shares during 2002; and
|
| |  | Increased rental revenue and corresponding
    increase in rental expense due to the acquisition of operating
    communities and the continued lease-up and stabilization of
    development communities.                                                                                         

These increases were partially offset by:



| |   |                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A decline in rental revenue from our Same-Store
    portfolio of 1.4% for the twelve months ended December 31,
    2003 as compared to the same period in 2002 (the same store
    population excludes all Ameriton communities), primarily due to
    a decline in potential effective rent per unit and a decrease in
    average occupancy;
|
| |  | The loss of rental revenue and a corresponding
    decrease in rental expense due to $1.6 billion and
    $602.1 million in dispositions during the twelve months
    ended December 31, 2003 and 2002, respectively; and                                                                                                                     
|
| |  | An increase of $24.8 million in expense
    associated with moisture infiltration and resulting mold during
    2003 as compared to 2002.                                                                                                                                                                                                     

Basic net earnings attributable to Common Shares
increased approximately $50.5 million, or 21.8%, in 2002 as
compared to 2001. This increase is largely attributable to:



| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An increase in overall rental revenue and a
    corresponding increase in rental expense due to the acquisition
    of properties in the Smith Merger;

27



---



##### Table of Contents





| |   |                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A $35.4 million gain on the sale of CES, an
    unconsolidated entity acquired in the Smith Merger; and                                                                                                     
|
| |  | Increased gains from the disposition of real
    estate during 2002 of $139.6 million as compared to
    $108.7 million during 2001 as well as unconsolidated
    entities acquired in the Smith Merger; and
|
| |  | Increased rental revenue and a corresponding
    increase in rental expense due to the acquisition of operating
    communities and the continued lease-up and stabilization of
    development communities.

These increases were partially offset by:



| |   |                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The loss of rental revenue and a corresponding
    decrease in rental expense in 2002 due to the $1.3 billion
    of garden community dispositions in non-core markets during 2001
    (including Archstone-Smith joint venture transactions) and
    $602.1 million of dispositions in 2002;
|
| |  | Same-Store rental revenue decline of 0.4% due
    primarily to a decline in potential effective rent per unit;                                                                                                                                                                               
|
| |  | Same-Store rental expense increase of 4.4% in
    2002 as compared to 2001 primarily due to increase in real
    estate taxes, insurance, make ready and personnel expenses;                                                                                                                 
|
| |  | Higher depreciation, interest and general and
    administrative expenses due principally to the Smith Merger;                                                                                                                                                                               
|
| |  | Charges of $11.3 million relating to
    moisture infiltration and resulting mold issues at one of our
    high-rise properties in Southeast Florida during the third and
    fourth quarters of 2002; and                                                                                   
|
| |  | A $32.1 million increase in debt
    extinguishments costs due to the prepayment of mortgages.                                                                                                                                                                                               

Our strongest core markets based on Same-Store
revenue growth during 2003 included Southern California and the
Greater Washington, D.C. Metropolitan Area. The
San Francisco Bay Area, Seattle and Chicago continued to
present the greatest challenges for revenue growth.

28



---



##### Table of Contents



Apartment
Community Operations

We utilize net operating income (NOI) as the
primary measure to evaluate the performance of our operating
communities. NOI is defined as rental revenues less rental
expense and real estate taxes for each of our operating
properties. We rely on NOI for purposes of making decisions
about resource allocations and assessing segment performance. We
also believe NOI is a valuable means of comparing
period-to-period property performance. The following is a
reconciliation of Same-Store NOI to Earnings from Operations (in
thousands):

|                                                                                                                              |                          |      |          |         |  |      |          |         |  |   |          |         | 
|----------------------------------------------------------------------------------------------------------------------------- | ------------------------ | ---- | -------- | ------- |  | ---- | -------- | ------- |  | - | -------- | ------- | 
|                                                                                                                              |                          | 2003 |          | 2002    |  | 2001
|                                                                                                                              |                          |      |          |         |  |     
|Same-Store NOI                                                                                                                |                          | $    | 479,787  |         |  | $    | 486,268  |         |  | $ | 432,100  |        
|NOI for properties not in Same-Store including
    Ameriton properties, which are not included in discontinued
    operations |                          |      | 155,786  |         |  |      | 203,020  |         |  |   | 191,181  |        
|NOI classified as discontinued
    operations  communities sold                                                              |                          |      | (57,608  | )       |  |      | (123,619 | )       |  |   | (99,556  | )      
|NOI classified as discontinued
    operations  communities held for sale                                                     |                          |      | (16,605  | )       |  |      | (17,299  | )       |  |   | (21,180  | )      
|Smith NOI prior to merger included in Same-Store
    calculation                                                              |                          |      |         |         |  |      |         |         |  |   | (135,897 | )      
|                                                                                                                              |                          |      |          |         |  |      |          |         |  |   |          |        
|                                                                                                                              | Net Operating Income     |      |          | 561,360 |  |      |          | 548,370 |  |   |          | 366,648 | 
|Other income                                                                                                                  |                          |      | 19,334   |         |  |      | 9,462    |         |  |   | 11,905   |        
|Depreciation on real estate investments                                                                                       |                          |      | (187,677 | )       |  |      | (167,029 | )       |  |   | (102,477 | )      
|Interest expense                                                                                                              |                          |      | (186,832 | )       |  |      | (190,005 | )       |  |   | (88,081  | )      
|General and administrative expenses                                                                                           |                          |      | (49,838  | )       |  |      | (45,710  | )       |  |   | (27,434  | )      
|Other expense                                                                                                                 |                          |      | (48,085  | )       |  |      | (27,469  | )       |  |   | (30,491  | )      
|                                                                                                                              |                          |      |          |         |  |      |          |         |  |   |          |        
|                                                                                                                              | Earnings from operations |      | $        | 108,262 |  |      | $        | 127,619 |  |   | $        | 130,070 | 
|                                                                                                                              |                          |      |          |         |  |      |          |         |  |   |          |        

At December 31, 2003, investments in
operating apartment communities comprised over 99% of our total
real estate portfolio, based on NOI. The following table
summarizes the overall performance of our apartment communities
during 2003, 2002 and 2001 (in thousands, except for units and
percentages):

|                                                            |  |      |         |      |  |      |         |   |  |   |         |  
|----------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|Garden Communities(1)                                       |  | 2003 |         | 2002 |  | 2001
|                                                            |  |      |         |      |  |     
|Rental revenues                                             |  | $    | 526,143 |      |  | $    | 504,643 |   |  | $ | 485,017 |  
|Property operating expenses                                 |  |      | 175,574 |      |  |      | 166,652 |   |  |   | 157,029 |  
|                                                            |  |      |         |      |  |      |         |   |  |   |         |  
|Net Operating Income                                        |  | $    | 350,569 |      |  | $    | 337,991 |   |  | $ | 327,988 |  
|                                                            |  |      |         |      |  |      |         |   |  |   |         |  
|Average number of operating units                           |  |      | 50,725  |      |  |      | 58,189  |   |  |   | 57,979  |  
|                                                            |  |      |         |      |  |      |         |   |  |   |         |  
|Operating margin (Net Operating Income/rental
    revenues) |  |      | 66.6    | %    |  |      | 67.0    | % |  |   | 67.6    | %
|                                                            |  |      |         |      |  |      |         |   |  |   |         |  
|Average occupancy percentage                                |  |      | 95.0    | %    |  |      | 95.0    | % |  |   | 94.5    | %
|                                                            |  |      |         |      |  |      |         |   |  |   |         |  

29



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##### Table of Contents



|                                                            |  |      |         |      |  |      |         |   |  |   |        |  
|----------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|High-Rise Properties(1)(2)                                  |  | 2003 |         | 2002 |  | 2001
|                                                            |  |      |         |      |  |     
|Rental revenues                                             |  | $    | 351,634 |      |  | $    | 341,131 |   |  | $ | 54,917 |  
|Property operating expenses                                 |  |      | 143,456 |      |  |      | 133,623 |   |  |   | 19,841 |  
|                                                            |  |      |         |      |  |      |         |   |  |   |        |  
|Net Operating Income                                        |  | $    | 208,178 |      |  | $    | 207,508 |   |  | $ | 35,076 |  
|                                                            |  |      |         |      |  |      |         |   |  |   |        |  
|Average number of operating units                           |  |      | 20,917  |      |  |      | 21,659  |   |  |   | 21,149 |  
|                                                            |  |      |         |      |  |      |         |   |  |   |        |  
|Operating margin (Net Operating Income/rental
    revenues) |  |      | 59.2    | %    |  |      | 60.8    | % |  |   | 63.9   | %
|                                                            |  |      |         |      |  |      |         |   |  |   |        |  
|Average occupancy percentage                                |  |      | 93.2    | %    |  |      | 93.8    | % |  |   | 95.4   | %
|                                                            |  |      |         |      |  |      |         |   |  |   |        |  



---



|    |                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Net earnings from discontinued operations have
    been reclassified for all years presented.                                                   
|   
|(2) | High-rise properties were acquired in the Smith
    Merger on October 31, 2001. Therefore, 2001 includes only
    2 months of operating results.

NOI for the entire apartment portfolio, including
properties reported in discontinued operations, decreased by
$53.7 million, or 7.8%, during 2003 as compared to 2002.
This decrease was principally attributable to:



| |   |                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A decline in rental revenue from our Same-Store
    portfolio of 1.4% for the twelve months ended December 31,
    2003 as compared to the same period in 2002 (the same store
    population excludes all Ameriton communities), primarily due to
    a decline in potential effective rent per unit and a decrease in
    average occupancy; and
|
| |  | The loss of rental revenue and the corresponding
    decrease in rental expense due to $1.6 billion and
    $602.1 million in dispositions during the twelve months
    ended December 31, 2003 and 2002, respectively.                                                                                                                           

This decrease was partially offset by increased
revenue from the acquisition of operating communities and the
continued lease-up and stabilization of development communities.

NOI for the entire apartment portfolio, including
properties reported in discontinued operations, increased by
$201.9 million, or 41.4%, during 2002 as compared to 2001.
These increases were principally attributable to:



| |   |                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |  | The inclusion of a full year of rental revenue
    and rental expense from high-rise properties acquired in the
    Smith Merger;
|
| |  | The continued successful Lease-Up and
    Stabilization of apartment communities; and,                                           
|
| |  | The acquisition of seven apartment communities in
    2002.                                                                      

These increases were partially offset by:



| |   |                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The loss of rental revenue and the corresponding
    decrease in rental expense due to $1.3 billion of
    dispositions in 2001 and $602.1 million of dispositions in
    2002; and
|
| |  | Declining Same-Store revenue, combined with
    increases in property taxes and insurance.                                                                                         

30



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##### Table of Contents



The following table reflects revenue, expense and
NOI growth for Same-Store communities during each respective
comparison period (the Same-Store population excludes all
Ameriton communities):

|        |           |            |  |            |   |                |  |       |   |  |  |       |  
|------- | --------- | ---------- |  | ---------- | - | -------------- |  | ----- | - |  |  | ----- | -
|        |           | Same-Store |  | Same-Store |   |               
|        |           | Revenue    |  | Expense    |   | Same-Store NOI
|        |           | Growth/    |  | Growth/    |   | Growth/       
|        |           | (Decline)  |  | (Decline)  |   | (Decline)     
|        |           |            |  |            |   |               
|2003    |           |            |  |            |   |                |  |       |   |  |  |      
|        | Garden    |            |  | (2.4%      | ) |                |  | (2.0% | ) |  |  | (2.6% | )
|        | High-Rise |            |  | 0.3%       |   |                |  | (1.0% | ) |  |  | 1.0%  |  
|        | Total     |            |  | (1.4%      | ) |                |  | (1.6% | ) |  |  | (1.3% | )
|2002    |           |            |  |            |   |                |  |       |   |  |  |      
|        | Garden    |            |  | (1.3%      | ) |                |  | 3.2%  |   |  |  | (3.3% | )
|        | High-Rise |            |  | 1.5%       |   |                |  | 6.7%  |   |  |  | (1.1% | )
|        | Total     |            |  | (0.4%      | ) |                |  | 4.4%  |   |  |  | (2.7% | )
|2001(1) |           |            |  |            |   |                |  |       |   |  |  |      
|        | Garden    |            |  | 5.1%       |   |                |  | 4.4%  |   |  |  | 5.4%  |  
|        | High-Rise |            |  | 7.0%       |   |                |  | 3.0%  |   |  |  | 9.4%  |  
|        | Total     |            |  | 5.7%       |   |                |  | 3.9%  |   |  |  | 6.5%  |  



---



|    |                                                                             
|--- | ----------------------------------------------------------------------------
|(1) | Includes a full year of results for assets
    acquired in the Smith Merger.

We anticipate Same-Store NOI growth to be flat to
negative two percent during 2004. We view job growth as one of
the most important drivers of demand in our business. If job
growth does not begin to improve throughout 2004, the
assumptions mentioned above may prove to be overly optimistic.
Conversely, if we experience substantial job growth earlier in
the year, our assumptions may be conservative.



| |             
| | ------------
| | Other Income

Other income increased by $9.9 million, or
104.3% in 2003 as compared to 2002. This increase is principally
attributable to the collection of contingent proceeds related to
indemnification of certain CES accounts receivable over
120 days and dividend income on stock investments.

Other income decreased by $2.4 million, or
20.5%, in 2002 as compared to 2001. This decrease is principally
attributable to lower interest income caused by lower restricted
cash balances because of reduced disposition activity, coupled
with lower interest rates. This decrease was partially offset by
higher fee income from our joint ventures.



| |                     
| | --------------------
| | Depreciation Expense

The $3.3 million, or 1.6% decrease in
depreciation expense, including properties reported in
discontinued operations, in 2003 as compared to 2002 is due
principally to increased disposition activity during 2003.

The $69.7 million, or 51.0% increase in
depreciation expense, including properties reported in
discontinued operations, in 2002 as compared to 2001 is due
principally to additional depreciation expense associated with
properties acquired in the Smith Merger.



| |                 
| | ----------------
| | Interest Expense

The $32.5 million, or 13.1%, decrease in
interest expense, including interest on properties reported in
discontinued operations in 2003 as compared to 2002, is the
result of lower debt balances, a reduction in interest rates on
floating rate debt and refinanced debt, and the repayment of
Long-Term Unsecured Debt with proceeds from our unsecured credit
facilities, which were at lower average interest rates during
the period.

31



---



##### Table of Contents



The $96.8 million, or 64.1%, increase in
interest expense, including interest on properties reported in
discontinued operations, in 2002 as compared to 2001 is the
result of the incremental debt assumed in the Smith Merger,
which was partially offset by a lower average cost of variable
rate debt. Capitalized interest increased due to an increase in
the number of properties under construction from the addition of
properties acquired in the Smith Merger.



| |                                        
| | ---------------------------------------
| | General and Administrative
    Expenses

The $4.1 million, or 9.0%, increase in
general and administrative expenses in 2003 as compared to 2002
relates primarily to additional severance costs and legal fees
incurred during 2003, as well as increased depreciation of
capitalized costs associated with our new RM program called
LROTM and our new on-site property management
software.

The $18.3 million, or 66.6%, increase in
general and administrative expenses in 2002 as compared to 2001
relates primarily to the incremental overhead incurred in
connection with the Smith Merger. In addition, the amortization
of capitalized costs associated with our new RM program called
LROTM, which began in December 2001, contributed to
the increase in 2002.



| |               
| | --------------
| | Other Expenses

The $20.6 million, or 75.1% increase in
other expense in 2003 as compared to 2002 is primarily related
to an increase in moisture infiltration and resulting mold costs
and a $3.5 million increase in Ameriton income taxes. The
moisture infiltration costs pertain to estimated and incurred
legal fees and estimated settlement costs, additional
residential property repair and replacement costs and temporary
resident relocation expenses. These increases were partially
offset by lower merger integration costs associated with the
Smith Merger as well as lower pursuit cost write-offs during
2003.

The $11.9 million, or 76.5% increase in
other expense in 2002 as compared to 2001 is primarily related
to an increase in moisture infiltration costs and a
$5.4 million increase in Ameriton income taxes. The
moisture infiltration costs pertain to estimated and incurred
legal fees and estimated settlement costs, additional
residential property repair and replacement costs and temporary
resident relocation expenses. These increases were partially
offset by lower merger integration costs associated with the
Smith Merger.



| |                                        
| | ---------------------------------------
| | Income From Unconsolidated
    Entities

Income from unconsolidated entities decreased by
$47.9 million in 2003 as compared to 2002 primarily due to
the gain on sale of CES recognized in December 2002.

Income from unconsolidated entities increased by
$42.6 million in 2002 as compared to 2001 primarily as a
result of the following factors:



| |   |                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The $6.5 million increase in net earnings
    from CES and SMC, both acquired in the Smith Merger;                                                                                                                                                                        
|
| |  | The $35.4 million gain on sale of CES to a
    third party in December 2002; and                                                                                                                                                                                          
|
| |  | The $4.8 million increase in our share of
    the net earnings from real estate joint ventures. This increase
    is primarily due to the formation of three operating community
    joint ventures during 2001 and three joint ventures acquired in
    the Smith Merger.



| |                              
| | -----------------------------
| | Preferred Share Distributions

Preferred Share distributions decreased by
$11.2 million, or 34.8% during 2003 as compared to 2002.
This decrease was primarily attributable to the conversion of
Series A and Series H Preferred Shares into Common
Shares in 2003 and the conversion of Series J Preferred
Shares into Common Shares during 2002, as well as the redemption
of the Series C Preferred Shares in 2002. The decrease in
Preferred Share distributions due to conversions was off-set by
an increase in Common Share dividends.

32



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##### Table of Contents



Preferred Share distributions increased by
$6.3 million, or 24.4%, in 2002 as compared to 2001 due to
the issuance of Series H, I, J, K and L Preferred
Shares in connection with the Smith Merger and the treatment of
share issuance costs associated with the 2001 redemption of
Series B Preferred Shares as additional 2001 distributions.
This increase was partially offset by the redemption of the
Series C Preferred Shares in August 2002 and lower
dividends on Series A Preferred Shares resulting from
periodic conversions into Common Shares by shareholders.



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

For properties accounted for as discontinued
operations, the results of operations sold during the period or
designated as held for sale at the end of the period are
required to be classified as discontinued operations. The
property-specific components of net earnings that were
classified as discontinued operations include rental revenue,
rental expense, real estate tax, depreciation expense, minority
interest and interest expense (actual interest expense for
encumbered properties and a pro-rata allocation of interest
expense for any unencumbered portion up to our weighted average
leverage ratio), as well as the net gain or loss on the eventual
disposal of properties held for sale.

Consistent with our capital recycling program, we
had 10 operating apartment communities, representing
2,651 units (unaudited), classified as held for sale under
the provisions of SFAS 144, at December 31, 2003.
Accordingly, we have classified the operating earnings from
these 10 properties within discontinued operations for the years
ended December 31, 2003, 2002 and 2001. During the twelve
months ended December 31, 2003, we sold 48 operating
communities. The operating results of these 48 communities and
the related gain/loss on sale are also included in discontinued
operations for 2003, 2002 and 2001. Lastly, discontinued
operations for the years ended December 31, 2002 and 2001,
include the net operating results of 12 operating communities
and one retail property which were sold during 2002. Four
apartment communities that were sold during 2002 were held for
sale at December 31, 2001, and therefore gains and related
operating income for these dispositions are not classified as
discontinued operations in accordance with SFAS 144. The
following is a summary of net earnings from discontinued
operations (in thousands):

|                                                          |  |                          |         |      |  |      |         |   |  |   |         |  
|--------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                          |  |                         
|                                                          |  | Years Ended December 31,
|                                                          |  |                         
|                                                          |  | 2003                     |         | 2002 |  | 2001
|                                                          |  |                          |         |      |  |     
|Rental revenues                                           |  | $                        | 125,584 |      |  | $    | 233,479 |   |  | $ | 181,498 |  
|Rental expenses                                           |  |                          | (39,352 | )    |  |      | (69,554 | ) |  |   | (45,704 | )
|Real estate taxes                                         |  |                          | (12,019 | )    |  |      | (23,007 | ) |  |   | (15,058 | )
|Depreciation on real estate investments                   |  |                          | (15,679 | )    |  |      | (39,596 | ) |  |   | (34,390 | )
|Interest expense(1)                                       |  |                          | (28,236 | )    |  |      | (57,596 | ) |  |   | (62,766 | )
|Provision for possible loss on real estate
    investment |  |                          | (3,714  | )    |  |      | (2,611  | ) |  |   |        |  
|Allocation of minority interest                           |  |                          | (44,976 | )    |  |      | (17,864 | ) |  |   | (746    | )
|Gain on dispositions of real estate investments,
    net  |  |                          | 353,600 |      |  |      | 103,654 |   |  |   |        |  
|                                                          |  |                          |         |      |  |      |         |   |  |   |         |  
|                                                          |  | $                        | 335,208 |      |  | $    | 126,905 |   |  | $ | 22,834  |  
|                                                          |  |                          |         |      |  |      |         |   |  |   |         |  



---



|    |                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The portion of interest expense included in
    discontinued operations that is allocated to properties based on
    the companys leverage ratio was $23.0 million,
    $38.7 million and $51.6 million for 2003, 2002 and
    2001, respectively.



| |                                                     
| | ----------------------------------------------------
| | Gains on Dispositions of Real Estate
    Investments

We recognized $353.6 million,
$139.6 million and $108.7 million of net gains on the
disposition of depreciated real estate assets (including
properties reported in discontinued operations), during 2003,
2002 and 2001, respectively. These gains have resulted from our
capital redeployment program, which involves the disposition of
operating communities in non-core markets with less attractive
growth prospects to fund investments in our core protected
markets, and opportunistic dispositions by Ameriton.

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Liquidity and Capital Resources



| |                      
| | ---------------------
| | Financial Flexibility

We are committed to maintaining a strong balance
sheet and preserving our financial flexibility, which we believe
enhances our ability to capitalize on attractive investment
opportunities as they become available. As a result of the
significant cash flow generated by our operations, cash
positions at December 31, 2003, the available capacity
under our unsecured credit facilities, and anticipated proceeds
from the forward sale of marketable equity securities to be
settled during 2004, we believe our liquidity and financial
condition are sufficient to meet all of our reasonably
anticipated cash flow needs in 2004.



| |                     
| | --------------------
| | Operating Activities

Our net cash flows provided by operating
activities decreased by $89.2 million, or 20.3%, during
2003 as compared to 2002. This decrease was principally due to
lower net earnings before gains on the disposition of
depreciated real estate and payment of expenses related to
remediation of moisture infiltration and resulting mold that
were accrued in previous years.

Our net cash flows provided by operating
activities increased by $106.6 million, or 32.1%, in 2002
as compared to 2001, principally due to an increase in earnings
from operations due to the Smith Merger, which was partially
offset by lower Same-Store revenue and lost revenue and a
corresponding decrease in rental expense resulting from our 2002
and 2001 disposition activity. For a more complete discussion of
the factors affecting our operating performance, see our
accompanying Statement of Cash Flows in this Annual Report.



| |                                       
| | --------------------------------------
| | Investing and Financing
    Activities

During 2003, cash flows provided by investing
activities increased by approximately $613.4 million or
321.2%. This increase was primary attributable to a
$984.1 million increase in proceeds from the disposition of
real estate assets and a reduction in cash used to purchase
marketable securities during 2003 as compared to 2002. This was
partially offset by an increase in the balance of our
tax-deferred escrow account and a $93.9 million decreased
cash flow from unconsolidated entities.

During 2002, cash flows from investing activities
decreased $578.7 million or 149.3% as compared to 2001. The
decrease was principally attributable to a $595.7 million
reduction in proceeds from dispositions, a $305.0 million
increase in investments in real estate, and an increase in
purchases of marketable securities and other assets. These
decreases were partially offset by the $236.9 million
increase in cash flows from restricted cash in tax-deferred
exchange escrow, a $129.5 million increase in cash flows
from our investment in and advances to our unconsolidated
investees and other investing activities.

During 2003, cash used in financing activities
increased by $537.6 million or 222.2%, as compared to 2002.
This is principally due to a $438.8 million net reduction
in our unsecured credit facility and a $283.5 million
reduction in the total proceeds received from long-term
unsecured debt offerings. This increase in cash used in
financing activities was partially offset by a
$361.7 million reduction in principal payments on mortgages
payable.

During 2002, cash used in financing activities
decreased $480.0 million, or 66.5%, as compared to 2001.
This decrease is primarily attributable to the issuance of
senior unsecured notes for net proceeds of $530.8 million
during 2002 and the $401.1 million increase in the net
proceeds provided by our credit facilities used to finance
investing activities. These increases were partially offset by
principal prepayments on mortgages payable, including prepayment
penalties, which increased $589.8 million and dividends and
distributions on Common Shares, Preferred Shares and minority
interest in the amounts of $303.1 million,
$32.5 million and $41.6 million, respectively, during
2002 as compared to $221.2 million, $17.8 million and
$8.4 million, respectively, during 2001.

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Significant non-cash investing and financing
activities for the years ended December 31, 2003, 2002 and
2001 are as follows:



| |   |                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Issued $14.2 million and $8.7 million
    of Class B Common Units as partial consideration for
    property acquired during 2003 and 2002, respectively;                                                                                                                                  
|
| |  | Issued $33.4 million of A-1 Common Units in
    exchange for real estate during 2003;                                                                                                                                                                                                     
|
| |  | Holders of Series H Preferred Shares
    converted $71.5 million of their units into Common Shares
    during 2003;                                                                                                                                                                       
|
| |  | Redeemed $25.5 million and
    $41.7 million A-1 Common Units for Common Shares during
    2003 and 2002, respectively;                                                                                                                                                                   
|
| |  | Holders of Series J Preferred Shares
    converted $25 million of their units into Common Shares
    during 2002;                                                                                                                                                                         
|
| |  | Recorded an accrual related to moisture
    infiltration and resulting mold remediation for
    $11.3 million at one of our high-rise properties in
    Southeast Florida during 2002;                                                                                                    
|
| |  | Assumed mortgage debt of $55.4 million,
    $195.6 million and $167.3 million (excluding mortgage
    debt assumed in the Smith Merger) during 2003, 2002 and 2001,
    respectively, in connection with the acquisition of apartment
    communities;                                    
|
| |  | Holders of Series A Preferred Shares
    converted $71.9 million, $5.7 million and
    $3.8 million of their shares into Common Shares during
    2003, 2002 and 2001, respectively; and                                                                                                  
|
| |  | Entered into joint venture transactions formed
    through our contribution of apartment communities and land in
    exchange for cash and an ownership interest in each of the
    ventures with an aggregate carrying value of $5.0 million
    during the year ended December 31, 2001.



| |                                                                
| | ---------------------------------------------------------------
| | Scheduled Debt Maturities and Interest
    Payment Requirements

We have structured the repayments of our
long-term debt to create a relatively level principal maturity
schedule and to avoid significant repayment obligations in any
year, which would impact our financial flexibility. We have
$113.5 million in scheduled maturities during 2004, and we
have $319.9 million and $355.6 million of long-term
debt maturing during 2005 and 2006, respectively. See
Note 6 in our audited financial statements in this Annual
Report for additional information on scheduled debt maturities.

In October 2003, we completed the renewal of our
unsecured revolving credit facility provided by a group of
financial institutions led by JPMorgan Chase Bank. The
$600 million facility matures in October, 2006 and has a
one-year extension feature, exercisable at our option. The
facility bears interest at the greater of prime or the federal
funds rate plus 0.50%, or at our option, LIBOR plus 0.60%. The
spread over LIBOR can vary from LIBOR plus 0.50% to LIBOR plus
1.25% based upon the rating of our Long-Term Unsecured Debt. The
facility contains an accordion feature that allows us to expand
the commitment up to $900 million at any time during the
life of the facility, subject to lenders providing additional
commitments. Under the agreement, we pay a facility fee of 0.15%
of the commitment, which can vary from 0.125% to 0.200% based
upon the ratings of our Long-Term Unsecured Debt.

We also have a short-term unsecured borrowing
agreement with JPMorgan Chase Bank, which provides for maximum
borrowings of $100 million. The agreement bears interest at
an overnight rate agreed to at the time of borrowing and ranged
from 1.65% to 1.95% during 2003. There were $6.8 million
and $17.1 million of borrowings outstanding under this
agreement at December 31, 2003 and 2002, respectively.

We had $5.0 million outstanding on our
unsecured line of credit, $1.1 million outstanding under
letters of credit and an available balance of
$693.9 million on our unsecured credit facilities at
February 13, 2004.

Our unsecured credit facilities, Long-Term
Unsecured Debt and mortgages payable had effective weighted
average interest rates of 2.55%, 6.22% and 5.57%, respectively,
as of December 31, 2003. All of these

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rates give effect to debt issuance costs, fair
value hedges, the amortization of fair market value purchase
adjustments and other fees and expenses, as applicable.


Our debt instruments generally contain covenants
common to the type of facility or borrowing, including financial
covenants establishing minimum debt service coverage ratios and
maximum leverage ratios. We were in compliance with all
financial covenants pertaining to our debt instruments as of and
for the year ended December 31, 2003.



| |                                                    
| | ---------------------------------------------------
| | Shareholder Dividend/ Distribution
    Requirements

Based on anticipated distribution levels for 2004
and the number of shares and units outstanding as of
December 31, 2003, we anticipate that we will pay the
following dividends/ distributions in 2004 (in thousands, except
per share amounts):

|                                            |                                          |           |          |       |  |  |        |         | 
|------------------------------------------- | ---------------------------------------- | --------- | -------- | ----- |  |  | ------ | ------- | 
|                                            |                                          | Per Share |          | Total
|                                            |                                          |           |          |      
|Common share and common unit distributions: |                                          |           |          |       |  |  |        |        
|                                            | Common Shares                            |           | $        | 1.72  |  |  | $      | 334,991 | 
|A-1 Common Unit distributions(1)            |                                          |           | 1.72     |       |  |  | 43,518 |        
|Series D Preferred Share dividends          |                                          |           | 2.19     |       |  |  | 4,288  |        
|Series E Preferred Unit distributions(1)    |                                          |           | 2.09     |       |  |  | 2,341  |        
|Series F Preferred Unit distributions(1)    |                                          |           | 2.03     |       |  |  | 1,624  |        
|Series G Preferred Unit distributions(1)    |                                          |           | 2.16     |       |  |  | 1,296  |        
|Series I Preferred Share dividends(2)       |                                          |           | 7,660.00 |       |  |  | 3,830  |        
|Series K Preferred Share dividends          |                                          |           | 3.40     |       |  |  | 2,267  |        
|Series L Preferred Share dividends          |                                          |           | 3.40     |       |  |  | 2,179  |        
|                                            |                                          |           |          |       |  |  |        |        
|                                            | Total dividend/distribution requirements |           |          |       |  |  | $      | 396,334 | 
|                                            |                                          |           |          |       |  |  |        |        



---



|    |                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------
|(1) | See Note 9 in our audited financial
    statements in this Annual Report for more information on
    minority interests.
|   
|(2) | Series I Preferred Shares have a par value
    of $100,000 per share.                                                   



| |                                             
| | --------------------------------------------
| | Share Repurchase and Redemption
    Activity

In May 2003, 2,640,325 Series H Preferred
Shares were converted into Common Shares. In October 2003, the
Series A Preferred Shares were called for redemption. Of
the 2.9 million Series A Preferred Shares outstanding,
2.8 million were converted to Common Shares and the
remaining were redeemed for cash and retired.

In July 2002, 684,931 Series J Preferred
Shares were converted into Common Shares. In August 2002, we
redeemed all of our Series C Preferred Shares at
$25.00 per share plus accrued distributions. In addition,
3,000,000 Series E, F, and G Preferred Shares were issued
in exchange for the DownREIT Perpetual Preferred Units, and
870,523 DownREIT OP Units were exchanged for A-1 Common
Units in August 2002. In September 2002, 480,000 of the
Series E Preferred Shares were redeemed at liquidation
value plus accrued distributions. In 2003 and 2002,
Archstone-Smith repurchased 614,100 and 668,900 Common Shares.
The repurchase of Common Shares and the redemption of
Series C and E Preferred Shares were funded through
borrowings under our unsecured credit facility, which was repaid
with proceeds from dispositions and the issuance of long-term
debt.

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##### Table of Contents





| |                    
| | -------------------
| | Planned Investments

Following is a summary of planned investments as
of December 31, 2003, including amounts for Ameriton
(dollar amounts in thousands). The amounts labeled
Discretionary represent future investments that we
plan to make, although there is not a contractual commitment to
do so. The amounts labeled Committed represent the
approximate amount that we are contractually committed to fund
for communities under construction in accordance with
construction contracts with general contractors.

|                                          |       |                     |       |               |  |           |         |         |  |   |         |         | 
|----------------------------------------- | ----- | ------------------- | ----- | ------------- |  | --------- | ------- | ------- |  | - | ------- | ------- | 
|                                          |       |                    
|                                          |       | Planned Investments
|                                          |       |                    
|                                          |       | Units               |       | Discretionary |  | Committed
|                                          |       |                     |       |               |  |          
|Communities under redevelopment           |       |                     | 4,681 |               |  | $         | 29,109  |         |  | $ | 16,082  |        
|Communities under construction            |       |                     | 5,008 |               |  |           |        |         |  |   | 482,280 |        
|Communities In Planning and Owned         |       |                     | 3,693 |               |  |           | 620,519 |         |  |   |        |        
|Communities In Planning and Under Control |       |                     | 112   |               |  |           | 9,084   |         |  |   |        |        
|Community acquisitions under contract     |       |                     | 1,539 |               |  |           | 325,652 |         |  |   |        |        
|                                          |       |                     |       |               |  |           |         |         |  |   |         |        
|                                          | Total |                     |       | 15,033        |  |           | $       | 984,364 |  |   | $       | 498,362 | 
|                                          |       |                     |       |               |  |           |         |         |  |   |         |        

In addition to the planned investments noted
above, we expect to make additional investments relating to
planned expenditures on recently acquired communities as well as
recurring expenditures to improve and maintain our established
operating communities.

We anticipate completion of most of the
communities that are currently under construction and the
planned operating community improvements during 2004 and 2005.
We expect to start construction on approximately
$300-$400 million, based on Total Expected Investment, of
communities that are currently In Planning, in 2004. We expect
to fund the costs of these development projects over a
two-to-three year period following the date construction
commences. No assurances can be given that communities we do not
currently own will be acquired or that planned developments will
actually occur. In addition, actual costs incurred could be
greater or less than our current estimates.



| |                
| | ---------------
| | Funding Sources

We anticipate financing our planned investment
and operating needs primarily with cash flow from operating
activities, disposition proceeds from our capital redeployment
program and borrowings under our unsecured credit facilities,
prior to arranging long-term financing. Consistent with our
performance in 2003, we anticipate that net cash flow from
operating activities during 2004 will be sufficient to fund
anticipated distribution requirements and debt principal
amortization payments. To fund planned investment activities, we
had $693.9 million in available capacity on our unsecured
credit facilities and approximately $187.6 million of cash
on hand at February 13, 2004. In addition, we expect to
complete the disposition of $400-$600 million of operating
communities during 2004. During 2004, we will receive
approximately $128.5 million from the sale of certain
marketable securities in accordance with our forward sales
agreement. See Item 7A for a discussion of our hedging
activities.

In March 2003, the Operating Trust filed a shelf
registration statement on Form S-3 to register an
additional $335 million in unsecured debt securities. In
June 2003, the Operating Trust issued $250 million in
long-term unsecured senior notes due in June 2008 for net
proceeds of $247.2 million. These notes bear interest at a
coupon rate of 3.0% annually, with an effective interest rate of
3.2%. The net proceeds were used to repay outstanding balances
on our unsecured credit facility.

In February 2002, the Operating Trust issued
$200 million in long-term unsecured ten-year senior notes
with an effective interest rate of 6.6%. In May 2002, we filed a
shelf registration statement on Form S-3 to register
$500 million in equity securities, which can be issued in
the form of Common or Preferred Shares. In August 2002, the
Operating Trust issued $300 million in long-term unsecured
senior five-year notes with an effective interest rate of 5.2%.
In November 2002, the Operating Trust issued $35 million in
long-term unsecured five-year senior notes with an effective
interest rate of 4.9%.

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As of February 13, 2004, Archstone-Smith and
the Operating Trust collectively have $1.1 billion
available in shelf registered securities which can be issued
based on our ability to affect offerings on satisfactory terms
based on prevailing market conditions.




Litigation and Contingencies

During 2002, we accrued or incurred a liability
for $30.8 million relating to moisture infiltration and
resulting mold issues at Harbour House, a high-rise property in
Southeast Florida that became subject to litigation in the third
quarter of 2002. Of this amount, $11.3 million represents
amounts expensed for the estimated cost of repairing or
replacing residents property, temporary resident
relocation expenses and incurred legal fees. The remaining
$19.5 million represents costs capitalized in accordance
with GAAP pertaining to remediation and capital improvements to
the building.

During 2003, we recorded additional costs of
$30.7 million for moisture infiltration and resulting mold
at Harbour House. Of this amount, $25.7 million represents
amounts expensed for estimated and incurred legal fees
associated with known and anticipated costs for
Archstone-Smiths counsel and plaintiffs counsel, as
well as estimated settlement costs based upon the settlement
agreement, additional resident property repair and replacement
costs and temporary resident relocation expenses. The estimated
settlement accrual is inclusive of all pending legal claims at
this property other than for those individuals who have opted
out of the settlement and are pursuing or may pursue individual
claims. The remaining $5.0 million pertains to an increase
in our accrual estimate for capitalized costs associated with
remediation and capital improvements. As of December 31,
2003, total cash payments related to moisture infiltration and
mold remediation at this property were $45.1 million. We
anticipate incurring the remaining $16.4 million over the
next six to twelve months.

The Harbour House accrual represents
managements best estimate of the probable and reasonably
estimable costs and is based, in part, on estimates obtained
from third-party contractors and actual costs incurred to date.
It is possible that these estimates could increase or decrease
as better information becomes available. Not all plaintiffs have
accepted the court-approved settlement, which could result in
further court proceedings and potential legal fees and damages
not contemplated in our current accrual. It is not possible to
predict the likelihood of claims by individuals who have opted
out of the settlement, nor is it reasonably possible to estimate
the amount of any potential loss related to these claims.

We are also party to alleged moisture
infiltration and resulting mold lawsuits at other apartment
properties. We believe these suits are without merit,
nonetheless, in certain instances we have negotiated a
settlement with certain of the plaintiffs in an effort to
expedite the resolution of their claims and avoid potentially
protracted litigation and associated attorneys fees.
During 2003 we expensed approximately $10.4 million for
estimated and incurred legal fees associated with known and
anticipated costs for Archstone-Smiths counsel and
plaintiffs counsel, as well as estimated settlement costs
based upon the status of discussions, additional resident
property repair and replacement costs and temporary resident
relocation expenses pertaining to these claims. These estimates
represent managements best estimate of the probable and
reasonably estimable costs and are based, in part, on estimates
obtained from third-party contractors and actual costs incurred
to date. It is possible that these estimates could increase or
decrease as better information becomes available. Not all
plaintiffs have accepted the negotiated settlement, and further
court proceedings and additional legal fees and damages may be
required to fully resolve these claims. We have not accrued for
renovation and equipment upgrades at these properties, as these
costs are part of our previously existing and ongoing plans and
not a result of the legal claims. Accordingly, we will
capitalize or expense costs associated with these issues as they
are incurred, in accordance with GAAP.

We are aggressively pursuing recovery of a
significant portion of these costs from our insurance carriers.
As of December 31, 2003, we have received approximately
$1.6 million of initial insurance recoveries pertaining to
moisture infiltration and resulting mold claims. We are still in
discussions with our insurance providers and therefore no
estimate for future insurance recoveries has been recorded. In
addition, we are continuing to pursue potential recoveries from
third parties who we believe bear responsibility for a
considerable portion of the costs we have incurred. We cannot
make assurances that we will obtain these

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##### Table of Contents



recoveries or that our ultimate liability
associated with these claims will not be material to our results
of operations.


We are a party to various other claims and
routine litigation arising in the ordinary course of business.
We do not believe that the results of any such claims or
litigation, individually or in the aggregate, will have a
material adverse effect on our business, financial position or
results of operations.




Critical Accounting Policies

We define critical accounting policies as those
accounting policies that require our management to exercise
their most difficult, subjective and complex judgments. Our
management has discussed the development and selection of all of
these critical accounting policies with our audit committee, and
the audit committee has reviewed the disclosure relating to
these policies. Our critical accounting policies relate
principally to the following key areas:



| |                             
| | ----------------------------
| | Internal Cost Capitalization

We have an investment organization that is
responsible for development and redevelopment of apartment
communities. Consistent with GAAP, all direct and certain
indirect costs, including interest and real estate taxes,
incurred during development and redevelopment activities are
capitalized. Interest is capitalized on real estate assets that
require a period of time to get them ready for their intended
use. The amount of interest capitalized is based upon the
average amount of accumulated development expenditures during
the reporting period. Included in capitalized costs are
managements estimates of the direct and incremental
personnel costs and indirect project costs associated with our
development and redevelopment activities. Indirect project costs
consist primarily of personnel costs associated with
construction administration and development accounting, legal
fees, and various office costs that clearly relate to projects
under development. Because the estimation of capitalizable
internal costs requires managements judgment, we believe
internal cost capitalization is a critical accounting
estimate.

If future accounting rules limit our ability to
capitalize internal costs or if our development activity
decreased significantly without a proportionate decrease in
internal costs, there could be an increase in our operating
expenses. For example, if hypothetically, we were to reduce our
development and land acquisition activity by 25% with no
corresponding decrease in internal costs, our net earnings per
Common Share could decrease by approximately 1.2% or $0.02 based
on 2003 amounts.



| |                         
| | ------------------------
| | Valuation of Real Estate

Long-lived assets to be held and used are carried
at cost and evaluated for impairment when events or changes in
circumstances indicate such an evaluation is warranted. We also
evaluate assets for potential impairment when we deem them to be
held for sale. Valuation of real estate is considered a
critical accounting estimate because the evaluation
of impairment and the determination of fair values involve a
number of management assumptions relating to future economic
events that could materially affect the determination of the
ultimate value, and therefore, the carrying amounts of our real
estate.

When determining if there is an indication of
impairment, we estimate the assets NOI over the
anticipated holding period on an undiscounted cash flow basis
and compare this amount to its carrying value. Estimating the
expected NOI and holding period requires significant management
judgment. If it is determined that there is an indication of
impairment for assets to be held and used, or if an asset is
deemed to be held for sale, we then determine the assets
fair value.

The apartment industry uses capitalization rates
as the primary measure of fair value. Specifically, annual NOI
for a community is divided by an estimated capitalization rate
to determine the fair value of the community. Determining the
appropriate capitalization rate requires significant judgment
and is typically based on the prevailing rate for the market or
submarket. Further, capitalization rates can fluctuate up or
down due to a variety of factors in the overall economy or
within local markets. If the actual capitalization rate for a
community is significantly different from our estimated rate,
the impairment evaluation for an individual

39



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##### Table of Contents



asset could be materially affected. For example,
we would value a community with annual NOI of $10 million
at $142.9 million using a 7.0% capitalization rate, whereas
that same community would be valued at $125.0 million if
the actual capitalization rate were 8.0%. Historically we have
had limited and infrequent impairment charges, and the majority
of our apartment community sales have produced gains. For
example, we have sold approximately $5.4 billion of real
estate assets (excluding Ameriton) over the last eight years,
which produced $829.1 million in gains at an unleveraged
internal rate of return of approximately 12.8%. We evaluate a
real estate asset for potential impairment when events or
changes in circumstances indicate that its carrying amount may
not be recoverable.




| |                                               
| | ----------------------------------------------
| | Capital Expenditures and Depreciable
    Lives

We incur costs relating to redevelopment
initiatives, revenue enhancing and expense reducing capital
expenditures, and recurring capital expenditures that are
capitalized as part of our real estate. These amounts are
capitalized and depreciated over estimated useful lives
determined by management. We allocate the cost of newly acquired
properties between net tangible and identifiable intangible
assets. The primary intangible asset associated with an
apartment community acquisition is the value of the existing
lease agreements. When allocating cost to an acquired property,
we first allocate costs to the estimated intangible value of the
existing lease agreements and then to the estimated value of the
land, building and fixtures assuming the property is vacant. We
estimate the intangible value of the lease agreements by
determining the lost revenue associated with a hypothetical
lease-up. We depreciate the building and fixtures based on the
expected useful life of the asset and amortize the intangible
value of the lease agreements over the average remaining life of
the existing leases.

Determining whether expenditures meet the
criteria for capitalization, the assignment of depreciable lives
and determining the appropriate amounts to allocate between
tangible and intangible assets for property acquisitions
requires our management to exercise significant judgment and is
therefore considered a significant accounting
estimate.

Total capital expenditures were 1.4% and 2.2% of
weighted average gross real estate as of December 31, 2003
and 2002, respectively. The growth in capital expenditures was
principally due to significant redevelopment efforts in our
high-rise portfolio acquired in the Smith Merger.

Additionally, depreciation expense as a
percentage of depreciable real estate was 3.2%, 3.1% and 3.7% or
$1.04, $1.16 and $1.00 per Share for the years ended
December 31, 2003, 2002 and 2001, respectively. If the
actual weighted average useful life were determined to be one
year shorter or longer than managements current estimate,
our annual depreciation expense would increase or decrease
approximately 3.1% or $0.03 per Common Share. See
Note 1 in our audited financial statements in this Annual
Report for additional detail on depreciable lives.



| |              
| | -------------
| | Pursuit Costs

We incur costs relating to the potential
acquisition of real estate which we refer to as pursuit costs.
To the extent that these costs are identifiable with a specific
property and would be capitalized if the property were already
acquired, the costs are accumulated by project and capitalized
in the Other Asset section of the balance sheet. If these
conditions are not met, the costs are expensed as incurred.
Capitalized costs include but are not limited to earnest money,
option fees, environmental reports, traffic reports, surveys,
photos, blueprints, direct and incremental personnel costs and
legal costs. Upon acquisition, the costs are included in the
basis of the acquired property. When it becomes probable that a
prospective acquisition will not be acquired, the accumulated
costs for the property are charged to other expense on the
statement of earnings in the period such a determination is made.

Because of the inherent judgment involved in
evaluating whether a prospective property will ultimately be
acquired, we believe capitalizable pursuit costs are a
critical accounting estimate. If it were determined
that a quarter of our prospective acquisitions were deemed
improbable as of December 31, 2003, other expense for the
year ended December 31, 2003 would increase approximately
8.2% or $0.02 per share, excluding refundable earnest money.

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| |                                                     
| | ----------------------------------------------------
| | Moisture Infiltration and Mold Remediation
    Costs

Accounting for correction of moisture
infiltration and mold remediation costs is considered a
critical accounting estimate because significant
judgment is required by management to determine when to record a
liability, how much should be accrued as a liability and whether
such costs meet the criteria for capitalization.

We estimate and accrue costs related to
correcting the moisture infiltration and remediating resulting
mold when we anticipate incurring costs because of the threat of
litigation or the assertion of a legal claim. When we incur
costs at our own discretion, the cost is recognized as incurred.
Moisture infiltration and resulting mold remediation costs are
only capitalized when it is determined by management that such
remediation costs also extend the life, increase the capacity,
or improve the safety or efficiency of the property relative to
when the community was originally constructed or acquired, if
later. All other related costs are expensed.

There are considerable uncertainties that affect
our ability to estimate the ultimate cost of correction and
remediation efforts. These uncertainties include, but are not
limited to, assessing the exact nature and extent of the issues,
the extent of required remediation efforts and the varying costs
of alternative strategies for addressing the issues. Any accrual
represents managements best estimate of the probable and
reasonably estimable costs and is based, in part, on estimates
obtained from third-party contractors and actual costs incurred
to date. It is possible that these estimates could increase or
decrease as better information becomes available.

We accrue for litigation settlement costs when a
loss contingency is both probable and the amount of loss can be
reasonably estimated. Estimating the likelihood and amount of a
loss contingency requires significant judgment by management and
is therefore considered a critical accounting
estimate. We base these estimates on the best information
available as of the end of the period, which includes, but is
not limited to, estimates obtained from third-party contractors
as well as actual costs incurred to date. It is possible that
these estimates could increase or decrease as better information
becomes available. We generally recognize legal expenses as
incurred; however, if such fees are related to the accrual for a
known legal settlement, we accrue for the related incurred and
anticipated legal fees at the same time we accrue the cost of
settlement.

Our eventual costs to correct moisture
infiltration and remediate resulting mold could be significantly
different from current estimates. For example, if current
outstanding accruals were to increase or decrease by 25% and the
ratio between the expensed and capitalized portion remained
constant, our net earnings per Common Share would increase or
decrease by approximately $0.02.




Off Balance Sheet Arrangements

Investments in entities that are not controlled
through majority economic interest are not consolidated and are
reported as investments in unconsolidated entities. Our
investments in unconsolidated entities consist of an
$86.4 million investment in real estate joint ventures,
which generally consists of our percentage ownership in the GAAP
equity of the joint ventures.

CES is a service business that we acquired during
the Smith Merger in 2001 and prior to its sale had been reported
as an unconsolidated entity in our financial statements. CES
provides engineering services for commercial and residential
real estate owners across the country. On December 19,
2002, CES was sold to a third party for $178 million in
cash. We recorded a $35.4 million net gain on the sale of
the business or $0.16 per share on a fully diluted basis.
Approximately $6.7 million in contingent proceeds related
to indemnification of accounts receivable over 120 days was
excluded from the gain. We have recognized $5.8 million of
these contingent proceeds during 2003, as this is the amount of
the indemnified accounts receivable collected.

As a condition of sale, we agreed to indemnify
the buyer for certain representations and warranties contained
in the sale contract. The indemnifications terminate on
June 30, 2004, and while we do not believe it is probable
that the indemnities will reach the maximum amount, the related
liability is limited to a maximum exposure of $44.5 million
with exceptions including third party claims, insurance,
arbitration, environmental

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issues and collection of specified accounts
receivable, each of which is without deduction or limitation.
There are no recourse provisions available to us to recover any
potential future payments from third parties.


SMC is a service business that we acquired in the
Smith Merger during 2001. We sold SMC during February 2003 to
former members of SMCs senior management. Prior to the
sale, we reported SMC as an unconsolidated entity in our
financial statements. We received two notes receivable totaling
$5.8 million and bearing an interest rate of 7.0% as
consideration for the sale. The first note for $3.5 million
had principal payments that began in October 2003 with payment
in full by February 2008. The second note for $2.3 million
was fully repaid along with all accrued interest due during May
2003. For accounting purposes, we will not recognize the
divestiture until our responsibilities for certain performance
guarantees, which pertain to ongoing construction projects at
the time of sale, expire. Such performance guarantees currently
total $2.7 million, based on information provided by these
companies, and we expect them to expire during 2004. Principal
and interest payments received prior to the recognition of this
transaction as a divestiture will be recorded as a reduction to
our investment basis, which is included in other assets in the
accompanying condensed consolidated balance sheets.

Prior to their sale, we extended approximately
$54.7 million in performance bond guarantees relating to
contracts entered into by CES and SMC, which are customary to
the type of business in which these entities engage. As of
December 31, 2003, $2.7 million of these performance
bond guarantees were still outstanding, based upon information
provided by these companies. Archstone-Smith, our subsidiaries
and investees have not been required to perform on these
guarantees, nor do we anticipate being required to perform on
such guarantees. We also will not extend any such performance
bond guarantees in the future due to the sale of both CES and
SMC. Since we believe that our risk of loss under these
contingencies is remote, no accrual for potential loss has been
made in the accompanying financial statements. There are
recourse provisions available to us to recover any potential
future payments from the new owners of CES and SMC.

As part of the Smith Merger, we are required to
indemnify the former Smith Partnership unitholders for any
personal income tax expense resulting from the sale of high-rise
properties identified in the shareholders agreement
between Archstone-Smith, the Operating Trust, Robert H. Smith
and Robert P. Kogod.




Contractual Commitments

The following table summarizes information
contained in Managements Discussion and Analysis of
Financial Condition and Results of Operations and in our audited
financial statements in this Annual Report regarding contractual
commitments (amounts in millions):

|                                           |       |      |       |       |  |          |       |           |  |       |       |       |  |   |         |         |  |   |         |         | 
|------------------------------------------ | ----- | ---- | ----- | ----- |  | -------- | ----- | --------- |  | ----- | ----- | ----- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                           |       |      |       |       |  | 2006 and |       | 2008 thru |  |      
|                                           |       | 2004 |       | 2005  |  | 2007     |       | 2096      |  | Total
|                                           |       |      |       |       |  |          |       |           |  |      
|Scheduled long-term debt maturities        |       | $    | 113.5 |       |  | $        | 319.9 |           |  | $     | 871.0 |       |  | $ | 2,495.2 |         |  | $ | 3,799.6 |        
|Unsecured credit facilities(1)             |       |      | 6.8   |       |  |          |      |           |  |       | 97.0  |       |  |   |        |         |  |   | 103.8   |        
|Development and redevelopment expenditures |       |      | 498.4 |       |  |          |      |           |  |       |      |       |  |   |        |         |  |   | 498.4   |        
|Performance bond guarantees(2)             |       |      | 38.6  |       |  |          | 0.4   |           |  |       |      |       |  |   |        |         |  |   | 39.0    |        
|Lease commitments and other(3)             |       |      | 7.3   |       |  |          | 6.8   |           |  |       | 12.9  |       |  |   | 202.5   |         |  |   | 229.5   |        
|                                           |       |      |       |       |  |          |       |           |  |       |       |       |  |   |         |         |  |   |         |        
|                                           | Total |      | $     | 664.6 |  |          | $     | 327.1     |  |       | $     | 980.9 |  |   | $       | 2,697.7 |  |   | $       | 4,670.3 | 
|                                           |       |      |       |       |  |          |       |           |  |       |       |       |  |   |         |         |  |   |         |        



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In October 2003, we completed the renewal of our
    unsecured revolving line of credit. The new facility has a total
    capacity of $600 million and a three-year term, with a
    one-year extension option available at our discretion.                                                                                                                                                                                                                                                                                                                                                                        
|   
|(2) | The Operating Trust, our subsidiaries and
    investees have not been required to perform on these guarantees,
    nor do we anticipate being required to perform on such
    guarantees. Since we believe that our risk of loss under these
    contingencies is remote, no accrual for potential loss has been
    made in the accompanying financial statements. We are still
    obligated for performance bond guarantees for CES and SMC
    subsequent to their sale, but there are recourse provisions
    available to us to recover any potential future payments from
    the new owners of CES and SMC.

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|    |                                                                                           
|--- | ------------------------------------------------------------------------------------------
|(3) | Lease commitments relate principally to ground
    lease payments as of December 31, 2003.




Related Party Transactions

In 2003, we acquired our chief executive
officers voting interest in Ameriton for approximately
$72,000 and now own 100% of the voting and non-voting stock of
Ameriton. Our chief executive officers initial investment
in Ameriton Holdings, LLC was $50,000. Before this transaction,
we owned 100% of the non-voting stock in Ameriton, representing
a 95% economic interest and Ameriton Holdings owned 100% of the
voting stock of Ameriton, representing a 5% economic interest.
We also owned a non-voting membership interests in Ameriton
Holdings representing a 95% economic interest and our chief
executive officer owned 100% of the voting membership interest
in Ameriton Holdings representing a 5% economic interest.
Accordingly, Archstone-Smith Trust did not have a direct or
indirect voting interest in Ameriton. Our chief executive
officer did not receive any loans or other consideration from
Archstone-Smith, our subsidiaries or our affiliates in
connection with the purchase of his interests in Ameriton.

Ameriton paid approximately $1.5 million and
$3.38 million to certain officers and employees of
Archstone-Smith related to realized returns on investments sold
during 2003 and 2002, respectively, none of which were made to
members of Ameritons board. Four members of
Ameritons board (James H. Polk, III,
John C. Schweitzer, R. Scot Sellers and
Charles E. Mueller, Jr.) were Trustees of Archstone-Smith
or executive officers of the Operating Trust.

Prior to the sale in December 2002, our interest
in CES was structured similarly to that of our interest in
Ameriton, as described above, whereby an entity managed by our
chief executive officer held 100% of the voting stock. Our chief
executive officer did not receive any loans or other
consideration from the Operating Trust, our subsidiaries or our
affiliates in connection with the purchase of his interests in
CES. In connection with the sale, our chief executive
officers received proceeds of $5,325 and his initial basis
was $19,093. All CES board members (Ernest A Gerardi, Jr.,
Robert H. Smith, Dana K. Hamilton and Messrs. Sellers and
Mueller) were Trustees of Archstone-Smith or executive officers
of the Operating Trust. Furthermore, Mr. Gerardi was an
officer of CES. In connection with the sale of CES,
Mr. Gerardi received a disposition incentive bonus of
$2.75 million.

Prior to the sale in February 2003, our interest
in SMC was structured similarly to that of our interest in
Ameriton, as described above, whereby an entity managed by our
chief executive officer held 100% of the voting stock. Our chief
executive officer did not receive any loans or other
consideration from the Operating Trust, our subsidiaries or our
affiliates in connection with the purchase of his interests in
SMC. In connection with the sale, our chief executive
officers received proceeds of $8,626 and his initial basis
was $4,410. All SMC board members (Robert P. Kogod,
Ms. Hamilton and Messrs. Smith, Sellers and Mueller)
were Trustees of Archstone-Smith or executive officers of the
Operating Trust. During February 2003, we sold our interest in
SMC.

During 1997, as part of the employee share
purchase plan, certain officers and other employees purchased
Common Shares of Archstone-Smith. Archstone-Smith financed 95%
of the total purchase price by issuing notes representing
approximately $17.1 million. As of December 31, 2003,
the aggregate outstanding balances on these notes were
approximately $1.1 million. In an effort to eliminate all
employee loans, Archstone-Smith made an offer to the remaining
participants of this plan to repurchase their Common Shares as
of December 27, 2002, using the closing price of
Archstone-Smith Common Shares on that date. The proceeds of the
repurchase were used to pay off the outstanding loan balance,
with any excess going to the participant. In addition, the
participant received one fully vested and exercisable option for
each share that was repurchased, with a term not to exceed the
remaining term on the promissory note for the outstanding loan.
No stock-based employee compensation expense was recognized
in-connection with the issuance of these fully vested and
exercisable options, as all options granted had an exercise
price equal to the market value of the underlying common stock
on the date of grant and are not considered replacement awards.
A total of 81,685 Common Shares were repurchased for a total of
$1.9 million.

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New Accounting Pronouncements

In December 2003, the FASB issued FASB
Interpretation No. 46 Consolidation of Variable
Interest Entities (revised). This Interpretation
replaces FASB Interpretation No. 46, Consolidation
of Variable Interest Entities, which was issued in
January 2003 and clarifies the application of Accounting
Research Bulletin No. 51 Consolidated Financial
Statements. FIN 46R requires us to consolidate
our existing variable interest entities in which we have the
majority variable interest. Due to the adoption of this
Interpretation, we have consolidated the results of Ameriton,
for all periods presented. We have evaluated all other joint
ventures and found there to be no material impact.

In April 2003, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 149,
Amendment of Statement 133 on Derivative Instruments
and Hedging Activities. We adopted this Statement for
contracts or hedging relationships entered into or modified
after June 30, 2003. Its purpose is to provide more
consistent application and clarification of SFAS 133. The
adoption of SFAS 149 did not have a material impact on our
financial position, net earnings or cash flows.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity. This Statement is effective for financial
instruments entered into or modified after May 31, 2003,
with the exception of the application to non-controlling
(minority) interests in finite-life entities, which has been
deferred indefinitely. The Statement requires that certain
financial instruments, formerly presented as equity, be
classified as liabilities. The adoption of SFAS 150 did not
have a material impact on our financial position, net earnings
or cash flows.

In December 2003, the FASB issued
SFAS No. 132, Employer Disclosure about
Pension and Other Post Retirement Benefits (revised).
This statement is effective for financial statements with fiscal
years ending after December 15, 2003. The statement revises
the necessary disclosures about pension plans. The adoption of
SFAS 132 (revised) did not have a material impact on our
financial position, net earnings or cash flows.






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



| |                  
| | -----------------
| | Stock Investments

We have both public and private investments in
equity securities. The publicly traded equity securities are
classified as available for sale securities and
carried at fair value, with unrealized gains and losses reported
as a separate component of shareholders equity. The
private investments, for which we lack the ability to exercise
significant influence, are accounted for at cost. Declines in
the value of public and private investments that our management
determines are other than temporary, are recorded as a provision
for possible loss on investments. Our evaluation of the carrying
value of these investments is primarily based upon a regular
review of market valuations (if available), each companys
operating performance and assumptions underlying cash flow
forecasts. In addition, our management considers events and
circumstances that may signal the impairment of an investment.
During 2001, we concluded that our investments in private
service and technology companies were impaired due to the
financial position of the investees. Since the decline was
deemed to be other than temporary, we recorded a
$12.2 million provision for possible loss on investments
during 2001.



| |                                             
| | --------------------------------------------
| | Use of Derivatives in Hedging
    Activities

We are exposed to the impact of interest rate
changes and will occasionally utilize interest rate swaps and
interest rate caps as hedges with the objective of lowering our
overall borrowing costs. These derivatives are designated as
either cash flow or fair value hedges. We are also exposed to
price risk associated with changes in the fair value of certain
equity securities. We have entered into forward sale agreements
to protect against a reduction in the fair value of these
securities. We have designated this forward sale as a fair value
hedge. We do not use these derivatives for trading or other
speculative purposes. Further, as a matter of policy, we only
enter into contracts with major financial institutions based
upon their credit ratings and other factors. When

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viewed in conjunction with the underlying and
offsetting exposure that the derivatives are designed to hedge,
we have not, nor do we expect to sustain a material loss from
the use of these hedging instruments.


We formally assess, both at inception of the
hedge and on an ongoing basis, whether each derivative is highly
effective in offsetting changes in fair values or cash flows of
the hedged item. We measure hedge effectiveness by comparing the
changes in the fair value or cash flows of the derivative
instrument with the changes in the fair value or cash flows of
the hedged item. We exclude the hedging instruments time
value component when assessing hedge effectiveness. If it is
determined that a derivative is not highly effective as a hedge
or if a derivative ceases to be a highly effective hedge, we
will discontinue hedge accounting prospectively.

To determine the fair values of derivative and
other financial instruments, we use a variety of methods and
assumptions that are based on market value conditions and risks
existing at each balance sheet date. These methods and
assumptions include standard market conventions and techniques
such as discounted cash flow analysis, option pricing models,
replacement cost and termination cost. All methods of assessing
fair value result in a general approximation of value, and
therefore, are not necessarily indicative of the actual amounts
that we could realize upon disposition. During the
3rd quarter of 2003, we entered into a forward sale
agreement with a notional amount, which represents the fair
value of the underlying marketable securities, of approximately
$46.8 million. In the 4th quarter of 2003, we entered
into two additional forward sale agreements with a notional
amount of approximately $81.7 million. The forward sales
agreements fair value at December 31, 2003 and 2002 were
$250,000 and $0, respectively. The sale of certain marketable
securities in accordance with forward sale contracts is expected
to result in realized gains of approximately $22.0 million
in 2004.

The following table summarizes the notional
amount, carrying value and estimated fair value of our
derivative financial instruments, as of December 31, 2003
(dollar amounts in thousands). The notional amount represents
the aggregate amount of a particular security that is currently
hedged at one time, but does not represent exposure to credit,
interest rate or market risks.

|                   |                            |                         |              |            |         |                |  |           |           |           |   |        |        |       | 
|------------------ | -------------------------- | ----------------------- | ------------ | ---------- | ------- | -------------- |  | --------- | --------- | --------- | - | ------ | ------ | ----- | 
|                   |                            |                         |              |            |         | Carrying and  
|                   |                            | Notional                |              | Maturity   |         | Estimated Fair
|                   |                            | Amount                  |              | Date Range |         | Value         
|                   |                            |                         |              |            |         |               
|Cash flow hedges:  |                            |                         |              |            |         |                |  |           |           |           |   |       
|                   | Interest rate caps         |                         | $            | 34,508     |         |                |  | 2005      |           |           | $ |       |       
|                   | Interest rate swaps        |                         |              | 150,000    |         |                |  | 2006      |           |           |   | (9,819 | )     
|                   |                            |                         |              |            |         |                |  |           |           |           |   |       
|                   |                            | Total cash flow hedges  |              | $          | 184,508 |                |  |           | 2005-2006 |           |   | $      | (9,819 | )    
|                   |                            |                         |              |            |         |                |  |           |           |           |   |       
|Fair value hedges: |                            |                         |              |            |         |                |  |           |           |           |   |       
|                   | Interest rate swaps        |                         | $            | 104,005    |         |                |  | 2006-2008 |           |           | $ | 8,822  |       
|                   | Total rate of return swaps |                         |              | 69,756     |         |                |  | 2004-2007 |           |           |   | 3,762  |       
|                   | Forward sales agreement    |                         |              | 128,500    |         |                |  | 2004      |           |           |   | 250    |       
|                   |                            |                         |              |            |         |                |  |           |           |           |   |       
|                   |                            | Total fair value hedges |              | $          | 302,261 |                |  |           | 2004-2008 |           |   | $      | 12,834 |      
|                   |                            |                         |              |            |         |                |  |           |           |           |   |       
|                   |                            |                         | Total hedges |            | $       | 486,769        |  |           |           | 2004-2008 |   |        | $      | 3,015 | 
|                   |                            |                         |              |            |         |                |  |           |           |           |   |       



| |                                        
| | ---------------------------------------
| | Interest Rate Sensitive
    Liabilities

The table below provides information about our
liabilities that are sensitive to changes in interest rates as
of December 31, 2003. As the table incorporates only those
exposures that existed as of December 31, 2003, it does not
consider those exposures or positions, which could arise after
that date.

Moreover, because there were no firm commitments
to actually sell these instruments at fair value as of
December 31, 2003, the information presented herein is an
estimate and has limited predictive value. As a result, our
ultimate realized gain or loss, if any, will depend on the
exposures that arise during future periods, hedging strategies,
prevailing interest rates and other market factors existing at
the time. The debt

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classification and interest rates shown below
give effect to fair value hedges and other fees or expenses,
where applicable (in thousands)


|                                     |                              |                    |                                  |       |        |      |   |      |         |      |   |            |         |         |   |           |         |      |   |   |         |      |   |   |         |      |   |         |           |   |   |         |           |   | 
|------------------------------------ | ---------------------------- | ------------------ | -------------------------------- | ----- | ------ | ---- | - | ---- | ------- | ---- | - | ---------- | ------- | ------- | - | --------- | ------- | ---- | - | - | ------- | ---- | - | - | ------- | ---- | - | ------- | --------- | - | - | ------- | --------- | - | 
|                                     |                              |                    |                                  |       |        |      |   |      |         |      |   |            |         |         |   | Estimated
|                                     |                              |                    |                                  |       |        |      |   |      |         |      |   |            |         | Total   |   | Fair     
|                                     |                              | 2004               |                                  | 2005  |        | 2006 |   | 2007 |         | 2008 |   | Thereafter |         | Balance |   | Value(1) 
|                                     |                              |                    |                                  |       |        |      |   |      |         |      |   |            |         |         |   |          
|Interest rate sensitive liabilities: |                              |                    |                                  |       |        |      |   |      |         |      |   |            |         |         |   |           |         |      |   |   |         |      |   |   |         |      |   |         |           |   |   |        
|                                     | Unsecured Credit Facilities: |                    | $                                | 6,790 |        |      | $ |     |         |      | $ | 97,000     |         |         | $ |          |         |      | $ |  |         |      | $ |  |         |      | $ | 103,790 |           |   | $ | 103,790 |          
|                                     |                              |                    | Average nominal interest rate(2) |       |        | 1.95 | % |      |         |     |   |            |         | 1.95    | % |           |         |     |   |   |         |     |   |   |         |     |   |         |           |  |   |         |           |  | 
|                                     | Long-Term Unsecured Debt:    |                    |                                  |       |        |      |   |      |         |      |   |            |         |         |   |           |         |      |   |   |         |      |   |   |         |      |   |         |           |   |   |         |          
|                                     |                              | Fixed rate         |                                  | $     | 51,250 |      |   | $    | 251,250 |      |   | $          | 51,250  |         |   | $         | 386,250 |      |   | $ | 311,250 |      |   | $ | 719,917 |      |   | $       | 1,771,167 |   |   | $       | 1,942,491 |  
|                                     |                              |                    | Average nominal interest rate(2) |       |        | 7.24 | % |      |         | 8.01 | % |            |         | 7.29    | % |           |         | 5.30 | % |   |         | 3.84 | % |   |         | 7.30 | % |         |           |  |   |         |           |  | 
|                                     |                              | Variable rate(3)   |                                  | $     |       |      |   | $    |        |      |   | $          |        |         |   | $         |        |      |   | $ | 23,711  |      |   | $ | 77,087  |      |   | $       | 100,798   |   |   | $       | 100,798   |  
|                                     |                              |                    | Average nominal interest rate(2) |       |        |      |   |      |         |      |   |            |         |         |   |           |         |      |   |   |         | 1.60 | % |   |         | 1.76 | % |         |           |  |   |         |           |  | 
|                                     | Mortgages payable:           |                    |                                  |       |        |      |   |      |         |      |   |            |         |         |   |           |         |      |   |   |         |      |   |   |         |      |   |         |           |   |   |         |          
|                                     |                              | Fixed rate debt    |                                  | $     | 48,142 |      |   | $    | 21,134  |      |   | $          | 301,268 |         |   | $         | 95,825  |      |   | $ | 123,788 |      |   | $ | 942,283 |      |   | $       | 1,532,440 |   |   | $       | 1,637,683 |  
|                                     |                              |                    | Average nominal interest rate(2) |       |        | 7.26 | % |      |         | 7.25 | % |            |         | 6.13    | % |           |         | 6.71 | % |   |         | 6.93 | % |   |         | 7.29 | % |         |           |  |   |         |           |  | 
|                                     |                              | Variable rate debt |                                  | $     | 14,130 |      |   | $    | 47,560  |      |   | $          | 3,124   |         |   | $         | 33,237  |      |   | $ | 2,644   |      |   | $ | 294,490 |      |   | $       | 395,185   |   |   | $       | 395,189   |  
|                                     |                              |                    | Average nominal interest rate(2) |       |        | 2.32 | % |      |         | 3.08 | % |            |         | 1.04    | % |           |         | 2.76 | % |   |         | 1.05 | % |   |         | 1.27 | % |         |           |  |   |         |           |  | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The estimated fair value for each of the
    liabilities listed was calculated by discounting the actual
    principal payment stream at prevailing interest rates (obtained
    from third party financial institutions) currently available on
    debt instruments with similar terms and features.                                                                                                                                                                                                                                                                                                    
|   
|(2) | Reflects the weighted average nominal interest
    rate on the liabilities outstanding during each period, giving
    effect to principal payments and final maturities during each
    period, if any. The nominal rates for variable rate mortgages
    payable have been held constant during each period presented
    based on the actual variable rates as of December 31, 2003.
    The weighted average effective interest rate on the unsecured
    credit facilities, Long- Term Unsecured Debt and mortgages
    payable was 2.55%, 6.22% and 5.57%, respectively, as of
    December 31, 2003.
|   
|(3) | Represents unsecured tax-exempt bonds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    






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

Our Balance Sheets as of December 31, 2003
and 2002, and our Statements of Earnings, Shareholders
Equity and Cash Flows for each of the years in the three-year
period ended December 31, 2003 and
Schedule III  Real Estate and Accumulated
Depreciation, together with the reports of KPMG LLP, independent
auditors, are included under Item 15 of this Annual Report
and are incorporated herein by reference. Selected quarterly
financial data is presented in Note 12 of our audited
financial statements in this Annual Report.






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

Not applicable.






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

An evaluation was carried out under the
supervision and with the participation of management, including
our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-14(c) under the Securities Exchange Act
of 1934). Based on their evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that our disclosure
controls and procedures were, to the best of their knowledge,
effective as of December 31, 2003, to ensure that

46



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##### Table of Contents



information required to be disclosed in reports
that are filed or submitted under the Securities Exchange Act
are recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules
and forms. Subsequent to December 31, 2003, there were no
significant changes in the Operating Trusts disclosure
controls or in other factors that could significantly affect
these controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.




Part III






|         |                                                      
|-------- | -----------------------------------------------------
|Item 10. | Trustees and Executive Officers of the
    Registrant

For information regarding our senior officers,
see Item 1. Business  Officers of
Archstone-Smith. For information on our Code of Ethics,
see Item 1. Business  Available
Information and Code of Ethics. The other information
required by this Item 10 is incorporated herein by
reference to the description under the captions Election
of Trustees, Section 16(a) Beneficial Ownership
Reporting Compliance, and Report of the Audit
Committee in our definitive proxy statement for our annual
meeting of shareholders (2004 Proxy Statement).






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Incorporated herein by reference to the
description under the captions Election of Trustees
and Executive Compensation in the 2004 Proxy
Statement.






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

Incorporated herein by reference to the
description under the captions Principal
Shareholders and Election of Trustees in the
2004 Proxy Statement.



| |                                         
| | ----------------------------------------
| | Equity Compensation Plan
    Information

|                                                               |       |                      |           |                   |  |                           |       |       |  |  |           |           | 
|-------------------------------------------------------------- | ----- | -------------------- | --------- | ----------------- |  | ------------------------- | ----- | ----- |  |  | --------- | --------- | 
|                                                               |       |                      |           |                   |  | (c)                      
|                                                               |       | (a)                  |           | (b)               |  | Number of securities     
|                                                               |       | Number of securities |           | Weighted-average  |  | remaining available for  
|                                                               |       | to be issued upon    |           | exercise price of |  | future issuance under    
|                                                               |       | exercise of          |           | outstanding       |  | equity compensation plans
|                                                               |       | outstanding options, |           | options, warrants |  | (excluding securities    
|Plan Category                                                  |       | warrants and rights  |           | and rights        |  | reflected in column (a)) 
|                                                               |       |                      |           |                   |  |                          
|Equity compensation plans approved by security
    holders     |       |                      | 6,387,742 |                   |  | $                         | 23.15 |       |  |  | 8,840,470 |          
|Equity compensation plans not approved by
    security holders |       |                      |          |                   |  |                           |      |       |  |  |          |          
|                                                               |       |                      |           |                   |  |                           |       |       |  |  |           |          
|                                                               | Total |                      |           | 6,387,742         |  |                           | $     | 23.15 |  |  |           | 8,840,470 | 
|                                                               |       |                      |           |                   |  |                           |       |       |  |  |           |          






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Incorporated herein by reference to the
description under the caption Certain Relationships and
Transactions in the 2004 Proxy Statement.






|         |                                            
|-------- | -------------------------------------------
|Item 14. | Principal Accountants Fees and
    Services

Incorporated herein by reference to the
description under the caption, Ratification of
Relationship with Public Accountants in the 2004 Proxy
Statement.

47



---



##### Table of Contents






Part IV






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

The following documents are filed as part of this
report:



| |                                       
| | --------------------------------------
| | (a) Financial Statements and Schedule:



| |                         
| | ------------------------
| | 1.  Financial Statements



| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | See Index to Financial Statements and Schedule on
    page 48 of this report, which is incorporated herein by
    reference.



| |                                  
| | ---------------------------------
| | 2.  Financial Statement Schedule:



| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | See Schedule III on page 89 of this
    report, which is incorporated herein by reference.                                                                       
|
| | All other schedules have been omitted since the
    required information is presented in the financial statements
    and the related notes or is not applicable.



| |             
| | ------------
| | 3.  Exhibits



| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | See Index to Exhibits on page 93 of this
    report, which is incorporated herein by reference.



| |                         
| | ------------------------
| | (b) Reports on Form 8-K:



| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | The following reports on Form 8-K were filed
    during the last quarter of the period covered by this report:

|           |          |                |  |                      |    |  |  |  |    | 
|---------- | -------- | -------------- |  | -------------------- | -- |  |  |  | -- | 
|Date Filed |          | Items Reported |  | Financial Statements
|           |          |                |  |                     
|           | 12/10/03 |                |  |                      | 11 |  |  |  | No | 



| |              
| | -------------
| | (c) Exhibits:



| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Exhibits required by Item 601 of
    Registration S-K are listed in the Index to Exhibits on
    page 93 of this Annual Report, which is incorporated herein
    by reference.

48



---



##### Table of Contents



INDEX TO FINANCIAL STATEMENTS AND
SCHEDULE

|                      |                                                                                                                                       |      |  |    | 
|--------------------- | ------------------------------------------------------------------------------------------------------------------------------------- | ---- |  | -- | 
|                      |                                                                                                                                       | Page
|                      |                                                                                                                                       |     
|Archstone-Smith Trust |                                                                                                                                       |      |  |   
|                      | Independent Auditors Report                                                                                                          |      |  | 50 | 
|                      | Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                                                      |      |  | 51 | 
|                      | Consolidated Statements of Earnings for the years
    ended December 31, 2003, 2002 and 2001                                          |      |  | 52 | 
|                      | Consolidated Statements of Shareholders
    Equity and Comprehensive Income for the years ended
    December 31, 2003, 2002 and 2001 |      |  | 53 | 
|                      | Consolidated Statements of Cash Flows for the
    years ended December 31, 2003, 2002 and 2001                                        |      |  | 54 | 
|                      | Notes to Consolidated Financial Statements                                                                                            |      |  | 55 | 
|                      | Independent Auditors Report on Financial
    Statement Schedule                                                                      |      |  | 89 | 
|                      | Schedule III  Real Estate and
    Accumulated Depreciation as of December 31, 2003                                                   |      |  | 90 | 
|                      | Signatures                                                                                                                            |      |  | 92 | 
|                      | Index to Exhibits                                                                                                                     |      |  | 94 | 

49



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Board of Trustees and Shareholders

Archstone-Smith Trust:


We have audited the accompanying consolidated
balance sheets of Archstone-Smith Trust and subsidiaries as of
December 31, 2003 and 2002, and the related consolidated
statements of earnings, shareholders equity and
comprehensive income, and cash flows for each of the years in
the three-year period ended December 31, 2003. These
consolidated financial statements are the responsibility of
Archstone-Smith Trusts management. Our responsibility is
to express an opinion on these consolidated financial statements
based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. 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 consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Archstone-Smith Trust and
subsidiaries as of December 31, 2003 and 2002, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2003 in
conformity with accounting principles generally accepted in the
United States of America.

As discussed in Note 1 to the consolidated
financial statements, effective July 1, 2003,
Archstone-Smith Trust adopted FASB Interpretation No. 46
Consolidation of Variable Interest Entities
(revised). As a result, the accompanying consolidated financial
statements, referred to above, have been restated to reflect the
consolidated financial position and results of operations of
Archstone-Smith Trust and certain previously unconsolidated
entities in accordance with accounting principles generally
accepted in the United States of America.



| |         
| | --------
| | KPMG LLP

Denver, Colorado

February 9, 2004


50



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##### Table of Contents



ARCHSTONE-SMITH TRUST

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |           |           | 
|---------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                                           |                                                                                                                                                                      |                                           
|                                                           |                                                                                                                                                                      | December 31,                              
|                                                           |                                                                                                                                                                      |                                           
|                                                           |                                                                                                                                                                      | 2003                                       |           | 2002     
|                                                           |                                                                                                                                                                      |                                            |           |          
|ASSETS                                                    
|Real estate                                                |                                                                                                                                                                      | $                                          | 8,738,116 |           |           | $ | 7,406,437 |          
|Real estate held for sale                                  |                                                                                                                                                                      |                                            | 261,064   |           |           |   | 1,891,298 |          
|Less accumulated depreciation                              |                                                                                                                                                                      |                                            | 648,982   |           |           |   | 578,855   |          
|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|                                                           |                                                                                                                                                                      |                                            | 8,350,198 |           |           |   | 8,718,880 |          
|Investments in and advances to unconsolidated
    entities |                                                                                                                                                                      |                                            | 86,367    |           |           |   | 116,594   |          
|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|                                                           |                                                                                                                                                                      | Net real estate investments                |           |           | 8,436,565 |   |           |           | 8,835,474 | 
|Cash and cash equivalents                                  |                                                                                                                                                                      |                                            | 5,230     |           |           |   | 12,846    |          
|Restricted cash in tax-deferred exchange escrow            |                                                                                                                                                                      |                                            | 180,920   |           |           |   |          |          
|Other assets                                               |                                                                                                                                                                      |                                            | 298,980   |           |           |   | 247,706   |          
|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|                                                           |                                                                                                                                                                      | Total assets                               |           | $         | 8,921,695 |   |           | $         | 9,096,026 | 
|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|                                                          
|LIABILITIES AND SHAREHOLDERS
    EQUITY                  
|Liabilities:                                               |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|                                                           | Unsecured credit facilities                                                                                                                                          |                                            | $         | 103,790   |           |   | $         | 365,578   |          
|                                                           | Long-Term Unsecured Debt                                                                                                                                             |                                            |           | 1,871,965 |           |   |           | 1,776,103 |          
|                                                           | Mortgages payable                                                                                                                                                    |                                            |           | 1,891,991 |           |   |           | 1,838,386 |          
|                                                           | Mortgages payable  held for sale                                                                                                                                    |                                            |           | 35,634    |           |   |           | 341,611   |          
|                                                           | Dividends payable                                                                                                                                                    |                                            |           | 1,593     |           |   |           | 81,228    |          
|                                                           | Accounts payable                                                                                                                                                     |                                            |           | 27,086    |           |   |           | 29,157    |          
|                                                           | Accrued expenses and other liabilities                                                                                                                               |                                            |           | 252,533   |           |   |           | 272,236   |          
|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|                                                           |                                                                                                                                                                      | Total liabilities                          |           |           | 4,184,592 |   |           |           | 4,704,299 | 
|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|Minority interest                                          |                                                                                                                                                                      |                                            | 592,416   |           |           |   | 547,909   |          
|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|Shareholders equity:                                      |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|                                                           | Convertible Preferred Shares                                                                                                                                         |                                            |           | 50,000    |           |   |           | 194,671   |          
|                                                           | Perpetual Preferred Shares                                                                                                                                           |                                            |           | 98,940    |           |   |           | 99,370    |          
|                                                           | Common Shares (Par value $0.01;
    450,000,000 shares authorized; 194,762,263 and
    180,705,795 shares issued and outstanding in 2003 and 2002,
    respectively) |                                            |           | 1,948     |           |   |           | 1,807     |          
|                                                           | Additional paid-in capital                                                                                                                                           |                                            |           | 3,952,404 |           |   |           | 3,700,349 |          
|                                                           | Accumulated other comprehensive income (loss)                                                                                                                        |                                            |           | 14,235    |           |   |           | (12,339   | )        
|                                                           | Retained Earnings (Distributions in excess of net
    earnings)                                                                                                      |                                            |           | 27,160    |           |   |           | (140,040  | )        
|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|                                                           |                                                                                                                                                                      | Total shareholders equity                 |           |           | 4,144,687 |   |           |           | 3,843,818 | 
|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|                                                           |                                                                                                                                                                      | Total liabilities and shareholders equity |           | $         | 8,921,695 |   |           | $         | 9,096,026 | 
|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |          

The accompanying notes are an integral part of
these consolidated financial statements.

51



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ARCHSTONE-SMITH TRUST

CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share
amounts)


|                                                       |                                                                 |                          |         |         |         |      |         |         |         |   |         |         |         | 
|------------------------------------------------------ | --------------------------------------------------------------- | ------------------------ | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                       |                                                                 |                         
|                                                       |                                                                 | Years Ended December 31,
|                                                       |                                                                 |                         
|                                                       |                                                                 | 2003                     |         | 2002    |         | 2001
|                                                       |                                                                 |                          |         |         |         |     
|Revenues:                                              |                                                                 |                          |         |         |         |      |         |         |         |   |         |        
|                                                       | Rental revenues                                                 |                          | $       | 881,041 |         |      | $       | 852,295 |         |   | $       | 544,063 |        
|                                                       | Other income                                                    |                          |         | 19,334  |         |      |         | 9,462   |         |   |         | 11,905  |        
|                                                       |                                                                 |                          |         |         |         |      |         |         |         |   |         |        
|                                                       |                                                                 | Total revenues           |         |         | 900,375 |      |         |         | 861,757 |   |         |         | 555,968 | 
|                                                       |                                                                 |                          |         |         |         |      |         |         |         |   |         |        
|Expenses:                                              |                                                                 |                          |         |         |         |      |         |         |         |   |         |        
|                                                       | Rental expenses                                                 |                          |         | 235,351 |         |      |         | 226,633 |         |   |         | 130,982 |        
|                                                       | Real estate taxes                                               |                          |         | 84,330  |         |      |         | 77,292  |         |   |         | 46,433  |        
|                                                       | Depreciation on real estate investments                         |                          |         | 187,677 |         |      |         | 167,029 |         |   |         | 102,477 |        
|                                                       | Interest expense                                                |                          |         | 186,832 |         |      |         | 190,005 |         |   |         | 88,081  |        
|                                                       | General and administrative expenses                             |                          |         | 49,838  |         |      |         | 45,710  |         |   |         | 27,434  |        
|                                                       | Provisions for possible loss on investments                     |                          |         |        |         |      |         |        |         |   |         | 14,927  |        
|                                                       | Other expenses                                                  |                          |         | 48,085  |         |      |         | 27,469  |         |   |         | 15,564  |        
|                                                       |                                                                 |                          |         |         |         |      |         |         |         |   |         |        
|                                                       |                                                                 | Total expenses           |         |         | 792,113 |      |         |         | 734,138 |   |         |         | 425,898 | 
|                                                       |                                                                 |                          |         |         |         |      |         |         |         |   |         |        
|Earnings from operations                               |                                                                 |                          | 108,262 |         |         |      | 127,619 |         |         |   | 130,070 |        
|                                                       | Less: minority interest                                         |                          |         | 15,558  |         |      |         | 29,261  |         |   |         | 14,658  |        
|                                                       | Plus: gains on dispositions of depreciated real
    estate, net |                          |         |        |         |      |         | 35,950  |         |   |         | 108,748 |        
|                                                       | Income from unconsolidated entities                             |                          |         | 5,745   |         |      |         | 53,602  |         |   |         | 10,998  |        
|                                                       |                                                                 |                          |         |         |         |      |         |         |         |   |         |        
|Net earnings before discontinued operations            |                                                                 |                          | 98,449  |         |         |      | 187,910 |         |         |   | 235,158 |        
|                                                       | Plus: net earnings from discontinued apartment
    communities  |                          |         | 335,208 |         |      |         | 126,905 |         |   |         | 22,834  |        
|                                                       |                                                                 |                          |         |         |         |      |         |         |         |   |         |        
|Net earnings                                           |                                                                 |                          | 433,657 |         |         |      | 314,815 |         |         |   | 257,992 |        
|                                                       | Less: Preferred Share dividends                                 |                          |         | 20,997  |         |      |         | 32,185  |         |   |         | 25,877  |        
|                                                       |                                                                 |                          |         |         |         |      |         |         |         |   |         |        
|Net earnings attributable to Common
    Shares  Basic |                                                                 | $                        | 412,660 |         |         | $    | 282,630 |         |         | $ | 232,115 |        
|                                                       |                                                                 |                          |         |         |         |      |         |         |         |   |         |        
|Weighted average Common Shares outstanding:            |                                                                 |                          |         |         |         |      |         |         |         |   |         |        
|                                                       | Basic                                                           |                          |         | 187,170 |         |      |         | 177,757 |         |   |         | 130,331 |        
|                                                       |                                                                 |                          |         |         |         |      |         |         |         |   |         |        
|                                                       | Diluted                                                         |                          |         | 195,640 |         |      |         | 178,780 |         |   |         | 137,832 |        
|                                                       |                                                                 |                          |         |         |         |      |         |         |         |   |         |        
|Net earnings per Common Share  Basic:                 |                                                                 |                          |         |         |         |      |         |         |         |   |         |        
|                                                       | Net earnings before discontinued operations                     |                          | $       | 0.41    |         |      | $       | 0.88    |         |   | $       | 1.60    |        
|                                                       | Discontinued operations, net                                    |                          |         | 1.79    |         |      |         | 0.71    |         |   |         | 0.18    |        
|                                                       |                                                                 |                          |         |         |         |      |         |         |         |   |         |        
|                                                       | Net earnings                                                    |                          | $       | 2.20    |         |      | $       | 1.59    |         |   | $       | 1.78    |        
|                                                       |                                                                 |                          |         |         |         |      |         |         |         |   |         |        
|Net earnings per Common Share  Diluted:               |                                                                 |                          |         |         |         |      |         |         |         |   |         |        
|                                                       | Net earnings before discontinued operations                     |                          | $       | 0.41    |         |      | $       | 0.87    |         |   | $       | 1.60    |        
|                                                       | Discontinued operations, net                                    |                          |         | 1.77    |         |      |         | 0.71    |         |   |         | 0.17    |        
|                                                       |                                                                 |                          |         |         |         |      |         |         |         |   |         |        
|                                                       | Net earnings                                                    |                          | $       | 2.18    |         |      | $       | 1.58    |         |   | $       | 1.77    |        
|                                                       |                                                                 |                          |         |         |         |      |         |         |         |   |         |        
|Dividends paid per Common Share                        |                                                                 | $                        | 1.71    |         |         | $    | 1.70    |         |         | $ | 1.64    |        
|                                                       |                                                                 |                          |         |         |         |      |         |         |         |   |         |        

The accompanying notes are an integral part of
these consolidated financial statements.

52



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##### Table of Contents



ARCHSTONE-SMITH TRUST

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY AND

COMPREHENSIVE INCOME


Years Ended December 31, 2003, 2002 and
2001


(In thousands)


|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |                |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |           |         |  
|------------------------------ | -------------------------------------------------- | --------------------------------------------- | ------- | ----------- | - | --------- | ------- | ---------- | - | ------------- | ------- | -------------- | - | ----- | --------- | --------- | - | - | ------- | - | ------ | - | -------- | -------- | ------- | - | --------- | --------- | ------- | -
|                               |                                                    | Convertible                                   |         | Perpetual   |   |           |         |            |   |               |         |                |   |      
|                               |                                                    | Preferred                                     |         | Preferred   |   |           |         |            |   | Accumulated   |         | Retained       |   |      
|                               |                                                    | Shares at                                     |         | Shares at   |   |           |         |            |   | Other         |         | Earnings/      |   |      
|                               |                                                    | Aggregate                                     |         | Aggregate   |   | Common    |         | Additional |   | Comprehensive |         | (Distributions |   |      
|                               |                                                    | Liquidation                                   |         | Liquidation |   | Shares at |         | Paid-in    |   | Income        |         | in Excess of   |   |      
|                               |                                                    | Preference                                    |         | Preference  |   | Par Value |         | Capital    |   | (Loss)        |         | Net Earnings)  |   | Total
|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |                |   |      
|Balances at December 31, 2000  |                                                    | $                                             | 82,651  |             |   | $         | 204,205 |            |   | $             | 122,838 |                |   | $     | 1,942,506 |           |   | $ | 2,817   |   |        | $ | (103,411 | )        |         | $ | 2,251,606 |          
|                               | Comprehensive income:                              |                                               |         |             |   |           |         |            |   |               |         |                |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |           |        
|                               |                                                    | Net earnings                                  |         |             |  |           |         |            |  |               |         |                |  |       |           |           |  |   |         |   |       |   |          |          | 257,992 |   |           |           | 257,992 |  
|                               |                                                    | Cumulative effect of adoption of SFAS 133     |         |             |  |           |         |            |  |               |         |                |  |       |           |           |  |   |         |   | 3,831  |   |          |          |        |   |           |           | 3,831   |  
|                               |                                                    | Change in fair value of cash flow hedges      |         |             |  |           |         |            |  |               |         |                |  |       |           |           |  |   |         |   | (9,290 | ) |          |          |        |   |           |           | (9,290  | )
|                               |                                                    | Reclassification adjustment on realized gains |         |             |  |           |         |            |  |               |         |                |  |       |           |           |  |   |         |   | (2,167 | ) |          |          |        |   |           |           | (2,167  | )
|                               |                                                    | Change in fair value of marketable securities |         |             |  |           |         |            |  |               |         |                |  |       |           |           |  |   |         |   | (708   | ) |          |          |        |   |           |           | (708    | )
|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |                |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |          
|                               | Comprehensive income attributable to Common Shares |                                               |         |             |   |           |         |            |   |               |         |                |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           | 249,658   |        
|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |                |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |          
|                               | Preferred share dividends                          |                                               |         |            |   |           |         |           |   |               |         |               |   |       |           | 3,600     |   |   |         |  |        |   |          | (25,877  | )       |   |           | (22,277   | )      
|                               | Common Share distributions                         |                                               |         |            |   |           |         |           |   |               |         |               |   |       |           |          |   |   |         |  |        |   |          | (245,035 | )       |   |           | (245,035  | )      
|                               | Shares issued in connection with Smith Merger      |                                               |         | 146,500     |   |           |         | 50,000     |   |               |         | 550            |   |       |           | 1,485,233 |   |   |         |  |        |   |          |         |         |   |           | 1,682,283 |        
|                               | Repurchase of shares, net of expenses              |                                               |         |            |   |           |         | (772       | ) |               |         | (2,265         | ) |       |           | (47,735   | ) |   |         |  |        |   |          |         |         |   |           | (50,772   | )      
|                               | Redemption of Series B Preferred Shares            |                                               |         |            |   |           |         | (104,670   | ) |               |         |               |   |       |           |          |   |   |         |  |        |   |          |         |         |   |           | (104,670  | )      
|                               | Change in par value (Smith Merger)                 |                                               |         |            |   |           |         |           |   |               |         | (120,624       | ) |       |           | 120,624   |   |   |         |  |        |   |          |         |         |   |           |          |        
|                               | Other, net                                         |                                               |         | (3,800      | ) |           |         |           |   |               |         | 1,246          |   |       |           | 42,905    |   |   |         |  |        |   |          |         |         |   |           | 40,351    |        
|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |                |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |          
|Balances at December 31, 2001  |                                                    |                                               | 225,351 |             |   |           | 148,763 |            |   |               | 1,745   |                |   |       | 3,547,133 |           |   |   | (5,517  | ) |        |   | (116,331 | )        |         |   | 3,801,144 |          
|                               | Comprehensive income:                              |                                               |         |             |   |           |         |            |   |               |         |                |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |           |        
|                               |                                                    | Net earnings                                  |         |             |  |           |         |            |  |               |         |                |  |       |           |           |  |   |         |   |       |   |          |          | 314,815 |   |           |           | 314,815 |  
|                               |                                                    | Change in fair value of cash flow hedges      |         |             |  |           |         |            |  |               |         |                |  |       |           |           |  |   |         |   | (7,554 | ) |          |          |        |   |           |           | (7,554  | )
|                               |                                                    | Change in fair value of marketable securities |         |             |  |           |         |            |  |               |         |                |  |       |           |           |  |   |         |   | 732    |   |          |          |        |   |           |           | 732     |  
|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |                |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |          
|                               | Comprehensive income attributable to Common Shares |                                               |         |             |   |           |         |            |   |               |         |                |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           | 307,993   |        
|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |                |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |          
|                               | Preferred share dividends                          |                                               |         |            |   |           |         |           |   |               |         |               |   |       |           |          |   |   |         |  |        |   |          | (32,185  | )       |   |           | (32,185   | )      
|                               | Common Share dividends                             |                                               |         |            |   |           |         |           |   |               |         |               |   |       |           |          |   |   |         |  |        |   |          | (306,189 | )       |   |           | (306,189  | )      
|                               | A-1 Common Units converted into Common Shares      |                                               |         |            |   |           |         |           |   |               |         | 13             |   |       |           | 41,710    |   |   |         |  |        |   |          |         |         |   |           | 41,723    |        
|                               | Conversion of Preferred Shares into Common Shares  |                                               |         | (30,680     | ) |           |         |           |   |               |         | 17             |   |       |           | 30,663    |   |   |         |  |        |   |          |         |         |   |           |          |        
|                               | Common Share repurchases                           |                                               |         |            |   |           |         |           |   |               |         | (7             | ) |       |           | (15,355   | ) |   |         |  |        |   |          |         |         |   |           | (15,362   | )      
|                               | Preferred Share repurchases                        |                                               |         |            |   |           |         | (49,393    | ) |               |         |               |   |       |           | (11       | ) |   |         |  |        |   |          |         |         |   |           | (49,404   | )      
|                               | Proceeds from Dividend Reinvestment Plan (DRIP)    |                                               |         |            |   |           |         |           |   |               |         | 18             |   |       |           | 45,453    |   |   |         |  |        |   |          |         |         |   |           | 45,471    |        
|                               | Other, net                                         |                                               |         |            |   |           |         |           |   |               |         | 21             |   |       |           | 50,756    |   |   |         |  |        |   |          | (150     | )       |   |           | 50,627    |        
|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |                |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |          
|Balances at December 31, 2002  |                                                    |                                               | 194,671 |             |   |           | 99,370  |            |   |               | 1,807   |                |   |       | 3,700,349 |           |   |   | (12,339 | ) |        |   | (140,040 | )        |         |   | 3,843,818 |          
|                               | Comprehensive income:                              |                                               |         |             |   |           |         |            |   |               |         |                |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |           |        
|                               |                                                    | Net earnings                                  |         |             |  |           |         |            |  |               |         |                |  |       |           |           |  |   |         |   |       |   |          |          | 433,657 |   |           |           | 433,657 |  
|                               |                                                    | Change in fair value of cash flow hedges      |         |             |  |           |         |            |  |               |         |                |  |       |           |           |  |   |         |   | 3,439  |   |          |          |        |   |           |           | 3,439   |  
|                               |                                                    | Change in fair value of marketable securities |         |             |  |           |         |            |  |               |         |                |  |       |           |           |  |   |         |   | 23,135 |   |          |          |        |   |           |           | 23,135  |  
|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |                |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |          
|                               | Comprehensive income attributable to Common Shares |                                               |         |             |   |           |         |            |   |               |         |                |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           | 460,231   |        
|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |                |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |          
|                               | Preferred share dividends                          |                                               |         |            |   |           |         |           |   |               |         |               |   |       |           |          |   |   |         |  |        |   |          | (20,997  | )       |   |           | (20,997   | )      
|                               | Common Share dividends                             |                                               |         |            |   |           |         |           |   |               |         |               |   |       |           |          |   |   |         |  |        |   |          | (245,460 | )       |   |           | (245,460  | )      
|                               | A-1 Common Units converted into Common Shares      |                                               |         |            |   |           |         |           |   |               |         | 13             |   |       |           | 25,521    |   |   |         |  |        |   |          |         |         |   |           | 25,534    |        
|                               | Conversion of Preferred Shares into Common Shares  |                                               |         | (143,416    | ) |           |         |           |   |               |         | 91             |   |       |           | 143,325   |   |   |         |  |        |   |          |         |         |   |           |          |        
|                               | Common Share repurchases                           |                                               |         |            |   |           |         |           |   |               |         | (6             | ) |       |           | (13,157   | ) |   |         |  |        |   |          |         |         |   |           | (13,163   | )      
|                               | Preferred Share repurchases                        |                                               |         | (1,255      | ) |           |         | (430       | ) |               |         |               |   |       |           | (196      | ) |   |         |  |        |   |          |         |         |   |           | (1,881    | )      
|                               | Exercise of Options                                |                                               |         |            |   |           |         |           |   |               |         | 22             |   |       |           | 43,398    |   |   |         |  |        |   |          |         |         |   |           | 43,420    |        
|                               | Proceeds from Dividend Reinvestment Plan (DRIP)    |                                               |         |            |   |           |         |           |   |               |         | 21             |   |       |           | 48,105    |   |   |         |  |        |   |          |         |         |   |           | 48,126    |        
|                               | Other, net                                         |                                               |         |            |   |           |         |           |   |               |         |               |   |       |           | 5,059     |   |   |         |  |        |   |          |         |         |   |           | 5,059     |        
|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |                |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |          
|Balances at December 31, 2003. |                                                    | $                                             | 50,000  |             |   | $         | 98,940  |            |   | $             | 1,948   |                |   | $     | 3,952,404 |           |   | $ | 14,235  |   |        | $ | 27,160   |          |         | $ | 4,144,687 |          
|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |                |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |          

The accompanying notes are an integral part of
these consolidated financial statements.

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ARCHSTONE-SMITH TRUST

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In thousands)


|                                                 |                                                                                              |                                                              |        |           |          |      |        |          |          |   |        |           |          |  
|------------------------------------------------ | -------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ------ | --------- | -------- | ---- | ------ | -------- | -------- | - | ------ | --------- | -------- | -
|                                                 |                                                                                              |                                                             
|                                                 |                                                                                              | Years Ended December 31,                                    
|                                                 |                                                                                              |                                                             
|                                                 |                                                                                              | 2003                                                         |        | 2002      |          | 2001
|                                                 |                                                                                              |                                                              |        |           |          |     
|Operating activities:                            |                                                                                              |                                                              |        |           |          |      |        |          |          |   |        |          
|                                                 | Net earnings                                                                                 |                                                              | $      | 433,657   |          |      | $      | 314,815  |          |   | $      | 257,992   |         
|                                                 | Adjustments to reconcile net earnings to net cash
    flow provided by operating activities: |                                                              |        |           |          |      |        |          |          |   |        |           |         
|                                                 |                                                                                              | Depreciation and amortization                                |        |           | 210,427  |      |        |          | 212,178  |   |        |           | 140,435  |  
|                                                 |                                                                                              | Gains on dispositions of depreciated real estate,
    net    |        |           | (353,600 | )    |        |          | (139,604 | ) |        |           | (108,748 | )
|                                                 |                                                                                              | Provisions for possible loss on investments                  |        |           | 3,714    |      |        |          | 2,611    |   |        |           | 14,927   |  
|                                                 |                                                                                              | Minority interest                                            |        |           | 60,534   |      |        |          | 39,845   |   |        |           | 10,806   |  
|                                                 | Change in other assets                                                                       |                                                              |        | 19,441    |          |      |        | (25,597  | )        |   |        | (2,554    | )       
|                                                 | Change in accounts payable, accrued expenses and
    other liabilities                       |                                                              |        | (18,583   | )        |      |        | 40,462   |          |   |        | 24,546    |         
|                                                 | Other, net                                                                                   |                                                              |        | (6,149    | )        |      |        | (6,001   | )        |   |        | (5,251    | )       
|                                                 |                                                                                              |                                                              |        |           |          |      |        |          |          |   |        |          
|                                                 |                                                                                              | Net cash flow provided by operating activities               |        |           | 349,441  |      |        |          | 438,709  |   |        |           | 332,153  |  
|                                                 |                                                                                              |                                                              |        |           |          |      |        |          |          |   |        |          
|Investing activities:                            |                                                                                              |                                                              |        |           |          |      |        |          |          |   |        |          
|                                                 | Real estate investments                                                                      |                                                              |        | (932,777  | )        |      |        | (910,544 | )        |   |        | (605,498  | )       
|                                                 | Change in investments in and advances to
    unconsolidated entities, net                    |                                                              |        | 30,227    |          |      |        | 124,125  |          |   |        | (5,354    | )       
|                                                 | Proceeds from dispositions, net of closing costs                                             |                                                              |        | 1,563,556 |          |      |        | 579,451  |          |   |        | 1,175,199 |         
|                                                 | Change in tax-deferred exchange escrow                                                       |                                                              |        | (180,920  | )        |      |        | 120,421  |          |   |        | (116,440  | )       
|                                                 | Other, net                                                                                   |                                                              |        | (57,665   | )        |      |        | (104,456 | )        |   |        | (60,213   | )       
|                                                 |                                                                                              |                                                              |        |           |          |      |        |          |          |   |        |          
|                                                 |                                                                                              | Net cash flow provided by (used in) investing
    activities |        |           | 422,421  |      |        |          | (191,003 | ) |        |           | 387,694  |  
|                                                 |                                                                                              |                                                              |        |           |          |      |        |          |          |   |        |          
|Financing activities:                            |                                                                                              |                                                              |        |           |          |      |        |          |          |   |        |          
|                                                 | Proceeds from Long-Term Unsecured Debt                                                       |                                                              |        | 247,225   |          |      |        | 530,774  |          |   |        |          |         
|                                                 | Payments on Long-Term Unsecured Debt                                                         |                                                              |        | (171,250  | )        |      |        | (97,500  | )        |   |        | (69,700   | )       
|                                                 | Principal prepayment of mortgages payable,
    including prepayment penalties                |                                                              |        | (343,368  | )        |      |        | (705,103 | )        |   |        | (115,293  | )       
|                                                 | Regularly scheduled principal payments on
    mortgages payable                              |                                                              |        | (11,934   | )        |      |        | (11,761  | )        |   |        | (5,243    | )       
|                                                 | Proceeds from mortgage notes payable                                                         |                                                              |        | 76,017    |          |      |        | 247,797  |          |   |        | 67,594    |         
|                                                 | Proceeds from (payments on) unsecured credit
    facilities, net                             |                                                              |        | (261,788  | )        |      |        | 176,989  |          |   |        | (224,130  | )       
|                                                 | Proceeds from Common Shares issued under DRIP and
    employee stock options                 |                                                              |        | 91,546    |          |      |        | 69,772   |          |   |        | 24,818    |         
|                                                 | Repurchase of Common Shares and Preferred Shares                                             |                                                              |        | (15,044   | )        |      |        | (64,766  | )        |   |        | (50,772   | )       
|                                                 | Redemption of Perpetual Preferred Units                                                      |                                                              |        |          |          |      |        | (12,000  | )        |   |        | (104,670  | )       
|                                                 | Cash dividends paid on Common Shares                                                         |                                                              |        | (322,555  | )        |      |        | (303,083 | )        |   |        | (221,196  | )       
|                                                 | Cash dividends paid on Preferred Shares                                                      |                                                              |        | (23,215   | )        |      |        | (32,512  | )        |   |        | (17,788   | )       
|                                                 | Cash dividends paid to minority interests                                                    |                                                              |        | (47,610   | )        |      |        | (41,585  | )        |   |        | (8,406    | )       
|                                                 | Other, net                                                                                   |                                                              |        | 2,498     |          |      |        | 1,091    |          |   |        | 2,889     |         
|                                                 |                                                                                              |                                                              |        |           |          |      |        |          |          |   |        |          
|                                                 |                                                                                              | Net cash flow used in financing activities                   |        |           | (779,478 | )    |        |          | (241,887 | ) |        |           | (721,897 | )
|                                                 |                                                                                              |                                                              |        |           |          |      |        |          |          |   |        |          
|Net change in cash and cash equivalents          |                                                                                              |                                                              | (7,616 | )         |          |      | 5,819  |          |          |   | (2,050 | )        
|Cash and cash equivalents at beginning of period |                                                                                              |                                                              | 12,846 |           |          |      | 7,027  |          |          |   | 9,077  |          
|                                                 |                                                                                              |                                                              |        |           |          |      |        |          |          |   |        |          
|Cash and cash equivalents at end of period       |                                                                                              | $                                                            | 5,230  |           |          | $    | 12,846 |          |          | $ | 7,027  |          
|                                                 |                                                                                              |                                                              |        |           |          |      |        |          |          |   |        |          

See Note 16 for supplemental information on
non-cash investing and financing activities.

The accompanying notes are an integral part of
these consolidated financial statements.

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##### Table of Contents



ARCHSTONE-SMITH TRUST

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2003, 2002 and
2001


(The glossary included in this Annual Report
is hereby incorporated by reference)




|    |                                                                           
|--- | --------------------------------------------------------------------------
|(1) | Description of Business and Summary of
    Significant Accounting Policies



| |         
| | --------
| | Business

Our business is conducted primarily through our
majority owned subsidiary, the Operating Trust. We are
structured as an UPREIT under which all property ownership and
business operations are conducted through the Operating Trust.
We are the sole trustee and own approximately 88.5% of the
Operating Trusts outstanding common units; the remaining
11.5% are owned by minority interest holders. As used herein,
we, our and the company
refers to the Operating Trust and Archstone-Smith, collectively,
except where the context otherwise requires. Archstone-Smith is
an equity REIT organized under the laws of the State of
Maryland. We focus on creating value for our shareholders by
acquiring, developing and operating apartments in markets
characterized by: (i) protected locations with limited land
on which to build new housing; (ii) expensive single-family
home prices; and (iii) a strong, diversified economic base
and job growth potential.



| |                            
| | ---------------------------
| | Principles of Consolidation

The accounts of Archstone-Smith and its
controlled subsidiaries are consolidated in the accompanying
financial statements. All significant inter-company accounts and
transactions have been eliminated. We use the equity method to
account for investments where we do not own a majority of the
economic interest, but have the ability to exercise significant
influence over the operating and financial policies of the
investee. For an investee accounted for under the equity method,
our share of net earnings or losses of the investee is reflected
in income as earned and dividends are credited against the
investment as received.

We adopted FASB Interpretation No. 46
Consolidation of Variable Interest Entities
(revised) on July 1, 2003. As a result, the accompanying
consolidated financial statements have been restated to reflect
the consolidated financial position and results of operations of
Archstone-Smith Trust and certain previously unconsolidated
entities in accordance with accounting principles generally
accepted in the United States of America. We previously
accounted for Ameriton using the equity method.



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect amounts reported in the financial
statements and the related notes. Actual results could differ
from those estimates. Estimates and assumptions are reviewed
periodically and the effects of revisions are reflected in the
period they are determined to be necessary. Actual results could
differ from managements estimates.



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

In October 2001, the FASB issued SFAS 144,
Accounting for Impairment or Disposal of Long-Lived
Assets which became effective on January 1, 2002.
For properties accounted for under SFAS 144, the results of
operations for properties sold during the period or classified
as held for sale at the end of the current period are required
to be classified as discontinued operations in the current and
prior periods. The property-specific components of net earnings
that are classified as discontinued operations include rental
revenue, rental expense, real estate tax, depreciation expense,
minority interest and interest expense (actual interest expense
for encumbered properties and a pro-rata allocation of interest
expense for any unencumbered portion up to our weighted average
leverage ratio). The net gain or loss on the eventual disposal
of the held for sale properties is also required to be
classified as discontinued operations. Properties sold by our
unconsolidated

55



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

entities are not included in discontinued
operations and related gains or losses are reported as a
component of income from unconsolidated entities.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

Cash and cash equivalents consist of cash on
hand, demand deposits with financial institutions and
short-term, highly liquid investments. We consider all highly
liquid instruments with maturities when purchased of three
months or less to be cash equivalents.



| |                                                    
| | ---------------------------------------------------
| | Restricted Cash in Tax-Deferred Exchange
    Escrow

Disposition proceeds are set aside and designated
to fund future tax-deferred exchanges of qualifying real estate
investments. If these proceeds are not redeployed to qualifying
real estate investments within 180 days, these funds are
redesignated as cash and cash equivalents.



| |                                                
| | -----------------------------------------------
| | Marketable Securities and Other
    Investments

All publicly traded equity securities are
classified as available for sale and carried at fair
value, with unrealized gains and losses reported as a separate
component of shareholders equity. Private investments, for
which we do not have the ability to exercise significant
influence, are accounted for at cost. Declines in the value of
public and private investments that management determines are
other than temporary are recorded as a provision for loss on
investments.



| |                             
| | ----------------------------
| | Real Estate and Depreciation

Real estate, other than properties held for sale,
is carried at cost. Long-lived assets designated as being held
for sale are reported at the lower of their carrying amount or
estimated fair value less cost to sell, and thereafter are no
longer depreciated.

We allocate the cost of newly acquired properties
between net tangible and identifiable intangible assets. The
primary intangible asset associated with an apartment community
acquisition is the value of the existing lease agreements. When
allocating cost to an acquired property, we first allocate costs
to the estimated intangible value of the existing lease
agreements and then to the estimated value of the land, building
and fixtures assuming the property is vacant. We estimate the
intangible value of the lease agreements by determining the lost
revenue associated with a hypothetical lease-up. We depreciate
the building and fixtures based on the expected useful life of
the asset and amortize the intangible value of the lease
agreements over the average remaining life of the existing
leases.

In accordance with SFAS No. 144,
long-lived assets, such as property, plant, and equipment, and
purchased intangibles subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the
amount by which the carrying amount of the asset exceeds the
fair value of the asset. Assets to be disposed of are separately
presented in the balance sheet and reported at the lower of the
carrying amount or fair value less costs to sell, and are no
longer depreciated. The assets and liabilities of a disposed
group classified as held for sale would be presented separately
in the appropriate asset and liability sections of the balance
sheet.

We have an investment organization that is
responsible for development and redevelopment of apartment
communities. Consistent with GAAP, all direct and certain
indirect costs, including interest and real estate taxes,
incurred during development and redevelopment activities are
capitalized. Interest is capitalized on real estate assets that
require a period of time to get them ready for their intended
use. The amount of interest

56



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

capitalized is based upon the average amount of
accumulated development expenditures during the reporting
period. Included in capitalized costs are managements
estimates of the direct and incremental personnel costs and
indirect project costs associated with our development and
redevelopment activities. Indirect project costs consist
primarily of personnel costs associated with construction
administration and development accounting, legal fees, and
various office costs that clearly relate to projects under
development.

Depreciation is computed over the expected useful
lives of depreciable property on a straight-line basis as
follows:

|                                         |  |  |             | 
|---------------------------------------- |  |  | ----------- | 
|Buildings and related land improvements  |  |  | 20-40 years | 
|Furniture, fixtures, equipment and other |  |  | 5-10 years  | 
|Intangible value of lease agreements     |  |  | 6-12 months | 



| |         
| | --------
| | Interest

During 2003, 2002 and 2001, the total interest
paid in cash on all outstanding debt was $244.8 million,
$269.8 million and $163.7 million, respectively.

We capitalize interest during the construction
period as part of the cost of apartment communities under
development. Interest capitalized during 2003, 2002 and 2001
aggregated $26.9 million, $32.4 million and
$31.6 million, respectively.



| |                        
| | -----------------------
| | Cost of Raising Capital

Costs incurred in connection with the issuance of
equity securities are deducted from shareholders equity.
Costs incurred in connection with the issuance or renewal of
debt are subject to the provisions of EITF 96-19.
Accordingly, if the terms of the renewed or modified debt
instrument are deemed to be substantially different (i.e., a
10 percent or more difference in the present value of the
remaining cash flows), all unamortized loan costs associated
with the extinguished debt are charged against earnings during
the current period; otherwise, costs are capitalized as other
assets and amortized into interest expense over the term of the
related loan or the renewal period. The balance of any
unamortized loan costs associated with old debt is expensed upon
replacement with new debt. We utilize the straight-line method
to amortize debt issuance costs as it approximates the effective
interest method required under SFAS No. 91.
Amortization of loan costs included in interest expense for
2003, 2002 and 2001 was $4.5 million, $5.0 million and
$3.9 million, respectively.



| |                                                     
| | ----------------------------------------------------
| | Moisture Infiltration and Mold Remediation
    Costs

We estimate and accrue costs related to the
correction of moisture infiltration and related mold remediation
when we anticipate incurring such remediation costs because of
the assertion of a legal claim or threatened litigation. When we
incur remediation costs at our own discretion, the cost is
recognized as incurred. Costs of addressing moisture
infiltration and resulting mold remediation issues are only
capitalized, subject to recoverability, when it is determined by
management that such costs also extend the life, increase the
capacity, or improve the safety or efficiency of the property
relative to when the community was originally constructed or
acquired, if later. All other related costs are expensed.



| |                                                     
| | ----------------------------------------------------
| | Interest Rate Contracts/ Forward Sales
    Contracts

We utilize derivative financial instruments to
manage our interest rate risk and designate these financial
instruments as hedges of specific liabilities or anticipated
transactions. During 2003, we adopted SFAS No. 149
Amendment of Statement 133 on Derivative
Instruments and Hedging Activities. Under
SFAS 149, the resulting assets and liabilities associated
with derivative financial instruments are carried on

57



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

our financial statements at estimated fair value
at the end of each reporting period. The changes in the fair
value of a fair value hedge and the fair value of the items
hedged are recorded in earnings for each reporting period. The
change in the fair value of effective cash flow hedges are
carried on our financial statements as a component of
accumulated other comprehensive income (loss). If effective,
fair value hedges have no impact on our current earnings.



| |                             
| | ----------------------------
| | Revenue and Gain Recognition

We generally lease our apartment units under
operating leases with terms of one year or less. Rental revenue
is recognized evenly over the lease term. Rent concessions are
recognized as an offset to revenues collected over the term of
the underlying lease. We use the full accrual method of profit
recognition in accordance with SFAS No. 66 to record
gains on sales of real estate. Accordingly, we evaluate the
related GAAP requirements in determining the profit to be
recognized at the date of each sale transaction (i.e., the
profit is determinable and the earnings process is complete).



| |                
| | ---------------
| | Rental Expenses

Rental expenses shown on the accompanying
Statements of Earnings include costs associated with on-site and
property management personnel, utilities (net of utility
reimbursements from residents), repairs and maintenance,
property insurance, marketing, landscaping and other on-site and
related administrative costs.



| |           
| | ----------
| | Legal Fees

We generally recognize legal expenses as
incurred; however, if such fees are related to the accrual for
an estimated legal settlement, we accrue for the related
incurred and anticipated legal fees at the same time we accrue
the cost of settlement.

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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                         
| | ------------------------
| | Stock-Based Compensation

As of December 31, 2003, the company has one
stock-based employee compensation plan. Effective
January 1, 2003, the company adopted the fair value
recognition provision of FASB Statement No. 123,
Accounting for Stock-Based Compensation,
prospectively to all employee awards granted, modified or
settled after January 1, 2003, which results in expensing
of options. There were no significant employee awards granted
during the twelve months ended December 31, 2003. For
employee awards granted prior to January 1, 2003, the
company accounted for this plan under the recognition and
measurement provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and
related Interpretations. With respect to options granted under
the plan prior to January 1, 2003, no stock-based employee
compensation expense is reflected in the accompanying condensed
consolidated statements of earnings, as all options granted
under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. The
following table illustrates the effect on net earnings and
earnings per share if the fair value based method had been
applied to all outstanding and unvested awards in each period
(dollar amounts in thousands, except per share amounts):

|                                                                                                                    |                       |                          |         |         |  |      |         |         |  |   |         |         | 
|------------------------------------------------------------------------------------------------------------------- | --------------------- | ------------------------ | ------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                                                                                                    |                       |                         
|                                                                                                                    |                       | Years Ended December 31,
|                                                                                                                    |                       |                         
|                                                                                                                    |                       | 2003                     |         | 2002    |  | 2001
|                                                                                                                    |                       |                          |         |         |  |     
|Net earnings attributable to Common
    Shares  Basic                                                              |                       | $                        | 412,660 |         |  | $    | 282,630 |         |  | $ | 232,115 |        
|Add: Stock-based employee compensation expense
    included in reported net earnings                                |                       |                          |        |         |  |      |        |         |  |   |        |        
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards |                       |                          | (1,748  | )       |  |      | (1,835  | )       |  |   | (1,669  | )      
|                                                                                                                    |                       |                          |         |         |  |      |         |         |  |   |         |        
|Pro forma net earnings attributable to Common
    Shares                                                           |                       |                          |         |         |  |      |         |         |  |   |         |        
|                                                                                                                    | Basic                 |                          | $       | 410,912 |  |      | $       | 280,795 |  |   | $       | 230,446 | 
|                                                                                                                    |                       |                          |         |         |  |      |         |         |  |   |         |        
|Net earnings per Common Share:                                                                                      |                       |                          |         |         |  |      |         |         |  |   |         |        
|                                                                                                                    | Basic  as reported   |                          | $       | 2.20    |  |      | $       | 1.59    |  |   | $       | 1.78    | 
|                                                                                                                    |                       |                          |         |         |  |      |         |         |  |   |         |        
|                                                                                                                    | Basic  pro forma     |                          | $       | 2.20    |  |      | $       | 1.58    |  |   | $       | 1.77    | 
|                                                                                                                    |                       |                          |         |         |  |      |         |         |  |   |         |        
|                                                                                                                    | Diluted  as reported |                          | $       | 2.18    |  |      | $       | 1.58    |  |   | $       | 1.77    | 
|                                                                                                                    |                       |                          |         |         |  |      |         |         |  |   |         |        
|                                                                                                                    | Diluted  pro forma   |                          | $       | 2.17    |  |      | $       | 1.57    |  |   | $       | 1.75    | 
|                                                                                                                    |                       |                          |         |         |  |      |         |         |  |   |         |        

The pro forma amounts above were calculated using
the Black-Scholes model, using the following assumptions:

|                                         |  |      |           |      |  |      |           |   |  |  |           |  
|---------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | - |  |  | --------- | -
|                                         |  | 2003 |           | 2002 |  | 2001
|                                         |  |      |           |      |  |     
|Weighted average risk-free interest rate |  |      | 3.48      | %    |  |      | 3.54      | % |  |  | 4.06      | %
|Weighted average dividend yield          |  |      | 6.92      | %    |  |      | 6.74      | % |  |  | 6.79      | %
|Weighted average volatility              |  |      | 15.33     | %    |  |      | 19.58     | % |  |  | 15.67     | %
|Weighted average expected option life    |  |      | 5.0 years |      |  |      | 5.0 years |   |  |  | 5.0 years |  



| |                     
| | --------------------
| | Federal Income Taxes

We have made an election to be taxed as a REIT
under the Internal Revenue Code of 1986, as amended, and we
believe we qualify as a REIT and have made all required
distributions of our taxable income. See Note 14 for more
information on income taxes.

59



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                     
| | --------------------
| | Comprehensive Income

Comprehensive income, which is defined as net
earnings and all other non-owner changes in equity, is displayed
in the accompanying Statements of Shareholders Equity and
Comprehensive Income (Loss). Other comprehensive income (loss)
reflects unrealized holding gains and losses on the
available-for-sale investments and changes in the fair value of
effective cash flow hedges as described above (see 
Interest Rate Contracts).



| |               
| | --------------
| | Per Share Data

Following is a reconciliation of basic EPS to
diluted EPS for the periods indicated (in thousands):

|                                                                                              |                                                               |                          |         |        |  |      |         |       |  |   |         |        | 
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ------------------------ | ------- | ------ |  | ---- | ------- | ----- |  | - | ------- | ------ | 
|                                                                                              |                                                               |                         
|                                                                                              |                                                               | Years Ended December 31,
|                                                                                              |                                                               |                         
|                                                                                              |                                                               | 2003                     |         | 2002   |  | 2001
|                                                                                              |                                                               |                          |         |        |  |     
|Reconciliation of numerator between basic and
    diluted net earnings per Common Share(1):  
|Net earnings attributable to Common
    Shares  Basic                                        |                                                               | $                        | 412,660 |        |  | $    | 282,630 |       |  | $ | 232,115 |       
|                                                                                              | Dividends on Convertible Preferred Shares                     |                          |         | 12,872 |  |      |         |      |  |   |         | 11,219 | 
|                                                                                              | Minority interest                                             |                          |         | 660    |  |      |         | 200   |  |   |         | 67     | 
|                                                                                              |                                                               |                          |         |        |  |      |         |       |  |   |         |       
|Net earnings attributable to Common
    Shares  Diluted                                      |                                                               | $                        | 426,192 |        |  | $    | 282,830 |       |  | $ | 243,401 |       
|                                                                                              |                                                               |                          |         |        |  |      |         |       |  |   |         |       
|Reconciliation of denominator between basic
    and diluted net earnings per Common Share(1):
|Weighted average number of Common Shares
    outstanding  Basic                              |                                                               |                          | 187,170 |        |  |      | 177,757 |       |  |   | 130,331 |       
|                                                                                              | Assumed conversion of Preferred Shares into
    Common Shares |                          |         | 7,972  |  |      |         |      |  |   |         | 5,844  | 
|                                                                                              | Minority interest                                             |                          |         |       |  |      |         |      |  |   |         | 943    | 
|                                                                                              | Incremental options and warrants                              |                          |         | 498    |  |      |         | 1,023 |  |   |         | 714    | 
|                                                                                              |                                                               |                          |         |        |  |      |         |       |  |   |         |       
|Weighted average number of Common Shares
    outstanding  Diluted                            |                                                               |                          | 195,640 |        |  |      | 178,780 |       |  |   | 137,832 |       
|                                                                                              |                                                               |                          |         |        |  |      |         |       |  |   |         |       



---



|    |                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------
|(1) | Excludes the impact of 13.1 million
    convertible equity securities during 2002 as they were
    anti-dilutive.



| |                  
| | -----------------
| | Reclassifications

Certain prior year amounts have been reclassified
to conform to the current presentation.



| |                              
| | -----------------------------
| | New Accounting Pronouncements

In December 2003, the FASB issued FASB
Interpretation No. 46 Consolidation of Variable
Interest Entities (revised). This Interpretation
replaces FASB Interpretation No. 46, Consolidation
of Variable Interest Entities, which was issued in
January 2003 and clarifies the application of Accounting
Research Bulletin No. 51 Consolidated Financial
Statements. FIN 46R requires us to consolidate
our existing variable interest entities in which we have the
majority variable interest. Due to the adoption of this
Interpretation, we have consolidated the results of Ameriton,
for all periods presented.

In April 2003, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 149,
Amendment of Statement 133 on Derivative Instruments
and Hedging Activities. We adopted this Statement for
contracts or hedging relationships entered into or modified
after June 30, 2003. Its purpose is to provide more
consistent application and clarification of SFAS 133. The
adoption of SFAS 149 did not have a material impact on our
financial position, net earnings or cash flows.

60



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity. This Statement is effective for financial
instruments entered into or modified after May 31, 2003,
with the exception of the application to non-controlling
(minority) interests in finite-life entities, which has
been deferred indefinitely. The Statement requires that certain
financial instruments, formerly presented as equity, be
classified as liabilities. The adoption of SFAS 150 did not
have a material impact on our financial position, net earnings
or cash flows.

In December 2003, the FASB issued
SFAS No. 132, Employer Disclosure about Pension
and Other Post retirement Benefits (revised). This
statement is effective for financial statements with fiscal
years ending after December 15, 2003. The statement revises
the necessary disclosures about pension plans. The adoption of
SFAS 132 (revised) did not have a material impact on
our financial position, net earnings or cash flows.



|    |             
|--- | ------------
|(2) | Smith Merger

On October 31, 2001, we completed our merger
with Smith Residential, a publicly traded REIT which primarily
developed, owned, and managed high-rise properties and garden
communities in Washington, D.C., Chicago, Boston and
Southeast Florida. The purpose of the Smith Merger was to expand
our portfolio in key protected markets. Following is a
sequential outline of events that occurred prior to the merger
closing:



| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | In October 2001, Archstone was reorganized into
    an UPREIT structure. To facilitate this reorganization,
    Archstone formed a wholly-owned subsidiary named
    Archstone-Smith. Archstone-Smith then formed a wholly-owned
    subsidiary. Archstone merged with the wholly-owned subsidiary,
    became a wholly-owned subsidiary of Archstone-Smith and changed
    its name to Archstone-Smith Operating Trust. The Operating Trust
    is the successor entity to Archstone and Archstone-Smith is the
    successor registrant to Archstone;
|
| | (ii)  | Smith Partnership then merged with and into the
    Operating Trust, with the Operating Trust remaining as the
    successor entity; and                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | (iii) | Finally, Smith Residential merged with and into
    Archstone-Smith, who remains the majority owner of the Operating
    Trust.                                                                                                                                                                                                                                                                                                                                                                                                                        

The merger of Smith Partnership and the Operating
Trust and the merger of Smith Residential with Archstone-Smith
are collectively referred to in aggregate as the Smith Merger.

Holders of Smith Residential common stock
received 1.975 Archstone-Smith Common Shares for each share of
Smith Residential common stock owned and holders of Smith
Residential preferred shares received one Archstone-Smith
preferred share for each Smith Residential preferred share
owned. Holders of Smith Partnership common units received 1.975
A-1 Common Units for each Smith Partnership unit owned and
holders of Smith Partnership preferred units received one
Operating Trust preferred unit for each unit owned.
Additionally, the Operating Trust assumed the outstanding debt
and other liabilities and acquired the assets of Smith
Partnership. Archstone-Smith issued 52.1 million Common
Shares and 4.6 million preferred shares to holders of Smith
Residential common and preferred stock and succeeded to Smith
Residentials interest in Smith Partnership. The Operating
Trust issued 52.1 million A-2 Common Units and
4.6 million preferred units for Smith Residentials
interest in Smith Partnership and 25.5 million A-1 Common
Units for the Smith Partnership unitholders interest in
Smith Partnership. Additionally, all outstanding Smith
Residential employee stock options and restricted share grants
vested immediately prior to the Smith Merger. As a result, the
holders of such options and restricted share grants were given
the choice of replacement options in Archstone-Smith or a cash
payment equal to the intrinsic value of the award based on a
cash payment of $49.48 per option.

The Smith Merger was structured as a tax-free
merger and was accounted for using the purchase method of
accounting. Because the transaction was completed during late
2001, all information necessary to complete

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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

the purchase price allocation was not available.
During 2002, we finalized the estimates associated with certain
information that was not available at the time the transaction
was consummated. We adjusted the original purchase price
allocation by approximately $31.8 million in 2002 to
reflect the net amount of the finalized unrecorded liabilities.

The following summary of the assets acquired and
liabilities assumed were recorded at the estimated fair value as
determined by management, based on information available and on
assumptions of future performance (dollar amounts in thousands);

|                                                          |                           |   |           |           | 
|--------------------------------------------------------- | ------------------------- | - | --------- | --------- | 
|Real estate                                               |                           | $ | 3,771,789 |          
|Investment in and advances to unconsolidated
    entities |                           |   | 164,831   |          
|Other assets                                              |                           |   | 32,017    |          
|                                                          |                           |   |           |          
|                                                          | Total assets acquired     |   | $         | 3,968,637 | 
|                                                          |                           |   |           |          
|Unsecured credit facilities                               |                           | $ | 219,000   |          
|Mortgages payable                                         |                           |   | 1,402,962 |          
|Other accrued expenses and accounts payables              |                           |   | 148,885   |          
|                                                          |                           |   |           |          
|                                                          | Total liabilities assumed |   | $         | 1,770,847 | 
|                                                          |                           |   |           |          

Since the Smith Merger closed on October 31,
2001, the accompanying Consolidated Statements of Earnings
include Smith Residentials results of operations for the
last two months of 2001. The following summarized pro forma
unaudited information assumes that the Smith Merger had occurred
on January 1, 2001. The pro forma results of operations
include estimates and assumptions which management believes are
reasonable. These results are not necessarily indicative of what
the results of operations would have been had the business
combination been in effect on the dates indicated, or which may
result in the future (dollar amounts in thousands):

|                                                                              |         |              |           |      | 
|----------------------------------------------------------------------------- | ------- | ------------ | --------- | ---- | 
|                                                                              |         | Pro Forma   
|                                                                              |         | Year Ended  
|                                                                              |         | December 31,
|                                                                              |         | 2001(1)     
|                                                                              |         |             
|Total revenues                                                                |         | $            | 1,036,614 |     
|                                                                              |         |              |           |     
|Net earnings attributable to Common Shares before
    discontinued operations |         | $            | 261,309   |     
|                                                                              |         |              |           |     
|Net earnings attributable to Common Shares(2)                                 |         | $            | 301,066   |     
|                                                                              |         |              |           |     
|Net earnings per Common Share:                                                |         |              |           |     
|                                                                              | Basic   |              | $         | 1.77 | 
|                                                                              |         |              |           |     
|                                                                              | Diluted |              | $         | 1.74 | 
|                                                                              |         |              |           |     



---



|    |                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------
|(1) | Net earnings from discontinued operations have
    been reclassified.                                        
|   
|(2) | Includes $5.3 million in merger related
    costs and $14.9 million in provision for loss on
    investments.



| |                                              
| | ---------------------------------------------
| | Sale of Consolidated Engineering
    Services

Consolidated Engineering Services is a service
business that we acquired in the Smith Merger in 2001, and prior
to its sale had been reported as an unconsolidated entity in our
financial statements. CES provides engineering services for
commercial and residential real estate across the country. On
December 19, 2002, CES was sold to a third party for
$178 million in cash. We recorded a $35.4 million net
gain on the sale of the business or $0.16 per share on a
fully diluted basis. Excluded from the gain was approximately
$6.7 million in

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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

contingent proceeds related to indemnification of
certain accounts receivable over 120 days. During 2003,
$5.8 million of these accounts receivable were collected
and recognized in other income.

As a condition of sale, we agreed to indemnify
the buyer for certain representations and warranties contained
in the sale contract. The indemnifications terminate on
June 30, 2004, and while we do not believe it is probable
that the indemnities will reach the maximum amount, the related
liability is limited to a maximum exposure of $44.5 million
with exceptions including third-party claims, insurance,
arbitration and environmental issues, each of which is without
deduction or limitation. There are no recourse provisions
available to us to recover potential future payments from third
parties.



| |                                                
| | -----------------------------------------------
| | Sale of Smith Management Construction,
    Inc.

Smith Management Construction, Inc. (SMC) is
a service business that we acquired in the Smith Merger during
2001. We sold SMC during February 2003 to members of SMCs
senior management. Prior to the sale, we reported SMC as an
unconsolidated entity in our financial statements. We received
two notes receivable totaling $5.8 million and bearing an
interest rate of 7.0% as consideration for the sale. The first
note for $3.5 million has principal payments that began in
October 2003 with payment in full by February 2008. The second
note for $2.3 million was fully repaid along with all
accrued interest due during May 2003. For accounting purposes,
we will not recognize the divestiture until our responsibilities
for certain performance guarantees, which pertain to ongoing
construction projects at the time of sale, expire. Principal and
interest payments received prior to the recognition of this
transaction as a divestiture will be recorded as a reduction to
our investment basis, which is included in other assets in the
accompanying consolidated balance sheets.



|    |            
|--- | -----------
|(3) | Real Estate



| |                           
| | --------------------------
| | Investments in Real Estate

Investments in real estate, at cost, were as
follows (dollar amounts in thousands):

|                                           |                                             |                   |   |           |           |            |  |        |        |  |   |           |           |  |  |        |        | 
|------------------------------------------ | ------------------------------------------- | ----------------- | - | --------- | --------- | ---------- |  | ------ | ------ |  | - | --------- | --------- |  |  | ------ | ------ | 
|                                           |                                             |                  
|                                           |                                             | December 31,     
|                                           |                                             |                  
|                                           |                                             |                   |   |          
|                                           |                                             | 2003              |   | 2002     
|                                           |                                             |                   |   |          
|                                           |                                             | Investment        |   | Units     |           | Investment |  | Units 
|                                           |                                             |                   |   |           |           |            |  |       
|Archstone-Smith apartment
    communities: |                                             |                   |   |           |           |            |  |        |        |  |   |           |           |  |  |       
|                                           | Operating communities                       |                   | $ | 8,067,075 |           |            |  | 63,848 |        |  | $ | 8,380,779 |           |  |  | 75,693 |       
|                                           | Communities under construction              |                   |   | 301,634   |           |            |  | 2,607  |        |  |   | 328,390   |           |  |  | 2,295  |       
|                                           | Development communities In Planning:        |                   |   |           |           |            |  |        |        |  |   |           |           |  |  |        |       
|                                           |                                             | Owned             |   |           | 95,911    |            |  |        | 2,633  |  |   |           | 89,501    |  |  |        | 2,870  | 
|                                           |                                             | Under control(2)  |   |           |          |            |  |        | 112    |  |   |           |          |  |  |        | 428    | 
|                                           |                                             |                   |   |           |           |            |  |        |        |  |   |           |           |  |  |       
|                                           | Total development communities In Planning   |                   |   | 95,911    |           |            |  | 2,745  |        |  |   | 89,501    |           |  |  | 3,298  |       
|                                           |                                             |                   |   |           |           |            |  |        |        |  |   |           |           |  |  |       
|                                           | Total Archstone-Smith apartment communities |                   |   | 8,464,620 |           |            |  | 69,200 |        |  |   | 8,798,670 |           |  |  | 81,286 |       
|                                           |                                             |                   |   |           |           |            |  |        |        |  |   |           |           |  |  |       
|                                           | Ameriton apartment communities              |                   |   | 494,338   |           |            |  | 5,646  |        |  |   | 458,914   |           |  |  | 6,241  |       
|                                           |                                             |                   |   |           |           |            |  |        |        |  |   |           |           |  |  |       
|                                           | Land                                        |                   |   | 9,648     |           |            |  |        |        |  |   | 9,697     |           |  |  |        |       
|                                           | Other                                       |                   |   | 30,574    |           |            |  |        |        |  |   | 30,454    |           |  |  |        |       
|                                           |                                             |                   |   |           |           |            |  |        |        |  |   |           |           |  |  |       
|                                           |                                             | Total real estate |   | $         | 8,999,180 |            |  |        | 74,846 |  |   | $         | 9,297,735 |  |  |        | 87,527 | 
|                                           |                                             |                   |   |           |           |            |  |        |        |  |   |           |           |  |  |       



---



|    |                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Unit information is based on managements
    estimates and has not been audited or reviewed by our
    independent auditors.                                                                                                                                                              
|   
|(2) | Archstone-Smiths investment as of
    December 31, 2003 and December 31, 2002 for
    development communities Under Control was $1.1 million and
    $2.7 million, respectively, and are reflected in the
    Other assets caption of Archstone-Smiths
    Consolidated Balance Sheets.

63



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                     
| | --------------------
| | Capital Expenditures

In conjunction with the underwriting of each
acquisition of an operating community, we prepare acquisition
budgets that encompass the incremental capital needed to achieve
our investment objectives. These expenditures, combined with the
initial purchase price and related closing costs, are
capitalized and classified as acquisition-related
capital expenditures, as incurred.

As part of our operating strategy, we
periodically evaluate each communitys physical condition
relative to established business objectives and the
communitys competitive position in its market. In
conducting these evaluations, we consider our return on
investment in relation to our long-term cost of capital as well
as our research and analysis of competitive market factors.
Based on these factors, we make decisions on incremental capital
expenditures, which are classified as either
redevelopment or recurring.

The redevelopment category includes:
(i) redevelopment initiatives, which are intended to
reposition the community in the marketplace and include items
such as significant upgrades to the interiors, exteriors,
landscaping and amenities; (ii) revenue-enhancing
expenditures, which include investments that are expected to
produce incremental community revenues, such as building
garages, carports and storage facilities or gating a community;
and (iii) expense-reducing expenditures, which include
items such as water submetering systems and xeriscaping that
reduce future operating costs.

Recurring capital expenditures consist of
significant expenditures for items having a useful life in
excess of one year, which are incurred to maintain a
communitys long-term physical condition at a level
commensurate with our stringent operating standards. Examples of
recurring capital expenditures include roof replacements,
certain make-ready expenditures, parking lot resurfacing and
exterior painting.

The change in investments in real estate, at
cost, consisted of the following (in thousands):

|                       |                                                           |                                  |           |            |          |   |           |          |         | 
|---------------------- | --------------------------------------------------------- | -------------------------------- | --------- | ---------- | -------- | - | --------- | -------- | ------- | 
|                       |                                                           |                                 
|                       |                                                           | Years Ended December 31,        
|                       |                                                           |                                 
|                       |                                                           | 2003                             |           | 2002      
|                       |                                                           |                                  |           |           
|Balance at January 1   |                                                           | $                                | 9,297,735 |            |          | $ | 8,612,213 |         
|                       | Apartment properties acquired in the Smith
    Merger(1)  |                                  |           |           |          |   |           | 31,877   |        
|                       | Acquisition-related expenditures                          |                                  |           | 573,768    |          |   |           | 539,652  |        
|                       | Redevelopment expenditures                                |                                  |           | 69,649     |          |   |           | 152,428  |        
|                       | Recurring capital expenditures                            |                                  |           | 48,960     |          |   |           | 40,683   |        
|                       | Development expenditures, excluding land
    acquisitions |                                  |           | 91,430     |          |   |           | 247,044  |        
|                       | Acquisition and improvement of land for
    development   |                                  |           | 125,581    |          |   |           | 107,727  |        
|                       | Dispositions                                              |                                  |           | (1,209,956 | )        |   |           | (439,847 | )      
|                       | Provision for possible loss on investments                |                                  |           | (3,714     | )        |   |           | (2,611   | )      
|                       |                                                           |                                  |           |            |          |   |           |         
|                       |                                                           | Net apartment community activity |           |            | (304,282 | ) |           |          | 676,953 | 
|Other:                 |                                                           |                                  |           |            |          |   |           |         
|                       | Disposition of retail asset acquired in Smith
    Merger  |                                  |           |           |          |   |           | (5,990   | )      
|                       | Change in other real estate assets                        |                                  |           | 5,727      |          |   |           | 14,559   |        
|                       |                                                           |                                  |           |            |          |   |           |         
|                       |                                                           | Net other activity               |           |            | 5,727    |   |           |          | 8,569   | 
|Balance at December 31 |                                                           | $                                | 8,999,180 |            |          | $ | 9,297,735 |         
|                       |                                                           |                                  |           |            |          |   |           |         



---



|    |                                                 
|--- | ------------------------------------------------
|(1) | Reflects purchase accounting adjustment in 2002.

At December 31, 2003, we had unfunded
contractual commitments of $498.4 million related to
communities under construction and under redevelopment.

64



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |                        
|--- | -----------------------
|(4) | Discontinued Operations

Consistent with our capital recycling program, we
had 10 operating apartment communities, representing
2,651 units (unaudited), classified as held for sale under
the provisions of SFAS 144, at December 31, 2003.
Accordingly, we have classified the operating earnings from
these 10 properties within discontinued operations for the years
ended December 31, 2003, 2002 and 2001. During the twelve
months ended December 31, 2003, we sold 48 operating
communities. The operating results of these 48 communities and
the related gain/loss on sale are also included in discontinued
operations for 2003, 2002 and 2001. Lastly, discontinued
operations for the years ended December 31, 2002 and 2001,
include the net operating results of 12 operating communities
and one retail property which were sold during 2002. Four
apartment communities that were sold during 2002 were held for
sale at December 31, 2001, and therefore gains and related
operating income for these dispositions are not classified as
discontinued operations in accordance with SFAS 144. The
following is a summary of net earnings from discontinued
operations (in thousands):

|                                                          |  |                          |         |      |  |      |         |   |  |   |         |  
|--------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                          |  |                         
|                                                          |  | Years Ended December 31,
|                                                          |  |                         
|                                                          |  | 2003                     |         | 2002 |  | 2001
|                                                          |  |                          |         |      |  |     
|Rental revenues                                           |  | $                        | 125,584 |      |  | $    | 233,479 |   |  | $ | 181,498 |  
|Rental expenses                                           |  |                          | (39,352 | )    |  |      | (69,554 | ) |  |   | (45,704 | )
|Real estate taxes                                         |  |                          | (12,019 | )    |  |      | (23,007 | ) |  |   | (15,058 | )
|Depreciation on real estate investments                   |  |                          | (15,679 | )    |  |      | (39,596 | ) |  |   | (34,390 | )
|Interest expense(1)                                       |  |                          | (28,236 | )    |  |      | (57,596 | ) |  |   | (62,766 | )
|Provision for possible loss on real estate
    investment |  |                          | (3,714  | )    |  |      | (2,611  | ) |  |   |        |  
|Allocation of minority interest                           |  |                          | (44,976 | )    |  |      | (17,864 | ) |  |   | (746    | )
|Gain on dispositions of real estate investments,
    net  |  |                          | 353,600 |      |  |      | 103,654 |   |  |   |        |  
|                                                          |  |                          |         |      |  |      |         |   |  |   |         |  
|                                                          |  | $                        | 335,208 |      |  | $    | 126,905 |   |  | $ | 22,834  |  
|                                                          |  |                          |         |      |  |      |         |   |  |   |         |  



---



|    |                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The portion of interest expense included in
    discontinued operations that is allocated to properties based on
    the companys leverage ratio was $23.0 million,
    $38.7 million and $51.6 million for 2003, 2002 and
    2001, respectively.



|    |                                                           
|--- | ----------------------------------------------------------
|(5) | Investments in and Advances to Unconsolidated
    Entities



| |                   
| | ------------------
| | Service Businesses

SMC and CES were service businesses that we
acquired in the Smith Merger during 2001. We sold CES in 2002 to
a third party and we sold SMC in 2003 to former members of
SMCs senior management. Prior to the sales, we reported
both CES and SMC as unconsolidated entities in our financial
statements.



| |                              
| | -----------------------------
| | Archstone Management Services

During May 2003, we sold Archstone Management
Services, our third-party management business. The transaction
includes management contracts for 32 communities comprising
10,665 units. The $6.5 million sales price will be
paid in three installments based on the retention of the
contracts acquired. Since the ultimate sales proceeds are
contingent upon the retention of management contracts existing
at the time of the sale, the gain is being deferred. We will
recognize the gain from this sale when the required retention
period expires in the second quarter of 2004.



| |                           
| | --------------------------
| | Real Estate Joint Ventures

At December 31, 2003, we had investments in
11 Archstone-Smith real estate joint ventures. Our
ownership percentage of economic interests range from 20% to
48%. The voting interest for major decisions is

65



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

split 50/50 between ourselves and the venture
partners. At December 31, 2003, Ameriton had seven real
estate joint ventures in which the venture partners are the
development/managing members. Voting on major investment
decisions are split 50/50 and our venture partners handle all
day-to-day operational decisions. Economic interest in the
ventures varies depending upon the ultimate return of the
venture. Because we do not control the voting interest of these
joint ventures, we account for these entities using the equity
method. In aggregate, these ventures own 16,817 apartment units.
At December 31, 2003, the investment balance consists of
$42.9 million in Archstone-Smith joint ventures and
$43.5 million in Ameriton joint ventures. At
December 31, 2002, the investment balance consists of
$54.9 million in Archstone-Smith joint ventures and
$61.7 million in Ameriton joint ventures.



| |                              
| | -----------------------------
| | Summary Financial Information

Combined summary balance sheet data for our
investments in unconsolidated entities follows (in thousands):

|                                |                                               |                   |                                      |           |           |           |   |           |           |           | 
|------------------------------- | --------------------------------------------- | ----------------- | ------------------------------------ | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                |                                               | 2003              |                                      | 2002     
|                                |                                               |                   |                                      |          
|Assets:                         |                                               |                   |                                      |           |           |           |   |          
|                                | Real estate                                   |                   | $                                    | 1,283,904 |           |           | $ | 1,263,302 |          
|                                | Other assets                                  |                   |                                      | 29,577    |           |           |   | 28,880    |          
|                                |                                               |                   |                                      |           |           |           |   |          
|                                |                                               | Total assets      |                                      | $         | 1,313,481 |           |   | $         | 1,292,182 |          
|                                |                                               |                   |                                      |           |           |           |   |          
|Liabilities and owners equity: |                                               |                   |                                      |           |           |           |   |          
|                                | Inter-company debt payable to Archstone-Smith |                   | $                                    | 2,779     |           |           | $ | 5,105     |          
|                                | Mortgages payable                             |                   |                                      | 913,142   |           |           |   | 842,959   |          
|                                | Other liabilities                             |                   |                                      | 20,804    |           |           |   | 25,270    |          
|                                |                                               |                   |                                      |           |           |           |   |          
|                                |                                               | Total liabilities |                                      |           | 936,725   |           |   |           | 873,334   |          
|                                |                                               |                   |                                      |           |           |           |   |          
|                                | Owners equity                                |                   |                                      | 376,756   |           |           |   | 418,848   |          
|                                |                                               |                   |                                      |           |           |           |   |          
|                                |                                               |                   | Total liabilities and owners equity |           | $         | 1,313,481 |   |           | $         | 1,292,182 | 
|                                |                                               |                   |                                      |           |           |           |   |          

Selected summary results of operations for our
significant unconsolidated investees presented on a stand-alone
basis follows:

|                               |              |      |   |         |   |      |   |         |   |  |   |         |  
|------------------------------ | ------------ | ---- | - | ------- | - | ---- | - | ------- | - |  | - | ------- | -
|                               |              | 2003 |   | 2002    |   | 2001
|                               |              |      |   |         |   |     
|Archstone-Smith Joint Ventures |              |      |   |         |   |      |   |         |   |  |   |        
|                               | Revenues     |      | $ | 145,567 |   |      | $ | 145,061 |   |  | $ | 97,338  |  
|                               | Net Earnings |      |   | 7,726   |   |      |   | 16,118  |   |  |   | 10,130  |  
|Ameriton Joint Ventures        |              |      |   |         |   |      |   |         |   |  |   |        
|                               | Revenues     |      | $ | 11,549  |   |      | $ | 9,977   |   |  | $ | 33,776  |  
|                               | Net Earnings |      |   | (4,569  | ) |      |   | (1,716  | ) |  |   | (157    | )
|Service Businesses             |              |      |   |         |   |      |   |         |   |  |   |        
|                               | Revenues     |      | $ |        |   |      | $ | 432,193 |   |  | $ | 79,246  |  
|                               | Net Earnings |      |   |        |   |      |   | 5,227   |   |  |   | 2,885   |  
|                               |              |      |   |         |   |      |   |         |   |  |   |        
|Total                          |              |      |   |         |   |      |   |         |   |  |   |        
|                               | Revenues     |      | $ | 157,116 |   |      | $ | 587,231 |   |  | $ | 210,360 |  
|                               |              |      |   |         |   |      |   |         |   |  |   |        
|                               | Net Earnings |      | $ | 3,157   |   |      | $ | 19,629  |   |  | $ | 12,858  |  
|                               |              |      |   |         |   |      |   |         |   |  |   |        

Our income from unconsolidated entities differs
from the stand-alone net earnings from the investees presented
above due to various accounting adjustments made in accordance
with GAAP. Examples of these differences include: (i) only
recording our proportionate share of net earnings in the
unconsolidated investees;

66



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(ii) the impact of certain eliminating
inter-company transactions; (iii) adjustments to
depreciation and amortization expense resulting from applying
purchase accounting in connection with the Smith Merger;
(iv) timing differences in income recognition due to
deferral of gains on contribution of properties to joint
ventures; and (v) a gain on the sale of CES, as previously
discussed.

As a matter of policy, we do not guarantee
third-party debt incurred by our unconsolidated investees.
Investee third-party debt consists principally of mortgage notes
payable. Generally, mortgages on real estate assets owned by our
unconsolidated investees are secured by the underlying
properties. Occasionally, the investees are required to
guarantee the mortgages. However, such guarantees are fully
non-recourse to us. All off-balance sheet contingent
liabilities, with the exception of outstanding performance
bonds, and all third-party debt incurred by our unconsolidated
investees are fully non-recourse to us. As such, the extent of
our exposure to financial losses is limited solely to our
investment in each of the unconsolidated investees.



|    |           
|--- | ----------
|(6) | Borrowings



| |                            
| | ---------------------------
| | Unsecured Credit Facilities

In October 2003, we completed the renewal of our
unsecured revolving credit facility provided by a group of
financial institutions led by JPMorgan Chase Bank. The
$600 million facility matures in October, 2006 and has a
one-year extension feature, exercisable at our option. The
facility bears interest at the greater of prime or the federal
funds rate plus 0.50%, or at our option, LIBOR plus 0.60%. The
spread over LIBOR can vary from LIBOR plus 0.50% to LIBOR plus
1.25% based upon the rating of our Long-Term Unsecured Debt. The
facility contains an accordion feature that allows us to expand
the commitment up to $900 million at any time during the
life of the facility, subject to lenders providing additional
commitments. Under the agreement, we pay a facility fee of 0.15%
of the commitment, which can vary from 0.125% to 0.200% based
upon the ratings of our Long-Term Unsecured Debt.

The following table summarizes our revolving
credit facility borrowings under our line of credit (in
thousands, except for percentages):

|                                                  |  |              |         |      |  |   |         |  
|------------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                                  |  |             
|                                                  |  | Years Ended 
|                                                  |  | December 31,
|                                                  |  |             
|                                                  |  | 2003         |         | 2002
|                                                  |  |              |         |     
|Total unsecured revolving credit facility         |  | $            | 600,000 |      |  | $ | 700,000 |  
|Borrowings outstanding at December 31             |  |              | 97,000  |      |  |   | 348,500 |  
|Outstanding letters of credit under this facility |  |              | 1,050   |      |  |   | 11,890  |  
|Weighted average daily borrowings                 |  |              | 231,354 |      |  |   | 248,398 |  
|Maximum borrowings outstanding during the period  |  |              | 511,500 |      |  |   | 465,000 |  
|Weighted average daily nominal interest rate      |  |              | 1.95    | %    |  |   | 2.26    | %
|Weighted average daily effective interest rate    |  |              | 2.55    | %    |  |   | 3.08    | %

We also have a short-term unsecured borrowing
agreement with JPMorgan Chase Bank, which provides for maximum
borrowings of $100 million. The agreement bears interest at
an overnight rate agreed to at the time of borrowing and ranged
from 1.65% to 1.95% during 2003. There were $6.8 million
and $17.1 million of borrowings outstanding under this
agreement at December 31, 2003 and 2002, respectively.



| |                         
| | ------------------------
| | Long-Term Unsecured Debt

During June 2003, we issued $250 million of
long-term unsecured senior notes due in June 2008 for net
proceeds of $247.2 million. These notes bear interest at a
coupon rate of 3.0% annually, with an effective interest rate of
3.2%. The net proceeds were used to repay outstanding balances
on our unsecured credit facilities.

67



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

In February 2002, the Operating Trust issued
$200 million in long-term unsecured ten-year senior notes
with an effective interest rate of 6.6% from our shelf
registration statement. In May 2002, the Operating Trust filed a
shelf registration statement on Form S-3 to register an
additional $422.8 million (for a total of
$800 million) in unsecured debt securities. These
registration statements were declared effective in June 2002. In
August 2002, the Operating Trust issued $300 million in
long-term unsecured senior five-year notes with an effective
interest rate of 5.2% from its shelf registration statement. In
November 2002, the Operating Trust issued $35 million in
long-term unsecured five-year senior notes with an effective
interest rate of 4.9% from its shelf registration statement. As
of December 31, 2003, the Operating Trust had
$550 million available in debt shelf registered securities
which can be issued subject to our ability to affect offerings
on satisfactory terms based on prevailing market conditions.

A summary of our Long-Term Unsecured Debt
outstanding at December 31, 2003 and 2002 follows (dollar
amounts in thousands):

|                                 |               |                |      |                  |   |              |      |              |   |                |           |           |  |   |           |           |  |  |       |      | 
|-------------------------------- | ------------- | -------------- | ---- | ---------------- | - | ------------ | ---- | ------------ | - | -------------- | --------- | --------- |  | - | --------- | --------- |  |  | ----- | ---- | 
|                                 |               |                |      |                  |   | Balance at   |      | Balance at   |   | Average       
|                                 |               |                |      | Effective        |   | December 31, |      | December 31, |   | Remaining Life
|Type of Debt                     |               | Coupon Rate(1) |      | Interest Rate(2) |   | 2003         |      | 2002         |   | (Years)       
|                                 |               |                |      |                  |   |              |      |              |   |               
|Long-term unsecured senior notes |               |                | 6.35 | %                |   |              | 6.46 | %            |   | $              | 1,771,167 |           |  | $ | 1,669,396 |           |  |  | 5.40  |     
|Unsecured tax-exempt bonds       |               |                | 1.72 | %                |   |              | 1.93 | %            |   |                | 100,798   |           |  |   | 106,707   |           |  |  | 20.56 |     
|                                 |               |                |      |                  |   |              |      |              |   |                |           |           |  |   |           |           |  |  |       |     
|                                 | Total/average |                |      | 6.10             | % |              |      | 6.22         | % |                | $         | 1,871,965 |  |   | $         | 1,776,103 |  |  |       | 6.22 | 
|                                 |               |                |      |                  |   |              |      |              |   |                |           |           |  |   |           |           |  |  |       |     



---



|    |                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents a fixed rate for the long-term
    unsecured notes and a variable rate for the unsecured tax-exempt
    bonds.      
|   
|(2) | Includes the effect of fair value hedges, loan
    cost amortization and other ongoing fees and expenses, where
    applicable.

The $1.8 billion of long-term unsecured
senior notes generally have semi-annual interest payments and
either amortizing annual principal payments or balloon payments
due at maturity. The unsecured tax-exempt bonds require
semi-annual payments and are due upon maturity with
$23.7 million maturing in 2008 and $77.1 million
maturing in 2029. The notes are redeemable at our option, in
whole or in part, and the unsecured tax-exempt bonds are
redeemable at our option upon sale of the related property. The
redemption price is generally equal to the sum of the principal
amount of the notes being redeemed plus accrued interest through
the redemption date plus a standard make-whole premium, if any.

68



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                  
| | -----------------
| | Mortgages Payable

Our mortgages payable generally feature either
monthly interest and principal payments or monthly interest-only
payments with balloon payments due at maturity (see 
Scheduled Debt Maturities). A summary of mortgages
payable outstanding for the years ending December 31, 2003
and December 31, 2002 follows (dollar amounts in thousands):

|                                   |                             |                  |      |                          |   |      |         |           |  |   |           |           | 
|---------------------------------- | --------------------------- | ---------------- | ---- | ------------------------ | - | ---- | ------- | --------- |  | - | --------- | --------- | 
|                                   |                             |                  |      |                         
|                                   |                             |                  |      | Principal Balance (2) at
|                                   |                             |                  |      | December 31,            
|                                   |                             | Effective        |      |                         
|                                   |                             | Interest Rate(1) |      | 2003                     |   | 2002
|                                   |                             |                  |      |                          |   |     
|Fannie Mae secured debt(3)         |                             |                  | 6.56 | %                        |   | $    | 538,106 |           |  | $ | 540,364   |          
|Freddie Mac secured line of credit |                             |                  | 2.74 | %                        |   |      | 21,705  |           |  |   | 71,110    |          
|Conventional fixed rate            |                             |                  | 6.33 | %                        |   |      | 973,171 |           |  |   | 1,137,548 |          
|Tax-exempt fixed rate              |                             |                  | n/a  |                          |   |      |        |           |  |   | 7,035     |          
|Tax-exempt floating rate           |                             |                  | 1.83 | %                        |   |      | 317,351 |           |  |   | 337,352   |          
|Construction loans                 |                             |                  | 4.19 | %                        |   |      | 56,129  |           |  |   | 63,738    |          
|Other                              |                             |                  | 3.85 | %                        |   |      | 21,163  |           |  |   | 22,850    |          
|                                   |                             |                  |      |                          |   |      |         |           |  |   |           |          
|                                   | Total/average mortgage debt |                  |      | 5.57                     | % |      | $       | 1,927,625 |  |   | $         | 2,179,997 | 
|                                   |                             |                  |      |                          |   |      |         |           |  |   |           |          



---



|    |                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes the effect of fair value hedges, credit
    enhancement fees, the amortization of fair market value purchase
    adjustment, and other related costs, where applicable, as of
    December 31, 2003.                                                                                                                          
|   
|(2) | Includes net fair market value adjustment
    recorded in connection with the Smith Merger of
    $58.5 million and $69.7 million at December 31,
    2003 and 2002, respectively.                                                                                                                                                     
|   
|(3) | Represents a long-term secured debt agreement
    with Fannie Mae. The Fannie Mae secured debt matures on dates
    ranging from January 2006 to July 2009, although we have the
    option to extend the term of any portion of the debt for up to
    an additional 30-year period at any time, subject to Fannie
    Maes approval.

The change in mortgages payable during 2003 and
2002 consisted of the following (in thousands):

|                       |                                                           |      |           |          |   |   |           |          |  
|---------------------- | --------------------------------------------------------- | ---- | --------- | -------- | - | - | --------- | -------- | -
|                       |                                                           | 2003 |           | 2002    
|                       |                                                           |      |           |         
|Balance at January 1   |                                                           | $    | 2,179,997 |          |   | $ | 2,454,508 |         
|                       | Issuance of new mortgages(1)                              |      |           | 76,017   |   |   |           | 247,797  |  
|                       | Mortgage assumptions related to property
    acquisitions |      |           | 55,362   |   |   |           | 205,542  |  
|                       | Regularly scheduled principal amortization                |      |           | (11,934  | ) |   |           | (11,760  | )
|                       | Prepayments, final maturities and other                   |      |           | (371,817 | ) |   |           | (716,090 | )
|                       |                                                           |      |           |          |   |   |           |         
|Balance at December 31 |                                                           | $    | 1,927,625 |          |   | $ | 2,179,997 |         
|                       |                                                           |      |           |          |   |   |           |         



---



|    |                                                               
|--- | --------------------------------------------------------------
|(1) | Represents proceeds from mortgages originated by
    Ameriton.

69



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Scheduled Debt Maturities

Approximate principal payments due during each of
the next five calendar years and thereafter, are as follows (in
thousands):

|              |       |                          |         |                   |  |              |         |            |  |       |         |         |  |   |           |           |  |   |           |           | 
|------------- | ----- | ------------------------ | ------- | ----------------- |  | ------------ | ------- | ---------- |  | ----- | ------- | ------- |  | - | --------- | --------- |  | - | --------- | --------- | 
|              |       |                          |         |                   |  |             
|              |       | Long Term Unsecured Debt |         | Mortgages Payable |  |             
|              |       |                          |         |                   |  |             
|              |       | Regularly                |         |                   |  | Regularly    |         |            |  |      
|              |       | Scheduled                |         | Final             |  | Scheduled    |         | Final      |  |      
|              |       | Principal                |         | Maturities        |  | Principal    |         | Maturities |  |      
|              |       | Amortization             |         | and Other         |  | Amortization |         | and Other  |  | Total
|              |       |                          |         |                   |  |              |         |            |  |      
|2004          |       | $                        | 31,250  |                   |  | $            | 20,000  |            |  | $     | 13,093  |         |  | $ | 49,179    |           |  | $ | 113,522   |          
|2005          |       |                          | 31,250  |                   |  |              | 220,000 |            |  |       | 14,119  |         |  |   | 54,575    |           |  |   | 319,944   |          
|2006          |       |                          | 31,250  |                   |  |              | 20,000  |            |  |       | 13,273  |         |  |   | 291,119   |           |  |   | 355,642   |          
|2007          |       |                          | 31,250  |                   |  |              | 355,000 |            |  |       | 14,575  |         |  |   | 114,487   |           |  |   | 515,312   |          
|2008          |       |                          | 31,250  |                   |  |              | 303,711 |            |  |       | 16,142  |         |  |   | 110,290   |           |  |   | 461,393   |          
|Thereafter(1) |       |                          | 399,917 |                   |  |              | 397,087 |            |  |       | 185,945 |         |  |   | 1,050,828 |           |  |   | 2,033,777 |          
|              |       |                          |         |                   |  |              |         |            |  |       |         |         |  |   |           |           |  |   |           |          
|              | Total |                          | $       | 556,167           |  |              | $       | 1,315,798  |  |       | $       | 257,147 |  |   | $         | 1,670,478 |  |   | $         | 3,799,590 | 
|              |       |                          |         |                   |  |              |         |            |  |       |         |         |  |   |           |           |  |   |           |          



---



|    |                                                                                             
|--- | --------------------------------------------------------------------------------------------
|(1) | The average annual principal payments due from
    2009 to 2023 are $123.7 million per year.



| |      
| | -----
| | Other

The book value of total assets pledged as
collateral for mortgage loans and other obligations at
December 31, 2003 and 2002 is $3.8 billion and
$3.8 billion, respectively. Our debt instruments generally
contain covenants common to the type of facility or borrowing,
including financial covenants establishing minimum debt service
coverage ratios and maximum leverage ratios. We were in
compliance with all financial covenants pertaining to our debt
instruments at December 31, 2003. See Note 11 for a
summary of derivative financial instruments used in connection
with our debt instruments.



|    |                              
|--- | -----------------------------
|(7) | Distributions to Shareholders

To maintain our status as a REIT, we are
generally required to distribute at least 90% of our taxable
income. The payment of distributions is subject to the
discretion of the Board and is dependent upon our strategy,
financial condition and operating results. At its December 2003
Board meeting, the Board announced an anticipated increase in
the annual distribution from $1.71 to $1.72 per Common
Share.

The following table summarizes the cash dividends
paid per share on Common Shares and Preferred Shares during
2003, 2002 and 2001:

|                                 |  |      |          |      |  |      |          |  |  |   |      | 
|-------------------------------- |  | ---- | -------- | ---- |  | ---- | -------- |  |  | - | ---- | 
|                                 |  | 2003 |          | 2002 |  | 2001
|                                 |  |      |          |      |  |     
|Common Shares and A-1 Units      |  | $    | 1.71     |      |  | $    | 1.70     |  |  | $ | 1.64 | 
|Series A Preferred Shares(1)     |  |      | 2.11     |      |  |      | 2.29     |  |  |   | 2.21 | 
|Series B Preferred Shares(2)     |  |      |         |      |  |      |         |  |  |   | 0.79 | 
|Series C Preferred Shares(3)     |  |      |         |      |  |      | 1.38     |  |  |   | 2.16 | 
|Series D Preferred Shares        |  |      | 2.19     |      |  |      | 2.19     |  |  |   | 2.19 | 
|Series H Preferred Shares(4),(5) |  |      | 1.27     |      |  |      | 3.36     |  |  |   |     | 
|Series I Preferred Shares(4),(6) |  |      | 7,660.00 |      |  |      | 7,660.00 |  |  |   |     | 
|Series J Preferred Shares(4),(7) |  |      |         |      |  |      | 1.71     |  |  |   |     | 
|Series K Preferred Shares(4)     |  |      | 3.38     |      |  |      | 3.36     |  |  |   |     | 
|Series L Preferred Shares(4)     |  |      | 3.38     |      |  |      | 3.36     |  |  |   |     | 

70



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



---



|    |                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Series A Preferred Shares were called
    for redemption during the fourth quarter of 2003; of the
    2.9 million Preferred Shares outstanding, 2.8 million
    were converted to Common Shares and the remaining were redeemed.
|   
|(2) | All of the outstanding Series B Preferred
    Shares were redeemed on May 7, 2001.                                                                                                                                                   
|   
|(3) | The Series C Preferred Shares were redeemed
    at liquidation value, plus accrued and unpaid distributions, on
    August 20, 2002.                                                                                                 
|   
|(4) | Series H, I, J, K and L did not exist
    before the Smith Merger.                                                                                                                                                                   
|   
|(5) | The Series H Preferred Shares were converted
    into Common Shares on May 15, 2003.                                                                                                                                                 
|   
|(6) | The Series I Preferred Shares have a par
    value of $100,000.                                                                                                                                                                      
|   
|(7) | The Series J Preferred Shares were converted
    into Common Shares on July 13, 2002.                                                                                                                                                



|    |                     
|--- | --------------------
|(8) | Shareholders Equity



| |                              
| | -----------------------------
| | Shares of Beneficial Interest

Our Declaration of Trust authorizes us to issue
450,000,000 shares with a par value of $0.01 per
share. Our Declaration of Trust allows us to issue Common
Shares, preferred shares and such other shares of beneficial
interest as the Board may create and authorize from time to
time. The Board may classify or reclassify any unissued shares
from time to time by setting or changing the preferences,
conversion rights, voting powers, restrictions, limitations as
to distributions, qualifications of terms or conditions of
redemption.



| |                                               
| | ----------------------------------------------
| | Preferred Share Redemption and
    Conversions

The Series A Preferred Shares were called
for redemption during the fourth quarter of 2003. Of the
2.9 million Series A Preferred Shares outstanding,
2.8 million were converted to Common Shares and the
remaining were redeemed. During May 2003, the Series H
Preferred Shares were converted into Common Shares. In August
2002, we redeemed Series C Preferred Shares at liquidation
value, plus accrued and unpaid distributions for a total of
$49.7 million. In July 2002, the Series J Preferred
Shares were converted to Common Shares.



| |                        
| | -----------------------
| | Common Share Repurchase

In 2003, we repurchased 614,100 Common Shares for
an average price of $21.38 per share. In 2002, we
repurchased 668,900 Common Shares for an average price of
$22.97 per share.

71



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                 
| | ----------------
| | Preferred Shares

A summary of our Convertible Preferred Shares
outstanding at December 31, 2003 and 2002, including their
significant rights, preferences, and privileges follows:

|                                                                                                                          |  |            |          |            |  |             |       |               |  |                        |       |      |  |   |      |  |  |   |        |  |  |   |         | 
|------------------------------------------------------------------------------------------------------------------------- |  | ---------- | -------- | ---------- |  | ----------- | ----- | ------------- |  | ---------------------- | ----- | ---- |  | - | ---- |  |  | - | ------ |  |  | - | ------- | 
|                                                                                                                          |  |            |          |            |  |             |       |               |  |                       
|                                                                                                                          |  |            |          |            |  |             |       | Annual        |  | December 31,          
|                                                                                                                          |  | Redemption |          | Conversion |  | Liquidation |       | Dividend Rate |  |                       
|Description                                                                                                               |  | Date       |          | Ratio      |  | value       |       | Per Share     |  | 2003                   |       | 2002
|                                                                                                                          |  |            |          |            |  |             |       |               |  |                        |       |     
|                                                                                                                          |  |            |          |            |  |             |       |               |  |                       
|                                                                                                                          |  |            |          |            |  |             |       |               |  | (Amounts in thousands)
|Series A Preferred Shares;
    2,926,835 shares issued and outstanding at
    December 31, 2002(1)                        |  |            |         |            |  |             |      |               |  |                        |      |      |  | $ |     |  |  | $ |       |  |  | $ | 73,171  | 
|Series H Preferred Shares;
    2,640,325 shares issued and outstanding at
    December 31, 2002(2)                        |  |            |         |            |  |             |      |               |  |                        |      |      |  |   |     |  |  |   |       |  |  |   | 71,500  | 
|Series K Preferred Shares;
    666,667 shares issued and outstanding at December 31,
    2003 and December 31, 2002(3)(4) |  |            | 10/01/04 |            |  |             | 1.975 |               |  |                        | 37.50 |      |  |   | 3.38 |  |  |   | 25,000 |  |  |   | 25,000  | 
|Series L Preferred Shares;
    641,026 shares issued and outstanding at December 31,
    2003 and December 31, 2002(3)(4) |  |            | 11/05/05 |            |  |             | 1.975 |               |  |                        | 39.00 |      |  |   | 3.38 |  |  |   | 25,000 |  |  |   | 25,000  | 
|                                                                                                                          |  |            |          |            |  |             |       |               |  |                        |       |      |  |   |      |  |  |   |        |  |  |   |         | 
|                                                                                                                          |  |            |          |            |  |             |       |               |  |                        |       |      |  |   |      |  |  | $ | 50,000 |  |  | $ | 194,671 | 
|                                                                                                                          |  |            |          |            |  |             |       |               |  |                        |       |      |  |   |      |  |  |   |        |  |  |   |         | 



---



|    |                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Series A Preferred Shares were called
    for redemption during the fourth quarter of 2003; of the
    2.9 million Preferred Shares outstanding, 2.8 million
    were converted to Common Shares and the remaining were redeemed.                                                                  
|   
|(2) | The Series H Preferred Shares were converted
    into Common Shares on May 15, 2003.                                                                                                                                                                                                                   
|   
|(3) | The dividend is calculated as the higher of the
    annual dividend rate per share, or the dividend on Common Shares
    as if converted. The dividend reflected here is the actual
    dividend that would be paid based on the current Common Share
    dividend.                                    
|   
|(4) | Series K and L Preferred Shares may be
    redeemed for cash at our option, in whole or in part, at the
    redemption price equal to the liquidation value plus accrued
    dividends. Additionally, Series K and L shareholders
    have the right to convert into Common Shares at their discretion.

A summary of our Perpetual Preferred Shares
outstanding at December 31, 2003 and 2002, including their
significant rights, preferences, and privileges follows:

|                                                                                                                                        |  |            |          |             |  |               |         |                        |  |      |       |  |  |   |        |  |  |   |        | 
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- | -------- | ----------- |  | ------------- | ------- | ---------------------- |  | ---- | ----- |  |  | - | ------ |  |  | - | ------ | 
|                                                                                                                                        |  |            |          |             |  |               |         |                       
|                                                                                                                                        |  |            |          |             |  | Annual        |         | December 31,          
|                                                                                                                                        |  | Redemption |          | Liquidation |  | Dividend Rate |         |                       
|Description                                                                                                                             |  | Date(1)    |          | Value       |  | Per Share     |         | 2003                   |  | 2002
|                                                                                                                                        |  |            |          |             |  |               |         |                        |  |     
|                                                                                                                                        |  |            |          |             |  |               |         |                       
|                                                                                                                                        |  |            |          |             |  |               |         | (Amounts in thousands)
|Series D Preferred Shares; 1,957,606 and
    1,974,806 shares issued and outstanding at
    December 31, 2003 and 2002, respectively(1) |  |            | 08/06/04 |             |  |               | 25.00   |                        |  | $    | 2.19  |  |  | $ | 48,940 |  |  | $ | 49,370 | 
|Series I Preferred Shares; 500 shares
    issued and outstanding at December 31, 2003 and 2002,
    respectively(1)                     |  |            | 02/01/28 |             |  |               | 100,000 |                        |  |      | 7,660 |  |  |   | 50,000 |  |  |   | 50,000 | 
|                                                                                                                                        |  |            |          |             |  |               |         |                        |  |      |       |  |  |   |        |  |  |   |        | 
|                                                                                                                                        |  |            |          |             |  |               |         |                        |  |      |       |  |  | $ | 98,940 |  |  | $ | 99,370 | 
|                                                                                                                                        |  |            |          |             |  |               |         |                        |  |      |       |  |  |   |        |  |  |   |        | 



---



|    |                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Series D and I Preferred Shares may be
    redeemed for cash at our option, in whole or in part, at a
    redemption price equal to the liquidation price per share, plus
    accrued and unpaid dividends, if any, on or after the redemption
    dates indicated.

72



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The holders of our Preferred Shares do not have
preemptive rights over the holders of Common Shares, but have
limited voting rights under certain circumstances. The Preferred
Shares have no stated maturity, are not subject to any sinking
fund requirements and we are not obligated to redeem or retire
the shares. Holders of the Preferred Shares are entitled to
receive cumulative preferential cash distributions, when and as
declared and authorized by the Board, out of funds legally
available for the payment of distributions. All Preferred Share
distributions are cumulative from date of original issue and all
series of Preferred Shares rank equally as to distributions and
liquidation proceeds. All dividends due and payable on Preferred
Shares have been accrued and paid as of the end of each fiscal
year.

If six quarterly dividends payable (whether or
not consecutive) on any series or class of Preferred Shares that
are of equal rank with respect to dividends and any distribution
of assets, shall not be paid in full, the number of Outside
Trustees shall be increased by two and the holders of all such
Preferred Shares voting as a class regardless of series or
class, shall be entitled to elect the two additional Outside
Trustees. Whenever all dividends in arrears have been paid, the
right to elect the two additional Outside Trustees shall cease
and the terms of such Outside Trustees shall terminate.



| |                                                  
| | -------------------------------------------------
| | Dividend Reinvestment and Share Purchase
    Plan

Our Dividend Reinvestment and Share Purchase Plan
was designed and implemented to increase ownership in the
company by private investors. Under the plan, holders of Common
Shares and A-1 Common Units have the ability to automatically
reinvest their cash dividends to purchase additional Common
Shares. In October 2003, we announced that shares issued under
the Dividend Reinvestment and Share Purchase Plan would be
acquired through open market purchases or in negotiated
transactions with third parties pursuant to the automatic
reinvestment of dividends or pursuant to optional cash payments
under the plan. As a result, common shares acquired by investors
under the plan are not currently entitled to a discount.



| |                                                        
| | -------------------------------------------------------
| | Ownership Restrictions and Significant
    Shareholders

Our governing documents restrict beneficial
ownership of our outstanding shares by a single person, or
persons acting as a group, to 9.8% of the Common Shares and 25%
of each series of preferred shares. For us to qualify as a REIT
under the Internal Revenue Code of 1986, as amended, not more
than 50% in value of our outstanding capital shares may be owned
by five or fewer individuals at any time during the last half of
our taxable year. The provision permits five persons to acquire
up to a maximum of 9.8% each of the Common Shares, or an
aggregate of 49% of the outstanding Common Shares.

Common Shares owned by a person or group of
persons in excess of the 9.8% limit are subject to redemption.
The provision does not apply where a majority of the Board, in
its sole and absolute discretion, waives such limit after
determining that our eligibility to qualify as a REIT for
federal income tax purposes will not be jeopardized or the
disqualification as a REIT is advantageous to shareholders.



| |                
| | ---------------
| | Purchase Rights

On August 31, 2001 the Board declared a
dividend on the outstanding Common Shares of one preferred share
purchase right for each Common Share to be paid to the holders
of record on the effective date of the reorganization of
Archstone into an UPREIT. The holders of Common Shares issued in
the merger and any additional Common Shares issued after the
merger and before the redemption or expiration of the preferred
share purchase rights are entitled to receive one preferred
share purchase right for each such additional Common Share. Each
preferred share purchase right entitles the holder in various
circumstances to purchase from Archstone-Smith one one-hundredth
of a Series B junior participating preferred share at a
price of $75 per one one-hundredth of a Series B
junior participating preferred share, subject to adjustment to
prevent dilution. Preferred share purchase rights are
exercisable when a person or group of persons acquires 15% of
the outstanding Common Shares or announces a tender offer or
exchange offer for 15% or more of the outstanding

73



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Common Shares. In some circumstances, each
preferred share purchase right entitles the holder to purchase,
at the preferred share purchase rights then current
exercise price, a number of Common Shares having a market value
of twice the preferred share purchase rights then current
exercise price. The acquisition of Archstone-Smith pursuant to
specified mergers or other business transactions would entitle
each holder of a preferred share purchase right to purchase, at
the then current exercise price of the preferred share purchase
right, a number of the acquiring companys common shares
having a market value at the time equal to twice the preferred
share purchase rights exercise price. The preferred share
purchase rights held by 15% shareholders would not be
exercisable. The preferred share purchase rights will expire on
August 31, 2011. All, but not less than all of the
preferred share purchase rights may be redeemed at a price of
$0.001 per preferred share purchase right, payable in cash,
shares or any other form of consideration determined by the
Board.



| |                   
| | ------------------
| | Shelf Registration

In May 2002, we filed a shelf registration
statement on Form S-3 to register $500 million in
equity securities, which can be issued in the form of Common or
Preferred Shares and is still available as of December 31,
2003.



|    |                  
|--- | -----------------
|(9) | Minority Interest

In August 2002, the Operating Trust converted all
of the outstanding DownREIT operating units into A-1 Common
Units. Minority interest consists of the following at
December 31, 2003 and 2002 (in thousands):

|                          |       |      |         |         |  |   |         |         | 
|------------------------- | ----- | ---- | ------- | ------- |  | - | ------- | ------- | 
|                          |       | 2003 |         | 2002   
|                          |       |      |         |        
|A-1 Common Units          |       | $    | 519,726 |         |  | $ | 484,129 |        
|Perpetual Preferred Units |       |      | 61,180  |         |  |   | 61,180  |        
|Other minority interests  |       |      | 11,510  |         |  |   | 2,600   |        
|                          |       |      |         |         |  |   |         |        
|                          | Total |      | $       | 592,416 |  |   | $       | 547,909 | 
|                          |       |      |         |         |  |   |         |        

The changes in the Minority Interest balance are
as follows:

|                  |                                               |                         |         |         |   |   |         |         |  
|----------------- | --------------------------------------------- | ----------------------- | ------- | ------- | - | - | ------- | ------- | -
|                  |                                               |                        
|                  |                                               | Balance at December 31,
|                  |                                               |                        
|                  |                                               | 2003                    |         | 2002   
|                  |                                               |                         |         |        
|Beginning Balance |                                               | $                       | 547,909 |         |   | $ | 594,403 |        
|                  | A-1 Common Unit Conversions                   |                         |         | (25,534 | ) |   |         | (41,723 | )
|                  | A-1 Common Unitholders share of net earnings  |                         |         | 60,534  |   |   |         | 39,823  |  
|                  | Common Units issued for real estate           |                         |         | 47,575  |   |   |         | 8,731   |  
|                  | Series E Perpetual Preferred Units redemption |                         |         |        |   |   |         | (12,000 | )
|                  | A-1 Common Unitholders distributions          |                         |         | (38,180 | ) |   |         | (41,782 | )
|                  | Other                                         |                         |         | 112     |   |   |         | 457     |  
|                  |                                               |                         |         |         |   |   |         |        
|Ending Balance    |                                               | $                       | 592,416 |         |   | $ | 547,909 |        
|                  |                                               |                         |         |         |   |   |         |        



| |                 
| | ----------------
| | A-1 Common Units

As of December 31, 2003 and
December 31, 2002, we owned an 88.5% and 88.0% majority
interest in the Operating Trust, respectively. In connection
with the Smith Merger, the Operating Trust issued approximately
25.5 million A-1 Common Units to former Smith Partnership
unitholders. These units are redeemable at the option of the A-1
Common Unitholders. The Operating Trust has the option of
redeeming the A-1 Common Units with cash or with Common Shares.
The A-1 Common Units are entitled to the same dividend as

74



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Common Shares. The A-1 Common Unitholders
aggregate minority interest in the Operating Trust was
approximately 11.5% and 12.0% at December 31, 2003 and
2002, respectively. During the twelve months ended
December 31, 2003, Class A-1 Common Units of 1,276,692
were redeemed for Common Shares.

During 2003, we issued 1,955,908 Common Units in
exchange for property. In April 2002, the Operating Trust
issued 339,727 Class B Common Units of the Operating Trust
as partial consideration for a real estate acquisition. In
April 2002, Archstone-Smith issued 149,319 unregistered
Common Shares in exchange for 149,319 Class B Common Units
previously issued. In August 2002, the Operating Trust converted
870,523 of DownREIT operating units into A-1 Common Units in
connection with the merger with its DownREIT Operating
Partnerships.



| |                          
| | -------------------------
| | Perpetual Preferred Units

At various dates, consolidated subsidiaries of
Archstone-Smith issued perpetual preferred units to limited
partners in exchange for cash. Unless redeemed, the units are
convertible into Operating Trust preferred shares and then into
a specified series of Archstone-Smith non-convertible perpetual
preferred shares after certain dates. Following is a summary of
outstanding Perpetual Preferred Units as of December 31,
2003 and 2002:

|                                                                                                                       |  |            |          |             |  |          |       |                        |  |      |      |  |  |   |        |  |  |   |        | 
|---------------------------------------------------------------------------------------------------------------------- |  | ---------- | -------- | ----------- |  | -------- | ----- | ---------------------- |  | ---- | ---- |  |  | - | ------ |  |  | - | ------ | 
|                                                                                                                       |  |            |          |             |  | Annual   |       |                       
|                                                                                                                       |  |            |          |             |  | Dividend |       | December 31,          
|                                                                                                                       |  | Redemption |          | Liquidation |  | Rate per |       |                       
|Description                                                                                                            |  | Date(1)    |          | Value       |  | Share    |       | 2003                   |  | 2002
|                                                                                                                       |  |            |          |             |  |          |       |                        |  |     
|                                                                                                                       |  |            |          |             |  |          |       |                       
|                                                                                                                       |  |            |          |             |  |          |       | (Amounts in thousands)
|Series E Perpetual Preferred Units;
    1,120,000 Units issued and outstanding at December 31, 2003
    and 2002(2)(3) |  |            | 08/13/04 |             |  | $        | 25.00 |                        |  | $    | 2.09 |  |  | $ | 27,123 |  |  | $ | 27,123 | 
|Series F Perpetual Preferred Units; 800,000
    Units issued and outstanding at December 31, 2003 and
    2002(2)      |  |            | 09/27/04 |             |  |          | 25.00 |                        |  |      | 2.03 |  |  |   | 19,464 |  |  |   | 19,464 | 
|Series G Perpetual Preferred Units; 600,000
    Units issued and outstanding at December 31, 2003 and
    2002(2)      |  |            | 03/03/05 |             |  |          | 25.00 |                        |  |      | 2.16 |  |  |   | 14,593 |  |  |   | 14,593 | 
|                                                                                                                       |  |            |          |             |  |          |       |                        |  |      |      |  |  |   |        |  |  |   |        | 
|                                                                                                                       |  |            |          |             |  |          |       |                        |  |      |      |  |  | $ | 61,180 |  |  | $ | 61,180 | 
|                                                                                                                       |  |            |          |             |  |          |       |                        |  |      |      |  |  |   |        |  |  |   |        | 



---



|    |                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The shares are redeemable, at our option, in
    whole or in part, at the liquidation preference plus unpaid
    dividends on or after the
    dates                     indicated
    here.
|   
|(2) | In August 2002, 3,000,000 DownREIT Perpetual
    Preferred Units were converted into Operating Trust Perpetual
    Preferred Units.                                                         
|   
|(3) | In September 2002, 480,000 of the Series E
    Perpetual preferred Units were redeemed at liquidation value
    plus accrued dividends.                                                     



|     |              
|---- | -------------
|(10) | Benefit Plans

Our long-term incentive plan was approved in
1997, and was modified in connection with the Smith Merger.
There have been four types of awards under the plan:
(i) options with a DEU feature (only awarded prior to
2000); (ii) options without the DEU feature (generally
awarded after 1999); (iii) restricted Common Share unit
awards with a DEU feature; and (iv) employee unit purchase
program with matching options without the DEU feature, granted
only in 1997 and 1998

No more than 20,000,000 share or option
awards in the aggregate may be granted under the plan and no
individual may be awarded more than 1,000,000 share or
option awards in any one-year period. The plan has a

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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

10-year term. As of December 31, 2003,
Archstone-Smith had 8,840,740 shares available for future
grants. No annual option awards were made in 2003, as option
awards for 2003 were approved and granted in January 2004.
Beginning in 2004, the Board voted to eliminate regular option
awards to officers with the title of Senior Vice President or
above.



| |                                      
| | -------------------------------------
| | Share Options and Trustee
    Options

The exercise price of each employee option
granted is equal to the fair market value at the close of
business on the day immediately preceding the date of grant. The
options awarded through mid-2001 generally vest at a rate of
25% per year; options granted after mid-2001 generally vest
at the rate of 33 1/3% a year.

Additionally, Archstone-Smith has authorized
400,000 Common Units for issuance to their outside trustees
under the equity plan for outside trustees. The exercise price
of outside trustee options is equal to the average of the high
and low prices on the date of grant. All options granted to
outside trustees before 1999 have been exercised or cancelled.
The options issued to outside trustees between 1999 and 2001
have a DEU feature, a 10-year term and vest over a four-year
period. Beginning in 2002 options are no longer issued to
outside trustees.

During 1997, as part of the employee share
purchase plan, certain officers and other employees purchased
Common Shares of Archstone-Smith. The company financed 95% of
the total purchase price by issuing notes representing
approximately $17.1 million. Loans made to employees in
connection with the employee share purchase plan are recourse
loans and the associated receivable is recorded as a reduction
of shareholders/unitholders equity. As of
December 31, 2003, the aggregate outstanding balances on
these notes were approximately $1.1 million.

In an effort to eliminate all employee loans,
Archstone-Smith made an offer to the remaining participants of
this plan to repurchase their Common Shares as of
December 27, 2002, using the closing price of
Archstone-Smith Common Shares on that date. The proceeds of the
repurchase were used to pay off the outstanding loan balance,
with any excess going to the participant. In addition, the
participant received one fully vested and exercisable option for
each share that was repurchased, with a term not to exceed the
remaining term on the promissory note for the outstanding loan.
A total of 81,685 Common Shares were repurchased for a total of
$1.9 million. The fully vested stock options issued in
connection with the repurchase of outstanding common shares were
accounted for under the recognition and measurement provisions
of APB Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations.
Additionally, no stock-based employee compensation expense is
reflected in the Consolidated Statement of Earnings, as all
options granted had an exercise price equal to the market value
of the underlying common stock on the date of grant and would
not be considered a replacement award.

A summary of all options outstanding at
December 31, 2003 follows:

|                                                                   |       |           |           |                 |  |         |              |                  |  |                  |       |       |  |  |           |  |  |  |            |  | 
|------------------------------------------------------------------ | ----- | --------- | --------- | --------------- |  | ------- | ------------ | ---------------- |  | ---------------- | ----- | ----- |  |  | --------- |  |  |  | ---------- |  | 
|                                                                   |       |           |           |                 |  |         |              |                 
|                                                                   |       |           |           | Exercise Prices |  |         |              | Weighted-Average
|                                                                   |       | Number of |           |                 |  |         |              | Remaining       
|                                                                   |       | Options   |           | Range           |  | Average |              | Expiration Date  |  | Contractual Life
|                                                                   |       |           |           |                 |  |         |              |                  |  |                 
|Matching options under the 1997 employee unit
    purchase program |       |           | 485,202   |                 |  | $       | 21.19-$22.44 |                  |  | $                | 22.19 |       |  |  | 2007-2008 |  |  |  | 3.71 years | 
|Options with DEUs                                                  |       |           | 969,212   |                 |  |         | 19.00- 22.94 |                  |  |                  | 20.51 |       |  |  | 2007-2009 |  |  |  | 5.05 years | 
|Options without DEUs                                               |       |           | 3,853,064 |                 |  |         | 21.91- 28.86 |                  |  |                  | 24.77 |       |  |  | 2007-2013 |  |  |  | 8.04 years | 
|Outside Trustees                                                   |       |           | 71,250    |                 |  |         | 22.56- 23.95 |                  |  |                  | 23.06 |       |  |  | 2009-2011 |  |  |  | 6.43 years | 
|Exchanged options                                                  |       |           | 1,009,014 |                 |  |         | 15.07- 23.18 |                  |  |                  | 19.99 |       |  |  | 2007-2011 |  |  |  | 6.22 years | 
|                                                                   |       |           |           |                 |  |         |              |                  |  |                  |       |       |  |  |           |  |  |  |            | 
|                                                                   | Total |           |           | 6,387,742       |  |         | $            | 15.07-$28.86     |  |                  | $     | 23.15 |  |  |           |  |  |  |            |  | 
|                                                                   |       |           |           |                 |  |         |              |                  |  |                  |       |       |  |  |           |  |  |  |            | 

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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

A summary of the status of Archstone-Smith
Trusts option plans as of December 31, 2003, 2002 and
2001, and changes during the years ended on those dates is
presented below:

|                                      |                                  |           |           |                  |   |             |       |       |  |  |           |  | 
|------------------------------------- | -------------------------------- | --------- | --------- | ---------------- | - | ----------- | ----- | ----- |  |  | --------- |  | 
|                                      |                                  |           |           |                  |   | Number of  
|                                      |                                  | Number of |           | Weighted Average |   | Options    
|                                      |                                  | Options   |           | Exercise Price   |   | Exercisable
|                                      |                                  |           |           |                  |   |            
|Balance/ Average at December 31, 2000 |                                  |           | 4,153,213 |                  |   | $           | 22.29 |       |  |  | 1,182,120 | 
|                                      |                                  |           |           |                  |   |             |       |       |  |  |           | 
|                                      | Granted                          |           |           | 1,236,560        |   |             |       | 26.30 |  |  |           |  | 
|                                      | Smith Merger replacement options |           |           | 3,338,220        |   |             |       | 18.41 |  |  |           |  | 
|                                      | Exercised                        |           |           | (404,254         | ) |             |       | 26.02 |  |  |           |  | 
|                                      | Forfeited                        |           |           | (216,111         | ) |             |       | 22.42 |  |  |           |  | 
|                                      |                                  |           |           |                  |   |             |       |       |  |  |           | 
|Balance/ Average at December 31, 2001 |                                  |           | 8,107,628 |                  |   | $           | 21.33 |       |  |  | 5,131,390 | 
|                                      |                                  |           |           |                  |   |             |       |       |  |  |           | 
|                                      | Granted                          |           |           | 2,680,143        |   |             |       | 24.15 |  |  |           |  | 
|                                      | Exercised                        |           |           | (1,210,890       | ) |             |       | 26.28 |  |  |           |  | 
|                                      | Forfeited                        |           |           | (340,519         | ) |             |       | 23.94 |  |  |           |  | 
|                                      |                                  |           |           |                  |   |             |       |       |  |  |           | 
|Balance/ Average at December 31, 2002 |                                  |           | 9,236,362 |                  |   | $           | 22.44 |       |  |  | 5,314,210 | 
|                                      |                                  |           |           |                  |   |             |       |       |  |  |           | 
|                                      | Granted                          |           |           | 15,823           |   |             |       | 22.42 |  |  |           |  | 
|                                      | Exercised                        |           |           | (2,101,605       | ) |             |       | 19.58 |  |  |           |  | 
|                                      | Forfeited                        |           |           | (762,838         | ) |             |       | 24.38 |  |  |           |  | 
|                                      |                                  |           |           |                  |   |             |       |       |  |  |           | 
|Balance/ Average at December 31, 2003 |                                  |           | 6,387,742 |                  |   | $           | 23.15 |       |  |  | 4,546,725 | 
|                                      |                                  |           |           |                  |   |             |       |       |  |  |           | 



| |                             
| | ----------------------------
| | Restricted Share Unit Awards

Restricted Share Unit awards are granted at the
market value of the underlying Common Shares on the date of
grant. To compute the total compensation expense to be
recognized, the fair value of each share on the grant date is
multiplied by the number of shares granted. We then recognize
this stock-based employee compensation expense over the vesting
period, which ranges from two to five years. The total expense
recognized in connection with these awards, including the DEUs
for the years ending December 31, 2003, December 31,
2002 and December 31, 2001 was $5.6 million,
$4.6 million, and $4.2 million, respectively.

There were no RSU grants awarded under the
Long-Term Incentive Plan in 2003. Instead, 2003 RSUs were
approved and granted in January 2004. During 2002 and 2001
Archstone-Smith awarded 341,048 and 168,066 RSUs with a DEU
feature, respectively, to certain employees under the long-term
incentive plan, of which 88,366 have been forfeited. Twelve
thousand RSUs with a DEU feature were awarded to trustees under
the equity plan for outside trustees, none of which has been
forfeited. Each RSU provides the holder with one Common Share
upon settlement. The RSUs and related DEU feature vest at
20%-50% per year over a two to five-year period. We
recognize the value of the awards and the related DEUs as
compensation expense over the vesting period.



| |                          
| | -------------------------
| | Dividend Equivalent Units

Under the modified long-term incentive plan,
participants who are awarded RSUs may be credited with DEUs
equal to the amount of dividends paid on Common Shares with
respect to such awards. The DEUs are awarded annually each year
and vest under substantially the same terms as the underlying
share options or RSUs.

DEUs credited in relation to options are
calculated by taking the average number of options held at each
record date and multiplying by the difference between the
average annual dividend yield on Common Shares

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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

and the average dividend yield for the
Standard & Poors 500 Stock Index. DEUs credited
in relation to RSUs are calculated by taking the average number
of RSUs held at each record date and multiplying by the average
annual dividend yield on Common Shares. DEUs credited in
relation to existing DEUs are calculated by taking the number of
DEUs at December 31 and multiplying by the average annual
dividend yield on Common Shares.

As of December 31, 2003, there were a total
of 246,964 DEUs outstanding awarded to 85 holders of options and
RSUs. The outstanding DEUs were valued at $6.9 million on
December 31, 2003 based upon market price of the Common
Shares on that date. We recognize the value of the DEUs awarded
as compensation expense over the vesting period. The matching
options granted in connection with the 1997 employee purchase
program and all of the employee options granted after 1999
(including the converted Smith Residential options) do not have
a DEU feature.



| |                                                            
| | -----------------------------------------------------------
| | 401(k) Plan and Nonqualified Deferred
    Compensation Plan

In December 1997, the Archstone-Smith Board
established a 401(k) plan and a nonqualified savings plan, which
both became effective on January 1, 1998. The 401(k) plan
provides for matching employer contributions of fifty cents for
every dollar contributed by the employee, up to 6% of the
employees annual contribution. Contributions by employees
to the 401(k) plan are subject to federal limitations of $12,000
during 2003. The matching employer contributions are made in
Common Shares, which vest between years of service at
20% per year. The Smith Residential nonqualified deferred
compensation plan and the outside trustees deferred fee plan
were merged into our existing nonqualified savings plan to form
a new on-going nonqualified deferred compensation plan on
January 1, 2002. Generally, the deferred compensation plan
permits only deferrals of compensation by eligible employees and
non-employee trustees. No employer contributions are currently
being made to that plan. Amounts deferred under the deferred
compensation plan are invested among a variety of investments as
directed by the participants, and are generally deferred until
termination of employment or service as a trustee.



| |                                              
| | ---------------------------------------------
| | Deferral of Fees by Non-Employee
    Trustees

Pursuant to the terms of the nonqualified
deferred compensation plan, each non-employee member of our
Board has the opportunity to defer receipt of all or a portion
of the service fees they otherwise would have been paid in cash.
If a participant elects to have their fees deferred, the fees
accrue in the form of phantom shares equal to the number of
Common Shares that could have been purchased on the date the fee
was credited. Dividends are calculated on the phantom shares and
additional phantom shares are credited. Distribution of phantom
shares may be deferred to a later date. Upon settlement, phantom
shares convert into Common Shares on a 1-to-1 basis.
Alternatively, the Trustee can elect to have his or her fees
deferred and invested in one or more of the investment funds
that are otherwise available under the deferred compensation
plan. Upon settlement such investments are paid out in cash.



|     |                                                 
|---- | ------------------------------------------------
|(11) | Financial Instruments and Hedging
    Activities



| |                                        
| | ---------------------------------------
| | Fair Value of Financial
    Instruments

At December 31, 2003 and 2002, the fair
values of cash and cash equivalents, restricted cash held in a
tax-deferred exchange escrow accounts, receivables and accounts
payable approximated their carrying values because of the
short-term nature of these instruments. The estimated fair
values of other financial instruments subject to fair value
disclosures were determined based on available market
information and valuation methodologies believed to be
appropriate for these purposes. Considerable judgment and a high
degree of subjectivity are involved in developing these
estimates and, therefore, are not necessarily indicative of the

78



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

actual amounts that we could realize upon
disposition. The following table summarizes these financial
instruments (in thousands):

|                         |                             |                              |   |                              |  |          |   |            |  |  |   |           |   |  |   |           |  
|------------------------ | --------------------------- | ---------------------------- | - | ---------------------------- |  | -------- | - | ---------- |  |  | - | --------- | - |  | - | --------- | -
|                         |                             |                              |   |                             
|                         |                             | Balance at December 31, 2003 |   | Balance at December 31, 2002
|                         |                             |                              |   |                             
|                         |                             | Carrying                     |   | Estimated                    |  | Carrying |   | Estimated 
|                         |                             | Amounts                      |   | Fair Value                   |  | Amounts  |   | Fair Value
|                         |                             |                              |   |                              |  |          |   |           
|Borrowings:              |                             |                              |   |                              |  |          |   |            |  |  |   |           |   |  |   |          
|                         | Unsecured credit facilities |                              | $ | 103,790                      |  |          | $ | 103,790    |  |  | $ | 365,578   |   |  | $ | 365,578   |  
|                         | Long-Term Unsecured Debt    |                              |   | 1,871,695                    |  |          |   | 2,043,289  |  |  |   | 1,776,103 |   |  |   | 1,969,102 |  
|                         | Mortgages payable           |                              |   | 1,927,625                    |  |          |   | 2,032,872  |  |  |   | 2,179,997 |   |  |   | 2,059,081 |  
|Interest rate contracts: |                             |                              |   |                              |  |          |   |            |  |  |   |           |   |  |   |          
|                         | Interest rate swaps         |                              | $ | 2,765                        |  |          | $ | 2,765      |  |  | $ | (1,235    | ) |  | $ | (1,235    | )
|                         | Interest rate caps          |                              |   |                             |  |          |   |           |  |  |   | 3         |   |  |   | 3         |  
|Forward Contracts:       |                             |                              |   |                              |  |          |   |            |  |  |   |           |   |  |   |          
|                         | Forward sales agreements    |                              | $ | 250                          |  |          | $ | 250        |  |  | $ |          |   |  | $ |          |  

All publicly traded equity securities are
classified as available for sale securities and
carried at fair value, with unrealized gains and losses reported
as a separate component of shareholders equity. As of
December 31, 2003 and 2002, our investments in publicly
traded equity securities included in other assets were
$144.7 million and $85.2 million, respectively.
Private investments, for which we do not have the ability to
exercise significant influence, are accounted for at cost.
Declines in the value of public and private investments that
management determines are other than temporary, are recorded as
a provision for possible loss on investments. Our evaluation of
the carrying value of these investments is primarily based upon
a regular review of market valuations (if available), each
companys operating performance and assumptions underlying
cash flow forecasts. In addition, management considers events
and circumstances that may signal the impairment of an
investment. During 2001, we concluded that our investments in
private service and technology companies were impaired due to
the investees financial position. Since the decline was
other than temporary, we recorded a $12.2 million provision
for possible loss on investments during the year ended
December 31, 2001.



| |                   
| | ------------------
| | Hedging Activities

We are exposed to the impact of interest rate
changes and will occasionally utilize interest rate swaps and
interest rate caps as hedges with the objective of lowering our
overall borrowing costs. These derivatives are designated as
either cash flow or fair value hedges. We are also exposed to
price risk associated with changes in the fair value of certain
equity securities. We have entered into forward sale agreements
to protect against a reduction in the fair value of these
securities. We have designated this forward sale as a fair value
hedge. We do not use these derivatives for trading or other
speculative purposes. Further, as a matter of policy, we only
enter into contracts with major financial institutions based
upon their credit ratings and other factors. When viewed in
conjunction with the underlying and offsetting exposure that the
derivatives are designed to hedge, we have not, nor do we expect
to sustain a material loss from the use of these hedging
instruments.

We formally assess, both at inception of the
hedge and on an ongoing basis, whether each derivative is highly
effective in offsetting changes in fair values or cash flows of
the hedged item. We measure hedge effectiveness by comparing the
changes in the fair value or cash flows of the derivative
instrument with the changes in the fair value or cash flows of
the hedged item. We exclude the hedging instruments time
value component when assessing hedge effectiveness. If it is
determined that a derivative is not highly effective as a hedge
or if a derivative ceases to be a highly effective hedge, we
will discontinue hedge accounting prospectively.

79



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

To determine the fair values of derivative and
other financial instruments, we use a variety of methods and
assumptions that are based on market value conditions and risks
existing at each balance sheet date. These methods and
assumptions include standard market conventions and techniques
such as discounted cash flow analysis, option pricing models,
replacement cost and termination cost. All methods of assessing
fair value result in a general approximation of value, and
therefore, are not necessarily indicative of the actual amounts
that we could realize upon disposition. During the
3rd quarter of 2003, we entered into a forward sale
agreement with a notional amount, which represents the fair
value of the underlying marketable securities, of approximately
$46.8 million. In the 4th quarter of 2003, we entered
into two additional forward sale agreements with a notional
amount of approximately $81.7 million. The forward sales
agreements fair value at December 31, 2003 and 2002 were
$250,000 and $0, respectively. The sale of certain marketable
securities in accordance with forward sale contracts is expected
to result in realized gains of approximately $22.0 million
in 2004.



| |                                       
| | --------------------------------------
| | Derivatives and Hedging
    Activities

We adopted SFAS No. 133/138,
Accounting for Derivative Instruments and Hedging
Activities on January 1, 2001. This accounting
standard requires companies to carry all derivative instruments
on the balance sheet at fair value. The accounting for changes
in the fair value of a derivative instrument depends on whether
it has been designated and qualifies as part of a hedging
relationship and, if so, on the reason for holding it. We use
only qualifying hedges that are designated specifically to
reduce borrowing costs. This is typically accomplished using
interest rate swaps, interest rate caps or by locking in rates
on anticipated debt issuances.

Upon adoption of SFAS No. 133/138, on
January 1, 2001 we recorded a net transition loss of
$205,000 in other expense and a net transition unrealized gain
of $3.8 million in other comprehensive income, related to
the cumulative effect of an accounting change. During the years
ended December 31, 2003, 2002 and 2001 we recorded a net
charge of $(100,665), $311,868 and $19,000, respectively, to
interest expense relating to an interest rate swap designated as
a cash flow hedge that was more than 100% effective at
offsetting interest rates on the underlying hedged debt. As a
matter of policy, we pursue hedging strategies that we expect
will result in the lowest overall borrowing costs and least
degree of earnings volatility possible under the new accounting
standards.

In April 2003, we adopted SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments
and Hedging Activities. We adopted this Statement for
contracts or hedging relationships entered into or modified
after June 30, 2003. Its purpose is to provide more
consistent application and clarification of SFAS 133.

80



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The following table summarizes the notional
amount, carrying value and estimated fair value of our
derivative financial instruments, as of December 31, 2003
(dollar amounts in thousands). The notional amount represents
the aggregate amount of a particular security that is currently
hedged at one time, but does not represent exposure to credit,
interest rate or market risks.

|                   |                            |                         |              |            |         |                |  |           |           |           |   |        |        |       | 
|------------------ | -------------------------- | ----------------------- | ------------ | ---------- | ------- | -------------- |  | --------- | --------- | --------- | - | ------ | ------ | ----- | 
|                   |                            |                         |              |            |         | Carrying and  
|                   |                            | Notional                |              | Maturity   |         | Estimated Fair
|                   |                            | Amount                  |              | Date Range |         | Value         
|                   |                            |                         |              |            |         |               
|Cash flow hedges:  |                            |                         |              |            |         |                |  |           |           |           |   |       
|                   | Interest rate caps         |                         | $            | 34,508     |         |                |  | 2005      |           |           | $ |       |       
|                   | Interest rate swaps        |                         |              | 150,000    |         |                |  | 2006      |           |           |   | (9,819 | )     
|                   |                            |                         |              |            |         |                |  |           |           |           |   |       
|                   |                            | Total cash flow hedges  |              | $          | 184,508 |                |  |           | 2005-2006 |           |   | $      | (9,819 | )    
|                   |                            |                         |              |            |         |                |  |           |           |           |   |       
|Fair value hedges: |                            |                         |              |            |         |                |  |           |           |           |   |       
|                   | Interest rate swaps        |                         | $            | 104,005    |         |                |  | 2006-2008 |           |           | $ | 8,822  |       
|                   | Total rate of return swaps |                         |              | 69,756     |         |                |  | 2004-2007 |           |           |   | 3,762  |       
|                   | Forward sales agreement    |                         |              | 128,500    |         |                |  | 2004      |           |           |   | 250    |       
|                   |                            |                         |              |            |         |                |  |           |           |           |   |       
|                   |                            | Total fair value hedges |              | $          | 302,261 |                |  |           | 2004-2008 |           |   | $      | 12,834 |      
|                   |                            |                         |              |            |         |                |  |           |           |           |   |       
|                   |                            |                         | Total hedges |            | $       | 486,769        |  |           |           | 2004-2008 |   |        | $      | 3,015 | 
|                   |                            |                         |              |            |         |                |  |           |           |           |   |       

81



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|     |                                  
|---- | ---------------------------------
|(12) | Selected Quarterly Financial Data

Selected quarterly financial data (in thousands,
except per share amounts) for 2003 and 2002 is summarized below.
The sum of the quarterly earnings per Common Share amounts may
not equal the annual earnings per Common Share amounts due
primarily to changes in the number of Common Shares outstanding
from quarter to quarter.

|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |         |        | 
|----- | ------------------------------------------------------------ | ------------------------------------------ | - | ---------- | ----- | ------- | - | -------- | ----- | -------- | - | ------- | ----- |  | - | ------- | ----- |  | - | ------- | ------ | 
|      |                                                              |                                            |   |           
|      |                                                              | (Unaudited)                                |   |           
|      |                                                              | Three Months Ended                         |   |           
|      |                                                              |                                            |   | Year Ended
|      |                                                              | 3-31(1)                                    |   | 6-30(1)    |       | 9-30(1) |   | 12-31(1) |       | 12-31(1)
|      |                                                              |                                            |   |            |       |         |   |          |       |         
|2003: |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|      | Total revenues                                               |                                            | $ | 221,250    |       |         | $ | 221,924  |       |          | $ | 226,398 |       |  | $ | 230,803 |       |  | $ | 900,375 |       
|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|      | Earnings from operations                                     |                                            |   | 39,322     |       |         |   | 16,050   |       |          |   | 24,730  |       |  |   | 28,160  |       |  |   | 108,262 |       
|      | Gains on dispositions of depreciated real estate,
    net(2) |                                            |   |           |       |         |   |         |       |          |   |        |       |  |   |        |       |  |   |        |       
|      | Income from unconsolidated entities                          |                                            |   | 455        |       |         |   | (1,161   | )     |          |   | 1,714   |       |  |   | 4,737   |       |  |   | 5,745   |       
|      | Less minority interest:                                      |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |         |       
|      |                                                              | Perpetual preferred units                  |   |            | 1,316 |         |   |          | 1,316 |          |   |         | 1,316 |  |   |         | 1,208 |  |   |         | 5,156  | 
|      |                                                              | Convertible operating partnership units(3) |   |            | 3,880 |         |   |          | 901   |          |   |         | 1,964 |  |   |         | 3,278 |  |   |         | 10,402 | 
|      | Plus net earnings from discontinued operations               |                                            |   | 50,927     |       |         |   | 52,500   |       |          |   | 133,264 |       |  |   | 98,517  |       |  |   | 335,208 |       
|      | Less Preferred Share dividends                               |                                            |   | 7,042      |       |         |   | 5,935    |       |          |   | 4,812   |       |  |   | 3,208   |       |  |   | 20,997  |       
|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|      | Net earnings attributable to Common
    Shares  Basic(3)    |                                            | $ | 78,466     |       |         | $ | 59,237   |       |          | $ | 151,616 |       |  | $ | 123,720 |       |  | $ | 412,660 |       
|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|      | Net earnings per Common Share:(3)                            |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |         |       
|      |                                                              | Basic                                      |   | $          | 0.43  |         |   | $        | 0.32  |          |   | $       | 0.80  |  |   | $       | 0.64  |  |   | $       | 2.20   | 
|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|      |                                                              | Diluted                                    |   | $          | 0.43  |         |   | $        | 0.32  |          |   | $       | 0.79  |  |   | $       | 0.63  |  |   | $       | 2.18   | 
|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|2002: |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|      | Total revenues                                               |                                            | $ | 211,844    |       |         | $ | 215,065  |       |          | $ | 216,325 |       |  | $ | 218,523 |       |  | $ | 861,757 |       
|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|      | Earnings from operations                                     |                                            |   | 48,353     |       |         |   | 42,045   |       |          |   | 28,983  |       |  |   | 8,238   |       |  |   | 127,619 |       
|      | Gains on dispositions of depreciated real estate,
    net(2) |                                            |   | 2,231      |       |         |   | 22,212   |       |          |   | 3,500   |       |  |   | 8,007   |       |  |   | 35,950  |       
|      | Income from unconsolidated entities                          |                                            |   | 3,603      |       |         |   | 8,078    |       |          |   | 3,748   |       |  |   | 38,173  |       |  |   | 53,602  |       
|      | Less minority interest:                                      |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |         |       
|      |                                                              | Perpetual preferred units                  |   |            | 1,567 |         |   |          | 1,606 |          |   |         | 1,852 |  |   |         | 1,326 |  |   |         | 6,351  | 
|      |                                                              | Convertible operating partnership units(3) |   |            | 5,930 |         |   |          | 7,287 |          |   |         | 4,046 |  |   |         | 5,531 |  |   |         | 22,910 | 
|      | Plus net earnings from discontinued operations               |                                            |   | 12,446     |       |         |   | 20,484   |       |          |   | 32,367  |       |  |   | 61,608  |       |  |   | 126,905 |       
|      | Less Preferred Share dividends                               |                                            |   | 8,759      |       |         |   | 8,681    |       |          |   | 7,702   |       |  |   | 7,043   |       |  |   | 32,185  |       
|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|      | Net earnings attributable to Common
    Shares  Basic(3)    |                                            | $ | 50,377     |       |         | $ | 75,245   |       |          | $ | 54,998  |       |  | $ | 102,126 |       |  | $ | 282,630 |       
|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|      | Net earnings per Common Share:(3)                            |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |         |       
|      |                                                              | Basic                                      |   | $          | 0.29  |         |   | $        | 0.43  |          |   | $       | 0.31  |  |   | $       | 0.56  |  |   | $       | 1.59   | 
|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|      |                                                              | Diluted                                    |   | $          | 0.29  |         |   | $        | 0.42  |          |   | $       | 0.31  |  |   | $       | 0.56  |  |   | $       | 1.58   | 
|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        



---



|    |                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Net earnings from discontinued operations have
    been reclassified for all periods presented.                                                         
|   
|(2) | Excludes gains on properties included in net
    earnings from discontinued operations.                                                                 
|   
|(3) | Due to the quarterly pro-rata calculation of
    minority interest, the sum of the quarterly per share amounts do
    not equal the year-to-date totals.

82



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|     |             
|---- | ------------
|(13) | Segment Data

We define our garden communities and high-rise
properties each as individual operating segments. We have
determined that each of our garden communities and each of our
high-rise properties have similar economic characteristics and
also meet the other criteria, which permit the garden
communities and high-rise properties to be aggregated into two
reportable segments. Additionally, we believe that same store
sales disclosure of the portfolio of communities fully operating
in both periods is a meaningful way to assess our operating
results. We rely primarily on NOI for purposes of making
decisions about allocating resources and assessing segment
performance. We also believe NOI is a valuable means of
comparing period-to-period property performance.

Following are reconciliations of each reportable
segments (i) revenues to consolidated revenues;
(ii) Net Operating Income to consolidated earnings from
operations; and (iii) assets to consolidated assets, for
the periods indicated (in thousands):

|                                                   |                 |                          |                                         |      |         |         |       |   |         |         |       |   |         |         | 
|-------------------------------------------------- | --------------- | ------------------------ | --------------------------------------- | ---- | ------- | ------- | ----- | - | ------- | ------- | ----- | - | ------- | ------- | 
|                                                   |                 |                         
|                                                   |                 | Years Ended December 31,
|                                                   |                 |                         
|                                                   |                 | 2003                     |                                         | 2002 |         | 2001   
|                                                   |                 |                          |                                         |      |         |        
|Reportable apartment communities segment revenues: |                 |                          |                                         |      |         |         |       |   |         |         |       |  
|                                                   | Same-Store:     |                          |                                         |      |         |         |       |   |         |         |       |   |        
|                                                   |                 | Garden communities       |                                         | $    | 430,002 |         |       | $ | 364,021 |         |       | $ | 316,933 |        
|                                                   |                 | High-rise properties     |                                         |      | 339,084 |         |       |   | 309,616 |         |       |   | 51,938  |        
|                                                   | Non Same-Store: |                          |                                         |      |         |         |       |   |         |         |       |   |        
|                                                   |                 | Garden communities       |                                         |      | 96,141  |         |       |   | 140,622 |         |       |   | 168,085 |        
|                                                   |                 | High-rise properties     |                                         |      | 12,550  |         |       |   | 31,515  |         |       |   | 2,979   |        
|Other non-reportable operating segment revenues    |                 |                          | 3,264                                   |      |         |         | 6,521 |   |         |         | 4,128 |  
|                                                   |                 |                          |                                         |      |         |         |       |   |         |         |       |  
|                                                   |                 |                          | Total segment and consolidated revenues |      | $       | 881,041 |       |   | $       | 852,295 |       |   | $       | 544,063 | 
|                                                   |                 |                          |                                         |      |         |         |       |   |         |         |       |  

|                                              |                 |                                            |                                       |      |          |         |       |   |          |         |       |   |          |         | 
|--------------------------------------------- | --------------- | ------------------------------------------ | ------------------------------------- | ---- | -------- | ------- | ----- | - | -------- | ------- | ----- | - | -------- | ------- | 
|                                              |                 |                                           
|                                              |                 | Years Ended December 31,                  
|                                              |                 |                                           
|                                              |                 | 2003                                       |                                       | 2002 |          | 2001   
|                                              |                 |                                            |                                       |      |          |        
|Reportable apartment communities segment NOI: |                 |                                            |                                       |      |          |         |       |   |          |         |       |  
|                                              | Same-Store:     |                                            |                                       |      |          |         |       |   |          |         |       |   |         
|                                              |                 | Garden communities                         |                                       | $    | 291,573  |         |       | $ | 246,743  |         |       | $ | 216,157  |        
|                                              |                 | High-rise properties                       |                                       |      | 201,657  |         |       |   | 190,729  |         |       |   | 33,056   |        
|                                              | Non Same-Store: |                                            |                                       |      |          |         |       |   |          |         |       |   |         
|                                              |                 | Garden communities                         |                                       |      | 58,996   |         |       |   | 91,248   |         |       |   | 111,831  |        
|                                              |                 | High-rise properties                       |                                       |      | 6,521    |         |       |   | 16,779   |         |       |   | 2,020    |        
|Other non-reportable operating segment NOI    |                 |                                            | 2,613                                 |      |          |         | 2,871 |   |          |         | 3,584 |  
|                                              |                 |                                            |                                       |      |          |         |       |   |          |         |       |  
|                                              |                 |                                            | Total segment NOI                     |      |          | 561,360 |       |   |          | 548,370 |       |   |          | 366,648 | 
|                                              |                 |                                            |                                       |      |          |         |       |   |          |         |       |  
|Reconciling items:                            |                 |                                            |                                       |      |          |         |       |   |          |         |       |  
|                                              |                 | Other income                               |                                       |      | 19,334   |         |       |   | 9,462    |         |       |   | 11,905   |        
|                                              |                 | Depreciation on real estate investments    |                                       |      | (187,677 | )       |       |   | (167,029 | )       |       |   | (102,477 | )      
|                                              |                 | Interest expense                           |                                       |      | (186,832 | )       |       |   | (190,005 | )       |       |   | (88,081  | )      
|                                              |                 | General and administrative expenses        |                                       |      | (49,838  | )       |       |   | (45,710  | )       |       |   | (27,434  | )      
|                                              |                 | Provision for possible loss on investments |                                       |      |         |         |       |   |         |         |       |   | (14,927  | )      
|                                              |                 | Other expenses                             |                                       |      | (48,085  | )       |       |   | (27,469  | )       |       |   | (15,564  | )      
|                                              |                 |                                            |                                       |      |          |         |       |   |          |         |       |  
|                                              |                 |                                            | Consolidated earnings from operations |      | $        | 108,262 |       |   | $        | 127,619 |       |   | $        | 130,070 | 
|                                              |                 |                                            |                                       |      |          |         |       |   |          |         |       |  

83



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                                 |                 |                                                           |                           |      |           |           |        |   |           |           | 
|------------------------------------------------ | --------------- | --------------------------------------------------------- | ------------------------- | ---- | --------- | --------- | ------ | - | --------- | --------- | 
|                                                 |                 |                                                          
|                                                 |                 | Year Ended December 31,                                  
|                                                 |                 |                                                          
|                                                 |                 | 2003                                                      |                           | 2002
|                                                 |                 |                                                           |                           |     
|Reportable operating communities segment assets: |                 |                                                           |                           |      |           |           |        |  
|                                                 | Same-Store:     |                                                           |                           |      |           |           |        |   |          
|                                                 |                 | Garden communities                                        |                           | $    | 3,586,989 |           |        | $ | 3,508,051 |          
|                                                 |                 | High-rise properties                                      |                           |      | 2,466,129 |           |        |   | 2,432,925 |          
|                                                 | Non Same-Store: |                                                           |                           |      |           |           |        |   |          
|                                                 |                 | Garden communities                                        |                           |      | 1,195,470 |           |        |   | 1,669,614 |          
|                                                 |                 | High-rise properties                                      |                           |      | 1,072,039 |           |        |   | 1,067,975 |          
|Other non-reportable operating segment assets    |                 |                                                           | 29,571                    |      |           |           | 40,315 |  
|                                                 |                 |                                                           |                           |      |           |           |        |  
|                                                 |                 |                                                           | Total segment assets      |      |           | 8,350,198 |        |   |           | 8,718,880 | 
|                                                 |                 |                                                           |                           |      |           |           |        |  
|Reconciling items:                               |                 |                                                           |                           |      |           |           |        |  
|                                                 |                 | Investment in and advances to unconsolidated
    entities |                           |      | 86,367    |           |        |   | 116,594   |          
|                                                 |                 | Cash and cash equivalents                                 |                           |      | 5,230     |           |        |   | 12,846    |          
|                                                 |                 | Restricted cash in tax-deferred exchange escrow           |                           |      | 180,920   |           |        |   |          |          
|                                                 |                 | Other assets                                              |                           |      | 298,980   |           |        |   | 247,706   |          
|                                                 |                 |                                                           |                           |      |           |           |        |  
|                                                 |                 |                                                           | Consolidated total assets |      | $         | 8,921,695 |        |   | $         | 9,096,026 | 
|                                                 |                 |                                                           |                           |      |           |           |        |  

Total capital expenditures for garden communities
were $42.5 million and $58.0 million for the years
ended December 31, 2003 and 2002, respectively. Total
capital expenditures for high-rise properties were
$86.3 million and $136.3 million for the years ended
December 31, 2003 and 2002, respectively.



|     |             
|---- | ------------
|(14) | Income Taxes

Substantially all of our income is derived
through the Operating Trust. The Operating Trust has elected to
be treated as a partnership for federal income tax purposes.
Accordingly, the Operating Trusts income is not subject to
federal income taxes. We have elected to be taxed as a REIT
under the Internal Revenue Code. To qualify as a REIT, we must
meet a number of organizational and operational requirements,
including a requirement that we currently distribute at least
90% of our taxable income. As a REIT, we are generally not
subject to corporate level federal income taxes on net income we
distribute to our shareholders. Accordingly, no provision for
income taxes is included in the accompanying Consolidated
Statements of Earnings. If we fail to qualify as a REIT in any
taxable year, then we will be subject to federal income taxes at
regular corporate rates. Even as a REIT, we may be subject to
certain state, local and REIT specific federal taxes on our
income and property.

84



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The following table reconciles net earnings to
taxable income subject to dividend distribution requirement for
the years ended December 31 (in thousands):

|                         |                                        |                                                                 |         |          |         |      |         |         |         |   |         |          |         | 
|------------------------ | -------------------------------------- | --------------------------------------------------------------- | ------- | -------- | ------- | ---- | ------- | ------- | ------- | - | ------- | -------- | ------- | 
|                         |                                        |                                                                
|                         |                                        | For the Year Ended December 31,                                
|                         |                                        |                                                                
|                         |                                        | 2003                                                            |         | 2002     |         | 2001
|                         |                                        |                                                                 |         |          |         |     
|                         |                                        | (estimated)                                                     |         |          |         |     
|GAAP net earnings        |                                        | $                                                               | 433,657 |          |         | $    | 314,815 |         |         | $ | 257,992 |         
|Book to tax differences: |                                        |                                                                 |         |          |         |      |         |         |         |   |         |         
|                         | Gain on sale of CES(1)                 |                                                                 |         |         |         |      |         | (38,234 | )       |   |         |         |        
|                         | Forward contracts                      |                                                                 |         | 20,016   |         |      |         |        |         |   |         |         |        
|                         | Depreciation and amortization(2)       |                                                                 |         | (13,247  | )       |      |         | (35,472 | )       |   |         | (5,722   | )      
|                         | Gain or loss from capital transactions |                                                                 |         | (87,837  | )       |      |         | (11,919 | )       |   |         | 23,109   |        
|                         | Reserves                               |                                                                 |         | 1,226    |         |      |         | 15,183  |         |   |         |         |        
|                         | Merger expenses                        |                                                                 |         |         |         |      |         |        |         |   |         | (21,673  | )      
|                         | Other, net                             |                                                                 |         | 4,657    |         |      |         | 10,778  |         |   |         | 3,877    |        
|                         |                                        |                                                                 |         |          |         |      |         |         |         |   |         |         
|Taxable income           |                                        |                                                                 | 358,472 |          |         |      | 255,151 |         |         |   | 257,583 |         
|                         | Less: capital gains recognized         |                                                                 |         | (187,273 | )       |      |         | (75,018 | )       |   |         | (111,052 | )      
|                         |                                        |                                                                 |         |          |         |      |         |         |         |   |         |         
|                         |                                        | Taxable income subject to dividend distribution
    requirement |         | $        | 171,199 |      |         | $       | 180,133 |   |         | $        | 146,531 | 
|                         |                                        |                                                                 |         |          |         |      |         |         |         |   |         |         



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In December 2002, CES was sold to a third party.
    See Note 2 for details.                                                                                                                                                                                                                                                                                                                                           
|   
|(2) | In January 1999, we began using accelerated
    depreciable lives for tax purposes. This change resulted in
    higher depreciation expense on newly acquired assets for tax
    purposes relative to GAAP. This was partially offset by the
    Smith Merger in 2001 as GAAP depreciation expense for the Smith
    assets was based on fair value and tax depreciation was based on
    a lower historical tax basis.

The following table provides a reconciliation
between cash dividends paid and dividends deduction (in
thousands):

|                                    |                                                |                                 |         |        |         |      |         |         |         |   |         |        |         | 
|----------------------------------- | ---------------------------------------------- | ------------------------------- | ------- | ------ | ------- | ---- | ------- | ------- | ------- | - | ------- | ------ | ------- | 
|                                    |                                                |                                
|                                    |                                                | For the Year Ended December 31,
|                                    |                                                |                                
|                                    |                                                | 2003                            |         | 2002   |         | 2001
|                                    |                                                |                                 |         |        |         |     
|                                    |                                                | (estimated)                     |         |        |         |     
|Taxable component of dividends paid |                                                | $                               | 340,819 |        |         | $    | 334,315 |         |         | $ | 240,073 |       
|                                    | Plus: dividends designated from following year |                                 |         | 17,653 |         |      |         |        |         |   |         | 17,682 |        
|                                    | Less: dividends designated to prior year       |                                 |         |       |         |      |         | (17,682 | )       |   |         | (172   | )      
|                                    |                                                |                                 |         |        |         |      |         |         |         |   |         |       
|                                    |                                                | Dividends paid deduction(1)     |         | $      | 358,472 |      |         | $       | 316,633 |   |         | $      | 257,583 | 
|                                    |                                                |                                 |         |        |         |      |         |         |         |   |         |       



---



|    |                                                                    
|--- | -------------------------------------------------------------------
|(1) | Includes distribution of all ordinary income and
    capital gains.

The following table summarizes the taxability of
our dividends for the past three years:

|                 |  |                                 |      |      |  |      |      |  |  |  |      | 
|---------------- |  | ------------------------------- | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|                 |  |                                
|                 |  | For the Year Ended December 31,
|                 |  |                                
|                 |  | 2003                            |      | 2002 |  | 2001
|                 |  |                                 |      |      |  |     
|Ordinary income  |  |                                 | 45%  |      |  |      | 78%  |  |  |  | 54%  | 
|Capital gains(1) |  |                                 | 55%  |      |  |      | 22%  |  |  |  | 46%  | 
|                 |  |                                 |      |      |  |      |      |  |  |  |      | 
|                 |  |                                 | 100% |      |  |      | 100% |  |  |  | 100% | 
|                 |  |                                 |      |      |  |      |      |  |  |  |      | 



---



|    |                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------
|(1) | Includes 34.7%, 6.2% and 22.0% of unrecaptured
    section 1250 gains in 2003, 2002, and 2001, respectively.

85



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

As a taxable REIT subsidiary, Ameriton is subject
to state and federal income taxes. Income tax expense, which has
been included in other expense was $15.9 million,
$12.4 million and $7.0 million for the years ended
December 31, 2003, 2002 and 2001, respectively. The primary
difference between income taxes attributable to income from
continuing operations and the amount computed by applying the
U.S. federal income tax rate of 35% to pretax income was
state income taxes. Deferred income taxes reflect the estimated
net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting
purposes and the corresponding amounts for income tax purposes.
Ameritons deferred tax assets and liabilities primarily
relate to the deductibility of depreciation expense and deferred
compensation accruals for income tax purposes.



|     |                              
|---- | -----------------------------
|(15) | Commitments and Contingencies



| |            
| | -----------
| | Commitments

At December 31, 2003 we had seven
non-cancelable ground leases for certain apartment communities
and buildings that expire between 2050 and 2095. Each ground
lease generally provides for a fixed annual rental payment plus
additional rental payments based on the properties operating
results. Additionally, we lease certain office space under
non-cancellable operating leases with fixed annual rental
payments.

The future minimum lease payments payable under
non-cancelable leases are as follows at December 31, 2003
(in thousands):

|                       |       |   |         |         | 
|---------------------- | ----- | - | ------- | ------- | 
|2004                   |       | $ | 3,178   |        
|2005                   |       |   | 3,179   |        
|2006                   |       |   | 3,180   |        
|2007                   |       |   | 3,181   |        
|2008                   |       |   | 3,183   |        
|Thereafter (2009-2096) |       |   | 193,241 |        
|                       |       |   |         |        
|                       | Total |   | $       | 209,142 | 
|                       |       |   |         |        

See Note 3 for real estate related
commitments.



| |                                    
| | -----------------------------------
| | Guarantees and
    Indemnifications

We have extended approximately $54.7 million
in performance bond guarantees relating to contracts entered
into by CES and SMC, which are customary to the type of business
in which these entities engage. As of December 31, 2003,
$2.7 million of these performance bond guarantees were
still outstanding, based upon information provided by these
companies. Archstone-Smith, our subsidiaries and investees have
not been required to perform on these guarantees, nor do we
anticipate being required to perform on such guarantees. Since
we believe that our risk of loss under these contingencies is
remote, no accrual for potential loss has been made in the
accompanying financial statements. There are recourse provisions
available to us to recover any potential future payments from
the new owners of CES and SMC.

In connection with the sale of CES, we have
indemnified the buyer for certain representations and warranties
contained in the sale contract. The indemnifications terminate
on June 30, 2004, and while we do not believe it is
probable that the indemnities will reach the maximum amount, the
related liability is limited to a maximum exposure of
$44.5 million with exceptions including third party claims,
insurance, arbitration and environmental issues, each of which
is without deduction or limitation. There are no recourse
provisions available to us to recover any potential future
payments from third parties.

86



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Except as noted above, we do not guarantee
third-party debt incurred by our unconsolidated investees.
Occasionally, the investees are required to guarantee their
mortgages. However, such guarantees are fully non-recourse to
the Operating Trust or to Archstone-Smith. All off-balance sheet
contingent liabilities and all third-party debt incurred by our
unconsolidated investees are fully non-recourse to us. As such,
the extent of our exposure to financial losses is limited solely
to our investment in each of the unconsolidated investees. See
Note 5 for a summary of our investments in and advances to
unconsolidated entities.

As part of the Smith Merger, we are required to
indemnify the former Smith Partnership unitholders for any
personal income tax expense resulting from the sale of high-rise
properties identified in the shareholders agreement
between Archstone-Smith, the Operating Trust, Robert H. Smith
and Robert P. Kogod.



| |                             
| | ----------------------------
| | Litigation and Contingencies

During 2002, we accrued or incurred a liability
for $30.8 million relating to moisture infiltration and
resulting mold issues at Harbour House, a high-rise property in
Southeast Florida that became subject to litigation in the third
quarter of 2002. Of this amount, $11.3 million represents
amounts expensed for the estimated cost of repairing or
replacing residents property, temporary resident
relocation expenses and incurred legal fees. The remaining
$19.5 million represents costs capitalized in accordance
with GAAP pertaining to remediation and capital improvements to
the building.

During 2003, we recorded additional costs of
$30.7 million for moisture infiltration and resulting mold
at Harbour House. Of this amount, $25.7 million represents
amounts expensed for estimated and incurred legal fees
associated with known and anticipated costs for
Archstone-Smiths counsel and plaintiffs counsel, as
well as estimated settlement costs based upon the settlement
agreement, additional resident property repair and replacement
costs and temporary resident relocation expenses. The estimated
settlement accrual is inclusive of all pending legal claims at
this property other than for those individuals who have opted
out of the settlement and are pursuing or may pursue individual
claims. The remaining $5.0 million pertains to an increase
in our accrual estimate for capitalized costs associated with
remediation and capital improvements. As of December 31,
2003, total cash payments related to moisture infiltration and
mold remediation at this property were $45.1 million. We
anticipate incurring the remaining $16.4 million over the
next six to twelve months.

The Harbour House accrual represents
managements best estimate of the probable and reasonably
estimable costs and is based, in part, on estimates obtained
from third-party contractors and actual costs incurred to date.
It is possible that these estimates could increase or decrease
as better information becomes available. Not all plaintiffs have
accepted the court-approved settlement, which could result in
further court proceedings and potential legal fees and damages
not contemplated in our current accrual. It is not possible to
predict the likelihood of claims by individuals who have opted
out of the settlement, nor is it reasonably possible to estimate
the amount of any potential loss related to these claims.

We are also party to alleged moisture
infiltration and resulting mold lawsuits at other apartment
properties. We believe these suits are without merit,
nonetheless, in certain instances we have negotiated a
settlement with certain of the plaintiffs in an effort to
expedite the resolution of their claims and avoid potentially
protracted litigation and associated attorneys fees.
During 2003 we expensed approximately $10.4 million for
estimated and incurred legal fees associated with known and
anticipated costs for Archstone-Smiths counsel and
plaintiffs counsel, as well as estimated settlement costs
based upon the status of discussions, additional resident
property repair and replacement costs and temporary resident
relocation expenses pertaining to these claims. These estimates
represent managements best estimate of the probable and
reasonably estimable costs and are based, in part, on estimates
obtained from third-party contractors and actual costs incurred
to date. It is possible that these estimates could increase or
decrease as better information becomes available. Not all
plaintiffs have accepted the negotiated settlement, and further
court proceedings and additional legal fees and damages may be
required to fully resolve these claims. We have not accrued for
renovation and equipment upgrades at these properties, as these
costs are part of our previously

87



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

existing and ongoing plans and not a result of
the legal claims. Accordingly, we will capitalize or expense
costs associated with these issues as they are incurred, in
accordance with GAAP.

We are aggressively pursuing recovery of a
significant portion of these costs from our insurance carriers.
As of December 31, 2003, we have received approximately
$1.6 million of initial insurance recoveries pertaining to
moisture infiltration and resulting mold claims. We are still in
discussions with our insurance providers and therefore no
estimate for future insurance recoveries has been recorded. In
addition, we are continuing to pursue potential recoveries from
third parties who we believe bear responsibility for a
considerable portion of the costs we have incurred. We cannot
make assurances that we will obtain these recoveries or that our
ultimate liability associated with these claims will not be
material to our results of operations.

We are a party to various other claims and
routine litigation arising in the ordinary course of business.
We do not believe that the results of any such claims or
litigation, individually or in the aggregate, will have a
material adverse effect on our business, financial position or
results of operations.



|     |                                   
|---- | ----------------------------------
|(16) | Supplemental Cash Flow Information

Significant non-cash investing and financing
activities for the years ended December 31, 2003, 2002 and
2001 are as follows:



| |   |                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Issued $14.2 million and $8.7 million
    of Class B Common Units as partial consideration for
    property acquired during 2003 and 2002, respectively;                                                                                                                                  
|
| |  | Issued $33.4 million of A-1 Common Units in
    exchange for real estate during 2003;                                                                                                                                                                                                     
|
| |  | Converted $71.5 million Series H
    Preferred Shares into Common Shares during 2003;                                                                                                                                                                                                     
|
| |  | Redeemed $25.5 million and
    $41.7 million A-1 Common Units for Common Shares during
    2003 and 2002, respectively;                                                                                                                                                                   
|
| |  | Converted $25 million Series J
    Preferred Shares into Common Shares during 2002;                                                                                                                                                                                                       
|
| |  | Recorded an accrual related to moisture
    infiltration and resulting mold remediation for
    $11.3 million at one of our high-rise properties in
    Southeast Florida during 2002;                                                                                                    
|
| |  | Assumed mortgage debt of $55.4 million,
    $195.6 million and $167.3 million (excluding mortgage
    debt assumed in the Smith Merger) during 2003, 2002 and 2001,
    respectively, in connection with the acquisition of apartment
    communities;                                    
|
| |  | Holders of Series A Preferred Shares
    converted $71.9 million, $5.7 million and
    $3.8 million of their shares into Common Shares during
    2003, 2002 and 2001, respectively;                                                                                                      
|
| |  | Entered into joint venture transactions formed
    through our contribution of apartment communities and land in
    exchange for cash and an ownership interest in each of the
    ventures with an aggregate carrying value of $5.0 million
    during the year ended December 31, 2001.

88



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Board of Trustees and Shareholders

Archstone-Smith Trust:


Under date of February 9, 2004, we reported
on the consolidated balance sheets of Archstone-Smith Trust and
subsidiaries as of December 31, 2003 and 2002, and the
related consolidated statements of earnings, shareholders
equity and comprehensive income, and cash flows for each of the
years in the three-year period ended December 31, 2003. In
connection with our audits of the aforementioned financial
statements, we also audited the related financial statement
schedule. This financial statement schedule is the
responsibility of Archstone-Smith Trusts management. Our
responsibility is to express an opinion on this financial
statement schedule based on our audits.

In our opinion, such financial statement schedule
as listed in the accompanying index, when considered in relation
to the basic financial statements taken as a whole, presents
fairly, in all respects, the information set forth therein.

As discussed in Note 1 to the consolidated
financial statements, effective July 1, 2003,
Archstone-Smith Trust adopted FASB Interpretation No. 46
Consolidation of Variable Interest Entities
(revised). As a result, the accompanying consolidated financial
statements, referred to above, have been restated to reflect the
consolidated financial position and results of operations of
Archstone-Smith Trust and certain previously unconsolidated
entities in accordance with accounting principles generally
accepted in the United States of America.



| |         
| | --------
| | KPMG LLP

Denver, Colorado

February 9, 2004




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##### Table of Contents



ARCHSTONE-SMITH TRUST


SCHEDULE III


REAL ESTATE AND ACCUMULATED
DEPRECIATION

December 31, 2003


(Dollar amounts in thousands)


|                                                                   |                                            |       |        |         |  |                       |           |              |  |               |           |         |  |  |           |           |  |  |           |         | 
|------------------------------------------------------------------ | ------------------------------------------ | ----- | ------ | ------- |  | --------------------- | --------- | ------------ |  | ------------- | --------- | ------- |  |  | --------- | --------- |  |  | --------- | ------- | 
|                                                                   |                                            |       |        |         |  |                       |           |             
|                                                                   |                                            |       |        |         |  | Initial Cost to       |           |             
|                                                                   |                                            |       |        |         |  | Archstone-Smith Trust |           | Costs       
|                                                                   |                                            |       |        |         |  |                       |           | Capitalized 
|                                                                   |                                            |       |        | Encum-  |  |                       |           | Buildings &  |  | Subsequent to
|                                                                   |                                            | Units |        | brances |  | Land                  |           | Improvements |  | Acquisition  
|                                                                   |                                            |       |        |         |  |                       |           |              |  |              
|Apartment Communities:                                             |                                            |       |        |         |  |                       |           |              |  |               |           |         |  |  |           |           |  |  |           |        
|Garden Communities:                                                |                                            |       |        |         |  |                       |           |              |  |               |           |         |  |  |           |           |  |  |           |        
|                                                                   | Albuquerque, New Mexico                    |       |        | 664     |  |                       |           |             |  |               |           | 6,317   |  |  |           | 7,624     |  |  |           | 28,433  | 
|                                                                   | Atlanta, Georgia                           |       |        | 3,327   |  |                       |           | 43,549       |  |               |           | 41,973  |  |  |           | 165,508   |  |  |           | 82,170  | 
|                                                                   | Austin, Texas                              |       |        | 1,446   |  |                       |           | 10,979       |  |               |           | 6,828   |  |  |           | 26,791    |  |  |           | 55,324  | 
|                                                                   | Boston, Massachusetts                      |       |        | 1,606   |  |                       |           | 62,246       |  |               |           | 75,201  |  |  |           | 50,514    |  |  |           | 136,786 | 
|                                                                   | Chicago, Illinois                          |       |        | 1,313   |  |                       |           | 42,748       |  |               |           | 85,603  |  |  |           | 50,544    |  |  |           | 7,534   | 
|                                                                   | Dallas, Texas                              |       |        | 1,282   |  |                       |           |             |  |               |           | 7,231   |  |  |           | 34,861    |  |  |           | 25,070  | 
|                                                                   | Denver, Colorado                           |       |        | 1,949   |  |                       |           | 8,500        |  |               |           | 17,477  |  |  |           | 46,104    |  |  |           | 102,513 | 
|                                                                   | Houston, Texas                             |       |        | 2,024   |  |                       |           | 38,819       |  |               |           | 20,298  |  |  |           | 34,045    |  |  |           | 64,495  | 
|                                                                   | Inland Empire, California                  |       |        | 1,594   |  |                       |           | 16,811       |  |               |           | 12,663  |  |  |           | 71,769    |  |  |           | 12,469  | 
|                                                                   | Greater NYC Metropolitan Area              |       |        | 160     |  |                       |           |             |  |               |           | 5,775   |  |  |           | 1,225     |  |  |           | 29,390  | 
|                                                                   | Los Angeles, California                    |       |        | 2,982   |  |                       |           | 102,876      |  |               |           | 172,665 |  |  |           | 131,612   |  |  |           | 246,274 | 
|                                                                   | Orange County, California                  |       |        | 1,647   |  |                       |           | 77,427       |  |               |           | 25,612  |  |  |           | 46,136    |  |  |           | 108,020 | 
|                                                                   | Orlando, Florida                           |       |        | 312     |  |                       |           |             |  |               |           | 3,110   |  |  |           | 17,620    |  |  |           | 892     | 
|                                                                   | Phoenix, Arizona                           |       |        | 1,709   |  |                       |           | 26,830       |  |               |           | 20,231  |  |  |           | 3,215     |  |  |           | 94,644  | 
|                                                                   | Portland, Oregon                           |       |        | 576     |  |                       |           |             |  |               |           | 3,520   |  |  |           |          |  |  |           | 34,175  | 
|                                                                   | Raleigh, North Carolina                    |       |        | 1,324   |  |                       |           | 13,712       |  |               |           | 13,499  |  |  |           | 76,490    |  |  |           | 6,741   | 
|                                                                   | San Antonio, Texas                         |       |        | 224     |  |                       |           |             |  |               |           | 1,644   |  |  |           |          |  |  |           | 11,182  | 
|                                                                   | San Diego, California                      |       |        | 3,406   |  |                       |           | 61,628       |  |               |           | 55,215  |  |  |           | 136,874   |  |  |           | 157,008 | 
|                                                                   | San Francisco, California                  |       |        | 5,819   |  |                       |           | 81,969       |  |               |           | 186,172 |  |  |           | 326,826   |  |  |           | 257,361 | 
|                                                                   | Seattle, Washington                        |       |        | 2,808   |  |                       |           | 28,354       |  |               |           | 33,195  |  |  |           | 99,046    |  |  |           | 102,532 | 
|                                                                   | Southeast, Florida                         |       |        | 1,566   |  |                       |           | 10,938       |  |               |           | 39,169  |  |  |           | 118,942   |  |  |           | 5,128   | 
|                                                                   | Ventura County, California                 |       |        | 1,251   |  |                       |           |             |  |               |           | 11,623  |  |  |           | 52,832    |  |  |           | 58,625  | 
|                                                                   | Greater Washington, D.C. Metropolitan Area |       |        | 9,739   |  |                       |           | 229,211      |  |               |           | 256,353 |  |  |           | 583,057   |  |  |           | 380,915 | 
|                                                                   | West Coast, Florida                        |       |        | 746     |  |                       |           |             |  |               |           | 5,430   |  |  |           | 30,765    |  |  |           | 7,826   | 
|                                                                   |                                            |       |        |         |  |                       |           |              |  |               |           |         |  |  |           |           |  |  |           |        
|Garden Communities Total                                           |                                            |       | 49,474 |         |  |                       | 856,597   |              |  |               | 1,106,804 |         |  |  | 2,112,400 |           |  |  | 2,015,507 |        
|                                                                   |                                            |       |        |         |  |                       |           |              |  |               |           |         |  |  |           |           |  |  |           |        
|High-Rise Properties:                                              |                                            |       |        |         |  |                       |           |              |  |               |           |         |  |  |           |           |  |  |           |        
|                                                                   | Boston, Massachusetts                      |       |        | 1,113   |  |                       |           | 62,408       |  |               |           | 41,345  |  |  |           | 121,883   |  |  |           | 41,221  | 
|                                                                   | Chicago, Illinois                          |       |        | 3,516   |  |                       |           | 131,996      |  |               |           | 138,162 |  |  |           | 406,868   |  |  |           | 80,247  | 
|                                                                   | Southeast Florida                          |       |        | 4,824   |  |                       |           | 80,783       |  |               |           | 178,362 |  |  |           | 231,776   |  |  |           | 157,064 | 
|                                                                   | Greater NYC Metropolitan Area              |       |        | 902     |  |                       |           | 124,198      |  |               |           | 72,340  |  |  |           | 154,735   |  |  |           | 17,577  | 
|                                                                   | Greater Washington, D.C. Metropolitan Area |       |        | 11,537  |  |                       |           | 671,643      |  |               |           | 532,997 |  |  |           | 1,133,630 |  |  |           | 301,804 | 
|                                                                   |                                            |       |        |         |  |                       |           |              |  |               |           |         |  |  |           |           |  |  |           |        
|High-Rise Properties Total                                         |                                            |       | 21,892 |         |  |                       | 1,071,028 |              |  |               | 963,206   |         |  |  | 2,048,892 |           |  |  | 597,913   |        
|                                                                   |                                            |       |        |         |  |                       |           |              |  |               |           |         |  |  |           |           |  |  |           |        
|Total Apartment Communities 
    Operating and Under Construction |                                            |       | 71,366 |         |  |                       | 1,927,625 |              |  |               | 2,070,010 |         |  |  | 4,161,292 |           |  |  | 2,613,420 |        
|                                                                   |                                            |       |        |         |  |                       |           |              |  |               |           |         |  |  |           |           |  |  |           |        
|Other:                                                             |                                            |       |        |         |  |                       |           |              |  |               |           |         |  |  |           |           |  |  |           |        
|Development communities In Planning and Owned                      |                                            |       | 3,368  |         |  |                       |           |              |  |               |           |         |  |  |           |           |  |  |           |        
|Hotel, retail and other assets                                     |                                            |       |        |         |  |                       |           |              |  |               |           |         |  |  |           |           |  |  |           |        
|Total real estate assets                                           |                                            |       | 74,734 |         |  |                       |           |              |  |               |           |         |  |  |           |           |  |  |           |        

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                   |                                            |                       |           |              |  |        |           |              |  |              |           |           |  |  |          |         |   |  |  |           |  |  |  |           | 
|------------------------------------------------------------------ | ------------------------------------------ | --------------------- | --------- | ------------ |  | ------ | --------- | ------------ |  | ------------ | --------- | --------- |  |  | -------- | ------- | - |  |  | --------- |  |  |  | --------- | 
|                                                                   |                                            |                       |           |              |  |        |           |             
|                                                                   |                                            | Gross Amount at Which |           |              |  |        |           |             
|                                                                   |                                            | Carried at Year End   |           |              |  |        |           |             
|                                                                   |                                            |                       |           |              |  |        |           |             
|                                                                   |                                            |                       |           | Buildings &  |  |        |           | Accumulated  |  | Construction |           | Year     
|                                                                   |                                            | Land                  |           | Improvements |  | Totals |           | Depreciation |  | Year         |           | Acquired 
|                                                                   |                                            |                       |           |              |  |        |           |              |  |              |           |          
|Apartment Communities:                                             |                                            |                       |           |              |  |        |           |              |  |              |           |           |  |  |          |         |   |  |  |           |  |  |  |          
|Garden Communities:                                                |                                            |                       |           |              |  |        |           |              |  |              |           |           |  |  |          |         |   |  |  |           |  |  |  |          
|                                                                   | Albuquerque, New Mexico                    |                       |           | 8,183        |  |        |           | 34,191       |  |              |           | 42,374    |  |  |          | (10,635 | ) |  |  | 1981-1996 |  |  |  | 1991-1996 | 
|                                                                   | Atlanta, Georgia                           |                       |           | 50,966       |  |        |           | 238,685      |  |              |           | 289,651   |  |  |          | (40,447 | ) |  |  | 1978-2003 |  |  |  | 1998-2001 | 
|                                                                   | Austin, Texas                              |                       |           | 15,124       |  |        |           | 73,819       |  |              |           | 88,943    |  |  |          | (11,311 | ) |  |  | 1979-1996 |  |  |  | 1993      | 
|                                                                   | Boston, Massachusetts                      |                       |           | 47,245       |  |        |           | 215,256      |  |              |           | 262,501   |  |  |          | (21,264 | ) |  |  | 1975-2002 |  |  |  | 1999-2003 | 
|                                                                   | Chicago, Illinois                          |                       |           | 26,691       |  |        |           | 116,990      |  |              |           | 143,681   |  |  |          | (17,421 | ) |  |  | 1968-1988 |  |  |  | 1999-2001 | 
|                                                                   | Dallas, Texas                              |                       |           | 10,194       |  |        |           | 56,968       |  |              |           | 67,162    |  |  |          | (14,795 | ) |  |  | 1983-1998 |  |  |  | 1993-1998 | 
|                                                                   | Denver, Colorado                           |                       |           | 19,605       |  |        |           | 146,489      |  |              |           | 166,094   |  |  |          | (20,034 | ) |  |  | 1981-2002 |  |  |  | 1992-2001 | 
|                                                                   | Houston, Texas                             |                       |           | 15,057       |  |        |           | 103,781      |  |              |           | 118,838   |  |  |          | (16,287 | ) |  |  | 1972-1996 |  |  |  | 1994-1996 | 
|                                                                   | Inland Empire, California                  |                       |           | 14,417       |  |        |           | 82,484       |  |              |           | 96,901    |  |  |          | (17,117 | ) |  |  | 1985-1990 |  |  |  | 1995-1997 | 
|                                                                   | Greater NYC Metropolitan Area              |                       |           | 6,312        |  |        |           | 30,078       |  |              |           | 36,390    |  |  |          | (1,111  | ) |  |  | 2001-2002 |  |  |  | 2000      | 
|                                                                   | Los Angeles, California                    |                       |           | 99,081       |  |        |           | 451,470      |  |              |           | 550,551   |  |  |          | (13,336 | ) |  |  | 1985-2002 |  |  |  | 1998-2003 | 
|                                                                   | Orange County, California                  |                       |           | 26,276       |  |        |           | 153,492      |  |              |           | 179,768   |  |  |          | (22,709 | ) |  |  | 1986-2002 |  |  |  | 1996-1999 | 
|                                                                   | Orlando, Florida                           |                       |           | 3,703        |  |        |           | 17,919       |  |              |           | 21,622    |  |  |          | (3,847  | ) |  |  | 1988      |  |  |  | 1998      | 
|                                                                   | Phoenix, Arizona                           |                       |           | 21,700       |  |        |           | 96,390       |  |              |           | 118,090   |  |  |          | (11,218 | ) |  |  | 1980-2001 |  |  |  | 1993-1997 | 
|                                                                   | Portland, Oregon                           |                       |           | 9,528        |  |        |           | 28,167       |  |              |           | 37,695    |  |  |          | (6,706  | ) |  |  | 1985-1998 |  |  |  | 1995-1996 | 
|                                                                   | Raleigh, North Carolina                    |                       |           | 14,641       |  |        |           | 82,089       |  |              |           | 96,730    |  |  |          | (18,935 | ) |  |  | 1985-1999 |  |  |  | 1998      | 
|                                                                   | San Antonio, Texas                         |                       |           | 3,718        |  |        |           | 9,108        |  |              |           | 12,826    |  |  |          | (2,773  | ) |  |  | 1979-1996 |  |  |  | 1992-1993 | 
|                                                                   | San Diego, California                      |                       |           | 55,389       |  |        |           | 293,708      |  |              |           | 349,097   |  |  |          | (32,413 | ) |  |  | 1985-2001 |  |  |  | 1996-1998 | 
|                                                                   | San Francisco, California                  |                       |           | 139,064      |  |        |           | 631,295      |  |              |           | 770,359   |  |  |          | (85,040 | ) |  |  | 1965-2002 |  |  |  | 1995-2003 | 
|                                                                   | Seattle, Washington                        |                       |           | 41,947       |  |        |           | 192,826      |  |              |           | 234,773   |  |  |          | (36,712 | ) |  |  | 1986-2003 |  |  |  | 1995-1999 | 
|                                                                   | Southeast, Florida                         |                       |           | 43,669       |  |        |           | 119,570      |  |              |           | 163,239   |  |  |          | (9,704  | ) |  |  | 1986-2001 |  |  |  | 1998-2003 | 
|                                                                   | Ventura County, California                 |                       |           | 10,207       |  |        |           | 112,873      |  |              |           | 123,080   |  |  |          | (10,901 | ) |  |  | 1985-2002 |  |  |  | 1997-1999 | 
|                                                                   | Greater Washington, D.C. Metropolitan Area |                       |           | 282,944      |  |        |           | 937,381      |  |              |           | 1,220,325 |  |  |          | (57,257 | ) |  |  | 1941-2002 |  |  |  | 1998-2003 | 
|                                                                   | West Coast, Florida                        |                       |           | 5,661        |  |        |           | 38,360       |  |              |           | 44,021    |  |  |          | (8,207  | ) |  |  | 1982-1988 |  |  |  | 1998      | 
|                                                                   |                                            |                       |           |              |  |        |           |              |  |              |           |           |  |  |          |         |   |  |  |           |  |  |  |          
|Garden Communities Total                                           |                                            |                       | 971,322   |              |  |        | 4,263,389 |              |  |              | 5,234,711 |           |  |  | (490,180 | )       |   |  |  |           |  |  |  |          
|                                                                   |                                            |                       |           |              |  |        |           |              |  |              |           |           |  |  |          |         |   |  |  |           |  |  |  |          
|High-Rise Properties:                                              |                                            |                       |           |              |  |        |           |              |  |              |           |           |  |  |          |         |   |  |  |           |  |  |  |          
|                                                                   | Boston, Massachusetts                      |                       |           | 41,709       |  |        |           | 162,740      |  |              |           | 204,449   |  |  |          | (8,365  | ) |  |  | 1986-1998 |  |  |  | 2001      | 
|                                                                   | Chicago, Illinois                          |                       |           | 89,557       |  |        |           | 535,720      |  |              |           | 625,277   |  |  |          | (30,311 | ) |  |  | 1969-2003 |  |  |  | 2001      | 
|                                                                   | Southeast Florida                          |                       |           | 184,020      |  |        |           | 383,182      |  |              |           | 567,202   |  |  |          | (20,604 | ) |  |  | 1964-2000 |  |  |  | 2001      | 
|                                                                   | Greater NYC Metropolitan Area              |                       |           | 69,110       |  |        |           | 175,542      |  |              |           | 244,652   |  |  |          | (6,351  | ) |  |  |           |  |  |  | 2002      | 
|                                                                   | Greater Washington, D.C. Metropolitan Area |                       |           | 582,621      |  |        |           | 1,385,810    |  |              |           | 1,968,431 |  |  |          | (87,196 | ) |  |  | 1923-2002 |  |  |  | 2001      | 
|                                                                   |                                            |                       |           |              |  |        |           |              |  |              |           |           |  |  |          |         |   |  |  |           |  |  |  |          
|High-Rise Properties Total                                         |                                            |                       | 967,017   |              |  |        | 2,642,994 |              |  |              | 3,610,011 |           |  |  | (152,827 | )       |   |  |  |           |  |  |  |          
|                                                                   |                                            |                       |           |              |  |        |           |              |  |              |           |           |  |  |          |         |   |  |  |           |  |  |  |          
|Total Apartment Communities 
    Operating and Under Construction |                                            |                       | 1,938,339 |              |  |        | 6,906,383 |              |  |              | 8,844,722 |           |  |  | (643,007 | )       |   |  |  |           |  |  |  |          
|                                                                   |                                            |                       |           |              |  |        |           |              |  |              |           |           |  |  |          |         |   |  |  |           |  |  |  |          
|Other:                                                             |                                            |                       |           |              |  |        |           |              |  |              |           |           |  |  |          |         |   |  |  |           |  |  |  |          
|Development communities In Planning and Owned                      |                                            |                       |           |              |  |        |           |              |  |              | 114,236   |           |  |  |          |         |   |  |  |           |  |  |  |          
|Hotel, retail and other assets                                     |                                            |                       |           |              |  |        |           |              |  |              | 40,222    |           |  |  | (5,975   | )       |   |  |  |           |  |  |  |          
|                                                                   |                                            |                       |           |              |  |        |           |              |  |              |           |           |  |  |          |         |   |  |  |           |  |  |  |          
|Total real estate assets                                           |                                            |                       |           |              |  |        |           |              |  |              | 8,999,180 |           |  |  | (648,892 | )       |   |  |  |           |  |  |  |          
|                                                                   |                                            |                       |           |              |  |        |           |              |  |              |           |           |  |  |          |         |   |  |  |           |  |  |  |          

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SCHEDULE III

The following is a reconciliation of the carrying
amount and related accumulated depreciation of
Archstone-Smiths investment in real estate, at cost (in
thousands):

|                                 |                                                              |                         |           |            |   |      |           |          |   |   |           |            |  
|-------------------------------- | ------------------------------------------------------------ | ----------------------- | --------- | ---------- | - | ---- | --------- | -------- | - | - | --------- | ---------- | -
|                                 |                                                              |                        
|                                 |                                                              | Year Ended December 31,
|                                 |                                                              |                        
|Carrying Amounts                 |                                                              | 2003                    |           | 2002       |   | 2001
|                                 |                                                              |                         |           |            |   |     
|Balance at January 1             |                                                              | $                       | 9,297,735 |            |   | $    | 8,612,213 |          |   | $ | 5,313,600 |           
|                                 |                                                              |                         |           |            |   |      |           |          |   |   |           |           
|Apartment communities:           |                                                              |                         |           |            |   |      |           |          |   |   |           |           
|                                 | Apartment properties acquired in the Smith Merger            |                         |           |           |   |      |           | 31,877   |   |   |           | 3,733,936  |  
|                                 | Acquisition-related expenditures                             |                         |           | 573,768    |   |      |           | 539,652  |   |   |           | 370,398    |  
|                                 | Redevelopment expenditures                                   |                         |           | 69,649     |   |      |           | 152,428  |   |   |           | 39,176     |  
|                                 | Recurring capital expenditures                               |                         |           | 48,960     |   |      |           | 40,683   |   |   |           | 20,269     |  
|                                 | Development expenditures, excluding land
    acquisitions    |                         |           | 91,430     |   |      |           | 247,044  |   |   |           | 108,436    |  
|                                 | Acquisition and improvement of land for
    development      |                         |           | 125,581    |   |      |           | 107,727  |   |   |           | 89,506     |  
|                                 | Dispositions                                                 |                         |           | (1,209,956 | ) |      |           | (439,847 | ) |   |           | (1,066,451 | )
|                                 | Provision for possible loss on investments                   |                         |           | (3,714     | ) |      |           | (2,611   | ) |   |           | (2,710     | )
|                                 |                                                              |                         |           |            |   |      |           |          |   |   |           |           
|Net apartment community activity |                                                              | $                       | (304,282  | )          |   | $    | 676,953   |          |   | $ | 3,292,560 |           
|                                 |                                                              |                         |           |            |   |      |           |          |   |   |           |           
|Other:                           |                                                              |                         |           |            |   |      |           |          |   |   |           |           
|                                 | Disposition of retail asset acquired in the Smith
    Merger |                         |           |           |   |      |           | (5,990   | ) |   |           | 5,976      |  
|                                 | Change in other real estate assets                           |                         |           | 5,727      |   |      |           | 14,559   |   |   |           | 77         |  
|                                 |                                                              |                         |           |            |   |      |           |          |   |   |           |           
|Net other activity               |                                                              |                         | 5,727     |            |   |      | 8,569     |          |   |   | 6,053     |           
|                                 |                                                              |                         |           |            |   |      |           |          |   |   |           |           
|Balance at December 31           |                                                              | $                       | 8,999,180 |            |   | $    | 9,297,735 |          |   | $ | 8,612,213 |           
|                                 |                                                              |                         |           |            |   |      |           |          |   |   |           |           

|                                                         |  |              |          |      |  |      |         |   |  |   |          |  
|-------------------------------------------------------- |  | ------------ | -------- | ---- |  | ---- | ------- | - |  | - | -------- | -
|                                                         |  |             
|                                                         |  | December 31,
|                                                         |  |             
|Accumulated Depreciation                                 |  | 2003         |          | 2002 |  | 2001
|                                                         |  |              |          |      |  |     
|Balance at January 1                                     |  | $            | 578,855  |      |  | $    | 412,894 |   |  | $ | 378,451  |  
|Depreciation for the year(1)                             |  |              | 200,356  |      |  |      | 206,625 |   |  |   | 136,867  |  
|Accumulated depreciation on real estate
    dispositions |  |              | (130,229 | )    |  |      | (40,563 | ) |  |   | (102,424 | )
|Other                                                    |  |              |         |      |  |      | (101    | ) |  |   |         |  
|                                                         |  |              |          |      |  |      |         |   |  |   |          |  
|Balance at December 31                                   |  | $            | 648,982  |      |  | $    | 578,855 |   |  | $ | 412,894  |  
|                                                         |  |              |          |      |  |      |         |   |  |   |          |  



---



|    |                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Depreciation is net of $3.0 million for our
    intangible asset related to the value of leases in place for
    real estate assets acquired in 2003.

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ARCHSTONE-SMITH TRUST

SIGNATURES

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



| |                      
| | ---------------------
| | ARCHSTONE-SMITH TRUST



| |     |                    
| | --- | -------------------
| | By: | /s/ R. SCOT SELLERS

| |                          
| | -------------------------
| |                          
| | R. Scot Sellers          
| | Chairman of the Board and
| | Chief Executive Officer  

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

|                                                   |  |                                                                                              |  |               |  | 
|-------------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | ------------- |  | 
|                                                   |  |                                                                                              |  |              
|Signature                                          |  | Title                                                                                        |  | Date         
|                                                   |  |                                                                                              |  |              
|                                                  
|/s/ R. SCOT SELLERSR. Scot Sellers                 |  | Chairman of the Board, Chief Executive Officer
    and Trustee (principal executive officer) |  | March 5, 2004
|                                                  
|/s/ CHARLES E. MUELLER, JR.Charles E. Mueller, Jr. |  | Executive Vice President and Chief Financial
    Officer (principal financial officer)       |  | March 5, 2004
|                                                  
|/s/ MARK A. SCHUMACHERMark A. Schumacher           |  | Senior Vice President and Controller (principal
    accounting officer)                      |  | March 5, 2004
|                                                  
|/s/ JAMES A. CARDWELLJames A. Cardwell             |  | Trustee                                                                                      |  | March 5, 2004
|                                                  
|/s/ ERNEST A. GERARDI, JR.Ernest A. Gerardi, Jr.   |  | Trustee                                                                                      |  | March 5, 2004
|                                                  
|/s/ NED S. HOLMESNed S. Holmes                     |  | Trustee                                                                                      |  | March 5, 2004
|                                                  
|/s/ ROBERT P. KOGODRobert P. Kogod                 |  | Trustee                                                                                      |  | March 5, 2004
|                                                  
|/s/ JAMES H. POLKJames H. Polk III                 |  | Trustee                                                                                      |  | March 5, 2004
|                                                  
|/s/ JOHN M. RICHMANJohn M. Richman                 |  | Trustee                                                                                      |  | March 5, 2004
|                                                  
|/s/ JOHN C. SCHWEITZERJohn C. Schweitzer           |  | Trustee                                                                                      |  | March 5, 2004

92



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|                                      |  |         |  |               |  | 
|------------------------------------- |  | ------- |  | ------------- |  | 
|                                      |  |         |  |              
|Signature                             |  | Title   |  | Date         
|                                      |  |         |  |              
|                                     
|/s/ ROBERT H. SMITHRobert H. Smith    |  | Trustee |  | March 5, 2004
|                                     
|/s/ RUTH ANN M. GILLISRuth Ann Gillis |  | Trustee |  | March 5, 2004

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INDEX TO EXHIBITS

Certain of the following documents are filed
herewith. Certain other of the following documents have been
previously filed with the Securities and Exchange Commission
and, pursuant to Rule 12b-32, are incorporated herein by
reference:

|       |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------ | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    | Description
|       |    |            
|       | 3  | .1          |  | Amended and Restated Declaration of Trust of
    Archstone-Smith Trust (incorporated by reference to
    Exhibit 4.1 to the Archstone-Smith Trusts Current
    Report of Form 8-K filed with the SEC on November 1,
    2001)                                                                                                                                                                                                                                                                                                
|       | 3  | .2          |  | Amended and Restated Bylaws of Archstone-Smith
    Trust (incorporated by reference to Exhibit 4.2 to the
    Archstone-Smith Trusts Current Report on Form 8-K
    filed with the SEC on November 1, 2001)                                                                                                                                                                                                                                                                                                                  
|       | 4  | .1          |  | Indenture, dated as of February 1, 1994,
    between Archstone-Smith Operating Trust (formerly Archstone
    Communities Trust) and Morgan Guaranty Trust Company of
    New York, as Trustee relating to Archstone-Smith Operating
    Trusts (formerly Archstone Communities Trust) unsecured
    senior debt securities (incorporated by reference to
    Exhibit 4.2 to Archstone-Smith Operating Trusts
    (formerly Archstone Communities Trust) Annual Report on
    Form 10-K for the year ended December 31, 1993)
|       | 4  | .2          |  | First Supplemental Indenture, dated
    February 2, 1994, among Archstone-Smith Operating Trust
    (formerly Archstone Communities Trust), Morgan Guaranty Trust
    Company of New York and State Street Bank and Trust
    Company, as successor Trustee (incorporated by reference to
    Exhibit 4.3 to Archstone-Smith Operating Trusts
    (formerly Archstone Communities Trust) Current Report on
    Form 8-K dated July 19, 1994)                                                                                 
|       | 4  | .3          |  | Indenture, dated as of August 14, 1997,
    between Security Capital Atlantic Incorporated and State Street
    Bank and Trust Company, as Trustee (incorporated by reference to
    Exhibit 4.8 to Security Capital Atlantic
    Incorporateds Registration Statement on Form S-11
    (File No. 333-30747))                                                                                                                                                                                                                
|       | 4  | .4          |  | Rights Agreement, dated as of December 1,
    2003, by and between Archstone-Smith Trust and Mellon Investor
    Services, LLC, including the form of rights certificate                                                                                                                                                                                                                                                                                                                                                      
|       | 4  | .5          |  | Form of Archstone-Smith Trust common share
    ownership certificate (incorporated by reference to
    Exhibit 3.3 to Archstone-Smith Trusts Registration
    Statement on Form S-4 (File No. 333-63734))                                                                                                                                                                                                                                                                                                                    
|       | 4  | .8          |  | Form of Archstone-Smith Trust share certificate
    for Series D Preferred Shares (incorporated by reference to
    Exhibit 3.6 to Archstone-Smith Trusts Registration
    Statement on Form S-4 (File No. 333-63734))                                                                                                                                                                                                                                                                                                       
|       | 4  | .10         |  | Form of Archstone-Smith Trust share certificate
    for Series I Preferred Shares (incorporated by reference to
    Exhibit 3.8 to Archstone-Smith Trusts Registration
    Statement on Form S-4 (File No. 333-63734))                                                                                                                                                                                                                                                                                                       
|       | 4  | .12         |  | Form of Archstone-Smith Trust share certificate
    for Series K Preferred Shares (incorporated by reference to
    Exhibit 3.10 to Archstone-Smith Trusts Registration
    Statement on Form S-4 (File No. 333-63734))                                                                                                                                                                                                                                                                                                      
|       | 4  | .13         |  | Form of Archstone-Smith Trust share certificate
    for Series L Preferred Shares (incorporated by reference to
    Exhibit 3.11 to Archstone-Smith Trusts Registration
    Statement on Form S-4 (File No. 333-63734))                                                                                                                                                                                                                                                                                                      
|       | 10 | .1          |  | Amended and Restated Declaration of Trust of
    Archstone-Smith Operating Trust (incorporated by reference to
    Exhibit 4.3 to the Archstone-Smith Trusts Current
    Report on Form 8-K filed with the SEC on November 1,
    2001)                                                                                                                                                                                                                                                                                      
|       | 10 | .2          |  | Amended and Restated Bylaws of Archstone-Smith
    Operating Trust (incorporated by reference to Exhibit 4.4
    to the Archstone-Smith Trusts Current Report on
    Form 8-K filed with the SEC on November 1, 2001)                                                                                                                                                                                                                                                                                                        
|       | 10 | .3          |  | Amendment to 1996 Share Option Plan for
    Outside Trustees (incorporated by reference to Exhibit 4.6
    to Archstone Communities Trusts Registration Statement on
    Form S-8 (File No. 333-60815))                                                                                                                                                                                                                                                                                                                      

94



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INDEX TO EXHIBITS 
(Continued)


|       |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------ | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    | Description
|       |    |            
|       | 10 | .4          |  | Archstone-Smith Trust 2001 Long-Term Incentive
    Plan (incorporated by reference to Exhibit 10.14 to
    Archstone-Smith Trusts Registration Statement on
    Form S-4 (File No. 333-63734))                                                                                                                                                                                                                                                                                                                                                 
|       | 10 | .5          |  | Archstone-Smith Deferred Compensation Plan
    (incorporated by reference to Exhibit 10.5 to
    Archstone-Smiths Annual Report on Form 10-K for the
    year ended December 31, 2001)                                                                                                                                                                                                                                                                                                                                                         
|       | 10 | .6          |  | Form of Indemnification Agreement entered into
    between Archstone-Smith Trust and each of its officers and
    Trustees.                                                                                                                                                                                                                                                                                                                                                                                                                     
|       | 10 | .7          |  | Form of Change in Control Agreement between
    Archstone-Smith Trust and certain of its officers (incorporated
    by reference to Exhibit 10.7 to Archstone-Smiths
    Annual Report on Form 10-K for the year ended
    December 31, 2002)                                                                                                                                                                                                                                                                                                  
|       | 10 | .8          |  | Credit Agreement, dated December 20, 2000,
    among Archstone-Smith Operating Trust (formerly Archstone
    Communities Trust) and The Chase Manhattan Bank, as
    administrative agent, and Wells Fargo Bank, N.A., as syndication
    agent, and Bank of America, N.A., as documentation agent
    (incorporated by reference to Exhibit 99.4 to Archstone
    Communities Trusts Current Report on Form 8-K dated
    February 16, 2001)                                                                                                  
|       | 10 | .9          |  | Agreement and First Amendment, dated as of
    September 21, 2001, to Credit Agreement, dated as of
    December 20, 2000, by and among Archstone-Smith Operating
    Trust (formerly Archstone Communities Trust) and the financial
    institutions named therein (incorporated by reference to
    Exhibit 10.2 to Archstone-Smith Trusts Current Report
    on Form 8-K filed with the SEC on November 1, 2001)                                                                                                                            
|       | 10 | .10         |  | Agreement and Second Amendment, dated as of
    November 1, 2001, to Credit Agreement, dated as of
    December 20, 2000, by and among Archstone-Smith Operating
    Trust (formerly Archstone Communities Trust) and the financial
    institutions named therein (incorporated by reference to
    Exhibit 10.3 to Archstone-Smith Trusts Current Report
    on Form 8-K filed with the SEC on November 1, 2001)                                                                                                                             
|       | 10 | .11         |  | Parent Agreement, dated as of November 1,
    2001, by and among Archstone-Smith Operating Trust and Chase
    Manhattan Bank, in its capacity as Agent for the lenders under
    the Credit Agreement, dated as of December 20, 2000, as
    amended, by and among Archstone-Smith Operating Trust (formerly
    Archstone Communities Trust) and the financial institutions
    named therein (incorporated by reference to Exhibit 10.4 to
    Archstone-Smith Trusts Current Report on Form 8-K
    filed with the SEC on November 1, 2001)
|       | 10 | .12         |  | Amended and Restated Credit Agreement, dated as
    of October 30, 2003, by and among Archstone-Smith Operating
    Trust, as borrower, and Archstone-Smith Trust as parent, and
    J.P. Morgan Chase Bank, as administrative agent, and Bank of
    America, N.A., and Wells Fargo Bank, N.A., as syndication
    agents, and Bank One, N.A. and Commerzbank A.G., New York
    Branch, as documentation agents                                                                                                                               
|       | 10 | .13         |  | Archstone Dividend Reinvestment and Share
    Purchase Plan (incorporated by reference to the prospectus
    contained in Archstone-Smith Trusts Registration Statement
    on Form S-3 (No. 333-44639-01))                                                                                                                                                                                                                                                                                                                                    
|       | 10 | .14         |  | Shareholders Agreement, dated as of
    October 31, 2001, by and among Archstone-Smith Trust,
    Archstone-Smith Operating Trust, Robert H. Smith and Robert
    P. Kogod (incorporated by reference to Exhibit 10.1 to
    Archstone-Smith Trusts Current Report on Form 8-K
    filed with the SEC on November 1, 2001)                                                                                                                                                                                                                    
|       | 10 | .15         |  | Noncompetition Agreement by and among Charles E.
    Smith Residential Realty, Inc., Charles E. Smith
    Residential Realty L.P. and Robert P. Kogod and Robert
    H. Smith (incorporated by reference to Exhibit 10.1 of
    Charles E. Smith Residential Realty, Inc.s Annual
    Report on Form 10-K for the year ended December 31,
    1994)                                                                                                                                                                                            
|       | 10 | .16         |  | Registration Rights and Lock-up Agreement
    (incorporated by reference to Exhibit 10.2 of Charles
    E. Smith Residential Realty, Inc.s Annual Report on
    Form 10-K for the year ended December 31, 1994)                                                                                                                                                                                                                                                                                                                                

95



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INDEX TO EXHIBITS 
(Continued)


|       |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|------ | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    | Description
|       |    |            
|       | 10 | .17         |  | License Agreement between Charles E. Smith
    Management, Inc. and Charles E. Smith Residential Realty,
    Inc. (incorporated by reference to Exhibit 10.35 of Charles
    E. Smith Residential Realty, Inc.s Annual Report on
    Form 10-K for the year ended December 31, 1994)                                                                                                              
|       | 10 | .18         |  | License Agreement between Charles E. Smith
    Management, Inc. and Charles E. Smith Residential Realty
    L.P. (incorporated by reference to Exhibit 10.36 of Charles
    E. Smith Residential Realty, Inc.s Annual Report on
    Form 10-K for the year ended December 31, 1994)                                                                                                               
|       | 10 | .19         |  | 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 10.2 of Charles E. Smith Residential Realty,
    Inc.s Quarterly Report on Form 10-Q for the Quarter
    Ended June 30, 1994)                                           
|       | 10 | .20         |  | Guarantee of Recourse Obligations by Smith Three
    and Charles E. Smith Residential Realty L.P. (incorporated
    by reference to Exhibit 10.3 of Charles E. Smith
    Residential Realty, Inc.s Quarterly Report on
    Form 10-Q for the Quarter Ended June 30, 1994)                                                                                                                         
|       | 10 | .21         |  | Absolute Assignment of Leases and Rents between
    Smith Three and Northwestern (incorporated by reference to
    Exhibit 10.4 of Charles E. Smith Residential Realty,
    Inc.s Quarterly Report on Form 10-Q for the Quarter
    Ended June 30, 1994)                                                                                                                                          
|       | 10 | .22         |  | Promissory Note of Smith Three to Northwestern
    (incorporated by reference to Exhibit 10.5 of Charles
    E. Smith Residential Realty, Inc.s Quarterly Report
    on Form 10-Q for the Quarter Ended June 30, 1994)                                                                                                                                                                            
|       | 10 | .23         |  | 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 10.6 of Charles E. Smith
    Residential Realty, Inc.s Quarterly Report on
    Form 10-Q for the Quarter Ended June 30, 1994)                                                                       
|       | 10 | .24         |  | Guarantee of Recourse Obligations by Smith Three
    D.C. and Charles E. Smith Residential Realty L.P. (incorporated
    by reference to Exhibit 10.7 of Charles E. Smith
    Residential Realty, Inc.s Quarterly Report on
    Form 10-Q for the Quarter Ended June 30, 1994)                                                                                                                    
|       | 10 | .25         |  | Absolute Assignment of Leases and Rents between
    Smith Three D.C. and Northwestern (incorporated by reference to
    Exhibit 10.8 of Charles E. Smith Residential Realty,
    Inc.s Quarterly Report on Form 10-Q for the Quarter
    Ended June 30, 1994)                                                                                                                                     
|       | 10 | .26         |  | Purchase Money Promissory Note of Smith Three
    D.C. to Northwestern (incorporated by reference to
    Exhibit 10.9 of Charles E. Smith Residential Realty,
    Inc.s Quarterly Report on Form 10-Q for the Quarter
    Ended June 30, 1994)                                                                                                                                                    
|       | 10 | .27         |  | 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) (incorporated by reference to Exhibit 10.47 of
    Charles E. Smith Residential Realty, Inc.s Annual Report
    on Form 10-K for the year ended December 31, 1998)
|       | 10 | .28         |  | 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 10.13 of
    Charles E. Smith Residential Realty, Inc.s Quarterly
    Report on Form 10-Q for the Quarter Ended June 30,
    1994)                                            
|       | 10 | .29         |  | Multi-family Note of Smith One to GMAC
    (incorporated by reference to Exhibit 10.14 of Charles E.
    Smith Residential Realty, Inc.s Quarterly Report on
    Form 10-Q for the Quarter Ended June 30, 1994)                                                                                                                                                                                   
|       | 10 | .30         |  | Multi-family Note of Smith One D.C. to GMAC
    (incorporated by reference to Exhibit 10.15 of Charles E.
    Smith Residential Realty, Inc.s Quarterly Report on
    Form 10-Q for the Quarter Ended June 30, 1994)                                                                                                                                                                              
|       | 10 | .31         |  | Absolute Assignment of Leases and Rents by Smith
    One D.C. to GMAC (incorporated by reference to
    Exhibit 10.16 of Charles E. Smith Residential Realty,
    Inc.s Quarterly Report on Form 10-Q for the Quarter
    Ended June 30, 1994)                                                                                                                                                    

96



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##### Table of Contents



INDEX TO EXHIBITS 
(Continued)


|       |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                     
|------ | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    | Description
|       |    |            
|       | 10 | .32         |  | Property Management Agreement by and between
    Smith One and Charles E. Smith Residential Realty L.P.
    (incorporated by reference to Exhibit 10.17 of Charles E.
    Smith Residential Realty, Inc.s Quarterly Report on
    Form 10-Q for the Quarter Ended June 30, 1994)                                                                                                   
|       | 10 | .33         |  | Multi-family Deed of Trust, Assignment of Rents
    and Security Agreement between Smith One D.C. and GMAC
    (incorporated by reference to Exhibit 10.18 of Charles E.
    Smith Residential Realty, Inc.s Quarterly Report on
    Form 10-Q for the Quarter Ended June 30, 1994)                                                                                                
|       | 10 | .34         |  | Commercial Leasing and Property Management
    Agreement between Smith Three and the Operating Partnership
    (incorporated by reference to Exhibit 10.19 of Charles E.
    Smith Residential Realty, Inc.s Quarterly Report on
    Form 10-Q for the Quarter Ended June 30, 1994)                                                                                                
|       | 10 | .35         |  | Credit Agreement By and Among Smith Property
    Holdings Lincoln Towers LLC and Smith Property Holdings McClurg
    Court LLC, as Borrower and Columbia National Real Estate
    Finance, Inc., as Lender. (incorporated by reference to
    Exhibit 99.1 of Charles E. Smith Residential Realty,
    Inc.s Quarterly Report on Form 10-Q for the Quarter
    Ended June 30, 2000)
|       | 10 | .36         |  | Articles Supplementary for Series E
    Cumulative Redeemable Preferred Units of Beneficial Interest of
    Archstone-Smith Operating Trust (incorporated by reference to
    Exhibit 10.1 of Archstone-Smiths Quarterly Report on
    Form 10-Q for the Quarter Ended September 30, 2002)                                                                                         
|       | 10 | .37         |  | Articles Supplementary for Series F
    Cumulative Redeemable Preferred Units of Beneficial Interest of
    Archstone-Smith Operating Trust (incorporated by reference to
    Exhibit 10.2 of Archstone-Smiths Quarterly Report on
    Form 10-Q for the Quarter Ended September 30, 2002)                                                                                         
|       | 10 | .38         |  | Articles Supplementary for Series G
    Cumulative Redeemable Preferred Units of Beneficial Interest of
    Archstone-Smith Operating Trust (incorporated by reference to
    Exhibit 10.3 of Archstone-Smiths Quarterly Report on
    Form 10-Q for the Quarter Ended September 30, 2002)                                                                                         
|       | 12 | .1          |  | Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                                                   
|       | 12 | .2          |  | Computation of Ratio of Earnings to Combined
    Fixed Charges and Preferred Share Dividends                                                                                                                                                                                                                                                                                        
|       | 21 |             |  | Subsidiaries of Archstone-Smith                                                                                                                                                                                                                                                                                                                                                     
|       | 23 | .1          |  | Consent of KPMG LLP                                                                                                                                                                                                                                                                                                                                                                 
|       | 31 | .1          |  | Certification of Chief Executive Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                              
|       | 31 | .2          |  | Certification of Chief Financial Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                              
|       | 32 | .1          |  | Certification of Chief Executive Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                              
|       | 32 | .2          |  | Certification of Chief Financial Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                              
|       | 99 | .1          |  | Corporate Governance Guidelines (incorporated by
    reference to Exhibit 99.1 of Archstone-Smiths
    Quarterly Report on Form 10-Q for the Quarter Ended
    September 30, 2003)                                                                                                                                                                                                 
|       | 99 | .3          |  | Audit Committee Charter (incorporated by
    reference to Exhibit 99.3 of Archstone-Smiths
    Quarterly Report on Form 10-Q for the Quarter Ended
    September 30, 2003)                                                                                                                                                                                                         
|       | 99 | .4          |  | Management Development and Executive Compensation
    Committee Charter (incorporated by reference to
    Exhibit 99.4 of Archstone-Smiths Quarterly Report on
    Form 10-Q for the Quarter Ended September 30, 2003)                                                                                                                                                             
|       | 99 | .5          |  | Nominating and Corporate Governance Committee
    Charter (incorporated by reference to Exhibit 99.5 of
    Archstone-Smiths Quarterly Report on Form 10-Q for
    the Quarter Ended September 30, 2003)                                                                                                                                                                           

97