##### Table of Contents









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,
    2002                                             
|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

|                                                                                                           |  |                                          
|---------------------------------------------------------------------------------------------------------- |  | -----------------------------------------
|Title of each class                                                                                        |  | Name of each exchange on which registered
|                                                                                                           |  |                                          
|Common Shares of Beneficial Interest, par
    value
    $0.01 per share                                    |  | New York Stock Exchange                  
|Series A Cumulative Convertible Preferred
    Shares of Beneficial Interest,
    $0.01 par value 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 Rule 12b-2 of the
Act).     Yes þ          No o

Based on the closing price of the
registrants Common Shares on June 28, 2002, the
aggregate market value of the voting common equity held by
non-affiliates of the registrant was approximately
$4,711,685,400.

At February 14, 2003, there were
approximately 181,295,459 of the registrants Common Shares
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants definitive
proxy statement for the 2003 annual meeting of its shareholders
are incorporated by reference in Part III of this report.



---






---

TABLE OF CONTENTS



|                                                                         |                                                                                                         |                                          |  |  |  |  |  | 
|------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------- | ---------------------------------------- |  |  |  |  |  | 
|Table of Contents                                                       
|GLOSSARY                                                                
|PART I                                                                  
|                                                                         | Item 1. Business                                                                                       
|                                                                         | The Company                                                                                            
|                                                                         |                                                                                                         | Trustees and Officers of Archstone-Smith
|                                                                         |                                                                                                         | Employees                               
|                                                                         |                                                                                                         | Insurance                               
|                                                                         |                                                                                                         | Risk Factors                            
|                                                                         | Item 2. Properties                                                                                     
|                                                                         |                                                                                                         | Geographic Distribution                 
|                                                                         |                                                                                                         | Real Estate Portfolio                   
|                                                                         | Item 3. Legal Proceedings                                                                              
|                                                                         | Item 4. Submission of Matters to a Vote of Security Holders                                            
|PART II                                                                 
|                                                                         | Item 5. Market for the Registrants Common Equity and Related Stockholder Matters                      
|                                                                         | Item 6. Selected Financial Data                                                                        
|                                                                         | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations          
|                                                                         |                                                                                                         | Results of Operations                   
|                                                                         |                                                                                                         | Liquidity and Capital Resources         
|                                                                         |                                                                                                         | Critical Accounting Policies            
|                                                                         |                                                                                                         | Off Balance Sheet Arrangements          
|                                                                         |                                                                                                         | Contractual Commitments                 
|                                                                         |                                                                                                         | Related Party Transactions              
|                                                                         |                                                                                                         | New Accounting Pronouncements           
|                                                                         | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                    
|                                                                         | Item 8. Financial Statements and Supplementary Data                                                    
|                                                                         | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|Part III                                                                
|                                                                         | Item 10. Trustees and Executive Officers of the Registrant                                             
|                                                                         | Item 11. Executive Compensation                                                                        
|                                                                         | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|                                                                         | Item 13. Certain Relationships and Related Transactions                                                
|                                                                         | Item 14. Controls and Procedures                                                                       
|Part IV                                                                 
|                                                                         | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|                                                                         |                                                                                                         | INDEPENDENT AUDITORS REPORT            
|CONSOLIDATED BALANCE SHEETS                                             
|CONSOLIDATED STATEMENTS OF EARNINGS                                     
|CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                              
|INDEPENDENT AUDITORS REPORT                                            
|SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION                   
|SIGNATURES                                                              
|CERTIFICATIONS                                                          
|INDEX TO EXHIBITS                                                       
|EX-10.7 Form of Change in Control Agreement                             
|EX-12.1 Computation of Ratio of Earnings                                
|EX-12.2 Computation of Ratio of Earnings                                
|EX-21 Subsidiaries                                                      
|EX-23.1 Consent of KPMG LLP                                             
|EX-99.1 Certification of Chief Executive Officer                        
|EX-99.2 Certification of Chief Financial Officer                        



---



##### Table of Contents






Table of Contents

|         |     |             |  |                                                                                                    |  |  |    | 
|-------- | --- | ----------- |  | -------------------------------------------------------------------------------------------------- |  |  | -- | 
|Item     |     | Description |  | Page                                                                                              
|         |     |             |  |                                                                                                   
|PART I  
|         |     |             |  | Glossary                                                                                           |  |  | 3  | 
|         | 1.  |             |  | Business                                                                                           |  |  | 7  | 
|         |     |             |  | The Company                                                                                        |  |  | 7  | 
|         |     |             |  | Trustees and Officers of Archstone-Smith                                                           |  |  | 11 | 
|         |     |             |  | Employees                                                                                          |  |  | 14 | 
|         |     |             |  | Insurance                                                                                          |  |  | 14 | 
|         |     |             |  | Risk Factors                                                                                       |  |  | 15 | 
|         | 2.  |             |  | Properties                                                                                         |  |  | 18 | 
|         |     |             |  | Geographic Distribution                                                                            |  |  | 18 | 
|         |     |             |  | Real Estate Portfolio                                                                              |  |  | 20 | 
|         | 3.  |             |  | Legal Proceedings                                                                                  |  |  | 22 | 
|         | 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                                                                            |  |  | 25 | 
|         | 7.  |             |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations          |  |  | 27 | 
|         |     |             |  | Results of Operations                                                                              |  |  | 29 | 
|         |     |             |  | Liquidity and Capital Resources                                                                    |  |  | 34 | 
|         |     |             |  | Critical Accounting Policies                                                                       |  |  | 38 | 
|         |     |             |  | Off Balance Sheet Arrangements                                                                     |  |  | 40 | 
|         |     |             |  | Contractual Commitments                                                                            |  |  | 41 | 
|         |     |             |  | Related Party Transactions                                                                         |  |  | 42 | 
|         |     |             |  | New Accounting Pronouncements                                                                      |  |  | 42 | 
|         | 7A. |             |  | Quantitative and Qualitative Disclosures About
    Market Risk                                     |  |  | 43 | 
|         | 8.  |             |  | Financial Statements and Supplementary Data                                                        |  |  | 45 | 
|         | 9.  |             |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure           |  |  | 45 | 
|PART III
|         | 10. |             |  | Trustees and Executive Officers of the Registrant                                                  |  |  | 46 | 
|         | 11. |             |  | Executive Compensation                                                                             |  |  | 46 | 
|         | 12. |             |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters |  |  | 46 | 
|         | 13. |             |  | Certain Relationships and Related Transactions                                                     |  |  | 46 | 
|         | 14. |             |  | Controls and Procedures                                                                            |  |  | 46 | 
|         |     |             |  | PART IV                                                                                            |  |  |    | 
|         | 15. |             |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                                |  |  | 47 | 

2



---



##### Table of Contents






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 Operating Trust A-1 Common Units.                                                                                                                                                                                                                                                                                                      
|A-1 Common Units                         |  | Operating Trust Class A-1 Common Units of
    beneficial interest, which are redeemable for 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
    12.0% in the Operating Trust at December 31, 2002.                                      
|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 88.0% interest in
    the Operating Trust at December 31, 2002.                                                                                                                   
|A-1 Minority Interest                    |  | The A-1 Common Unitholders share of net
    earnings.                                                                                                                                                                                                                                                                                            
|Ameriton                                 |  | AMERITON Properties Incorporated is a taxable
    REIT subsidiary, which engages in the opportunistic acquisition,
    development and eventual disposition of real estate with a
    shorter-term investment horizon.                                                                                                                            
|Ameriton Holdings                        |  | Ameriton Holdings LLC, which owns 100% of the
    voting stock of Ameriton.                                                                                                                                                                                                                                                                       
|Annual Report                            |  | This Annual Report on Form 10-K filed with
    the Securities and Exchange Commission for the fiscal year ended
    December 31, 2002.                                                                                                                                                                                                            
|APB                                      |  | Accounting Principles Board.                                                                                                                                                                                                                                                                                                                      
|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.                                                                                                                                        
|Atlantic Merger                          |  | In July 1998, Security Capital Atlantic
    Incorporated was merged with and into Security Capital Pacific
    Trust and the combined company was renamed Archstone Communities
    Trust.                                                                                                                                                        
|Board                                    |  | Archstone-Smiths Board of Trustees.                                                                                                                                                                                                                                                                                                              
|Charles E. Smith Division                |  | Charles E. Smith Residential high-rise
    division of Archstone-Smith, which owns and operates high-rise
    apartment buildings.                                                                                                                                                                                                                
|Class B Common Units                     |  | Operating Trust Common Units 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 to 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 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.                                                             

3



---



##### Table of Contents



|                                      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Abbreviation, Acronym or Defined Term |  | Definition/Description                                                                                                                                                                                                                                                                                                                                                                
|                                      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|Convertible Preferred Shares          |  | Collectively, the Series A, H, J, K and L
    Convertible 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 under our long-term incentive plan.                                                                                                                                                                                                                                                                               
|DownREIT OP Units                     |  | Operating Partnership Units issued by Atlantic
    Multifamily Limited Partnership  I, Archstone
    Communities Limited Partnership and Archstone Communities
    Limited Partnership II, which are 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 are convertible into the same
    series of Archstone-Smith preferred. 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.                                                                                                                                                                                                                                                                                                                    
|Homestead                             |  | Homestead Village Incorporated.                                                                                                                                                                                                                                                                                                                                                       
|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.                                                                                                                                                                                                                                                                                                            
|NYSE                                  |  | New York Stock Exchange.                                                                                                                                                                                                                                                                                                                                                              
|Outside Trustees                      |  | Independent members of Archstone-Smiths
    Board of Trustees.                                                                                                                                                                                                                                                                                                                       
|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, E, F, G
    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, E, F,
    G, H, I, J, K, and L Preferred Shares.                                                                                                                                                                                                                                                                                                 
|REIT                                  |  | Real estate investment trust.                                                                                                                                                                                                                                                                                                                                                         
|Restricted Share Unit or RSU          |  | Restricted Share Unit; a unit representing an
    interest in one Common Share, subject to certain vesting
    provisions, through our long-term incentive plan.                                                                                                                                                                                                                      

4



---



##### Table of Contents



|                                      |  |                                                                                                                                                                                                                                                                                 
|------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 relating to two periods being
    compared.                                                                                      
|Security Capital                      |  | Security Capital Group Incorporated (acquired by
    a subsidiary of General Electric Capital Corporation in 2002).                                                                                                                                                             
|Series A Preferred Shares             |  | Archstone-Smith Series A Cumulative
    Preferred Shares of Beneficial Interest, par value $0.01 per
    share.                                                                                                                                                                 
|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.                                                                                                                                           
|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.                                                                                                                                           
|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.                                                                                                                                                                                                                                    
|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.                                                                         

5



---



##### Table of Contents



|                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Abbreviation, Acronym or Defined Term |  | Definition/Description                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|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. There is no commitment by Archstone-Smith to acquire
    such land and there can be no assurance that any such land will
    be acquired.
|UPREIT                                |  | Umbrella Partnership Real Estate Investment Trust.                                                                                                                                                                                                                                                                                                                                                                                                                               

6



---



##### Table of Contents






PART I




Item 1.     Business

Archstone-Smith (NYSE: ASN) is 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. Our garden communities operate under the
Archstone Communities brand name; our high-rise communities
operate under the Charles E. Smith Residential brand name. As of
December 31, 2002, we own or have an ownership position in
236 garden-style communities and 51 high-rise
properties, representing 99,840 units, including
2,295 units under construction. At the end of 2002, 83.2%
of our wholly-owned operating portfolio was concentrated in
protected locations in our eight core markets, based on NOI:

|                                           |       |  |      |      |  
|------------------------------------------ | ----- |  | ---- | ---- | -
|Greater Washington, D.C. metropolitan area |       |  | 35.1 | %   
|Southern California                        |       |  | 13.2 |     
|San Francisco Bay area, California         |       |  | 9.0  |     
|Chicago, Illinois                          |       |  | 8.5  |     
|Southeast Florida                          |       |  | 6.6  |     
|Boston, Massachusetts                      |       |  | 5.2  |     
|Seattle, Washington                        |       |  | 3.4  |     
|Greater NYC metropolitan area              |       |  | 2.2  |     
|                                           |       |  |      |     
|                                           | Total |  |      | 83.2 | %
|                                           |       |  |      |     




The Company

Archstone-Smith is a public equity REIT that is
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 owns 88.0% of the
Operating Trust.

Our principal focus is to create shareholder
value by:



| |   |                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Maximizing the performance of our communities and
    strengthening our operating platform by improving our customer
    service delivery, strengthening our brand position, leveraging
    technology and solidifying our reputation for operational
    leadership;     
|
| |  | Owning and operating apartments in eight core
    protected markets, which are characterized by:
    (i) protected locations with limited land on which to build
    new housing; (ii) expensive single-family housing; and
    (iii) a strong, diversified economic base;
|
| |  | Generating long-term sustainable growth in
    operating cash flow;                                                                                                                                                                                                       
|
| |  | Creating incremental value by acquiring,
    developing, or redeveloping apartments in core protected
    markets; and                                                                                                                                                    
|
| |  | Managing our invested capital through the
    disposition of assets that no longer meet our investment
    objectives and redeploying that capital into investments in our
    core protected markets.                                                                    

Customer-focused Operations

One of our primary objectives is to be viewed as
a leading operating company in corporate America, not just a
well-run company within the real estate industry. We believe we
will achieve this objective by leveraging our operating platform
across our two well-respected customer-facing brands 
Archstone Communities and Charles E. Smith
Residential  and investing in innovation and
technology that improves our core business. We believe that
strong brands, a robust and scalable technology platform and
continued investment in our human capital improve our potential
for long-term cash flow growth.

7



---



##### Table of Contents



Powerful Brands.An
essential component of our strategy is to offer a consistent and
notably higher level of service at Archstone communities and
Charles E. Smith properties, coast to coast. Through
Archstones unconditional Seal of
Service guarantees and Charles
E. Smiths Commitment to Excellent
Service, we have adapted and implemented successful
customer service programs from other industries to create
customer loyalty and trust, while establishing the service
benchmarks for the apartment industry.

Attracting and retaining the best professionals
in our industry and giving them the tools to provide an
exceptional customer experience is a critical component to
ensuring the integrity of our brands. In 2002, we unified our
Customer-centered Sales Excellence training program across our
two brands to ensure consistent delivery of our brand promises.
The seven training modules cover all important aspects of our
sales process and are offered to associates in manageable
half-day classes. This uniform sales philosophy ensures that
from start to finish, our associates have the tools to
efficiently serve our customers at every community in our
national portfolio.

Strategic use of
technology.The Internet is changing
the way people do business, and we are committed to staying
ahead of the curve by investing in technology that streamlines
operations and improves our core business. We continue to
develop new initiatives and improve upon existing programs and
services to make it easier for our customers to do business with
us. In 2002, we launched two important web-based tools that we
believe will redefine the way customers lease an apartment and
how we manage our properties.

We pioneered the use of Lease Rent
Optimizer (LRO), the first revenue management software
system in the apartment industry, which enables us to more
precisely forecast and analyze market demand and unit
availability to optimize pricing for our apartments. We believe
this system has a significant positive impact on our community
revenues. In 2002, we completed the rollout of LRO to our
Archstone garden communities and expanded the LRO system to 75%
of the Charles E. Smith high-rise properties by year-end.
In addition, LRO allows us to accommodate new and renewing
customers lease term needs creating a level of flexibility
that previously has never been available in the apartment
industry.

In addition to LRO, we are also upgrading our
existing property management system with 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 dramatically
improves our reporting capabilities, ability to accurately track
resident rental histories, and gives our customers
around-the-clock access to their information through
resident-only web sites. RM standardizes operations between the
Archstone and Charles E. Smith portfolios and is scalable and
flexible, allowing us to add new tools to the system as they
become available.

RM is fully integrated with other tools already
in use at our communities, including LRO and SafeRent, a
web-based applicant-screening product. Through the resident web
sites, our customers will be able to view and pay account
balances through direct debit, submit service requests and renew
or fully lease an apartment online. RM is customized so that
each associate can quickly access the features and data required
for his or her specific job responsibilities. This allows us to
execute leases much more smoothly, which not only helps us fill
our apartments faster, but also ensures a much better experience
for our customers. RM is expected to be fully rolled out across
our entire portfolio by mid 2004.

Investment Strategy

We use our extensive research to identify
investment opportunities that we believe will produce total
returns in excess of our long-term cost of capital. We estimate
our long-term cost of equity capital to be 11 to 12%. When
combined with current long-term debt rates, this gives us a
weighted average long-term cost of capital of approximately 9%.

Protected markets.We invest our capital in protected markets with high barriers to
entry. Barriers to entry exist in areas where there is a very
limited amount of vacant land, any land that exists is not zoned
for apartment development, and local municipalities are
reluctant to zone additional land for apartment properties. Our
eight core markets include the Greater Washington, D.C.
metropolitan area, Southern California, the San Francisco Bay
area, Seattle, Chicago, Southeast Florida, Boston and the
greater New York

8



---



##### Table of Contents



City metropolitan area. We believe that the
relatively stable demand, limited competition and diverse
economic base typical of our core markets maximizes our ability
to keep occupancy relatively constant and produce sustainable
long-term cash flow growth.


Capital recycling
program.In 1995, we articulated a
strategy that still guides our decisions today: to build a
national apartment portfolio in protected locations in the
nations best apartment markets. To execute this strategy,
we have sold virtually all the assets we owned at that time and,
utilizing a sophisticated capital recycling strategy, we
redeployed our disposition proceeds principally into our eight
core protected markets. We believe that concentrating our
portfolio in protected markets improves our core growth rate and
long-term business fundamentals.

In 2002, we sold $420.1 million of real
estate assets, generating gains of over $108 million. We
realized an average unleveraged return during our holding period
for the disposition communities of 18.6%. Additionally, we
acquired $402.4 million of operating apartment communities,
representing a total of 1,795 units. Our acquisitions over
the last seven years were principally funded by capital recycled
through tax-deferred exchanges. We focus our acquisition
activity on assets in highly desirable residential locations
with minimal competition and strong, long-term growth prospects.
Our locally based investment infrastructure often allows us to
identify attractive opportunities before they are made available
to the general market, which often results in advantageous
pricing.

Development and redevelopment.We believe we create substantial value
through the development of new apartment communities and the
redevelopment of existing operating communities. At
December 31, 2002, we had $480.8 million of
development communities under construction, with 68.3%, or
$328.4 million, of this amount already funded. In 2002, we
completed $265.9 million of new development communities,
representing 1,469 units, in markets that include the
greater Washington, D.C. metropolitan area and Southern
California.

Through our redevelopment strategy, we reposition
assets by intelligently investing capital in renovations that
include upgrades to interiors, exteriors, leasing offices,
landscaping and amenities. In addition, we invest in
revenue-enhancing capital expenditures such as building garages/
carports and additional storage facilities. We also invest in
expense-reducing expenditures, including water sub-metering
systems and xeriscaping.

Conservative Balance Sheet
Management

One of our primary financial objectives is to
structure our balance sheet in order to have access to capital
when other competitors in the industry do not. We have a
significant equity base, with a total equity market
capitalization of $5.3 billion. During 2002, we financed
our investment activity primarily through internally-generated
cash flow from operations and asset dispositions. We are focused
on ensuring that we do not face liquidity issues in any given
quarter or year. As of February 14, 2003, we had
$381.9 million in total available capacity on our lines of
credit. We believe that careful balance sheet management will
enable us to take advantage of compelling investment
opportunities that are more likely to emerge in a
capital-constrained environment.

We are committed to preserving our strong balance
sheet in order to enhance our financial flexibility. 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.

Our long-term debt is structured to create a
relatively level principal maturity schedule, without
significant repayment obligations in any year. We have only
$223.9 million of long-term debt maturing in 2003,
representing 2.4% of our total market capitalization.

9



---



##### Table of Contents



The following summarizes our long-term debt
maturity profile for the next five years, and thereafter, as of
December 31, 2002 (dollar amounts in thousands):

|           |       |                |         |           |  |       |           |                   |  |   |           |           |  |  |      |      |  
|---------- | ----- | -------------- | ------- | --------- |  | ----- | --------- | ----------------- |  | - | --------- | --------- |  |  | ---- | ---- | -
|           |       | Long-term      |         |           |  |       |           | % of Total Market
|Year       |       | Unsecured Debt |         | Mortgages |  | Total |           | Capitalization(1)
|           |       |                |         |           |  |       |           |                  
|2003       |       | $              | 171,250 |           |  | $     | 52,632    |                   |  | $ | 223,882   |           |  |  | 2.4  | %   
|2004       |       |                | 51,250  |           |  |       | 51,727    |                   |  |   | 102,977   |           |  |  | 1.1  | %   
|2005       |       |                | 251,250 |           |  |       | 25,007    |                   |  |   | 276,257   |           |  |  | 2.9  | %   
|2006       |       |                | 51,250  |           |  |       | 292,407   |                   |  |   | 343,657   |           |  |  | 3.7  | %   
|2007       |       |                | 386,250 |           |  |       | 134,710   |                   |  |   | 520,960   |           |  |  | 5.6  | %   
|Thereafter |       |                | 864,853 |           |  |       | 1,404,344 |                   |  |   | 2,269,197 |           |  |  | 24.2 | %   
|           |       |                |         |           |  |       |           |                   |  |   |           |           |  |  |      |     
|           | Total |                | $       | 1,776,103 |  |       | $         | 1,960,827         |  |   | $         | 3,736,930 |  |  |      | 39.9 | %
|           |       |                |         |           |  |       |           |                   |  |   |           |           |  |  |      |     



---



|    |                                                        
|--- | -------------------------------------------------------
|(1) | Total market capitalization as of
    December 31, 2002

We made significant progress in reducing our
secured debt and increasing our unencumbered asset base during
the year. We repaid over $500 million of secured debt,
reducing our ratio of secured debt to total debt from 60.5% at
the end of 2001, to 47.8% at the end of 2002. As a result, we
have $5.0 billion of unencumbered assets as of
December 31, 2002.

Consistent dividend
growth.We paid dividends of $1.70 per
Common Share in 2002, a 3.7% increase over Common Share
dividends paid in 2001. We also announced our anticipated 2003
dividend level of $1.71 per share. We have increased our annual
dividend for 11 consecutive years and have paid 110 consecutive
quarterly dividends. Including the announced increase for 2003,
our annual dividend per share has increased 167% since 1991.

Registrants Website Address

A copy of this Annual Report on Form 10-K,
as well as our Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and any amendments to such reports are
available, free of charge, on the Internet on our website
www.archstonesmith.com. All required reports are made available
on the website as soon as reasonably practicable after they are
electronically filed with or furnished to the Securities and
Exchange Commission. The reference to our website address does
not constitute incorporation by reference of the information
contained in the website and should not be considered part of
this document.

Affiliates

We own or owned the majority of the economic
interest in the following companies, which provide various
investment and operational services as described below:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Ameritonutilizes
    Archstone-Smiths national development, acquisition and
    operating infrastructure to make real estate investments with a
    shorter-term ownership horizon. Ameriton creates the potential
    for additional positive earnings growth for Archstone-Smith.                                                                                                                                                                                                                                 
|
| | Archstone Management Services
    Incorporatedis a full-service,
    third-party property management company, which manages assets
    for private and institutional owners of apartment properties
    throughout the United States.                                                                                                                                                                                                                                                                                
|
| | Consolidated Engineering
    Servicesis a broad-based building
    technical services company with a network of leading regional
    companies that provide specialized technical services for
    building equipment, systems and operations. CES has particular
    expertise in operating mission critical facilities. We sold our
    interest in CES to a third party in December 2002; see
    Note 2 in our audited financial statements in this Annual
    Report for additional information on the CES sale.
|
| | Smith Management
    Constructionis a construction
    management service company that performs renovation,
    rehabilitation and tenant improvement services to both the
    private and governmental sector.                                                                                                                                                                                                                                                                                                      

10



---



##### Table of Contents



| |                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | We sold SMC in February 2003; see Note 18 in
    our audited financial statements in this Annual Report for
    additional information on the SMC sale.

Management

We have several senior executives who possess the
leadership, operational, investment and financial skills and
experience to oversee the entire operations of our company.
Several of our senior officers could serve as our 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.




Trustees and Officers of
Archstone-Smith

In October 2001, Archstone was reorganized into
an UPREIT structure and Archstone-Smith Trust became 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 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 in this Annual Report
for additional information on the Smith Merger.

Trustees of
Archstone-Smith

James A.
Cardwell  71
Trustee of Archstone-Smith since May 1980; Chief Executive
Officer of Petro Stopping Centers, L.P. (operation of
full-service truck stopping centers) and its predecessor since
1975; currently, a Director of El Paso Electric Company and
State National Bancshares, Inc.

Ernest A. Gerardi,
Jr.  67
Trustee of Archstone-Smith since October 2001; Director of Smith
Residential from 1993 to October 2001; President and Chief
Executive Officer of Smith Residential from February 2000 to
July 2001; President and Chief Operating Officer of Smith
Residential from 1993 to February 2000; Chairman of the Board
and Chief Executive Officer of Consolidated Engineering
Services Inc. from 1994 to 2002; from 1985 to 1994, a
member of the Executive Committee of Charles E. Smith
Management, Inc., where he had overall responsibility for
day-to-day business operations and long-range planning; from
1985 through 1993, Executive Vice President and Senior Executive
Vice President of Charles E. Smith Management, Inc.;
prior thereto, Mr. Gerardi was with Arthur Andersen and Co.
for 27 years; he also is a member of the American Institute
of Certified Public Accountants and the D.C. Institute of
Certified Public Accountants.

Ned S.
Holmes  58
Trustee of Archstone-Smith since July 1998; Director of Security
Capital Atlantic Incorporated from May 1994 to July 1998;
President and Chief Executive Officer of Laing
Properties, Inc. since May 1990; Chairman and President of
Parkway Investments/ Texas Inc., a Houston-based real
estate investment and development company which specializes in
residential and commercial (office and warehouse) subdivisions,
since April 1984; Chairman of the Board of Prosperity
Bancshares, Inc.; Chairman of P&O Ports North
America, Inc.; Chairman Emeritus of the Port Commission of
the Port of Houston Authority; and a Director and former
Chairman of Greater Houston Partnership.

Robert P.
Kogod  71
Trustee of Archstone-Smith since October 2001; Chairman of the
Executive Committee of the Board of Smith Residential from
February 2000 to October 2001; Co-Chairman of the Board and
Co-Chief Executive Officer of Smith Residential from 1993 to
February 2000; from 1964 to 1994, President, Chief Executive
Officer and a Director of Charles E. Smith
Management, Inc., where he oversaw and directed all phases
of the leasing and management of the Smith companies
office, residential and retail real estate portfolio; affiliated
with the Smith companies in various capacities since joining the
organization in 1959; formerly, Co-Chairman of the Board and a
Director of Charles E. Smith Commercial Realty, Inc.,
(ownership, operation and management of commercial office
buildings) which in January 2002, became the Charles E.
Smith Commercial Realty division of Vornado Realty Trust
(Vornado); a Trustee of Vornado since January 2002.
Mr. Kogod is the brother-in-law of Robert H. Smith,
one of our Trustees.

11



---



##### Table of Contents



James H.
Polk, III  60
Trustee of Archstone-Smith since January 1976; Partner, Storage
Investment Group, LTD., Co. (development and operation of
self-storage facilities) January 1998 to December 2002; Partner,
Rust Capital Group, Austin, Texas (venture capital investments)
since June 2000; Managing Director of Security Capital Markets
Group Incorporated from August 1992 to June 1997 and President
from March 1997 to June 1997; affiliated with Archstone-Smith
and its predecessors since January 1976 in various capacities,
including Trustee, President and Chief Executive Officer; past
President and Trustee of NAREIT.

John M.
Richman  75
Trustee of Archstone-Smith since July 1998; Director of Security
Capital Atlantic Incorporated from September 1996 to July 1998;
Counsel to the law firm of Wachtell, Lipton, Rosen &
Katz from January 1990 to present; Vice Chairman, Philip Morris
Companies, Inc. from 1989 to 1990; Chairman and CEO of
Kraft, Inc. from 1979 to 1989; Director, Chicago Council on
Foreign Relations and Lyric Opera of Chicago; Life Trustee of
the Chicago Symphony Orchestra, Evanston Northwestern Healthcare
and Northwestern University; Trustee, Norton Museum of Art;
retired Director of R.R. Donnelley & Sons Company
and served as Acting Chairman and Chief Executive Officer of
that company from October 1996 to April 1997; member, Council of
Retired Chief Executive; member, The Commercial Club of Chicago.

John C.
Schweitzer  58
Trustee of Archstone-Smith since April 1976; Director of Regency
Centers (a national owner, operator and developer of
grocery-anchored neighborhood retail centers) since March 1999;
Trustee of the former Pacific Retail Trust from June 1997 to
February 1999; President, Westgate Corporation (real estate and
investments) since 1976; Managing Partner, Campbell
Capital Ltd. (real estate and investments) since 1976;
Director of Chase Bank of Texas-Austin and KLRU Public
Television, Austin, Texas.

R. Scot
Sellers  46
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 of the
Board of Governors of NAREIT and also is a member of the
Executive Committee of the Board of Directors of the National
Multi Housing Council.

Robert H.
Smith  74
Chairman of the Charles E. Smith Residential Division of
Archstone-Smith since November 2001; Trustee of Archstone-Smith
since October 2001; Chairman of the Board of Smith Residential
from February 2000 to October 2001; Co-Chairman of the Board and
Co-Chief Executive Officer of Smith Residential from 1993 to
February 2000; from 1962 to 1999, President, Chief Executive
Officer and a Director of Charles E. Smith
Construction, Inc. and its predecessor companies, where he
directed all phases of development and construction of the Smith
companies office, retail and residential real estate
projects; affiliated with the Smith companies in various
capacities since joining the organization in 1950; formerly
Co-Chairman of the Board and a Director of Charles E. Smith
Commercial Realty, Inc. (ownership, operation and
management of commercial office buildings), which in January
2002 became the Charles E. Smith Commercial Realty division
of Vornado; a Trustee of Vornado since January 2002.
Mr. Smith is the brother-in-law of Mr. Robert P.
Kogod, one of our Trustees.

12



---



##### Table of Contents



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                                    
|Richard A. Banks        |  | President  West Division                                  
|James D. Rosenberg      |  | President  Charles E. Smith
    Residential Division      
|Dana K. Hamilton        |  | Executive Vice President  National
    Operations         
|Caroline Brower         |  | Executive Vice President, Secretary and General
    Counsel
|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  46
See Trustees of Archstone-Smith above.

J. Lindsay
Freeman  57
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.  39
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.

Richard A.
Banks  55
President-West Division of Archstone-Smith since October 2001,
with responsibility for all investments and operations of the
West Division; from December 1997 to October 2001, Managing
Director of Archstone-Smith, with responsibility for investments
and operations in the West Region; Senior Vice President of
Archstone-Smith from August 1997 to December 1997; from January
1995 to August 1997, President and Chief Executive Officer of
Lincoln Residential Services, where he was responsible for all
aspects of leading a full service property management company of
approximately 40,000 apartment units in the western United
States; member of the Executive Committee of the Board of
Directors of the National Multi Housing Council.

James D.
Rosenberg  45
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.

13



---



##### Table of Contents



Dana K.
Hamilton  34
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;
property operations in the central United States; and Archstone
Management Services Incorporated, the companys third-party
management business; 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  54
Executive Vice President, General Counsel and Secretary of
Archstone-Smith since December 2002, with responsibility for
legal and corporate governance; Senior Vice President, General
Counsel and Secretary of Archstone-Smith from September 1999 to
December 2002; 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), where she practiced
transaction and real estate law.

Daniel E.
Amedro  46
Chief Information Officer and Senior Vice President of
Archstone-Smith since May 1998, 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  44
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 department of Qwest Communications
International and predecessor entity 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

Archstone-Smith currently employs approximately
3,450 individuals, of whom approximately 2,750 are focused on
the site-level operation of our garden communities and high-rise
properties. Of the site-level associates, approximately 100 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 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.

14



---



##### Table of Contents






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 without the consent of
Messrs. Smith and Kogod, which could result in our
inability to sell these properties at an opportune time and/or
at increased costs to us.

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.

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 $4.1 billion in total debt
outstanding as of December 31, 2002, of which
$2.0 billion was secured by real estate assets and
$784.8 million was subject to variable interest rates,
including $365.6 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.

15



---



##### Table of Contents



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. 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.

We are
subject to the Americans with Disabilities Act.

Our communities must comply with Title III of the
Americans with Disabilities Act to the extent that such
communities are or contain public accommodations and/or
commercial facilities as defined by the Act. The Act does not
consider apartment communities to be public accommodations or
commercial facilities, except for portions of such facilities
which are open to the public, such as the leasing office.
Noncompliance could result in imposition of fines or an award of
damages to private litigants. We believe our communities comply
with all present requirements under the Act and applicable state
laws.

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

16



---



##### Table of Contents



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. While mold issues have
resulted in significant claims at only one of our properties to
date, 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.


We are not aware of any other environmental
condition on any of our real estate investments that is likely
to have a material adverse effect on our financial position or
results of operations; however, we cannot give any assurance
that any such condition does not exist or may not arise in the
future.

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 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.

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

17



---



##### Table of Contents



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. While mold issues have resulted in
significant claims at only one of our properties to date, 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, 2002, approximately 35.1% of
our apartment communities are located in the Greater Washington,
D.C. Metropolitan Area, based on NOI. Approximately 13.2% of our
apartment communities are located in Southern California at
December 31, 2002, 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 9.0% of our apartment communities
are located in the San Francisco Bay Area of California at
December 31, 2002, 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.

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, 2002, the geographic
distribution for our eight core markets based on NOI was as
follows:

|                                           |       |  |      |      |  
|------------------------------------------ | ----- |  | ---- | ---- | -
|Greater Washington, D.C. Metropolitan Area |       |  | 35.1 | %   
|Southern California                        |       |  | 13.2 |     
|San Francisco Bay Area, California         |       |  | 9.0  |     
|Chicago, Illinois                          |       |  | 8.5  |     
|Southeast Florida                          |       |  | 6.6  |     
|Boston, Massachusetts                      |       |  | 5.2  |     
|Seattle, Washington                        |       |  | 3.4  |     
|Greater New York City Metropolitan Area    |       |  | 2.2  |     
|                                           |       |  |      |     
|                                           | Total |  |      | 83.2 | %
|                                           |       |  |      |     

18



---



##### Table of Contents



The following table summarizes the geographic
distribution of our garden communities and high-rise properties
at December 31, 2002 based on NOI:

|                                                      |                                            |                                 |                          |      |      |       |   |      |      |       |   |      |      |       |  
|----------------------------------------------------- | ------------------------------------------ | ------------------------------- | ------------------------ | ---- | ---- | ----- | - | ---- | ---- | ----- | - | ---- | ---- | ----- | -
|                                                      |                                            |                                
|                                                      |                                            | Total Portfolio(1)             
|                                                      |                                            |                                
|                                                      |                                            | 2002                            |                          | 2001 |      | 2000 
|                                                      |                                            |                                 |                          |      |      |      
|East Division (garden communities):                   |                                            |                                 |                          |      |      |       |   |      |      |       |   |     
|                                                      | Atlanta, Georgia                           |                                 |                          | 3.1  | %    |       |   | 3.3  | %    |       |   | 6.3  | %   
|                                                      | Austin, Texas                              |                                 |                          | 0.5  |      |       |   | 0.6  |      |       |   | 2.6  |     
|                                                      | Boston, Massachusetts                      |                                 |                          | 3.7  |      |       |   | 3.5  |      |       |   | 4.2  |     
|                                                      | Charlotte, North Carolina                  |                                 |                          | 0.5  |      |       |   | 0.6  |      |       |   | 1.9  |     
|                                                      | Chicago, Illinois                          |                                 |                          | 3.4  |      |       |   | 3.2  |      |       |   | 1.9  |     
|                                                      | Dallas, Texas                              |                                 |                          | 1.2  |      |       |   | 1.2  |      |       |   | 1.9  |     
|                                                      | Denver, Colorado                           |                                 |                          | 2.4  |      |       |   | 2.7  |      |       |   | 4.9  |     
|                                                      | Houston, Texas                             |                                 |                          | 1.0  |      |       |   | 1.4  |      |       |   | 2.7  |     
|                                                      | Nashville, Tennessee                       |                                 |                          | 0.2  |      |       |   | 0.4  |      |       |   | 1.1  |     
|                                                      | Greater New York City Metropolitan Area    |                                 |                          | 0.3  |      |       |   |     |      |       |   |     |     
|                                                      | Orlando, Florida                           |                                 |                          | 0.3  |      |       |   | 0.4  |      |       |   | 1.4  |     
|                                                      | Raleigh, North Carolina                    |                                 |                          | 1.4  |      |       |   | 1.8  |      |       |   | 4.5  |     
|                                                      | San Antonio, Texas                         |                                 |                          | 0.5  |      |       |   | 0.8  |      |       |   | 1.8  |     
|                                                      | Southeast Florida                          |                                 |                          | 1.8  |      |       |   | 2.2  |      |       |   | 4.4  |     
|                                                      | Greater Washington, D.C. Metropolitan Area |                                 |                          | 14.4 |      |       |   | 12.3 |      |       |   | 7.2  |     
|                                                      | West Coast Florida                         |                                 |                          | 0.6  |      |       |   | 0.8  |      |       |   | 1.8  |     
|                                                      | Other                                      |                                 |                          |     |      |       |   |     |      |       |   | 2.6  |     
|                                                      |                                            |                                 |                          |      |      |       |   |      |      |       |   |     
|                                                      |                                            | East Division Total             |                          |      | 35.3 | %     |   |      | 35.2 | %     |   |      | 51.2 | %    
|                                                      |                                            |                                 |                          |      |      |       |   |      |      |       |   |     
|West Division (garden communities):                   |                                            |                                 |                          |      |      |       |   |      |      |       |   |     
|                                                      | Albuquerque, New Mexico                    |                                 |                          | 1.2  | %    |       |   | 1.1  | %    |       |   | 2.1  | %   
|                                                      | Las Vegas, Nevada                          |                                 |                          | 0.5  |      |       |   | 0.6  |      |       |   | 1.4  |     
|                                                      | Phoenix, Arizona                           |                                 |                          | 2.1  |      |       |   | 2.3  |      |       |   | 5.1  |     
|                                                      | Portland, Oregon                           |                                 |                          | 0.6  |      |       |   | 0.8  |      |       |   | 1.9  |     
|                                                      | Salt Lake City, Utah                       |                                 |                          | 0.7  |      |       |   | 0.7  |      |       |   | 2.8  |     
|                                                      | San Francisco Bay Area, California         |                                 |                          | 9.0  |      |       |   | 9.8  |      |       |   | 13.7 |     
|                                                      | Seattle, Washington                        |                                 |                          | 3.4  |      |       |   | 4.0  |      |       |   | 6.3  |     
|                                                      | Southern California                        |                                 |                          | 13.2 |      |       |   | 11.8 |      |       |   | 14.5 |     
|                                                      | Other                                      |                                 |                          |     |      |       |   | 0.4  |      |       |   | 1.0  |     
|                                                      |                                            |                                 |                          |      |      |       |   |      |      |       |   |     
|                                                      |                                            | West Division Total             |                          |      | 30.7 | %     |   |      | 31.5 | %     |   |      | 48.8 | %    
|                                                      |                                            |                                 |                          |      |      |       |   |      |      |       |   |     
|                                                      |                                            |                                 | Total garden communities |      |      | 66.0  | % |      |      | 66.7  | % |      |      | 100.0 | %
|                                                      |                                            |                                 |                          |      |      |       |   |      |      |       |   |     
|Charles E. Smith Division (high-rise
    properties): |                                            |                                 |                          |      |      |       |   |      |      |       |   |     
|                                                      | Boston, Massachusetts                      |                                 |                          | 1.5  | %    |       |   | 1.6  | %    |       |   |     | %   
|                                                      | Chicago, Illinois                          |                                 |                          | 5.1  |      |       |   | 5.8  |      |       |   |     |     
|                                                      | Greater New York City Metropolitan Area    |                                 |                          | 1.9  |      |       |   |     |      |       |   |     |     
|                                                      | Southeast Florida                          |                                 |                          | 4.8  |      |       |   | 5.0  |      |       |   |     |     
|                                                      | Greater Washington, D.C. Metropolitan Area |                                 |                          | 20.7 |      |       |   | 20.9 |      |       |   |     |     
|                                                      |                                            |                                 |                          |      |      |       |   |      |      |       |   |     
|                                                      |                                            | Charles E. Smith Division Total |                          |      | 34.0 | %     |   |      | 33.3 | %     |   |      |     |      
|                                                      |                                            |                                 |                          |      |      |       |   |      |      |       |   |     
|                                                      |                                            |                                 | 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.

19



---



##### 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.
We have a strategic national presence with 222 wholly-owned
communities representing 77,988 units, including 2,295 units in
our development pipeline at December 31, 2002. The
following information summarizes our real estate portfolio as of
December 31, 2002 (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:    |                                            |                                 |  |           |    |            |  |            |        |  |   |           |           |  |  |     
|East Division (garden communities): |                                            |                                 |  |           |    |            |  |            |        |  |   |           |           |  |  |     
|                                    | Atlanta, Georgia                           |                                 |  | 11        |    |            |  | 3,403      |        |  | $ | 257,322   |           |  |  | 96.6 | %   
|                                    | Austin, Texas                              |                                 |  | 2         |    |            |  | 714        |        |  |   | 33,662    |           |  |  | 96.8 | %   
|                                    | Boston, Massachusetts                      |                                 |  | 8         |    |            |  | 1,833      |        |  |   | 274,949   |           |  |  | 98.4 | %   
|                                    | Charlotte, North Carolina                  |                                 |  | 2         |    |            |  | 668        |        |  |   | 46,652    |           |  |  | 97.3 | %   
|                                    | Chicago, Illinois                          |                                 |  | 8         |    |            |  | 3,912      |        |  |   | 316,847   |           |  |  | 93.7 | %   
|                                    | Dallas, Texas                              |                                 |  | 6         |    |            |  | 1,616      |        |  |   | 98,930    |           |  |  | 96.0 | %   
|                                    | Denver, Colorado                           |                                 |  | 7         |    |            |  | 2,347      |        |  |   | 158,525   |           |  |  | 97.4 | %   
|                                    | Houston, Texas                             |                                 |  | 2         |    |            |  | 1,408      |        |  |   | 73,385    |           |  |  | 93.2 | %   
|                                    | Nashville, Tennessee                       |                                 |  | 2         |    |            |  | 445        |        |  |   | 23,670    |           |  |  | 91.2 | %   
|                                    | Greater New York City Metropolitan Area    |                                 |  | 1         |    |            |  | 160        |        |  |   | 35,486    |           |  |  | 99.4 | %   
|                                    | Orlando, Florida                           |                                 |  | 1         |    |            |  | 312        |        |  |   | 21,451    |           |  |  | 98.7 | %   
|                                    | Raleigh, North Carolina                    |                                 |  | 7         |    |            |  | 1,840      |        |  |   | 130,447   |           |  |  | 96.7 | %   
|                                    | San Antonio, Texas                         |                                 |  | 2         |    |            |  | 530        |        |  |   | 31,503    |           |  |  | 96.2 | %   
|                                    | Southeast Florida                          |                                 |  | 6         |    |            |  | 1,786      |        |  |   | 132,310   |           |  |  | 98.9 | %   
|                                    | Greater Washington, D.C. Metropolitan Area |                                 |  | 26        |    |            |  | 9,614      |        |  |   | 1,108,423 |           |  |  | 97.6 | %   
|                                    | West Coast Florida                         |                                 |  | 3         |    |            |  | 746        |        |  |   | 43,208    |           |  |  | 98.7 | %   
|                                    |                                            |                                 |  |           |    |            |  |            |        |  |   |           |           |  |  |     
|                                    |                                            | East Division Subtotal/ Average |  |           | 94 |            |  |            | 31,334 |  |   | $         | 2,786,770 |  |  |      | 96.7 | %
|                                    |                                            |                                 |  |           |    |            |  |            |        |  |   |           |           |  |  |     
|West Division (garden communities): |                                            |                                 |  |           |    |            |  |            |        |  |   |           |           |  |  |     
|                                    | Albuquerque, New Mexico                    |                                 |  | 6         |    |            |  | 1,491      |        |  | $ | 76,690    |           |  |  | 97.9 | %   
|                                    | Inland Empire, California                  |                                 |  | 5         |    |            |  | 1,884      |        |  |   | 113,135   |           |  |  | 98.4 | %   
|                                    | Las Vegas, Nevada                          |                                 |  | 1         |    |            |  | 896        |        |  |   | 47,459    |           |  |  | 88.1 | %   
|                                    | Los Angeles County, California             |                                 |  | 6         |    |            |  | 1,373      |        |  |   | 166,596   |           |  |  | 97.3 | %   
|                                    | Orange County, California                  |                                 |  | 7         |    |            |  | 1,647      |        |  |   | 178,700   |           |  |  | 98.1 | %   
|                                    | Phoenix, Arizona                           |                                 |  | 5         |    |            |  | 2,268      |        |  |   | 136,273   |           |  |  | 95.6 | %   
|                                    | Portland, Oregon                           |                                 |  | 3         |    |            |  | 826        |        |  |   | 53,199    |           |  |  | 98.1 | %   
|                                    | Salt Lake City, Utah                       |                                 |  | 3         |    |            |  | 776        |        |  |   | 54,301    |           |  |  | 94.7 | %   
|                                    | San Francisco Bay Area, California         |                                 |  | 14        |    |            |  | 5,142      |        |  |   | 646,546   |           |  |  | 96.6 | %   
|                                    | San Diego, California                      |                                 |  | 8         |    |            |  | 2,791      |        |  |   | 316,431   |           |  |  | 98.8 | %   
|                                    | Seattle, Washington                        |                                 |  | 8         |    |            |  | 3,122      |        |  |   | 258,154   |           |  |  | 96.7 | %   
|                                    | Ventura County, California                 |                                 |  | 3         |    |            |  | 1,082      |        |  |   | 109,473   |           |  |  | 97.5 | %   
|                                    |                                            |                                 |  |           |    |            |  |            |        |  |   |           |           |  |  |     
|                                    |                                            | West Division Subtotal/ Average |  |           | 69 |            |  |            | 23,298 |  |   | $         | 2,156,957 |  |  |      | 96.9 | %
|                                    |                                            |                                 |  |           |    |            |  |            |        |  |   |           |           |  |  |     

20



---



##### Table of Contents



|                                                      |                                            |                                                                         |                                          |                   |     |            |     |            |        |  |        |           |           |   |           |      |      |   |      |  
|----------------------------------------------------- | ------------------------------------------ | ----------------------------------------------------------------------- | ---------------------------------------- | ----------------- | --- | ---------- | --- | ---------- | ------ |  | ------ | --------- | --------- | - | --------- | ---- | ---- | - | ---- | -
|                                                      |                                            |                                                                         |                                          |                   |     | Archstone- |     |           
|                                                      |                                            | Number of                                                               |                                          | Number of         |     | Smith      |     | Percentage
|                                                      |                                            | Communities                                                             |                                          | Units             |     | Investment |     | Leased(1) 
|                                                      |                                            |                                                                         |                                          |                   |     |            |     |           
|Charles E. Smith Division (high-rise
    properties): |                                            |                                                                         |                                          |                   |     |            |     |            |        |  |        |           |           |   |           |     
|                                                      | Boston, Massachusetts                      |                                                                         |                                          | 3                 |     |            |     | 693        |        |  | $      | 176,645   |           |   |           | 96.2 | %   
|                                                      | Chicago, Illinois                          |                                                                         |                                          | 7                 |     |            |     | 3,359      |        |  |        | 554,398   |           |   |           | 89.2 | %   
|                                                      | Southeast Florida                          |                                                                         |                                          | 6                 |     |            |     | 5,054      |        |  |        | 546,289   |           |   |           | 94.8 | %   
|                                                      | Greater New York City Metropolitan Area    |                                                                         |                                          | 2                 |     |            |     | 630        |        |  |        | 229,848   |           |   |           | 93.8 | %   
|                                                      | Greater Washington, D.C Metropolitan Area  |                                                                         |                                          | 31                |     |            |     | 11,325     |        |  |        | 1,929,872 |           |   |           | 95.9 | %   
|                                                      |                                            |                                                                         |                                          |                   |     |            |     |            |        |  |        |           |           |   |           |     
|                                                      |                                            | Charles E. Smith Division Subtotal/ Average                             |                                          |                   | 49  |            |     |            | 21,061 |  |        | $         | 3,437,052 |   |           |      | 94.5 | %
|                                                      |                                            |                                                                         |                                          |                   |     |            |     |            |        |  |        |           |           |   |           |     
|                                                      |                                            |                                                                         | Operating Apartment Communities          |                   |     |            |     |            |        |  |        |           |           |   |           |      |      |   |     
|                                                      |                                            |                                                                         |                                          | Subtotal/ Average |     |            | 212 |            |        |  | 75,693 |           |           | $ | 8,380,779 |      |      |   | 96.1 | %
|                                                      |                                            |                                                                         |                                          |                   |     |            |     |            |        |  |        |           |           |   |           |     
|APARTMENT COMMUNITIES UNDER
    CONSTRUCTION:         |                                            |                                                                         |                                          |                   |     |            |     |            |        |  |        |           |           |   |           |     
|East Division (garden communities):                   |                                            |                                                                         |                                          |                   |     |            |     |            |        |  |        |           |           |   |           |     
|                                                      | Boston, Massachusetts                      |                                                                         |                                          | 1                 |     |            |     | 134        |        |  | $      | 10,854    |           |   |           | N/A  |     
|                                                      | Denver, Colorado                           |                                                                         |                                          | 1                 |     |            |     | 273        |        |  |        | 40,850    |           |   |           | N/A  |     
|                                                      | Greater Washington, D.C. Metropolitan Area |                                                                         |                                          | 2                 |     |            |     | 506        |        |  |        | 53,296    |           |   |           | 31.2 | %   
|                                                      |                                            |                                                                         |                                          |                   |     |            |     |            |        |  |        |           |           |   |           |     
|                                                      |                                            | East Division Subtotal/ Average                                         |                                          |                   | 4   |            |     |            | 913    |  |        | $         | 105,000   |   |           |      | 17.3 | %
|                                                      |                                            |                                                                         |                                          |                   |     |            |     |            |        |  |        |           |           |   |           |     
|West Division (garden communities):                   |                                            |                                                                         |                                          |                   |     |            |     |            |        |  |        |           |           |   |           |     
|                                                      | Seattle, Washington                        |                                                                         |                                          | 1                 |     |            |     | 108        |        |  | $      | 6,556     |           |   |           | N/A  |     
|                                                      | Southern California                        |                                                                         |                                          | 4                 |     |            |     | 794        |        |  |        | 108,561   |           |   |           | N/A  |     
|                                                      |                                            |                                                                         |                                          |                   |     |            |     |            |        |  |        |           |           |   |           |     
|                                                      |                                            | West Division Subtotal/ Average                                         |                                          |                   | 5   |            |     |            | 902    |  |        | $         | 115,117   |   |           |      | N/A  |  
|                                                      |                                            |                                                                         |                                          |                   |     |            |     |            |        |  |        |           |           |   |           |     
|Charles E. Smith Division (high-rise
    properties): |                                            |                                                                         |                                          |                   |     |            |     |            |        |  |        |           |           |   |           |     
|                                                      | Chicago, Illinois                          |                                                                         |                                          | 1                 |     |            |     | 480        |        |  | $      | 108,273   |           |   |           | 53.8 | %   
|                                                      |                                            |                                                                         |                                          |                   |     |            |     |            |        |  |        |           |           |   |           |     
|                                                      |                                            | Charles E. Smith Division Subtotal/ Average                             |                                          |                   | 1   |            |     |            | 480    |  |        | $         | 108,273   |   |           |      | 53.8 | %
|                                                      |                                            |                                                                         |                                          |                   |     |            |     |            |        |  |        |           |           |   |           |     
|                                                      |                                            |                                                                         | Apartment Communities Under Construction |                   |     |            |     |            |        |  |        |           |           |   |           |      |      |   |     
|                                                      |                                            |                                                                         |                                          | Subtotal/ Average |     |            | 10  |            |        |  | 2,295  |           |           | $ | 328,390   |      |      |   | 18.1 | %
|                                                      |                                            |                                                                         |                                          |                   |     |            |     |            |        |  |        |           |           |   |           |     
|APARTMENT COMMUNITIES IN PLANNING AND
    OWNED:      |                                            |                                                                         |                                          |                   |     |            |     |            |        |  |        |           |           |   |           |     
|                                                      | East Division                              |                                                                         |                                          | 2                 |     |            |     | 640        |        |  | $      | 32,523    |           |   |           |      |     
|                                                      | West Division                              |                                                                         |                                          | 2                 |     |            |     | 500        |        |  |        | 19,352    |           |   |           |      |     
|                                                      | Charles E. Smith Division                  |                                                                         |                                          | 4                 |     |            |     | 1,730      |        |  |        | 37,626    |           |   |           |      |     
|                                                      |                                            |                                                                         |                                          |                   |     |            |     |            |        |  |        |           |           |   |           |     
|                                                      |                                            | Total Apartment Communities In Planning and Owned
    Subtotal/ Average |                                          |                   | 8   |            |     |            | 2,870  |  |        | $         | 89,501    |   |           |      |      |  
|                                                      |                                            |                                                                         |                                          |                   |     |            |     |            |        |  |        |           |           |   |           |     
|                                                      |                                            | Total Apartment Communities Owned at
    December 31, 2002.             |                                          |                   | 230 |            |     |            | 80,858 |  |        | $         | 8,798,670 |   |           |      |      |  
|                                                      |                                            |                                                                         |                                          |                   |     |            |     |            |        |  |        |           |           |   |           |     

21



---



##### Table of Contents



|                                                            |               |                                                               |  |           |  |            |          |            |        |  |        |   |           |  |  |  |  | 
|----------------------------------------------------------- | ------------- | ------------------------------------------------------------- |  | --------- |  | ---------- | -------- | ---------- | ------ |  | ------ | - | --------- |  |  |  |  | 
|                                                            |               |                                                               |  |           |  | Archstone- |          |           
|                                                            |               | Number of                                                     |  | Number of |  | Smith      |          | Percentage
|                                                            |               | Communities                                                   |  | Units     |  | Investment |          | Leased(1) 
|                                                            |               |                                                               |  |           |  |            |          |           
|OTHER REAL ESTATE ASSETS(2)                                 |               |                                                               |  |           |  |            |         |            |        |  | 9,697  |   |           |  |  | 
|                                                            |               |                                                               |  |           |  |            |          |            |        |  |        |   |           |  |  | 
|OFFICE AND HOTEL ASSETS                                     |               |                                                               |  |           |  |            |         |            |        |  | 30,454 |   |           |  |  | 
|                                                            |               |                                                               |  |           |  |            |          |            |        |  |        |   |           |  |  | 
|                                                            |               | Total Real Estate Owned at December 31, 2002                  |  |           |  |            |          |            | 80,858 |  |        | $ | 8,838,821 |  |  |  |  | 
|                                                            |               |                                                               |  |           |  |            |          |            |        |  |        |   |           |  |  | 
|                                                            |               |                                                               |  |           |  |            | Expected |            |        |  |        |   |           |  |  | 
|                                                            |               |                                                               |  |           |  |            | Number   |            |        |  |        |   |           |  |  | 
|                                                            |               |                                                               |  |           |  |            | of Units |            |        |  |        |   |           |  |  | 
|                                                            |               |                                                               |  |           |  |            |          |            |        |  |        |   |           |  |  | 
|                                                           
|APARTMENT COMMUNITIES IN PLANNING AND UNDER
    CONTROL(3); |               |                                                               |  |           |  |            |          |            |        |  |        |   |           |  |  | 
|                                                            | East Division |                                                               |  |           |  |            |          | 112        |        |  |        |   |           |  |  |  | 
|                                                            | West Division |                                                               |  |           |  |            |          | 316        |        |  |        |   |           |  |  |  | 
|                                                            |               |                                                               |  |           |  |            |          |            |        |  |        |   |           |  |  | 
|                                                            |               | Total Apartment Communities In Planning and Under
    Control |  |           |  |            |          |            | 428    |  |        |   |           |  |  |  |  | 
|                                                            |               |                                                               |  |           |  |            |          |            |        |  |        |   |           |  |  | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the percentage leased as of
    December 31, 2002. For communities in Lease-Up, the
    percentage leased is based on leased units divided by total
    number of units in the community (completed and under
    construction) as of December 31, 2002. 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, 2002, our actual
    investment in communities In Planning and Under Control was
    $2.7 million, which is reflected in the Other
    assets caption of Archstone-Smiths Balance Sheet.                                                                                                                                                                  




Item 3.     Legal
Proceedings

We are subject to litigation in connection with
moisture infiltration and resulting mold issues at one of our
high-rise properties in Southeast Florida. A claim,
Henriques, et al. v. Archstone-Smith Operating Trust, et
al., was filed on August 27, 2002, and another claim,
Santos, et. al. v. Archstone-Smith Operating Trust et.
al., was filed on February 13, 2003, in the Circuit
Court of the Eleventh Judicial Circuit in and for Miami-Dade
County, Florida, on behalf of classes of residents of this
Southeast Florida property. The cases allege that mold
contamination at this Southeast Florida property caused by
faulty air-conditioning resulted in both personal injury to the
plaintiffs and damage to their property. Plaintiffs seek both
injunctive relief and unspecified monetary and punitive damages.
We intend to vigorously contest the claims asserted in this
litigation. Due to the preliminary nature of the litigation, it
is not possible to predict or determine the outcome of the legal
actions nor is it reasonably possible to estimate the amount of
loss associated with adverse decisions.

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.




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

22



---



##### Table of Contents



distributions per Common Share for the periods
indicated. Information for all periods prior to October 26,
2001 is for Archstone and all periods thereafter for
Archstone-Smith:


|      |                                           |      |   |        |  |                    |   |        |  |  |   |        | 
|----- | ----------------------------------------- | ---- | - | ------ |  | ------------------ | - | ------ |  |  | - | ------ | 
|      |                                           | High |   | Low    |  | Cash Distributions
|      |                                           |      |   |        |  |                   
|2001: |                                           |      |   |        |  |                    |   |        |  |  |   |       
|      | First Quarter                             |      | $ | 26.250 |  |                    | $ | 23.000 |  |  | $ | 0.410  | 
|      | Second Quarter                            |      |   | 26.000 |  |                    |   | 23.500 |  |  |   | 0.410  | 
|      | Third Quarter                             |      |   | 27.850 |  |                    |   | 24.930 |  |  |   | 0.410  | 
|      | Fourth Quarter                            |      |   | 27.000 |  |                    |   | 24.000 |  |  |   | 0.410  | 
|2002: |                                           |      |   |        |  |                    |   |        |  |  |   |       
|      | First Quarter                             |      | $ | 27.150 |  |                    | $ | 24.300 |  |  | $ | 0.425  | 
|      | Second Quarter                            |      |   | 29.190 |  |                    |   | 25.800 |  |  |   | 0.425  | 
|      | Third Quarter                             |      |   | 26.660 |  |                    |   | 21.310 |  |  |   | 0.425  | 
|      | Fourth Quarter                            |      |   | 24.150 |  |                    |   | 21.490 |  |  |   | 0.425  | 
|2003: |                                           |      |   |        |  |                    |   |        |  |  |   |       
|      | First Quarter (through February 14, 2003) |      | $ | 22.196 |  |                    | $ | 21.843 |  |  | $ | 0.4275 | 

As of February 14, 2003, we had
approximately 181,295,459 Common Shares outstanding,
approximately 3,342 record holders of Common Shares and
approximately 31,000 beneficial holders of Common Shares.

To qualify as a REIT, we are required to make
annual shareholder distributions of 90% (95% for taxable years
ending prior to January 1, 2001) 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
2002 Board meeting, the Board announced an anticipated increase
in the annual distribution level from $1.70 to $1.71 per Common
Share and declared the first quarter 2003 distribution of
$0.4275 per Common Share payable on February 28, 2003, to
shareholders of record on February 14, 2003. This dividend
marks our 110th consecutive quarter of dividends
declared and paid.

We are restricted from declaring or paying any
distribution with respect to our Common Shares unless all
cumulative distributions with respect to the Preferred Shares
have been paid and sufficient funds have been set aside for
Preferred Share distributions that have been declared. 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
distributions paid during the preceding year. The following
table summarizes the taxability of cash distributions paid on
the Common Shares in 2002, 2001 and 2000:

|                  |                 |       |   |      |      |      |   |      |      |  |   |      |      | 
|----------------- | --------------- | ----- | - | ---- | ---- | ---- | - | ---- | ---- |  | - | ---- | ---- | 
|                  |                 | 2002  |   | 2001 |      | 2000
|                  |                 |       |   |      |      |     
|Per Common Share: |                 |       |   |      |      |      |   |      |      |  |   |     
|                  | Ordinary income |       | $ | 1.33 |      |      | $ | 0.89 |      |  | $ | 1.05 |     
|                  | Capital gains   |       |   | 0.37 |      |      |   | 0.75 |      |  |   | 0.49 |     
|                  |                 |       |   |      |      |      |   |      |      |  |   |     
|                  |                 | Total |   | $    | 1.70 |      |   | $    | 1.64 |  |   | $    | 1.54 | 
|                  |                 |       |   |      |      |      |   |      |      |  |   |     

23



---



##### Table of Contents



For federal income tax purposes, the following
summaries reflect the taxability of dividends paid on the
Series A, B, C, and D Preferred Shares, respectively:

|                                          |                 |       |   |      |      |      |   |      |      |  |   |      |      | 
|----------------------------------------- | --------------- | ----- | - | ---- | ---- | ---- | - | ---- | ---- |  | - | ---- | ---- | 
|                                          |                 | 2002  |   | 2001 |      | 2000
|                                          |                 |       |   |      |      |     
|Per Series A Convertible Preferred Share: |                 |       |   |      |      |      |   |      |      |  |   |     
|                                          | Ordinary income |       | $ | 1.79 |      |      | $ | 1.19 |      |  | $ | 1.41 |     
|                                          | Capital gains   |       |   | 0.50 |      |      |   | 1.02 |      |  |   | 0.66 |     
|                                          |                 |       |   |      |      |      |   |      |      |  |   |     
|                                          |                 | Total |   | $    | 2.29 |      |   | $    | 2.21 |  |   | $    | 2.07 | 
|                                          |                 |       |   |      |      |      |   |      |      |  |   |     

|                              |                 |       |   |         |   |      |   |      |      |  |   |      |      | 
|----------------------------- | --------------- | ----- | - | ------- | - | ---- | - | ---- | ---- |  | - | ---- | ---- | 
|                              |                 | 2002  |   | 2001(1) |   | 2000
|                              |                 |       |   |         |   |     
|Per Series B Preferred Share: |                 |       |   |         |   |      |   |      |      |  |   |     
|                              | Ordinary income |       | $ |        |   |      | $ | 0.42 |      |  | $ | 1.53 |     
|                              | Capital gains   |       |   |        |   |      |   | 0.37 |      |  |   | 0.72 |     
|                              |                 |       |   |         |   |      |   |      |      |  |   |     
|                              |                 | Total |   | $       |  |      |   | $    | 0.79 |  |   | $    | 2.25 | 
|                              |                 |       |   |         |   |      |   |      |      |  |   |     

|                              |                 |         |   |      |      |      |   |      |      |  |   |      |      | 
|----------------------------- | --------------- | ------- | - | ---- | ---- | ---- | - | ---- | ---- |  | - | ---- | ---- | 
|                              |                 | 2002(2) |   | 2001 |      | 2000
|                              |                 |         |   |      |      |     
|Per Series C Preferred Share: |                 |         |   |      |      |      |   |      |      |  |   |     
|                              | Ordinary income |         | $ | 1.08 |      |      | $ | 1.16 |      |  | $ | 1.47 |     
|                              | Capital gains   |         |   | 0.30 |      |      |   | 1.00 |      |  |   | 0.69 |     
|                              |                 |         |   |      |      |      |   |      |      |  |   |     
|                              |                 | Total   |   | $    | 1.38 |      |   | $    | 2.16 |  |   | $    | 2.16 | 
|                              |                 |         |   |      |      |      |   |      |      |  |   |     

|                              |                 |       |   |      |      |      |   |      |      |  |   |      |      | 
|----------------------------- | --------------- | ----- | - | ---- | ---- | ---- | - | ---- | ---- |  | - | ---- | ---- | 
|                              |                 | 2002  |   | 2001 |      | 2000
|                              |                 |       |   |      |      |     
|Per Series D Preferred Share: |                 |       |   |      |      |      |   |      |      |  |   |     
|                              | Ordinary income |       | $ | 1.71 |      |      | $ | 1.18 |      |  | $ | 1.49 |     
|                              | Capital gains   |       |   | 0.48 |      |      |   | 1.01 |      |  |   | 0.70 |     
|                              |                 |       |   |      |      |      |   |      |      |  |   |     
|                              |                 | Total |   | $    | 2.19 |      |   | $    | 2.19 |  |   | $    | 2.19 | 
|                              |                 |       |   |      |      |      |   |      |      |  |   |     

|                                       |                 |       |   |      |      |      |   |   |   |  |   |   |   | 
|-------------------------------------- | --------------- | ----- | - | ---- | ---- | ---- | - | - | - |  | - | - | - | 
|                                       |                 | 2002  |   | 2001 |      | 2000
|                                       |                 |       |   |      |      |     
|Per Series H, K, L Preferred Share(3): |                 |       |   |      |      |      |   |   |   |  |   |  
|                                       | Ordinary income |       | $ | 2.62 |      |      | $ |  |   |  | $ |  |  
|                                       | Capital gains   |       |   | 0.74 |      |      |   |  |   |  |   |  |  
|                                       |                 |       |   |      |      |      |   |   |   |  |   |  
|                                       |                 | Total |   | $    | 3.36 |      |   | $ |  |  |   | $ |  | 
|                                       |                 |       |   |      |      |      |   |   |   |  |   |  

|                                 |                 |       |   |          |          |      |   |   |   |  |   |   |   | 
|-------------------------------- | --------------- | ----- | - | -------- | -------- | ---- | - | - | - |  | - | - | - | 
|                                 |                 | 2002  |   | 2001     |          | 2000
|                                 |                 |       |   |          |          |     
|Per Series I Preferred Share(3): |                 |       |   |          |          |      |   |   |   |  |   |  
|                                 | Ordinary income |       | $ | 5,982.46 |          |      | $ |  |   |  | $ |  |  
|                                 | Capital gains   |       |   | 1,677.54 |          |      |   |  |   |  |   |  |  
|                                 |                 |       |   |          |          |      |   |   |   |  |   |  
|                                 |                 | Total |   | $        | 7,660.00 |      |   | $ |  |  |   | $ |  | 
|                                 |                 |       |   |          |          |      |   |   |   |  |   |  

|                                 |                 |         |   |      |      |      |   |   |   |  |   |   |   | 
|-------------------------------- | --------------- | ------- | - | ---- | ---- | ---- | - | - | - |  | - | - | - | 
|                                 |                 | 2002(4) |   | 2001 |      | 2000
|                                 |                 |         |   |      |      |     
|Per Series J Preferred Share(3): |                 |         |   |      |      |      |   |   |   |  |   |  
|                                 | Ordinary income |         | $ | 1.34 |      |      | $ |  |   |  | $ |  |  
|                                 | Capital gains   |         |   | 0.37 |      |      |   |  |   |  |   |  |  
|                                 |                 |         |   |      |      |      |   |   |   |  |   |  
|                                 |                 | Total   |   | $    | 1.71 |      |   | $ |  |  |   | $ |  | 
|                                 |                 |         |   |      |      |      |   |   |   |  |   |  

24



---



##### Table of Contents





---



|    |                                                                                                   
|--- | --------------------------------------------------------------------------------------------------
|(1) | The Series B Preferred Shares were redeemed
    in full plus accrued dividends during May 2001.   
|   
|(2) | The Series C Preferred Shares were redeemed
    in full plus accrued dividends during August 2002.
|   
|(3) | The Series H, I, J, K and L Preferred
    Shares were issued as a result of the Smith Merger.     
|   
|(4) | The Series J Preferred Shares were converted
    into Common Shares during July 2002.             

Our tax return for the year ended
December 31, 2002 has not been filed, and the taxability
information for 2002 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.

Archstone-Smith converted 684,931 Series J
Perpetual Preferred Shares to Common Shares in July 2002. In
August 2002, we redeemed 1,965,315 Series C Perpetual
Preferred Shares at liquidation value plus accrued dividends. In
addition, 75,000,000 Series E, F, and G Perpetual
Preferred Units converted to Operating Trust Perpetual Preferred
Units and 870,523 DownREIT Operating Partnership Units converted
to Convertible Operating Trust Units in August. In September
2002, 480,000 of the Series E Units were redeemed at
liquidation value plus accrued dividends. All such securities
were issued in transactions exempt from registration under
Section 4(2) 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, 1998 to 2002. We believe that NOI and net
earnings attributable to Common Shares 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. This data is qualified in
its entirety by, and should be read in conjunction with,
Item 7. Managements Discussion and Analysis of
Financial 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,
|                                                                        |           |                         
|                                                                        |           | 2002(1)                  |           | 2001(1) |  | 2000(1) |         | 1999(1) |  | 1998(1)
|                                                                        |           |                          |           |         |  |         |         |         |  |        
|Operations Summary:                                                     |           |                          |           |         |  |         |         |         |  |         |         |         |  |   |         |         |  |   |         |        
|Total revenues                                                          |           | $                        | 1,082,291 |         |  | $       | 679,545 |         |  | $       | 681,698 |         |  | $ | 630,042 |         |  | $ | 483,778 |        
|Property operating expenses (rental expenses and
    real estate taxes) |           |                          | 360,748   |         |  |         | 212,403 |         |  |         | 210,961 |         |  |   | 204,728 |         |  |   | 162,903 |        
|Net Operating Income                                                    |           |                          | 637,001   |         |  |         | 439,999 |         |  |         | 436,047 |         |  |   | 396,100 |         |  |   | 291,769 |        
|Depreciation on real estate investments                                 |           |                          | 192,447   |         |  |         | 123,308 |         |  |         | 135,465 |         |  |   | 125,492 |         |  |   | 89,392  |        
|Interest expense                                                        |           |                          | 194,955   |         |  |         | 130,027 |         |  |         | 134,999 |         |  |   | 111,795 |         |  |   | 74,335  |        
|General and administrative expense                                      |           |                          | 43,340    |         |  |         | 26,503  |         |  |         | 23,157  |         |  |   | 22,156  |         |  |   | 16,092  |        
|Nonrecurring expenses(2)                                                |           |                          | 12,679    |         |  |         | 17,576  |         |  |         |        |         |  |   |        |         |  |   | 2,193   |        
|Earnings from operations                                                |           |                          | 276,290   |         |  |         | 163,993 |         |  |         | 167,980 |         |  |   | 161,802 |         |  |   | 131,521 |        
|A-1 Minority Interest                                                   |           |                          | 39,825    |         |  |         | 7,697   |         |  |         |        |         |  |   |        |         |  |   |        |        
|Gains on dispositions of depreciated real estate,
    net               |           |                          | 35,950    |         |  |         | 100,273 |         |  |         | 93,071  |         |  |   | 62,093  |         |  |   | 65,531  |        
|Net earnings from discontinued apartment
    communities                |           |                          | 73,678    |         |  |         | 11,040  |         |  |         | 8,486   |         |  |   | 7,537   |         |  |   | 3,050   |        
|Preferred Share cash dividends                                          |           |                          | 32,185    |         |  |         | 22,277  |         |  |         | 25,340  |         |  |   | 23,733  |         |  |   | 20,938  |        
|Net earnings attributable to Common Shares:                             |           |                          |           |         |  |         |         |         |  |         |         |         |  |   |         |         |  |   |         |        
|                                                                        |  Basic   |                          |           | 282,878 |  |         |         | 235,601 |  |         |         | 236,045 |  |   |         | 204,526 |  |   |         | 177,022 | 
|                                                                        |  Diluted |                          |           | 283,078 |  |         |         | 246,889 |  |         |         | 244,625 |  |   |         | 204,526 |  |   |         | 186,999 | 
|Common Share cash dividends paid                                        |           |                          | 303,083   |         |  |         | 221,196 |         |  |         | 201,257 |         |  |   | 208,018 |         |  |   | 165,190 |        

25



---



##### Table of Contents



|                                            |                                          |                          |      |          |  |         |      |         |  |         |      |         |  |  |      |         |  |  |      |         | 
|------------------------------------------- | ---------------------------------------- | ------------------------ | ---- | -------- |  | ------- | ---- | ------- |  | ------- | ---- | ------- |  |  | ---- | ------- |  |  | ---- | ------- | 
|                                            |                                          |                         
|                                            |                                          | Years Ended December 31,
|                                            |                                          |                         
|                                            |                                          | 2002(1)                  |      | 2001(1)  |  | 2000(1) |      | 1999(1) |  | 1998(1)
|                                            |                                          |                          |      |          |  |         |      |         |  |        
|Per Share Data:                             |                                          |                          |      |          |  |         |      |         |  |         |      |         |  |  |      |         |  |  |      |        
|Net earnings attributable to Common Shares: |                                          |                          |      |          |  |         |      |         |  |         |      |         |  |  |      |         |  |  |      |        
|                                            |  Basic                                  |                          | $    | 1.59     |  |         | $    | 1.81    |  |         | $    | 1.79    |  |  | $    | 1.46    |  |  | $    | 1.49    | 
|                                            |  Diluted                                |                          |      | 1.58     |  |         |      | 1.79    |  |         |      | 1.78    |  |  |      | 1.46    |  |  |      | 1.49    | 
|Common Share cash dividends paid            |                                          |                          | 1.70 |          |  |         | 1.64 |         |  |         | 1.54 |         |  |  | 1.48 |         |  |  | 1.39 |        
|Cash dividends paid per share:              |                                          |                          |      |          |  |         |      |         |  |         |      |         |  |  |      |         |  |  |      |        
|                                            | Series A Preferred Share                 |                          |      | 2.29     |  |         |      | 2.21    |  |         |      | 2.07    |  |  |      | 1.99    |  |  |      | 1.87    | 
|                                            | Series B Preferred Share(3)              |                          |      |         |  |         |      | 0.79    |  |         |      | 2.25    |  |  |      | 2.25    |  |  |      | 2.25    | 
|                                            | Series C Preferred Share(4)              |                          |      | 1.38     |  |         |      | 2.16    |  |         |      | 2.16    |  |  |      | 2.16    |  |  |      | 1.08    | 
|                                            | Series D Preferred Share                 |                          |      | 2.19     |  |         |      | 2.19    |  |         |      | 2.19    |  |  |      | 0.88    |  |  |      |        | 
|                                            | Series H, J, K and L Preferred Shares(5) |                          |      | 3.36     |  |         |      |        |  |         |      |        |  |  |      |        |  |  |      |        | 
|                                            | Series I Preferred Share(5)(6)           |                          |      | 7,660.00 |  |         |      |        |  |         |      |        |  |  |      |        |  |  |      |        | 
|Weighted average Common Shares outstanding: |                                          |                          |      |          |  |         |      |         |  |         |      |         |  |  |      |         |  |  |      |        
|                                            |  Basic                                  |                          |      | 177,757  |  |         |      | 130,331 |  |         |      | 131,874 |  |  |      | 139,801 |  |  |      | 118,592 | 
|                                            |  Diluted                                |                          |      | 178,780  |  |         |      | 137,832 |  |         |      | 137,730 |  |  |      | 139,829 |  |  |      | 125,825 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Net earnings from discontinued operations have
    been reclassified for all years presented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(2) | Non-recurring expenses in 2002 include
    approximately $1.4 million of integration costs associated
    with the Smith Merger and $11.3 million of moisture
    infiltration and resulting mold related costs at one of our
    high-rise properties in Southeast Florida. Non-recurring
    expenses in 2001 include approximately $5.3 million of
    integration costs associated with the Smith Merger and a
    $12.2 million in non-cash write-offs of investments in
    service and technology related companies. Non-recurring expenses
    in 1998 include $1.1 million in integration costs
    associated with the Atlantic Merger and $1.1 million
    associated with the introduction of Archstone-Smiths
    national branding strategy. Both are included within the
    other expense category in Archstone-Smiths
    Statement of Earnings for 1998.
|   
|(3) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(4) | All of the outstanding Series C Preferred
    Shares were redeemed at liquidation value plus accrued dividends
    in August 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(5) | Approximately 684,931 Series J Preferred
    Shares were converted into Common Shares in July 2002. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(6) | Series I Preferred Shares have a par value
    of $100,000 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

26



---



##### Table of Contents



|                                                           |  |              |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |           | 
|---------------------------------------------------------- |  | ------------ | --------- | ---- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- |  |  | - | --------- | 
|                                                           |  |             
|                                                           |  | December 31,
|                                                           |  |             
|                                                           |  | 2002         |           | 2001 |  | 2000 |           | 1999 |  | 1998
|                                                           |  |              |           |      |  |      |           |      |  |     
|Financial Position:                                        |  |              |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |           | 
|Real estate owned, at cost                                 |  | $            | 8,838,821 |      |  | $    | 8,276,004 |      |  | $    | 5,058,910 |  |  | $ | 5,086,486 |  |  | $ | 4,771,315 | 
|Investments in and advances to unconsolidated
    entities |  |              | 346,946   |      |  |      | 437,365   |      |  |      | 226,020   |  |  |   | 130,845   |  |  |   | 98,486    | 
|Total assets                                               |  |              | 8,855,068 |      |  |      | 8,549,915 |      |  |      | 5,016,131 |  |  |   | 5,302,437 |  |  |   | 5,059,898 | 
|Unsecured credit facilities                                |  |              | 365,578   |      |  |      | 188,589   |      |  |      | 193,719   |  |  |   | 493,536   |  |  |   | 264,651   | 
|Long-Term Unsecured Debt                                   |  |              | 1,776,103 |      |  |      | 1,333,890 |      |  |      | 1,401,262 |  |  |   | 1,276,572 |  |  |   | 1,231,167 | 
|Total liabilities                                          |  |              | 4,463,421 |      |  |      | 4,154,368 |      |  |      | 2,671,188 |  |  |   | 2,679,628 |  |  |   | 2,410,114 | 
|Preferred shares                                           |  |              | 294,041   |      |  |      | 374,114   |      |  |      | 286,856   |  |  |   | 297,635   |  |  |   | 272,515   | 
|Total shareholders equity                                 |  |              | 3,843,818 |      |  |      | 3,801,144 |      |  |      | 2,251,606 |  |  |   | 2,567,506 |  |  |   | 2,628,325 | 
|Number of Common Shares outstanding                        |  |              | 180,706   |      |  |      | 174,517   |      |  |      | 122,838   |  |  |   | 139,008   |  |  |   | 143,313   | 

|                                      |                      |                          |   |          |   |      |   |          |   |      |   |          |   |  |   |          |   |  |   |          |  
|------------------------------------- | -------------------- | ------------------------ | - | -------- | - | ---- | - | -------- | - | ---- | - | -------- | - |  | - | -------- | - |  | - | -------- | -
|                                      |                      |                         
|                                      |                      | Years Ended December 31,
|                                      |                      |                         
|                                      |                      | 2002                     |   | 2001     |   | 2000 |   | 1999     |   | 1998
|                                      |                      |                          |   |          |   |      |   |          |   |     
|Other Data:                           |                      |                          |   |          |   |      |   |          |   |      |   |          |   |  |   |          |   |  |   |         
|Net cash flows provided by (used in): |                      |                          |   |          |   |      |   |          |   |      |   |          |   |  |   |          |   |  |   |         
|                                      | Operating activities |                          | $ | 505,583  |   |      | $ | 309,305  |   |      | $ | 322,320  |   |  | $ | 296,010  |   |  | $ | 231,153  |  
|                                      | Investing activities |                          |   | (122,956 | ) |      |   | 434,330  |   |      |   | 105,563  |   |  |   | (223,914 | ) |  |   | (318,764 | )
|                                      | Financing activities |                          |   | (376,808 | ) |      |   | (745,685 | ) |      |   | (428,878 | ) |  |   | (72,143  | ) |  |   | 92,803   |  




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

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.

The
Company

We are a public equity REIT that is 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

27



---



##### Table of Contents



and its subsidiaries and affiliates.
Archstone-Smith is the sole trustee and owns approximately 88.0%
of the Operating Trust.


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 Trust and is traded on the NYSE under
the symbol 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. During 2002, all remaining
purchase accounting adjustments were finalized. Adjustments to
the initial purchase price allocation were less than one percent
of the purchase price. In accordance with the terms of the Smith
Merger which closed on October 31, 2001:



| |   |                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Operating Trust acquired Smith
    Partnerships assets and assumed their debt and other
    liabilities upon consummation of the Smith Merger.                                                                                                                          
|
| |  | Smith Residentials common shareholders
    received 1.975 Common Shares in exchange for each surrendered
    share of common stock and Smith Residentials preferred
    shareholders received one Archstone-Smith preferred share for
    each surrendered preferred share.
|
| |  | Smith Partnerships common unit holders
    received 1.975 A-1 Common Units in exchange for each surrendered
    common unit and Smith Partnerships preferred unit holders
    received one Operating Trust preferred unit for each surrendered
    preferred unit.         

In addition to approving the Smith Merger,
Archstones shareholders also approved the following
matters on October 29, 2001: (i) an amendment to
Archstones declaration of trust; (ii) the conversion
of Archstone into an UPREIT structure; and, (iii) the
merger of the Operating Trust with the Smith Partnership.

We believe the UPREIT structure significantly
enhances our acquisition capabilities. With this structure,
sellers are able to contribute their properties to the Operating
Trust in exchange for A-1 Common Units, which allows them to
realize significant tax deferral benefits while achieving
economic returns similar to directly holding Common Shares. Over
time, the contributors can redeem their A-1 Common Units for
readily tradable Common Shares or cash, triggering a taxable
event. This allows the contributors to incur their tax
liabilities in smaller increments, at a time of their choosing.
A-1 Common Units are redeemable for cash or, at our option, for
an equal number of Common Shares and receive dividends equal to
those paid on the Common Shares.

As a result of the Smith Merger, our Board and
management believe that the combined company has the following
important attributes:



| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | We own a highly desirable portfolio of
    well-located apartments in protected markets across the United
    States. Approximately 83% of our NOI comes from the greater
    Washington, D.C. metropolitan area, Southern California,
    San Francisco Bay area, Boston, Chicago, Southeast Florida,
    Seattle and the greater New York City metropolitan area. These
    are all markets that we believe will perform very well over the
    long term because of the difficulty of adding new supply;
|
| | (ii)  | We have significant in-house
    high-rise development and management capabilities, which we
    believe will allow us to expand the high-rise business into new
    markets;                                                                                                                                                                                                                                                                                                                            
|
| | (iii) | We are organized in a more typical UPREIT
    structure, which we believe will enhance our ability to acquire
    assets using tax deferred acquisition currency;                                                                                                                                                                                                                                                                                                                                          
|
| | (iv)  | The merger of Archstone and Smith Residential
    brings together what management and the Board believes are the
    two most respected brands in the apartment industry. The
    high-rise properties are                                                                                                                                                                                                                                                                                                 

28



---



##### Table of Contents



| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      | operated under the Charles E. Smith
    Residential brand name and all garden communities are operated
    under the Archstone Communities brand name;                                                                                                                                                                                                                                                                                                                                              
|
| | (v)  | We have a larger market capitalization and
    shareholder base which should provide increased liquidity to our
    shareholders; and                                                                                                                                                                                                                                                                                                                                                               
|
| | (vi) | We have a strong balance sheet that was further
    enhanced by the addition of $120 million of incremental
    commitments from four new financial institutions on our
    unsecured credit facilities, which were received in connection
    with the closing of the Smith Merger. These new commitments
    increased the borrowing capacity on our credit facilities from
    $680 million to $800 million, while retaining the same
    attractive pricing level of LIBOR plus 65 basis points.




Results of Operations

Overview

Basic net earnings attributable to Common Shares
increased approximately $47.3 million, or 20.1%, in 2002 as
compared to 2001. This increase is largely attributable to:



| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | An increase in overall NOI due to the acquisition
    of properties in the Smith Merger;                                                      
|
| |  | Increased NOI due to the acquisition of operating
    communities and the continued lease-up and stabilization of
    development communities;
|
| |  | A $35.4 million gain on the sale of CES, an
    unconsolidated entity acquired in the Smith Merger; and,                                      
|
| |  | Increased income from Ameriton, our real estate
    joint ventures, as well as unconsolidated entities acquired in
    the Smith Merger.      

These increases were partially offset by:



| |   |                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The loss of NOI in 2002 due to the
    $1.2 billion of garden community dispositions in non-core
    markets during 2001 (including joint venture transactions) and
    $420.1 million of dispositions in 2002;
|
| |  | Same-Store NOI decline of 2.7% in 2002 as
    compared to 2001;                                                                                                                                                
|
| |  | 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 $27.9 million increase in extraordinary
    items due to the prepayment of mortgages.                                                                                                                        

Our strongest core markets based on Same-Store
revenue growth during 2002 included Southern California,
Southeast Florida and the Greater Washington, D.C. Metropolitan
Area. The San Francisco Bay Area, Seattle and Chicago continue
to present the greatest challenges for revenue growth.

Our basic net earnings attributable to Common
Shares decreased approximately $444,000, or 0.2%, in 2001 as
compared to 2000. This decrease is largely attributable to:



| |   |                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The loss of garden community NOI resulting from
    the success achieved in advancing our investment strategy
    through our capital recycling program, by disposing of over
    $1.2 billion of garden communities in non-core markets
    during 2001;
|
| |  | Inclusion of a one-time $9.3 million gain
    recorded in 2000 associated with the exchange of the Homestead
    mortgage notes for Common Shares and $13.6 million of
    interest income on these notes recorded during 2000;                          
|
| |  | Write-off of investment in service and technology
    companies totaling $12.2 million in 2001; and,                                                                                                                                                     
|
| |  | Merger-related costs of $5.3 million in 2001.                                                                                                                                                                                                            

29



---



##### Table of Contents



These decreases were partially offset by:



| |   |                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The inclusion of the results of operations for
    the last two months of 2001 for all properties acquired in the
    Smith Merger, which closed on October 31, 2001;                                                    
|
| |  | A 6.5% increase in NOI in our Same-Store
    portfolio, driven by 5.7% Same-Store revenue growth in 2001;                                                                                                                
|
| |  | An increase in gains on disposition of
    depreciated real estate in our non-core markets; and                                                                                                                          
|
| |  | Higher levels of income from unconsolidated
    entities, including our pro rata share of the results of
    operations for the last two months of 2001 for the
    unconsolidated entities acquired in the Smith Merger.

Apartment
Community Operations

At December 31, 2002, 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 2002, 2001 and 2000 (in thousands, except for units and
percentages):

|                                                            |  |         |         |         |  |         |         |   |  |   |         |  
|----------------------------------------------------------- |  | ------- | ------- | ------- |  | ------- | ------- | - |  | - | ------- | -
|Garden Communities                                          |  | 2002(1) |         | 2001(1) |  | 2000(1)
|                                                            |  |         |         |         |  |        
|Rental revenues                                             |  | $       | 628,637 |         |  | $       | 591,816 |   |  | $ | 642,902 |  
|Property operating expenses                                 |  |         | 212,544 |         |  |         | 191,786 |   |  |   | 210,949 |  
|                                                            |  |         |         |         |  |         |         |   |  |   |         |  
|Net Operating Income                                        |  | $       | 416,093 |         |  | $       | 400,030 |   |  | $ | 431,953 |  
|                                                            |  |         |         |         |  |         |         |   |  |   |         |  
|Average number of operating units                           |  |         | 55,515  |         |  |         | 56,021  |   |  |   | 65,784  |  
|                                                            |  |         |         |         |  |         |         |   |  |   |         |  
|Operating margin (Net Operating Income/rental
    revenues) |  |         | 66.2    | %       |  |         | 67.6    | % |  |   | 67.2    | %
|                                                            |  |         |         |         |  |         |         |   |  |   |         |  
|Average occupancy percentage                                |  |         | 95.1    | %       |  |         | 94.9    | % |  |   | 96.1    | %
|                                                            |  |         |         |         |  |         |         |   |  |   |         |  

|                                                            |  |         |         |         |  |      |        |   |  |  |     | 
|----------------------------------------------------------- |  | ------- | ------- | ------- |  | ---- | ------ | - |  |  | --- | 
|High-Rise Properties(2)                                     |  | 2002(1) |         | 2001(1) |  | 2000
|                                                            |  |         |         |         |  |     
|Rental revenues                                             |  | $       | 366,804 |         |  | $    | 56,480 |   |  |  | n/a | 
|Property operating expenses                                 |  |         | 148,900 |         |  |      | 20,108 |   |  |  | n/a | 
|                                                            |  |         |         |         |  |      |        |   |  |  |     | 
|Net Operating Income                                        |  | $       | 217,904 |         |  | $    | 36,372 |   |  |  | n/a | 
|                                                            |  |         |         |         |  |      |        |   |  |  |     | 
|Average number of operating units                           |  |         | 21,659  |         |  |      | 21,149 |   |  |  | n/a | 
|                                                            |  |         |         |         |  |      |        |   |  |  |     | 
|Operating margin (Net Operating Income/rental
    revenues) |  |         | 59.4    | %       |  |      | 64.4   | % |  |  | n/a | 
|                                                            |  |         |         |         |  |      |        |   |  |  |     | 
|Average occupancy percentage                                |  |         | 93.8    | %       |  |      | 95.4   | % |  |  | n/a | 
|                                                            |  |         |         |         |  |      |        |   |  |  |     | 



---



|    |                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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. Additionally, no operating
    results are included for 2000.

NOI for the entire apartment portfolio, including
both garden and high-rise divisions, excluding properties
reported in discontinued operations, increased by
$197.6 million, or 45.3%, during 2002 as compared to 2001.
These increases were principally attributable to:



| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | The inclusion of a full year of NOI 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 NOI due to $1.2 billion of
    dispositions in 2001 and $420.1 million of dispositions in
    2002; and

30



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The 2.7% decline in Same-Store NOI in 2002 and
    corresponding decline in operating margins, which are
    principally attributable to declining Same-Store revenue,
    combined with increases in property taxes and insurance.

NOI for the entire apartment portfolio, excluding
properties reported in discontinued operations, increased by
$4.4 million, or 1.0%, during 2001 as compared to 2000.
These increases were primarily attributable to:



| |   |                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The inclusion of approximately $36.4 million
    of NOI from properties acquired in the Smith Merger generated
    during the last two months of 2001;                                                                                                                            
|
| |  | The continued successful Lease-Up and
    Stabilization of development communities; and                                                                                                                                                                                           
|
| |  | Continued improvements in our property level
    operating margins, and growth in our Same-Store NOI, due
    primarily to increases in rental revenues from our operating
    communities and operating efficiencies achieved which
    contributed to controlled expense growth.

These increases were partially offset by:



| |   |                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lower overall garden community NOI resulting from
    the success achieved in advancing our investment strategy
    through our capital recycling program, by disposing of
    approximately $1.2 billion of garden communities during
    2001;
|
| |  | The impact of a deterioration of general
    macroeconomic conditions during the latter half of 2001 that
    negatively affected demand for apartments; and                                                                                    
|
| |  | Higher property level insurance costs experienced
    during the last six months of 2001, subsequent to the renewal of
    our insurance policies on June 30, 2001.                                                                             

The following table reflects revenue, expense and
NOI growth for Same-Store communities during each respective
comparison period:

|        |                    |               |  |               |    |               |  |     |   |  |  |      |   
|------- | ------------------ | ------------- |  | ------------- | -- | ------------- |  | --- | - |  |  | ---- | --
|        |                    | Same-Store(1) |  |               |    |              
|        |                    | Revenue       |  | Same-Store(1) |    | Same-Store(1)
|        |                    | Growth/       |  | Expense       |    | NOI Growth/  
|        |                    | (Reduction)   |  | Growth        |    | (Reduction)  
|        |                    |               |  |               |    |              
|2002    |                    |               |  |               |    |               |  |     |   |  |  |     
|        | Garden             |               |  | (1.3          | %) |               |  | 3.2 | % |  |  | (3.3 | %)
|        | High-Rise          |               |  | 1.5           | %  |               |  | 6.7 | % |  |  | (1.1 | %)
|        | Total              |               |  | (0.4          | %) |               |  | 4.4 | % |  |  | (2.7 | %)
|2001(2) |                    |               |  |               |    |               |  |     |   |  |  |     
|        | Garden             |               |  | 5.1           | %  |               |  | 4.4 | % |  |  | 5.4  | % 
|        | High-Rise          |               |  | 7.0           | %  |               |  | 3.0 | % |  |  | 9.4  | % 
|        | Total              |               |  | 5.7           | %  |               |  | 3.9 | % |  |  | 6.5  | % 
|2000    |                    |               |  |               |    |               |  |     |   |  |  |     
|        | Total (all garden) |               |  | 6.7           | %  |               |  | 4.6 | % |  |  | 7.7  | % 



---



|    |                                                                                          
|--- | -----------------------------------------------------------------------------------------
|(1) | Same-Store results have been adjusted for items
    that result in lack of comparability.
|   
|(2) | Includes a full year of results for assets
    acquired in the Smith Merger.             

Based on the consensus of current economic
forecasts, which predict a slow recovery in 2003, we anticipate
Same-Store NOI growth of approximately negative one percent to
approximately positive one percent. 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 2003, 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.

31



---



##### Table of Contents



Income From
Unconsolidated Entities

Income from unconsolidated entities increased by
$58.7 million in 2002 as compared to 2001 primarily as a
result of the following factors:



| |   |                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Higher net earnings contributions by Ameriton
    which increased by approximately $12.0 million in 2002,
    principally due to gains from the sales of real estate
    properties;                                                                                             
|
| |  | 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 timing of three operating
    community joint ventures during 2001 and three joint ventures
    acquired in the Smith Merger.

We expect lower levels of net earnings from our
unconsolidated entities in 2003 primarily as a result of the
sale of CES and SMC. See Note 5 in our audited financial
statements in this Annual Report for additional information on
income from unconsolidated entities and Note 2 for the sale of
CES and Note 18 for the sale of SMC.

Income from unconsolidated entities increased by
$11.6 million in 2001 as compared to 2000 primarily as a
result of the following factors:



| |   |                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our equity in the earnings of Ameriton increased
    from $2.8 million in 2000 to $9.8 million in 2001
    including the impact of gains on the sale of real estate
    properties by Ameriton;                              
|
| |  | In connection with the Smith Merger, we acquired
    a majority of the economic interest in CES and SMC. Our equity
    in the earnings of these two entities during 2001 was
    $1.6 million; and                          
|
| |  | Our equity in the earnings of the real estate
    joint ventures, including interest in the three joint ventures
    acquired in the Smith Merger, was $2.9 million during 2001
    as compared to a loss of $49,000 in 2000.

Other
Income

Other income decreased by $1.3 million, or
10.2%, 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 and Ameriton.

The $19.2 million, or 60.0%, decrease in
other income from 2000 to 2001 resulted primarily from
$12.6 million of aggregate, one-time gains realized in 2000
in connection with the sale of the Spectrum Apartment Locator
business and the monetization of the Homestead mortgage notes
receivable, coupled with the recognition of $13.6 million
of interest income on these notes during 2000. These decreases
were partially offset by a $1.3 million increase in
interest income in 2001.

Depreciation
Expense

The $69.1 million, or 56.1%, increase in
depreciation expense, excluding 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. This increase was
partially offset by a reduction in depreciation expense
associated with our significant garden community disposition
volume during 2001 and 2002.

The $12.2 million, or 9.0%, decrease in
depreciation expense, excluding properties reported in
discontinued operations, in 2001 as compared to 2000 is
primarily influenced by the higher level of disposition activity
in 2001 relative to 2000. These decreases were partially offset
by incremental depreciation expense related to the real estate
assets acquired in the Smith Merger.

32



---



##### Table of Contents



Interest
Expense

The $64.9 million, or 49.9%, increase in
interest expense, excluding 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 approximately
$1.4 million due to an increase in the number of properties
under construction from the addition of properties acquired in
the Smith Merger.

The $5.0 million, or 3.7%, decrease in
interest expense, excluding interest on properties reported in
discontinued operations, from 2000 to 2001 is primarily
attributable to lower average outstanding borrowings, coupled
with an overall reduction in interest rates. The level of
capitalized interest decreased approximately $4.0 million
due to the reduction in volume of our development activities.

General and
Administrative Expenses

The $16.8 million, or 63.5%, 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 revenue management
program called Lease Rent Optimizer, which began in
December 2001, contributed to the increase in 2002. The
$3.3 million, or 14.4%, increase in general and
administrative expenses in 2001 as compared to 2000 was also due
primarily to the Smith Merger.

Provisions
for Possible Loss on Investments

Provisions for loss on investments were
$2.6 million in 2002 due to an impairment and related
write-down to the estimated fair value of a real estate
investment held for sale, which is included in net earnings from
discontinued apartment communities. Provisions for loss on
investments increased $9.7 million from 2000 to 2001. This
increase is principally attributable to a $12.2 million
write-off due to the reduction in the estimated fair value of
technology and service-related equity investments. This amount
is partially offset by a $2.5 million decrease in the
write-downs to the estimated fair value of certain real estate
investments held for sale.

Other
Expenses

The $6.1 million, or 73.1%, increase in
other expenses in 2002 is principally due to a charge 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,
partially offset by the decrease in merger-related expenses from
2001.

The $4.4 million increase in other expenses
in 2001 is principally attributable to merger-related costs
approximating $5.3 million. This amount is partially offset
by the $2.8 million write-off of the net unamortized
balance of the conversion factors associated with the Homestead
mortgages notes in 2000.

Minority
Interests and Preferred Share Dividends

The increase in minority interest in 2002 and
2001, as compared to the prior year, is due to the A-1 Common
Units issued by the Operating Trust in the Smith Merger.

The $9.9 million, or 44.5%, increase in
Preferred Share dividends declared and paid in 2002 is primarily
attributable to the dividends paid on Series H, I, J, K and
L Preferred Shares, which we issued in connection with the Smith
Merger. This increase was partially offset by the redemption of
the Series C Preferred Shares in August 2002 and the lower
dividends on Series A Preferred Shares resulting from
periodic conversions by shareholders into Common Shares.
Preferred Share dividends declared decreased by
$3.1 million, or 12.1%, during 2001 as compared to 2000
principally as a result of the redemption of Series B
Preferred Shares in May 2001 and lower dividends on
Series A Preferred Shares resulting from periodic
conversions by shareholders into Common Shares.

33



---



##### Table of Contents



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 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 are classified as discontinued
operations include net operating income, 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 held for sale properties and provisions for possible
loss on real estate investments.

We had 12 operating communities classified as
held for sale under SFAS 144 at December 31, 2002. NOI from
these properties increased $1.9 million, or 5.8%, in 2002
due to the inclusion of two communities acquired in the Smith
Merger. We also sold eight operating communities and one retail
property during 2002, resulting in a net gain of
$72.9 million, and recorded a $2.6 million impairment
charge on another operating community. The results of operations
and the gains on the sale of these properties are included in
discontinued operations. Additionally, we sold six operating
communities during 2002 that were either held for sale at
December 31, 2001 or sold to our unconsolidated entities
and, therefore, are not included in discontinued operations in
accordance with SFAS 144. Net earnings from discontinued
operations have been reclassified for all years presented.

Gains on
Dispositions of Real Estate Investments

We recognized $36.0 million,
$100.3 million and $93.1 million of net gains on the
disposition of depreciated real estate assets during 2002
(excluding properties reported in discontinued operations), 2001
and 2000, 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.




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, 2002, and the available capacity
under our unsecured credit facilities, we believe our liquidity
and financial condition are sufficient to meet all of our
reasonably anticipated cash flow needs in 2003.

Operating
Activities

Our net cash flow provided by operating
activities increased by $196.3 million, or 63.5%, 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 NOI and lost NOI resulting from our
2002 and 2001 disposition activity.

During 2001, our net cash flow provided by
operating activities decreased by $13.0 million, or 4.0%,
as compared to 2000, due primarily to the $1.2 billion of
apartment community dispositions in 2001. For a more complete
discussion of the factors impacting our operating performance,
see Apartment Community Operations and our
accompanying Statement of Cash Flows in this Annual Report for
more detailed information.

Investing and
Financing Activities

During 2002, cash flows from investing activities
decreased $557.3 million as compared to 2001. The decrease
was principally attributable to a $667.2 million reduction in
proceeds from dispositions, a $108.5 mil-

34



---



##### Table of Contents



lion 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 $70.1 million increase
in cash flows from our investment in and advances to our
unconsolidated investees and other investing activities.


During 2002, cash used in financing activities
decreased $368.9 million, or 49.5%, as compared to 2001.
This decrease is primarily attributable to the issuance of
$535.0 million in senior unsecured notes 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, that
increased $502.0 million and dividends and distributions on
Common Shares, Preferred Shares and minority interests in the
amounts of $303.1 million, $32.5 million and
$46.7 million, respectively, during 2002 as compared to
$221.2 million, $17.8 million and $8.4 million,
respectively, during 2001.

During 2001 and 2000, we invested an average of
$600.9 million per year primarily in the development of new
communities and the acquisition of existing operating
communities and realized $923.7 million per year in
proceeds from community dispositions. During 2001 and 2000, we
also repurchased a total of $230.2 million of our Common
and Preferred Shares including 17.5 million Common Shares
repurchased from Security Capital in July 2000 in exchange for
Homestead mortgage notes with a face amount of
$221.3 million and cash of $178.7 million. See Note 15
in our audited financial statements in this Annual Report for
additional information on this transaction.

We attempt to structure most of our acquisition
and disposition transactions as tax-deferred exchanges. When we
fund an investment using debt, we typically borrow under our
unsecured credit facilities, which are then repaid from other
long-term financing sources. See our Statement of Cash Flows in
this Annual Report for more detailed information.

Our most significant non-cash investing and
financing activities during the three-year period ended
December 31, 2002 included:



| |   |                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Smith Merger during 2001; see Note 2 in our
    audited financial statements in this Annual Report for more
    information on assets acquired and liabilities assumed in the
    Smith Merger;
|
| |  | The conversion of Preferred Shares into Common
    Shares;                                                                                                                                         
|
| |  | Accruals related to moisture infiltration and
    resulting mold remediation costs at one of our high-rise
    properties in Southeast Florida in 2002;                                            
|
| |  | The assumption of mortgages payable in connection
    with the acquisition of real estate;                                                                                                         
|
| |  | The exchange of apartment communities and land
    for interests in joint ventures; see Note 5 in our audited
    financial statements in this Annual Report for more information;
    and         
|
| |  | The exchange of Homestead mortgage notes for
    Common Shares in 2000.                                                                                                                            

See Note 17 in our audited financial
statements in this Annual Report for additional information on
non-cash investing and financing activities.

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 had
$120.0 million in scheduled maturities during 2002, and we
have $223.9 million and $103.0 million of long-term
debt maturing during 2003 and 2004, respectively. See
Note 6 in our audited financial statements in this Annual
Report for additional information on scheduled debt maturities.

In October 2001, we increased the available
capacity on our unsecured line of credit by $120 million,
which enables us to borrow up to $700 million under this
facility with JPMorgan Chase Bank. The facility bears interest
at the greater of prime or the federal funds rate plus 0.50%, or
at our option, LIBOR plus 0.65%.

35



---



##### Table of Contents



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 three-year facility matures in December 2003
and includes an option in our favor for a one-year extension. We
also have a short-term unsecured borrowing agreement with
JPMorgan Chase Bank, which provides for maximum borrowings of
$100 million.


We had $416.2 million outstanding on our
unsecured line of credit, $1.9 million outstanding under
letters of credit and an available balance of
$381.9 million on our unsecured credit facilities at
February 14, 2003.

Our unsecured credit facilities, Long-Term
Unsecured Debt and mortgages payable had effective weighted
average interest rates of 3.04%, 6.83% and 5.75%, respectively,
as of December 31, 2002. All of these 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, 2002.

Shareholder
Dividend/ Distribution Requirements

Based on anticipated distribution levels for 2003
and the number of shares and units outstanding as of
December 31, 2002, we anticipate that we will pay the
following dividends/distributions in 2003 (in thousands, except
per share amounts):

|                                            |                                                  |                                          |          |       |  |  |       |         |         | 
|------------------------------------------- | ------------------------------------------------ | ---------------------------------------- | -------- | ----- |  |  | ----- | ------- | ------- | 
|                                            |                                                  | Per Share                                |          | Total
|                                            |                                                  |                                          |          |      
|Common share and common unit distributions: |                                                  |                                          |          |       |  |  |       |        
|                                            | Common Shares                                    |                                          | $        | 1.71  |  |  | $     | 309,007 |        
|                                            | Operating Trust A-1 Common Unit distributions(1) |                                          |          | 1.71  |  |  |       | 42,103  |        
|Series A Preferred Share dividends          |                                                  |                                          | 2.30     |       |  |  | 6,732 |        
|Series D Preferred Share dividends          |                                                  |                                          | 2.19     |       |  |  | 4,325 |        
|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 H Preferred Share dividends          |                                                  |                                          | 3.38     |       |  |  | 8,923 |        
|Series I Preferred Share dividends(2)       |                                                  |                                          | 7,660.00 |       |  |  | 3,830 |        
|Series K Preferred Share dividends          |                                                  |                                          | 3.38     |       |  |  | 2,254 |        
|Series L Preferred Share dividends          |                                                  |                                          | 3.38     |       |  |  | 2,167 |        
|                                            |                                                  |                                          |          |       |  |  |       |        
|                                            |                                                  | Total dividend/distribution requirements |          |       |  |  |       | $       | 384,602 | 
|                                            |                                                  |                                          |          |       |  |  |       |        



---



|    |                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------
|(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 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 dividends. In addition, 3,000,000
Series E, F, and G Operating Trust Preferred Units were
issued in exchange for the DownREIT Perpetual Preferred Units,
and 870,523 DownREIT OP Units were issued in exchange for
Operating Trust A-1 Common Units in August 2002. In September
2002, 480,000 of the Series E Units were redeemed at
liquidation value plus accrued dividends. In the fourth quarter
of 2002, Archstone-Smith repurchased 668,900 Common Shares. The
repurchase of Common Shares and the redemption of Series C
and E Units were

36



---



##### Table of Contents



funded through borrowings under our unsecured
credit facility, which was repaid with proceeds from
dispositions and the issuance of long-term debt.


In February 2001, we repurchased 2.3 million
of our Common Shares from Security Capital for
$50.0 million at a price of $22.08 per share. In May 2001,
we redeemed all of our Series B Preferred Shares for
$104.7 million at $25.00 per share plus accrued dividends.
The repurchase of Common Shares and the redemption of
Series B Preferred Shares were funded through borrowings
under our unsecured credit facilities, which we repaid primarily
with proceeds from dispositions. See Note 8 in our audited
financial statements of this Annual Report for additional
information on the Common Share repurchase transaction and the
concurrent sale of other Common Shares by Security Capital and
the redemption of the Series B, C and E Preferred Shares.

Planned
Investments

Following is a summary of unfunded planned
investments as of December 31, 2002 (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           |       |       | 7,405 |                     |  | $         | 46,560  |         |  | $ | 41,033  |        
|Communities under construction            |       |       | 2,295 |                     |  |           |        |         |  |   | 152,375 |        
|Communities In Planning and Owned         |       |       | 2,870 |                     |  |           | 591,528 |         |  |   |        |        
|Communities In Planning and Under Control |       |       | 428   |                     |  |           | 59,862  |         |  |   |        |        
|Community acquisitions under contract     |       |       | 623   |                     |  |           | 87,000  |         |  |   |        |        
|                                          |       |       |       |                     |  |           |         |         |  |   |         |        
|                                          | Total |       |       | 13,621              |  |           | $       | 784,950 |  |   | $       | 193,408 | 
|                                          |       |       |       |                     |  |           |         |         |  |   |         |        

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
redevelopment and recurring expenditures to improve and maintain
our more established operating communities.

We anticipate completion of most of the
communities that are currently under construction and the
planned operating community improvements during the remainder of
2003 and 2004. We expect to start construction on approximately
$300-$400 million, based on Total Expected Investment, of
communities that are currently In Planning in 2003. 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 2002, we anticipate that net cash flow from
operating activities during 2003 will be sufficient to fund
anticipated dividend/distribution requirements and debt
principal amortization payments. To fund planned investment
activities, we had $381.9 million in available capacity on
our unsecured credit facilities and approximately
$8.0 million of cash on hand at February 14, 2003. In
addition, we expect to complete the disposition of
$300-$500 million of operating communities during 2003.

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 its shelf
registration statement. 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

37



---



##### Table of Contents



form of Common or Preferred Shares. 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
from its shelf registration statement 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% from its shelf
registration statement. As of February 14, 2003, Archstone-Smith
and the Operating Trust collectively have $965.0 million
available in shelf registered securities which can be issued
based on our ability to effect offerings on satisfactory terms
based on prevailing market conditions.


Other
Contingencies and Hedging Activities

For the year ended December 31, 2002, we
have accrued and/or incurred a liability for approximately
$30.8 million relating to moisture infiltration and
resulting mold issues at one of our high-rise properties in
Southeast Florida. Of this amount, approximately
$11.3 million represents amounts expensed during the second
half of 2002 for the estimated cost of repairing or replacing
residents property and incurred legal fees of
$1.7 million. The remaining $19.5 million represents
costs capitalized in accordance with GAAP pertaining to
remediation and capital improvements to the building.

We are in the process of addressing this issue,
and there are still considerable uncertainties that affect our
ability to estimate the ultimate cost of remediation efforts.
These uncertainties include the exact nature and extent of the
issues, the extent of required remediation efforts and varying
costs of alternative strategies for addressing the issues. The
accrual represents managements best estimate of the
probable and reasonably estimable costs and is based, in part,
on estimates obtained from third-party environmental contractors
and actual costs incurred to date. It is possible that these
estimates could increase or decrease as better information
becomes available.

We are also subject to litigation in connection
with these issues. We intend to vigorously contest the claims
asserted in the litigation. Due to the preliminary nature of the
litigation, it is not possible to predict or determine the
outcome of the legal actions nor is it reasonably possible to
estimate the amount of loss associated with an adverse decision.
Expected legal fees related to known litigation should
approximate $5.0 million in 2003.

We believe these costs are covered by our
insurance policies and are pursuing recovery from our carriers.
In addition, we believe there is a basis for other potential
recoveries from third parties. As of December 31, 2002, no
estimated recovery has been recorded because we have no basis
for making such an estimate at this time. While moisture
infiltration and resulting mold issues have resulted in
significant claims at only one of our properties to date, 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.

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.

Our involvement with derivative financial
instruments is limited, and we do not use them for trading or
other speculative purposes. We occasionally utilize derivative
financial instruments to manage the risks associated with our
overall borrowing costs. See Note 11 in our audited financial
statements in this Annual Report for additional information on
derivative financial instruments currently in use.




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:

38



---



##### Table of Contents



Internal Cost
Capitalization

We have an investment organization and
infrastructure that supports the due diligence, land
acquisition, development and redevelopment of apartment
communities. Consistent with GAAP, all direct and indirect
costs, including interest and real estate taxes, incurred during
construction relating to these activities are capitalized.
Included in these costs is managements estimate for the
portion of internal costs that are incremental and deemed
directly or indirectly related to such development activities.
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 we were to hypothetically reduce our
development and land acquisition activity by 25% with no
corresponding decrease in internal costs, our net earnings per
share could decrease by approximately 1.2% or $0.02 per share
based on 2002 amounts.

Purchase
Accounting

During October 2001, we merged with Smith
Residential and recorded Smith Residentials assets and
assumed liabilities at their estimated fair values. Due to the
magnitude and complexity of the assumptions necessary to apply
purchase accounting, management is required to exercise
significant judgment, and therefore we view these assumptions as
critical accounting estimates. During 2002, all
remaining purchase accounting adjustments were finalized.
Adjustments to the initial purchase price allocation were less
than one percent of the purchase price.

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 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
$4.0 billion of real estate assets over the last seven
years, which produced $514.6 million in gains at an
unleveraged internal rate of return of approximately 12.7%. We
evaluate a real estate asset for potential impairment when
events or changes in circumstances indicate that its carrying
amount may not be recoverable.

39



---



##### Table of Contents



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. Determining whether expenditures meet
the criteria for capitalization and the assignment of
depreciable lives requires our management to exercise
significant judgment and is therefore considered a
significant accounting estimate.

Total capital expenditures were 2.4% and 1.5% of
weighted average gross real estate as of December 31, 2002
and 2001, 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 weighted average depreciable real estate was 3.0%,
2.7% and 3.4% or $2,542, $1,898 and $2,174 per unit for the
years ended December 31, 2002, 2001 and 2000, 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 3.0% or $0.03 per share. See Note 1 in
our audited financial statements in this Annual Report for
additional detail on depreciable lives.

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.

For the year ended December 31, 2002, we
have incurred and/or accrued a liability for approximately
$30.8 million of which we expensed $11.3 million,
including incurred legal fees of $1.7 million, and
capitalized $19.5 million. 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. The accrual represents managements best
estimate of the probable and reasonably estimable costs and is
based, in part, on estimates obtained from third-party
environmental contractors and actual costs incurred to date. It
is possible that these estimates could increase or decrease as
better information becomes available. Further, due to the
preliminary nature of the litigation, it is not possible to
predict or determine the outcome of the legal actions nor is it
reasonably possible to estimate the amount of loss associated
with an adverse decision. Therefore, we have not accrued a
liability for litigation settlement costs.

Our eventual costs to correct moisture
infiltration and remediate resulting mold could be significantly
different than current estimates. For example, if our total
costs were 25% more or less than our current estimates, and the
ratio between the expensed and capitalized portion remained
constant, our net earnings per share would increase or decrease
by approximately $0.01 per share.




Off Balance Sheet Arrangements

Investments in entities that are not controlled
through majority voting interest are not consolidated and are
reported as investments in unconsolidated entities. Our
investments in unconsolidated entities as of December 31,
2002, include real estate joint ventures, Ameriton and SMC. In
connection with our investments in Ameriton, we have extended a
$10 million committed unsecured credit facility with

40



---



##### Table of Contents



$5.2 million of available capacity at
December 31, 2002. Additionally, we have extended an
uncommitted unsecured credit facility with Ameriton whereby
advances are made solely at our discretion. Ameriton had
$106.3 million of available capacity on this facility at
December 31, 2002. See Note 5 in our audited financial
statements in this Annual Report for additional information on
our investments in unconsolidated entities. See Note 18 in our
audited financial statements in this Annual Report for
additional information on the sale of SMC.


Consolidated Engineering Services 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 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. The gain will be adjusted during the first
quarter of 2003 based on final net asset value calculations as
of the transaction date. Any adjustment is not expected to be
material. Excluded from the gain is approximately
$6.7 million in contingent proceeds related to
indemnification of accounts receivable over 120 days.

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 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.

We have extended guarantees of certain
obligations (such as performance bonds), which are customary to
the type of business in which we engage. 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. See
Contractual Commitments for a summary of the
performance bonds we have guaranteed.




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):

|                                           |       |      |       |          |  |          |       |           |  |       |       |       |  |   |         |         |  |   |         |         | 
|------------------------------------------ | ----- | ---- | ----- | -------- |  | -------- | ----- | --------- |  | ----- | ----- | ----- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                           |       |      |       | 2004 and |  | 2006 and |       | 2008 thru |  |      
|                                           |       | 2003 |       | 2005     |  | 2007     |       | 2095      |  | Total
|                                           |       |      |       |          |  |          |       |           |  |      
|Scheduled long-term debt maturities        |       | $    | 223.9 |          |  | $        | 379.2 |           |  | $     | 864.6 |       |  | $ | 2,269.2 |         |  | $ | 3,736.9 |        
|Unsecured credit facilities                |       |      | 17.1  |          |  |          | 348.5 |           |  |       |      |       |  |   |        |         |  |   | 365.6   |        
|Ameriton credit facility                   |       |      | 5.2   |          |  |          |      |           |  |       |      |       |  |   |        |         |  |   | 5.2     |        
|Development and redevelopment expenditures |       |      | 193.4 |          |  |          |      |           |  |       |      |       |  |   |        |         |  |   | 193.4   |        
|Performance bond guarantees(1)             |       |      | 80.2  |          |  |          | 0.5   |           |  |       |      |       |  |   |        |         |  |   | 80.7    |        
|Lease commitments and other(2)             |       |      | 19.8  |          |  |          | 13.8  |           |  |       | 9.8   |       |  |   | 194.8   |         |  |   | 238.2   |        
|                                           |       |      |       |          |  |          |       |           |  |       |       |       |  |   |         |         |  |   |         |        
|                                           | Total |      | $     | 539.6    |  |          | $     | 742.0     |  |       | $     | 874.4 |  |   | $       | 2,464.0 |  |   | $       | 4,620.0 | 
|                                           |       |      |       |          |  |          |       |           |  |       |       |       |  |   |         |         |  |   |         |        



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 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. 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.
|   
|(2) | Lease commitments relate principally to ground
    lease payments as of December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

41



---



##### Table of Contents






Related Party Transactions

We own 100% of the non-voting stock in Ameriton,
representing a 95% economic interest. In June 2001, Ameriton
Holdings acquired the voting stock of Ameriton from third
parties, representing the remaining 5% economic interest, for
approximately $5.8 million. We also own 95% of the
membership interests in Ameriton Holdings. Our chief executive
officer owns 5% of the membership interests in Ameriton Holdings
and is the manager of Ameriton Holdings. 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 $3.38 million to
certain other executive officers and employees of
Archstone-Smith related to realized returns on investments sold
during 2002. Four members of Ameritons board
(James H. Polk, III, John C. Schweitzer, R. Scot
Sellers and Charles E. Mueller, Jr.) are Trustees or
executive officers of Archstone-Smith.

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 Archstone-Smith, our subsidiaries or our
affiliates in connection with the purchase of his interests in
CES. All CES board members (Ernest A Gerardi, Jr., Robert H.
Smith, Dana K. Hamilton and Messrs. Sellers and Mueller)
were Trustees or executive officers of Archstone-Smith.
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.

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 Archstone-Smith, our
subsidiaries or our affiliates in connection with the purchase
of his interests in SMC. All SMC board members (Robert P. Kogod,
Ms. Hamilton and Messrs. Smith, Sellers and Mueller)
were Trustees or executive officers of Archstone-Smith. During
February 2003, we sold our interest in SMC. See Note 18 in our
audited financial statements in this Annual Report for
additional information on the sale of SMC.

During 1997, as part of the employee share
purchase plan, certain officers and other employees purchased
Common Shares of the company. Archstone-Smith financed 95% of
the total purchase price by issuing notes representing
approximately $17.1 million. As of December 31, 2002,
the aggregate outstanding balances on these notes were
approximately $2.0 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.




New Accounting Pronouncements

In April 2002, the FASB issued SFAS 145
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. We are required to adopt SFAS 145 on
January 1, 2003. SFAS 145 significantly limits the
treatment of losses associated with early extinguishment of debt
as an extraordinary item. SFAS 145 also impacts certain
sale-leaseback transactions. Upon adoption, early
extinguishments will not continue to qualify for extraordinary
item treatment and we do not anticipate that the adoption of
SFAS 145 will have a material impact on our financial position,
net earnings or cash flows.

In July 2002, the FASB issued SFAS 146
Accounting for Costs Associated with Exit or Disposal
Activities. We are required to adopt SFAS 146 on
January 1, 2003. SFAS 146 requires that certain
expenses associated with restructuring charges be accrued as
liabilities in the period in which the liability is incurred.

42



---



##### Table of Contents



We do not anticipate the adoption of
SFAS 146 will have a material impact on our financial
position, net earnings or cash flows.


In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation
No. 34. This Interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is
required to recognize, at inception of a guarantee, a liability
for the fair value of the obligation undertaken. The initial
recognition and measurement provisions of the Interpretation are
applicable to guarantees issued or modified after
December 31, 2002. The company has not yet determined the
impact of the Interpretation. The disclosure requirements are
effective immediately.

In December 2002, the FASB issued SFAS 148
Accounting for Stock-Based Compensation 
Transition and Disclosure, an amendment of FASB Statement No.
123. We are required to adopt SFAS 148 for
financial statements for fiscal years ending after
December 15, 2002. We have modified the disclosure of our
transition to the fair value based method of accounting for
stock-based compensation in this annual report to reflect the
additional requirements of this statement. The adoption of
SFAS 148 did not have a material impact on our financial
position, net earnings or cash flows.

In January 2003, the FASB issued Interpretation
No. 46 Consolidation of Variable Interest
Entities. We are required to adopt the Interpretation
for financial statements for the fiscal year or interim period
beginning after June 15, 2003. This Interpretation clarifies the
application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, and
requires that we consolidate the results of variable interest
entities in which we have a majority variable interest. Although
we have not yet determined the total impact of adopting the
Interpretation, it is reasonably possible that we will be deemed
the primary beneficiary of Ameriton, which would result in
consolidation of this currently unconsolidated entity.




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. 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 with strong investment grade credit ratings. 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.

To determine the fair values of derivative and
other financial instruments, we use a variety of methods and
assumptions that are based on market conditions and risks
existing at each balance sheet date. These

43



---



##### Table of Contents



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.


The following table summarizes the notional
amount, carrying and estimated fair value of our derivative
financial instruments, as of December 31, 2002 (dollar
amounts in thousands). The notional amount represents the
aggregate amount of a particular security that is currently
hedged at that 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     |         |                |  | 2006      |           |           | $ | 3       |        
|                   | Interest rate swaps        |                         |              | 150,000    |         |                |  | 2005      |           |           |   | (13,361 | )      
|                   |                            |                         |              |            |         |                |  |           |           |           |   |        
|                   |                            | Total cash flow hedges  |              | $          | 184,508 |                |  |           | 2005-2006 |           |   | $       | (13,358 | )     
|                   |                            |                         |              |            |         |                |  |           |           |           |   |        
|Fair value hedges: |                            |                         |              |            |         |                |  |           |           |           |   |        
|                   | Interest rate swaps        |                         | $            | 104,005    |         |                |  | 2006-2008 |           |           | $ | 11,050  |        
|                   | Total rate of return swaps |                         |              | 69,756     |         |                |  | 2004-2007 |           |           |   | 1,076   |        
|                   |                            |                         |              |            |         |                |  |           |           |           |   |        
|                   |                            | Total fair value hedges |              | $          | 173,761 |                |  |           | 2004-2008 |           |   | $       | 12,126  |       
|                   |                            |                         |              |            |         |                |  |           |           |           |   |        
|                   |                            |                         | Total hedges |            | $       | 358,269        |  |           |           | 2004-2008 |   |         | $       | (1,232 | )
|                   |                            |                         |              |            |         |                |  |           |           |           |   |        

Interest Rate
Sensitive Liabilities

The table below provides information about our
liabilities that are sensitive to changes in interest rates as
of December 31, 2002. As the table incorporates only those
exposures that existed as of December 31, 2002, 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, 2002, 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

44



---



##### Table of Contents



rates and other market factors existing at the
time. The debt classification and interest rates shown below
give effect to fair value hedges and other fees or expenses,
where applicable (in thousands):


|                                     |                              |                                                                |                                  |           |         |      |   |         |        |      |   |            |         |         |   |          |         |      |   |   |         |      |   |   |           |      |   |         |           |   |   |         |           |   | 
|------------------------------------ | ---------------------------- | -------------------------------------------------------------- | -------------------------------- | --------- | ------- | ---- | - | ------- | ------ | ---- | - | ---------- | ------- | ------- | - | -------- | ------- | ---- | - | - | ------- | ---- | - | - | --------- | ---- | - | ------- | --------- | - | - | ------- | --------- | - | 
|                                     |                              |                                                               
|                                     |                              | Expected Maturity/Principal Repayment Schedule at December 31,
|                                     |                              |                                                               
|                                     |                              |                                                                |                                  | Estimated
|                                     |                              |                                                                |                                  | Total     |         | Fair
|                                     |                              | 2003                                                           |                                  | 2004      |         | 2005 |   | 2006    |        | 2007 |   | Thereafter |         | Balance |   | Value(1)
|                                     |                              |                                                                |                                  |           |         |      |   |         |        |      |   |            |         |         |   |         
|Interest rate sensitive liabilities: |                              |                                                                |                                  |           |         |      |   |         |        |      |   |            |         |         |   |          |         |      |   |   |         |      |   |   |           |      |   |         |           |   |   |        
|                                     | Unsecured Credit Facilities: |                                                                | $                                | 17,078    |         |      | $ | 348,500 |        |      | $ |           |         |         | $ |         |         |      | $ |  |         |      | $ |  |           |      | $ | 365,578 |           |   | $ | 365,578 |          
|                                     |                              |                                                                | Average nominal interest rate(2) |           |         | 3.00 | % |         |        | 3.00 | % |            |         |        |   |          |         |     |   |   |         |     |   |   |           |     |   |         |           |  |   |         |           |  | 
|                                     | Long-Term Unsecured Debt:    |                                                                |                                  |           |         |      |   |         |        |      |   |            |         |         |   |          |         |      |   |   |         |      |   |   |           |      |   |         |           |   |   |         |          
|                                     |                              | Fixed rate                                                     |                                  | $         | 171,250 |      |   | $       | 51,250 |      |   | $          | 251,250 |         |   | $        | 51,250  |      |   | $ | 386,250 |      |   | $ | 781,477   |      |   | $       | 1,692,727 |   |   | $       | 1,885,726 |  
|                                     |                              |                                                                | Average nominal interest rate(2) |           |         | 7.33 | % |         |        | 7.34 | % |            |         | 8.19    | % |          |         | 7.37 | % |   |         | 5.29 | % |   |           | 7.46 | % |         |           |  |   |         |           |  | 
|                                     |                              | Variable rate(3)                                               |                                  | $         |        |      |   | $       |       |      |   | $          |        |         |   | $        |        |      |   | $ |        |      |   | $ | 83,376    |      |   | $       | 83,376    |   |   | $       | 83,376    |  
|                                     |                              |                                                                | Average nominal interest rate(2) |           |         | 2.25 | % |         |        | 2.25 | % |            |         | 2.25    | % |          |         | 2.25 | % |   |         | 2.25 | % |   |           | 2.25 | % |         |           |  |   |         |           |  | 
|                                     | Mortgages payable:           |                                                                |                                  |           |         |      |   |         |        |      |   |            |         |         |   |          |         |      |   |   |         |      |   |   |           |      |   |         |           |   |   |         |          
|                                     |                              | Fixed rate debt                                                |                                  | $         | 50,353  |      |   | $       | 49,248 |      |   | $          | 22,321  |         |   | $        | 289,497 |      |   | $ | 112,676 |      |   | $ | 1,100,903 |      |   | $       | 1,624,998 |   |   | $       | 1,502,782 |  
|                                     |                              |                                                                | Average nominal interest rate(2) |           |         | 8.08 | % |         |        | 7.28 | % |            |         | 7.29    | % |          |         | 6.24 | % |   |         | 6.71 | % |   |           | 7.26 | % |         |           |  |   |         |           |  | 
|                                     |                              | Variable rate debt                                             |                                  | $         | 2,279   |      |   | $       | 2,479  |      |   | $          | 2,686   |         |   | $        | 2,910   |      |   | $ | 22,034  |      |   | $ | 303,441   |      |   | $       | 335,829   |   |   | $       | 335,829   |  
|                                     |                              |                                                                | Average nominal interest rate(2) |           |         | 1.38 | % |         |        | 1.38 | % |            |         | 1.38    | % |          |         | 1.38 | % |   |         | 1.34 | % |   |           | 1.62 | % |         |           |  |   |         |           |  | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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, 2002.
    The weighted average effective interest rate on the unsecured
    credit facilities, Long- Term Unsecured Debt and mortgages
    payable was 3.04%, 6.83% and 5.75%, respectively, as of
    December 31, 2002.
|   
|(3) | Represents unsecured tax-exempt bonds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    




Item 8.     Financial
Statements and Supplementary Data

Our Balance Sheets as of December 31, 2002
and 2001, and our Statements of Earnings, Shareholders
Equity and Cash Flows for each of the years in the three-year
period ended December 31, 2002 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.

45



---



##### Table of Contents








Part III





Item 10.     Trustees
and Executive Officers of the Registrant

For information regarding our Trustees and senior
officers, see Item 1. Business  Trustees
and Officers of Archstone-Smith. The other information
required by this Item 10 is incorporated herein by
reference to the description under the captions Election
of Trustees and Section 16(a) Beneficial
Ownership Reporting Compliance in our definitive proxy
statement for our annual meeting of shareholders (2003
Proxy Statement).




Item 11.     Executive
Compensation

Incorporated herein by reference to the
description under the captions Election of Trustees
and Executive Compensation in the 2003 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
2003 Proxy Statement.

Equity Compensation Plan Information

|                                                               |  |                             |            |                      |  |                                     |       |  |  |  |           | 
|-------------------------------------------------------------- |  | --------------------------- | ---------- | -------------------- |  | ----------------------------------- | ----- |  |  |  | --------- | 
|                                                               |  |                             |            |                      |  | (c) Number of securities remaining 
|                                                               |  | (a) Number of securities to |            | (b) Weighted-average |  | available for future issuance under
|                                                               |  | be issued upon exercise of  |            | exercise price of    |  | equity compensation plans          
|                                                               |  | outstanding options,        |            | outstanding options, |  | (excluding securities reflected in 
|Plan Category                                                  |  | warrants and rights         |            | warrants and rights  |  | column (a))                        
|                                                               |  |                             |            |                      |  |                                    
|Equity compensation plans approved by security
    holders     |  |                             | 10,216,985 |                      |  | $                                   | 22.53 |  |  |  | 6,572,331 | 
|Equity compensation plans not approved by
    security holders |  |                             |           |                      |  |                                     |      |  |  |  |          | 
|                                                               |  |                             |            |                      |  |                                     |       |  |  |  |           | 
|Total                                                          |  |                             | 10,216,985 |                      |  | $                                   | 22.53 |  |  |  | 6,572,331 | 
|                                                               |  |                             |            |                      |  |                                     |       |  |  |  |           | 






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

Incorporated herein by reference to the
description under the caption Certain Relationships and
Transactions in the 2003 Proxy Statement.






|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

Within the 90-day period prior to the filing of
this report, an evaluation was carried out under the supervision
and with the participation of Archstone-Smiths 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 Archstone-Smiths disclosure controls and
procedures are, to the best of their knowledge, effective to
ensure that information required to be disclosed by
Archstone-Smith in reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange
Commission rules and forms. Subsequent to the date of their
evaluation, there were no significant changes in
Archstone-Smith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.

46



---



##### 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 88 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:

On October 21, 2002, Archstone-Smith filed a
Form 8-K disclosing a press release regarding its expected
earnings for the third quarter of 2002.



| |     |          
| | --- | ---------
| | (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.

47



---



##### Table of Contents



INDEX TO FINANCIAL STATEMENTS AND
SCHEDULE

|                      |                                                                                                                                        |      |  |    | 
|--------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | ---- |  | -- | 
|                      |                                                                                                                                        | Page
|                      |                                                                                                                                        |     
|Archstone-Smith Trust |                                                                                                                                        |      |  |   
|                      | Independent Auditors Report                                                                                                           |      |  | 49 | 
|                      | Consolidated Balance Sheets as of
    December 31, 2002 and 2001.                                                                      |      |  | 50 | 
|                      | Consolidated Statements of Earnings for the years
    ended December 31, 2002, 2001 and 2000.                                          |      |  | 51 | 
|                      | Consolidated Statements of Shareholders
    Equity and Comprehensive Income for the years ended
    December 31, 2002, 2001 and 2000. |      |  | 52 | 
|                      | Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001
    and 2000.                                    |      |  | 53 | 
|                      | Notes to Consolidated Financial Statements                                                                                             |      |  | 54 | 
|                      | Independent Auditors Report on Financial
    Statement Schedule                                                                       |      |  | 87 | 
|                      | Schedule III  Real Estate
    and Accumulated Depreciation as of December 31, 2002.                                                   |      |  | 88 | 
|                      | Signatures                                                                                                                             |      |  | 90 | 
|                      | Certifications                                                                                                                         |      |  | 91 | 
|                      | Index to Exhibits                                                                                                                      |      |  | 93 | 

48



---



##### 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 (successor registrant to
Archstone Communities Trust), as of December 31, 2002 and
2001, 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, 2002. These consolidated financial statements
are the responsibility of Archstone-Smith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 as of
December 31, 2002 and 2001, and the results of its
operations and its cash flows for each of the years in the
three-year period ended December 31, 2002 in conformity
with accounting principles generally accepted in the United
States of America.

As discussed in Note 1 to the consolidated
financial statements, Archstone-Smith Trust adopted Statement of
Financial Accounting Standards 144, Accounting for
Impairment or Disposal of Long-Lived Assets,as of
January 1, 2002. As a result, the accompanying consolidated
financial statements for 2001 and 2000, referred to above, have
been restated to conform to the presentation adopted in 2002 in
accordance with accounting principles generally accepted in the
United States of America.



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

Denver, Colorado

January 24, 2003,


except as to Note
18,


which is as of
February 12, 2003


49



---



##### Table of Contents



ARCHSTONE-SMITH TRUST






CONSOLIDATED BALANCE SHEETS


(In thousands, except share data)


|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |           |           | 
|---------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                                           |                                                                                                                                                                      |                                           
|                                                           |                                                                                                                                                                      | December 31,                              
|                                                           |                                                                                                                                                                      |                                           
|                                                           |                                                                                                                                                                      | 2002                                       |           | 2001     
|                                                           |                                                                                                                                                                      |                                            |           |          
|ASSETS                                                    
|Real estate                                                |                                                                                                                                                                      | $                                          | 8,838,821 |           |           | $ | 8,276,004 |          
|Less accumulated depreciation                              |                                                                                                                                                                      |                                            | 571,247   |           |           |   | 406,784   |          
|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|                                                           |                                                                                                                                                                      |                                            | 8,267,574 |           |           |   | 7,869,220 |          
|Investments in and advances to unconsolidated
    entities |                                                                                                                                                                      |                                            | 346,946   |           |           |   | 437,365   |          
|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|                                                           |                                                                                                                                                                      | Net investments                            |           |           | 8,614,520 |   |           |           | 8,306,585 | 
|Cash and cash equivalents                                  |                                                                                                                                                                      |                                            | 12,846    |           |           |   | 7,027     |          
|Restricted cash in tax-deferred exchange escrow            |                                                                                                                                                                      |                                            |          |           |           |   | 120,421   |          
|Other assets                                               |                                                                                                                                                                      |                                            | 227,702   |           |           |   | 115,882   |          
|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|                                                           |                                                                                                                                                                      | Total assets                               |           | $         | 8,855,068 |   |           | $         | 8,549,915 | 
|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|LIABILITIES AND SHAREHOLDERS
    EQUITY                  
|Liabilities:                                               |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|                                                           | Unsecured credit facilities                                                                                                                                          |                                            | $         | 365,578   |           |   | $         | 188,589   |          
|                                                           | Long-Term Unsecured Debt                                                                                                                                             |                                            |           | 1,776,103 |           |   |           | 1,333,890 |          
|                                                           | Mortgages payable                                                                                                                                                    |                                            |           | 1,960,827 |           |   |           | 2,330,533 |          
|                                                           | Dividends payable                                                                                                                                                    |                                            |           | 81,228    |           |   |           | 89,326    |          
|                                                           | Accounts payable                                                                                                                                                     |                                            |           | 22,594    |           |   |           | 18,643    |          
|                                                           | Accrued expenses and other liabilities                                                                                                                               |                                            |           | 257,091   |           |   |           | 193,387   |          
|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|                                                           |                                                                                                                                                                      | Total liabilities                          |           |           | 4,463,421 |   |           |           | 4,154,368 | 
|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|Minority interest                                          |                                                                                                                                                                      |                                            | 547,829   |           |           |   | 594,403   |          
|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|Shareholders equity:                                      |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|                                                           | Convertible Preferred Shares                                                                                                                                         |                                            |           | 194,671   |           |   |           | 225,351   |          
|                                                           | Perpetual Preferred Shares                                                                                                                                           |                                            |           | 99,370    |           |   |           | 148,763   |          
|                                                           | Common Shares (Par value $0.01;
    450,000,000 shares authorized; 180,705,795 and
    174,516,970 shares issued and outstanding in 2002 and 2001,
    respectively) |                                            |           | 1,807     |           |   |           | 1,745     |          
|                                                           | Additional paid-in capital                                                                                                                                           |                                            |           | 3,696,465 |           |   |           | 3,543,647 |          
|                                                           | Accumulated other comprehensive loss                                                                                                                                 |                                            |           | (12,339   | )         |   |           | (5,517    | )        
|                                                           | Distributions in excess of net earnings                                                                                                                              |                                            |           | (136,156  | )         |   |           | (112,845  | )        
|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|                                                           |                                                                                                                                                                      | Total shareholders equity                 |           |           | 3,843,818 |   |           |           | 3,801,144 | 
|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |          
|                                                           |                                                                                                                                                                      | Total liabilities and shareholders equity |           | $         | 8,855,068 |   |           | $         | 8,549,915 | 
|                                                           |                                                                                                                                                                      |                                            |           |           |           |   |           |          

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

50



---



##### Table of Contents



ARCHSTONE-SMITH TRUST






CONSOLIDATED STATEMENTS OF EARNINGS


(In thousands, except per share
amounts)


|                                                                        |                                                                           |                          |         |         |           |      |         |         |         |   |         |         |         | 
|----------------------------------------------------------------------- | ------------------------------------------------------------------------- | ------------------------ | ------- | ------- | --------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                        |                                                                           |                         
|                                                                        |                                                                           | Years Ended December 31,
|                                                                        |                                                                           |                         
|                                                                        |                                                                           | 2002                     |         | 2001    |           | 2000
|                                                                        |                                                                           |                          |         |         |           |     
|Revenues:                                                               |                                                                           |                          |         |         |           |      |         |         |         |   |         |        
|                                                                        | Rental revenues                                                           |                          | $       | 997,749 |           |      | $       | 652,402 |         |   | $       | 647,008 |        
|                                                                        | Income from unconsolidated entities                                       |                          |         | 73,075  |           |      |         | 14,375  |         |   |         | 2,752   |        
|                                                                        | Other income                                                              |                          |         | 11,467  |           |      |         | 12,768  |         |   |         | 31,938  |        
|                                                                        |                                                                           |                          |         |         |           |      |         |         |         |   |         |        
|                                                                        |                                                                           | Total revenues           |         |         | 1,082,291 |      |         |         | 679,545 |   |         |         | 681,698 | 
|                                                                        |                                                                           |                          |         |         |           |      |         |         |         |   |         |        
|Expenses:                                                               |                                                                           |                          |         |         |           |      |         |         |         |   |         |        
|                                                                        | Rental expenses                                                           |                          |         | 267,922 |           |      |         | 156,570 |         |   |         | 154,937 |        
|                                                                        | Real estate taxes                                                         |                          |         | 92,826  |           |      |         | 55,833  |         |   |         | 56,024  |        
|                                                                        | Depreciation on real estate investments                                   |                          |         | 192,447 |           |      |         | 123,308 |         |   |         | 135,465 |        
|                                                                        | Interest expense                                                          |                          |         | 194,955 |           |      |         | 130,027 |         |   |         | 134,999 |        
|                                                                        | General and administrative expenses                                       |                          |         | 43,340  |           |      |         | 26,503  |         |   |         | 23,157  |        
|                                                                        | Provisions for possible loss on investments                               |                          |         |        |           |      |         | 14,927  |         |   |         | 5,200   |        
|                                                                        | Other expenses                                                            |                          |         | 14,511  |           |      |         | 8,384   |         |   |         | 3,936   |        
|                                                                        |                                                                           |                          |         |         |           |      |         |         |         |   |         |        
|                                                                        |                                                                           | Total expenses           |         |         | 806,001   |      |         |         | 515,552 |   |         |         | 513,718 | 
|                                                                        |                                                                           |                          |         |         |           |      |         |         |         |   |         |        
|Earnings from operations                                                |                                                                           |                          | 276,290 |         |           |      | 163,993 |         |         |   | 167,980 |        
|                                                                        | Less: minority interest                                                   |                          |         | 40,700  |           |      |         | 15,198  |         |   |         | 7,241   |        
|                                                                        | Plus: gains on dispositions of depreciated real
    estate, net           |                          |         | 35,950  |           |      |         | 100,273 |         |   |         | 93,071  |        
|                                                                        |                                                                           |                          |         |         |           |      |         |         |         |   |         |        
|Net earnings before discontinued operations and
    extraordinary items |                                                                           |                          | 271,540 |         |           |      | 249,068 |         |         |   | 253,810 |        
|                                                                        | Plus: net earnings from discontinued apartment
    communities            |                          |         | 73,678  |           |      |         | 11,040  |         |   |         | 8,486   |        
|                                                                        | Less: extraordinary items  loss
    on early extinguishment of debt, net |                          |         | 30,155  |           |      |         | 2,230   |         |   |         | 911     |        
|                                                                        |                                                                           |                          |         |         |           |      |         |         |         |   |         |        
|Net earnings                                                            |                                                                           |                          | 315,063 |         |           |      | 257,878 |         |         |   | 261,385 |        
|                                                                        | Less: Preferred Share dividends                                           |                          |         | 32,185  |           |      |         | 22,277  |         |   |         | 25,340  |        
|                                                                        |                                                                           |                          |         |         |           |      |         |         |         |   |         |        
|Net earnings attributable to Common
    Shares  Basic                  |                                                                           | $                        | 282,878 |         |           | $    | 235,601 |         |         | $ | 236,045 |        
|                                                                        |                                                                           |                          |         |         |           |      |         |         |         |   |         |        
|Weighted average Common Shares outstanding:                             |                                                                           |                          |         |         |           |      |         |         |         |   |         |        
|                                                                        | Basic                                                                     |                          |         | 177,757 |           |      |         | 130,331 |         |   |         | 131,874 |        
|                                                                        |                                                                           |                          |         |         |           |      |         |         |         |   |         |        
|                                                                        | Diluted                                                                   |                          |         | 178,780 |           |      |         | 137,832 |         |   |         | 137,730 |        
|                                                                        |                                                                           |                          |         |         |           |      |         |         |         |   |         |        
|Net earnings per Common
    Share  Basic:                              |                                                                           |                          |         |         |           |      |         |         |         |   |         |        
|                                                                        | Net earnings before discontinued operations and
    extraordinary items   |                          | $       | 1.35    |           |      | $       | 1.74    |         |   | $       | 1.73    |        
|                                                                        | Discontinued operations, net                                              |                          |         | .41     |           |      |         | .09     |         |   |         | .07     |        
|                                                                        | Extraordinary items, net                                                  |                          |         | (.17    | )         |      |         | (.02    | )       |   |         | (.01    | )      
|                                                                        |                                                                           |                          |         |         |           |      |         |         |         |   |         |        
|                                                                        | Net earnings                                                              |                          | $       | 1.59    |           |      | $       | 1.81    |         |   | $       | 1.79    |        
|                                                                        |                                                                           |                          |         |         |           |      |         |         |         |   |         |        
|Net earnings per Common
    Share  Diluted:                            |                                                                           |                          |         |         |           |      |         |         |         |   |         |        
|                                                                        | Net earnings before discontinued operations and
    extraordinary items   |                          | $       | 1.34    |           |      | $       | 1.73    |         |   | $       | 1.72    |        
|                                                                        | Discontinued operations, net                                              |                          |         | .41     |           |      |         | .08     |         |   |         | .06     |        
|                                                                        | Extraordinary items, net                                                  |                          |         | (.17    | )         |      |         | (.02    | )       |   |         |        |        
|                                                                        |                                                                           |                          |         |         |           |      |         |         |         |   |         |        
|                                                                        | Net earnings                                                              |                          | $       | 1.58    |           |      | $       | 1.79    |         |   | $       | 1.78    |        
|                                                                        |                                                                           |                          |         |         |           |      |         |         |         |   |         |        
|Dividends paid per Common Share                                         |                                                                           | $                        | 1.70    |         |           | $    | 1.64    |         |         | $ | 1.54    |        
|                                                                        |                                                                           |                          |         |         |           |      |         |         |         |   |         |        

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

51



---



##### Table of Contents



ARCHSTONE-SMITH TRUST






CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY AND COMPREHENSIVE INCOME


Years Ended December 31, 2002, 2001 and
2000


(In thousands)


|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |               |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |           |         |  
|------------------------------ | -------------------------------------------------- | --------------------------------------------- | ------- | ----------- | - | --------- | ------- | ---------- | - | ------------- | ------- | ------------- | - | ----- | --------- | --------- | - | - | ------- | - | ------ | - | -------- | -------- | ------- | - | --------- | --------- | ------- | -
|                               |                                                    | Convertible                                   |         | Perpetual   |   |           |         |            |   |               |         |               |   |      
|                               |                                                    | Preferred                                     |         | Preferred   |   |           |         |            |   |               |         |               |   |      
|                               |                                                    | Shares at                                     |         | Shares at   |   |           |         |            |   | Accumulated   |         |               |   |      
|                               |                                                    | Aggregate                                     |         | Aggregate   |   | Common    |         | Additional |   | Other         |         | Distributions |   |      
|                               |                                                    | Liquidation                                   |         | Liquidation |   | Shares at |         | Paid-in    |   | Comprehensive |         | in Excess of  |   |      
|                               |                                                    | Preference                                    |         | Preference  |   | Par Value |         | Capital    |   | Income (Loss) |         | Net Earnings  |   | Total
|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |               |   |      
|Balances at December 31, 1999  |                                                    | $                                             | 92,635  |             |   | $         | 205,000 |            |   | $             | 139,008 |               |   | $     | 2,271,856 |           |   | $ | 394     |   |        | $ | (141,387 | )        |         | $ | 2,567,506 |          
|                               | Comprehensive income:                              |                                               |         |             |   |           |         |            |   |               |         |               |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |           |        
|                               |                                                    | Net earnings                                  |         |             |  |           |         |            |  |               |         |               |  |       |           |           |  |   |         |   |       |   |          |          | 261,385 |   |           |           | 261,385 |  
|                               |                                                    | Preferred share dividends                     |         |             |  |           |         |            |  |               |         |               |  |       |           |           |  |   |         |   |       |   |          |          | (25,340 | ) |           |           | (25,340 | )
|                               |                                                    | Change in fair value of marketable securities |         |             |  |           |         |            |  |               |         |               |  |       |           |           |  |   |         |   | 2,423  |   |          |          |        |   |           |           | 2,423   |  
|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |               |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |          
|                               | Comprehensive income attributable to Common Shares |                                               |         |            |   |           |         |           |   |               |         |              |   |       |           |          |   |   |         |  |        |   |          |         |         |   |           | 238,468   |        
|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |               |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |          
|                               | Common Share distributions                         |                                               |         |            |   |           |         |           |   |               |         |              |   |       |           |          |   |   |         |  |        |   |          | (198,069 | )       |   |           | (198,069  | )      
|                               | Repurchase of shares, net of expenses              |                                               |         |            |   |           |         | (795       | ) |               |         | (17,479       | ) |       |           | (366,268  | ) |   |         |  |        |   |          |         |         |   |           | (384,542  | )      
|                               | Other, net                                         |                                               |         | (9,984      | ) |           |         |           |   |               |         | 1,309         |   |       |           | 36,918    |   |   |         |  |        |   |          |         |         |   |           | 28,243    |        
|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |               |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |          
|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                                  |         |             |  |           |         |            |  |               |         |               |  |       |           |           |  |   |         |   |       |   |          |          | 257,878 |   |           |           | 257,878 |  
|                               |                                                    | Preferred share dividends                     |         |             |  |           |         |            |  |               |         |               |  |       |           |           |  |   |         |   |       |   |          |          | (22,277 | ) |           |           | (22,277 | )
|                               |                                                    | 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 |                                               |         |            |   |           |         |           |   |               |         |              |   |       |           |          |   |   |         |  |        |   |          |         |         |   |           | 227,267   |        
|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |               |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |          
|                               | 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         |   |       |           | 43,019    |   |   |         |  |        |   |          |         |         |   |           | 40,465    |        
|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |               |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |          
|Balances at December 31, 2001. |                                                    |                                               | 225,351 |             |   |           | 148,763 |            |   |               | 1,745   |               |   |       | 3,543,647 |           |   |   | (5,517  | ) |        |   | (112,845 | )        |         |   | 3,801,144 |          
|                               | Comprehensive income:                              |                                               |         |             |   |           |         |            |   |               |         |               |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |           |        
|                               |                                                    | Net earnings                                  |         |             |  |           |         |            |  |               |         |               |  |       |           |           |  |   |         |   |       |   |          |          | 315,063 |   |           |           | 315,063 |  
|                               |                                                    | Preferred share dividends                     |         |             |  |           |         |            |  |               |         |               |  |       |           |           |  |   |         |   |       |   |          |          | (32,185 | ) |           |           | (32,185 | )
|                               |                                                    | 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 |                                               |         |            |   |           |         |           |   |               |         |              |   |       |           |          |   |   |         |  |        |   |          |         |         |   |           | 276,056   |        
|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |               |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |          
|                               | 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            |   |       |           | 50,358    |   |   |         |  |        |   |          |         |         |   |           | 50,379    |        
|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |               |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |          
|Balances at December 31, 2002. |                                                    | $                                             | 194,671 |             |   | $         | 99,370  |            |   | $             | 1,807   |               |   | $     | 3,696,465 |           |   | $ | (12,339 | ) |        | $ | (136,156 | )        |         | $ | 3,843,818 |          
|                               |                                                    |                                               |         |             |   |           |         |            |   |               |         |               |   |       |           |           |   |   |         |   |        |   |          |          |         |   |           |          

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

52



---



##### Table of Contents



ARCHSTONE-SMITH TRUST






CONSOLIDATED STATEMENTS OF CASH
FLOWS


(In thousands)


|                                                 |                                                                                              |                                                                      |        |          |          |      |        |           |          |   |        |          |          |  
|------------------------------------------------ | -------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ------ | -------- | -------- | ---- | ------ | --------- | -------- | - | ------ | -------- | -------- | -
|                                                 |                                                                                              |                                                                     
|                                                 |                                                                                              | Years Ended December 31,                                            
|                                                 |                                                                                              |                                                                     
|                                                 |                                                                                              | 2002                                                                 |        | 2001     |          | 2000
|                                                 |                                                                                              |                                                                      |        |          |          |     
|Operating activities:                            |                                                                                              |                                                                      |        |          |          |      |        |           |          |   |        |         
|                                                 | Net earnings                                                                                 |                                                                      | $      | 315,063  |          |      | $      | 257,878   |          |   | $      | 261,385  |         
|                                                 | Adjustments to reconcile net earnings to net cash
    flow provided by operating activities: |                                                                      |        |          |          |      |        |           |          |   |        |          |         
|                                                 |                                                                                              | Depreciation and amortization                                        |        |          | 205,994  |      |        |           | 135,682  |   |        |          | 145,571  |  
|                                                 |                                                                                              | Extraordinary items  loss on
    early extinguishments of debt, net |        |          | 30,155   |      |        |           | 2,230    |   |        |          | 911      |  
|                                                 |                                                                                              | Gains on dispositions of depreciated real estate,
    net            |        |          | (108,884 | )    |        |           | (100,273 | ) |        |          | (93,071  | )
|                                                 |                                                                                              | Gain on exchange of Homestead mortgage notes, net
    of writedown   |        |          |         |      |        |           |         |   |        |          | (6,560   | )
|                                                 |                                                                                              | Provisions for possible loss on investments                          |        |          | 2,611    |      |        |           | 14,927   |   |        |          | 5,200    |  
|                                                 |                                                                                              | Minority interest                                                    |        |          | 49,233   |      |        |           | 15,562   |   |        |          | 7,241    |  
|                                                 | Change in other assets                                                                       |                                                                      |        | (13,923  | )        |      |        | (4,589    | )        |   |        | (2,224   | )       
|                                                 | Change in accounts payable, accrued expenses and
    other liabilities                       |                                                                      |        | 41,247   |          |      |        | (2,217    | )        |   |        | 6,277    |         
|                                                 | Other, net                                                                                   |                                                                      |        | (15,913  | )        |      |        | (9,895    | )        |   |        | (2,410   | )       
|                                                 |                                                                                              |                                                                      |        |          |          |      |        |           |          |   |        |         
|                                                 |                                                                                              | Net cash flow provided by operating activities                       |        |          | 505,583  |      |        |           | 309,305  |   |        |          | 322,320  |  
|                                                 |                                                                                              |                                                                      |        |          |          |      |        |           |          |   |        |         
|Investing activities:                            |                                                                                              |                                                                      |        |          |          |      |        |           |          |   |        |         
|                                                 | Real estate investments                                                                      |                                                                      |        | (639,170 | )        |      |        | (530,706  | )        |   |        | (671,148 | )       
|                                                 | Change in investments in and advances to
    unconsolidated entities, net                    |                                                                      |        | 91,241   |          |      |        | 21,111    |          |   |        | (68,995  | )       
|                                                 | Proceeds from dispositions, net of closing costs                                             |                                                                      |        | 409,516  |          |      |        | 1,076,722 |          |   |        | 770,679  |         
|                                                 | Change in tax-deferred exchange escrow                                                       |                                                                      |        | 120,421  |          |      |        | (116,440  | )        |   |        | 65,455   |         
|                                                 | Other, net                                                                                   |                                                                      |        | (104,964 | )        |      |        | (16,357   | )        |   |        | 9,572    |         
|                                                 |                                                                                              |                                                                      |        |          |          |      |        |           |          |   |        |         
|                                                 |                                                                                              | Net cash flow provided by (used in) investing
    activities         |        |          | (122,956 | )    |        |           | 434,330  |   |        |          | 105,563  |  
|                                                 |                                                                                              |                                                                      |        |          |          |      |        |           |          |   |        |         
|Financing activities:                            |                                                                                              |                                                                      |        |          |          |      |        |           |          |   |        |         
|                                                 | Proceeds from mortgages payable                                                              |                                                                      |        |         |          |      |        |          |          |   |        | 156,527  |         
|                                                 | Proceeds from Long-Term Unsecured Debt                                                       |                                                                      |        | 530,774  |          |      |        |          |          |   |        | 189,628  |         
|                                                 | Payments on Long-Term Unsecured Debt                                                         |                                                                      |        | (97,500  | )        |      |        | (69,700   | )        |   |        | (75,000  | )       
|                                                 | Principal prepayment of mortgages payable,
    including prepayment penalties                |                                                                      |        | (587,480 | )        |      |        | (85,513   | )        |   |        | (41,658  | )       
|                                                 | Regularly scheduled principal payments on
    mortgages payable                              |                                                                      |        | (11,181  | )        |      |        | (4,820    | )        |   |        | (4,833   | )       
|                                                 | Proceeds from (payments on) unsecured credit
    facilities, net                             |                                                                      |        | 176,989  |          |      |        | (224,130  | )        |   |        | (299,817 | )       
|                                                 | Proceeds from Common Shares issued under DRIP and
    employee stock options                 |                                                                      |        | 69,772   |          |      |        | 24,818    |          |   |        | 18,646   |         
|                                                 | Repurchase of Common Shares and Preferred Shares                                             |                                                                      |        | (64,766  | )        |      |        | (50,772   | )        |   |        | (179,461 | )       
|                                                 | Redemption of Perpetual Preferred Units                                                      |                                                                      |        | (12,000  | )        |      |        | (104,670  | )        |   |        |         |         
|                                                 | Proceeds from issuance of Preferred Shares and
    Perpetual Preferred Units                 |                                                                      |        |         |          |      |        |          |          |   |        | 31,215   |         
|                                                 | Cash dividends paid on Common Shares                                                         |                                                                      |        | (303,083 | )        |      |        | (221,196  | )        |   |        | (201,257 | )       
|                                                 | Cash dividends paid on Preferred Shares                                                      |                                                                      |        | (32,512  | )        |      |        | (17,788   | )        |   |        | (25,340  | )       
|                                                 | Cash dividends paid to minority interests                                                    |                                                                      |        | (46,672  | )        |      |        | (8,406    | )        |   |        | (7,241   | )       
|                                                 | Other, net                                                                                   |                                                                      |        | 851      |          |      |        | 16,492    |          |   |        | 9,713    |         
|                                                 |                                                                                              |                                                                      |        |          |          |      |        |           |          |   |        |         
|                                                 |                                                                                              | Net cash flow used in financing activities                           |        |          | (376,808 | )    |        |           | (745,685 | ) |        |          | (428,878 | )
|                                                 |                                                                                              |                                                                      |        |          |          |      |        |           |          |   |        |         
|Net change in cash and cash equivalents          |                                                                                              |                                                                      | 5,819  |          |          |      | (2,050 | )         |          |   | (995   | )       
|Cash and cash equivalents at beginning of period |                                                                                              |                                                                      | 7,027  |          |          |      | 9,077  |           |          |   | 10,072 |         
|                                                 |                                                                                              |                                                                      |        |          |          |      |        |           |          |   |        |         
|Cash and cash equivalents at end of period       |                                                                                              | $                                                                    | 12,846 |          |          | $    | 7,027  |           |          | $ | 9,077  |         
|                                                 |                                                                                              |                                                                      |        |          |          |      |        |           |          |   |        |         

See Note 17 for supplemental information on
non-cash investing and financing activities.

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

53



---



##### Table of Contents



ARCHSTONE-SMITH TRUST






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


December 31, 2002, 2001 and
2000


(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 88.0% of the
Operating Trust. 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 are focused on the
operation, development, redevelopment, acquisition, management
and long-term ownership of apartment communities in protected
markets throughout the United States characterized by:
(i) limited new supply; (ii) expensive single-family
home prices; and (iii) strong economic fundamentals.

Principles of
Consolidation

The accounts of Archstone-Smith and its
controlled subsidiaries are consolidated in the accompanying
financial statements. All significant intercompany accounts and
transactions have been eliminated in consolidation. We use the
equity method to account for investments that we do not control
through majority voting 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.

Use of
Estimates

The preparation of financial statements in
conformity with GAAP 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.

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 net
operating income, 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
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.

54



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 possible
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.

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 would be
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 capitalize direct and certain related indirect
costs associated with the successful acquisition, development or
improvement of real estate. Capitalized costs associated with
unsuccessful acquisition or development pursuits are expensed at
the time the pursuit is abandoned.

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  | 

Interest

During 2002, 2001 and 2000, the total interest
paid in cash on all outstanding debt was $261.9 million,
$156.4 million and $157.7 million, respectively.

We capitalize interest during the construction
period as part of the cost of apartment communities under
development. Interest capitalized during 2002, 2001 and 2000
aggregated $21.7 million, $20.3 million and
$24.3 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 capitalized as other assets and are

55



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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. Amortization of loan costs included
in interest expense for 2002, 2001 and 2000 was
$4.4 million, $3.1 million and $5.0 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. Moisture infiltration and resulting mold
remediation costs are only capitalized, subject to
recoverability, 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.

Interest Rate
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 2001, we adopted SFAS No. 133/138
Accounting for Derivative Instruments and Hedging
Activities. Under SFAS 133/138, the resulting assets
and liabilities associated with derivative financial instruments
are carried on 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,
these 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. Gains on sales of real estate are recorded
when the real estate is sold, provided 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.

Stock-Based
Compensation

As of December 31, 2002, the company has one
stock-based employee compensation plan, which is described more
fully in Note 10. 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. For the
period covered by the accompanying consolidated financial
statements, 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, no stock-based employee
compensation expense is reflected in the accompanying
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

56



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

|                                                                                                                    |                       |                          |         |      |  |      |         |      |  |   |         |      | 
|------------------------------------------------------------------------------------------------------------------- | --------------------- | ------------------------ | ------- | ---- |  | ---- | ------- | ---- |  | - | ------- | ---- | 
|                                                                                                                    |                       |                         
|                                                                                                                    |                       | Years Ended December 31,
|                                                                                                                    |                       |                         
|                                                                                                                    |                       | 2002                     |         | 2001 |  | 2000
|                                                                                                                    |                       |                          |         |      |  |     
|Net earnings attributable to Common
    Shares  Basic                                                              |                       | $                        | 282,878 |      |  | $    | 235,601 |      |  | $ | 236,045 |     
|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 |                       |                          | (1,835  | )    |  |      | (1,669  | )    |  |   | (1,023  | )   
|                                                                                                                    |                       |                          |         |      |  |      |         |      |  |   |         |     
|Pro forma net earnings attributable to Common
    Shares  Basic                                                    |                       | $                        | 281,043 |      |  | $    | 233,932 |      |  | $ | 235,022 |     
|                                                                                                                    |                       |                          |         |      |  |      |         |      |  |   |         |     
|Net earnings per Common Share:                                                                                      |                       |                          |         |      |  |      |         |      |  |   |         |     
|                                                                                                                    | Basic  as reported   |                          | $       | 1.59 |  |      | $       | 1.81 |  |   | $       | 1.79 | 
|                                                                                                                    |                       |                          |         |      |  |      |         |      |  |   |         |     
|                                                                                                                    | Basic  pro forma     |                          | $       | 1.58 |  |      | $       | 1.79 |  |   | $       | 1.78 | 
|                                                                                                                    |                       |                          |         |      |  |      |         |      |  |   |         |     
|                                                                                                                    | Diluted  as reported |                          | $       | 1.58 |  |      | $       | 1.79 |  |   | $       | 1.78 | 
|                                                                                                                    |                       |                          |         |      |  |      |         |      |  |   |         |     
|                                                                                                                    | Diluted  pro forma   |                          | $       | 1.57 |  |      | $       | 1.78 |  |   | $       | 1.77 | 
|                                                                                                                    |                       |                          |         |      |  |      |         |      |  |   |         |     

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

|                                         |  |      |           |      |  |      |           |   |  |  |           |  
|---------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | - |  |  | --------- | -
|                                         |  | 2002 |           | 2001 |  | 2000
|                                         |  |      |           |      |  |     
|Weighted average risk-free interest rate |  |      | 3.54      | %    |  |      | 4.06      | % |  |  | 5.43      | %
|Weighted average dividend yield          |  |      | 6.74      | %    |  |      | 6.79      | % |  |  | 6.77      | %
|Weighted average volatility              |  |      | 19.58     | %    |  |      | 15.67     | % |  |  | 23.65     | %
|Weighted average expected option life    |  |      | 5.0 years |      |  |      | 5.0 years |   |  |  | 6.3 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.

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. Other comprehensive income
(loss) reflects unrealized holding gains and losses on the
available-for-sale investments and, beginning in 2001, changes
in the fair value of effective cash flow hedges as described
above (see  Interest Rate Contracts).

57



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Per Share
Data

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

|                                                                                              |                                                               |                          |         |       |  |      |         |       |  |   |         |       | 
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ------------------------ | ------- | ----- |  | ---- | ------- | ----- |  | - | ------- | ----- | 
|                                                                                              |                                                               |                         
|                                                                                              |                                                               | Years Ended December 31,
|                                                                                              |                                                               |                         
|                                                                                              |                                                               | 2002                     |         | 2001  |  | 2000
|                                                                                              |                                                               |                          |         |       |  |     
|Reconciliation of numerator between basic and
    diluted net earnings per Common Share(1):  
|Net earnings attributable to Common
    Shares  Basic                                        |                                                               | $                        | 282,878 |       |  | $    | 235,601 |       |  | $ | 236,045 |      
|                                                                                              | Dividends on Convertible Preferred Shares                     |                          |         |      |  |      |         | 9,696 |  |   |         | 7,254 | 
|                                                                                              | Minority interest                                             |                          |         | 200   |  |      |         | 1,592 |  |   |         | 1,326 | 
|                                                                                              |                                                               |                          |         |       |  |      |         |       |  |   |         |      
|Net earnings attributable to Common
    Shares  Diluted                                      |                                                               | $                        | 283,078 |       |  | $    | 246,889 |       |  | $ | 244,625 |      
|                                                                                              |                                                               |                          |         |       |  |      |         |       |  |   |         |      
|Reconciliation of denominator between basic
    and diluted net earnings per Common Share(1):
|Weighted average number of Common Shares
    outstanding  Basic                              |                                                               |                          | 177,757 |       |  |      | 130,331 |       |  |   | 131,874 |      
|                                                                                              | Assumed conversion of Preferred Shares into
    Common Shares |                          |         |      |  |      |         | 5,844 |  |   |         | 4,721 | 
|                                                                                              | Minority interest                                             |                          |         |      |  |      |         | 943   |  |   |         | 876   | 
|                                                                                              | Incremental options and warrants                              |                          |         | 1,023 |  |      |         | 714   |  |   |         | 259   | 
|                                                                                              |                                                               |                          |         |       |  |      |         |       |  |   |         |      
|Weighted average number of Common Shares
    outstanding  Diluted                            |                                                               |                          | 178,780 |       |  |      | 137,832 |       |  |   | 137,730 |      
|                                                                                              |                                                               |                          |         |       |  |      |         |       |  |   |         |      



---



|    |                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------
|(1) | Excludes the impact of potentially dilutive
    equity securities during periods in which they are anti-dilutive.

Reclassifications

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

New
Accounting Pronouncements

In April 2002, the FASB issued SFAS 145
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. We are required to adopt SFAS 145 on
January 1, 2003. SFAS 145 significantly limits the
treatment of losses associated with early extinguishment of debt
as an extraordinary item. SFAS 145 also impacts certain
sale-leaseback transactions. Upon adoption, early
extinguishments will not continue to qualify for extraordinary
item treatment and we do not anticipate that the adoption of
SFAS 145 will have a material impact on our financial
position, net earnings or cash flows.

In July 2002, the FASB issued SFAS 146
Accounting for Costs Associated with Exit or Disposal
Activities.We are required to adopt SFAS 146 on
January 1, 2003. SFAS 146 requires that certain expenses
associated with restructuring charges be accrued as liabilities
in the period in which the liability is incurred. We do not
anticipate the adoption of SFAS 146 will have a material
impact on our financial position, net earnings or cash flows.

In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements
No. 5, 57 and 107 and a rescission of FASB Interpretation
No. 34. This Interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is
required to recognize, at inception of a guarantee, a liability
for the fair value of the obligation undertaken. The initial
recognition and measurement provisions of the Interpretation are
applicable to guarantees issued or modified after
December 31, 2002. The company has not yet determined the
impact of the Interpretation. The disclosure requirements are
effective immediately.

58



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In December 2002, the FASB issued SFAS 148
Accounting for Stock-Based Compensation 
Transition and Disclosure, an amendment of FASB Statement No.
123. We are required to adopt SFAS 148 for
financial statements for fiscal years ending after
December 15, 2002. We have modified the disclosure of our
transition to the fair value based method of accounting for
stock-based compensation in this annual report to reflect the
additional requirements of this statement. The adoption of
SFAS 148 did not have a material impact on our financial
position, net earnings or cash flows.

In January 2003, the FASB issued Interpretation
No. 46 Consolidation of Variable Interest
Entities.We are required to adopt the Interpretation
for financial statements for the fiscal year or interim period
beginning after June 15, 2003. This Interpretation
clarifies the application of Accounting Research Bulletin
No. 51, Consolidated Financial Statements,and requires that we consolidate the results of variable
interest entities in which we have a majority variable interest.
Although we have not yet determined the total impact of adopting
the Interpretation, it is reasonably possible that we will be
deemed the primary beneficiary of Ameriton, which would result
in consolidation of this currently unconsolidated entity.

(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.

59



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Smith Merger was structured as a tax-free
merger and was accounted for using the purchase method of
accounting. During 2002, all remaining purchase accounting
adjustments were finalized. Adjustments to the initial purchase
price allocation were not material. 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, 2000. 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)                 |           | 2000(1)
|                                                                                                      |         |                         |           |        
|Total revenues                                                                                        |         | $                       | 1,048,586 |         |  | $ | 1,074,966 |     
|                                                                                                      |         |                         |           |         |  |   |           |     
|Net earnings attributable to Common Shares before
    discontinued operations and extraordinary items |         | $                       | 280,424   |         |  | $ | 305,758   |     
|                                                                                                      |         |                         |           |         |  |   |           |     
|Net earnings attributable to Common Shares(2)                                                         |         | $                       | 301,066   |         |  | $ | 326,668   |     
|                                                                                                      |         |                         |           |         |  |   |           |     
|Net earnings per Common Share:                                                                        |         |                         |           |         |  |   |           |     
|                                                                                                      | Basic   |                         | $         | 1.77    |  |   | $         | 1.88 | 
|                                                                                                      |         |                         |           |         |  |   |           |     
|                                                                                                      | Diluted |                         | $         | 1.74    |  |   | $         | 1.84 | 
|                                                                                                      |         |                         |           |         |  |   |           |     



---



|    |                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Net earnings from discontinued operations have
    been reclassified for all years presented.                                                                                                                  
|   
|(2) | 2001 includes $5.3 million in merger related
    costs and $14.9 million in provision for loss on
    investments. Both 2000 and 2001 include extraordinary items
    related to early extinguishments of debt.

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. The gain will be adjusted during the first
quarter of 2003 based on final net asset value calculations as
of the transaction date. Any adjustment is not expected to be
material. Excluded from the gain is approximately
$6.7 million in contingent proceeds related to
indemnification of certain accounts receivable over
120 days.

60



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.



(3)     Real
Estate

Investments
in Real Estate

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

|                           |                                           |                   |   |           |           |            |  |        |       |  |   |           |           |  |  |        |       | 
|-------------------------- | ----------------------------------------- | ----------------- | - | --------- | --------- | ---------- |  | ------ | ----- |  | - | --------- | --------- |  |  | ------ | ----- | 
|                           |                                           |                  
|                           |                                           | December 31,     
|                           |                                           |                  
|                           |                                           |                   |   |          
|                           |                                           | 2002              |   | 2001     
|                           |                                           |                   |   |          
|                           |                                           | Investment        |   | Units     |           | Investment |  | Units 
|                           |                                           |                   |   |           |           |            |  |       
|Apartment
    Communities: |                                           |                   |   |           |           |            |  |        |       |  |   |           |           |  |  |       
|                           | Operating communities                     |                   | $ | 8,380,779 |           |            |  | 75,693 |       |  | $ | 7,809,444 |           |  |  | 77,170 |      
|                           | Communities under construction(1)         |                   |   | 328,390   |           |            |  | 2,295  |       |  |   | 358,367   |           |  |  | 2,812  |      
|                           | Development communities In Planning(1):   |                   |   |           |           |            |  |        |       |  |   |           |           |  |  |        |      
|                           |                                           | Owned             |   |           | 89,501    |            |  |        | 2,870 |  |   |           | 76,611    |  |  |        | 1,402 | 
|                           |                                           | Under control(2)  |   |           |          |            |  |        | 428   |  |   |           |          |  |  |        | 991   | 
|                           |                                           |                   |   |           |           |            |  |        |       |  |   |           |           |  |  |       
|                           | Total development communities In Planning |                   |   | 89,501    |           |            |  | 3,298  |       |  |   | 76,611    |           |  |  | 2,393  |      
|                           |                                           |                   |   |           |           |            |  |        |       |  |   |           |           |  |  |       
|                           | Total apartment communities               |                   |   | 8,798,670 |           |            |  | 81,286 |       |  |   | 8,244,422 |           |  |  | 82,375 |      
|                           |                                           |                   |   |           |           |            |  |        |       |  |   |           |           |  |  |       
|                           | Office, retail, hotel and other           |                   |   | 40,151    |           |            |  |        |       |  |   | 31,582    |           |  |  |        |      
|                           |                                           |                   |   |           |           |            |  |        |       |  |   |           |           |  |  |       
|                           |                                           | Total real estate |   | $         | 8,838,821 |            |  |        |       |  |   | $         | 8,276,004 |  |  |        |       | 
|                           |                                           |                   |   |           |           |            |  |        |       |  |   |           |           |  |  |       



---



|    |                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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, 2002 and December 31, 2001 for
    development communities Under Control was $2.7 million and
    $4.9 million, respectively, and are reflected on the
    Other assets caption of Archstone-Smiths
    Consolidated Balance Sheets.

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 needed 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

61



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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,        
|                        |                                                           |                                 
|                        |                                                           | 2002                             |           | 2001     |         | 2000
|                        |                                                           |                                  |           |          |         |     
|Balance at January 1.   |                                                           | $                                | 8,276,004 |          |         | $    | 5,058,910 |            |           | $ | 5,086,486 |         
|                        |                                                           |                                  |           |          |         |      |           |            |           |   |           |         
|                        | Apartment properties acquired in the Smith
    Merger(1)  |                                  |           | 31,877   |         |      |           | 3,733,936  |           |   |           |         |        
|                        | Acquisition-related expenditures                          |                                  |           | 413,502  |         |      |           | 339,055    |           |   |           | 372,539  |        
|                        | Redevelopment expenditures                                |                                  |           | 152,389  |         |      |           | 39,136     |           |   |           | 37,547   |        
|                        | Recurring capital expenditures                            |                                  |           | 40,235   |         |      |           | 20,184     |           |   |           | 13,937   |        
|                        | Development expenditures, excluding land
    acquisitions |                                  |           | 195,809  |         |      |           | 185,988    |           |   |           | 228,819  |        
|                        | Acquisition and improvement of land for
    development   |                                  |           | 53,165   |         |      |           | 48,120     |           |   |           | 68,308   |        
|                        | Dispositions                                              |                                  |           | (330,118 | )       |      |           | (1,152,668 | )         |   |           | (743,287 | )      
|                        | Provision for possible loss on investments                |                                  |           | (2,611   | )       |      |           | (2,710     | )         |   |           | (5,200   | )      
|                        |                                                           |                                  |           |          |         |      |           |            |           |   |           |         
|                        |                                                           | Net apartment community activity |           |          | 554,248 |      |           |            | 3,211,041 |   |           |          | (27,337 | )
|                        |                                                           |                                  |           |          |         |      |           |            |           |   |           |         
|Other:                  |                                                           |                                  |           |          |         |      |           |            |           |   |           |         
|                        | Disposition of retail asset acquired in Smith
    Merger  |                                  |           | (5,990   | )       |      |           | 5,976      |           |   |           |         |        
|                        | Change in other real estate assets                        |                                  |           | 14,559   |         |      |           | 77         |           |   |           | (239     | )      
|                        |                                                           |                                  |           |          |         |      |           |            |           |   |           |         
|                        |                                                           | Net other activity               |           |          | 8,569   |      |           |            | 6,053     |   |           |          | (239    | )
|                        |                                                           |                                  |           |          |         |      |           |            |           |   |           |         
|Balance at December 31. |                                                           | $                                | 8,838,821 |          |         | $    | 8,276,004 |            |           | $ | 5,058,910 |         
|                        |                                                           |                                  |           |          |         |      |           |            |           |   |           |         



---



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

At December 31, 2002, we had unfunded
contractual commitments of $193.4 million related to communities
under construction and under redevelopment.

(4)     Discontinued
Operations

At December 31, 2002, we had 12 operating
communities classified as held for sale under the provisions of
SFAS 144. Accordingly, the net earnings for these properties are
classified as earnings from discontinued operations. We also
sold eight operating communities and one retail property during
2002, that were accounted for under SFAS 144. Accordingly, the
gains on sale and net earnings for these properties are also

62



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

included in discontinued operations. The
following is a summary of net earnings from discontinued
operations (in thousands):

|                                                          |  |                          |         |      |  |      |         |   |  |   |         |  
|--------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                          |  |                         
|                                                          |  | Years Ended December 31,
|                                                          |  |                         
|                                                          |  | 2002                     |         | 2001 |  | 2000
|                                                          |  |                          |         |      |  |     
|Rental revenues                                           |  | $                        | 55,913  |      |  | $    | 49,392  |   |  | $ | 41,536  |  
|Rental expenses                                           |  |                          | (18,273 | )    |  |      | (13,990 | ) |  |   | (11,863 | )
|Real estate taxes                                         |  |                          | (3,685  | )    |  |      | (3,300  | ) |  |   | (2,784  | )
|Depreciation on real estate investments                   |  |                          | (7,524  | )    |  |      | (8,818  | ) |  |   | (8,229  | )
|Interest expense(1)                                       |  |                          | (12,704 | )    |  |      | (11,880 | ) |  |   | (10,174 | )
|Provision for possible loss on real estate
    investment |  |                          | (2,611  | )    |  |      |        |   |  |   |        |  
|Allocation of minority interest                           |  |                          | (10,372 | )    |  |      | (364    | ) |  |   |        |  
|Gain on dispositions of real estate investments,
    net  |  |                          | 72,934  |      |  |      |        |   |  |   |        |  
|                                                          |  |                          |         |      |  |      |         |   |  |   |         |  
|                                                          |  | $                        | 73,678  |      |  | $    | 11,040  |   |  | $ | 8,486   |  
|                                                          |  |                          |         |      |  |      |         |   |  |   |         |  



---



|    |                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The portion of interest expense included in
    discontinued operations that is allocated to properties based on
    the companys leverage ratio was $7.0 million,
    $9.4 million and $9.2 million for 2002, 2001 and 2000,
    respectively.

Assets classified as held for sale, pursuant to
SFAS 144 at December 31, 2002, had aggregate carrying
value of $159.0 million with $7.0 million of secured
debt. At December 31, 2002, we recorded an impairment of
$2.6 million for one operating community classified as held
for sale. Estimated net sales proceeds were less than the net
book value; therefore, a provision for possible loss was
recorded. Additionally, we sold six operating communities during
2002 that were either held for sale at December 31, 2001 or
sold to unconsolidated entities and therefore, not classified as
discontinued operations.

(5)     Investments
in and Advances to Unconsolidated Entities

Unconsolidated
Entities

At December 31, 2001, we had investments in
three operating companies and ten real estate joint ventures
that we account for under the equity method. Two of the
operating companies  SMC and CES  and
three of the real estate joint ventures were acquired in the
Smith Merger on October 31, 2001. Accordingly, our
Consolidated Statements of Earnings include our proportionate
share of equity in earnings of these entities for the two-month
period ended December 31, 2001, and for all of 2002 with
the exception of CES, which was sold in December 2002. See
Note 2 for additional discussion related to our sale of
CES. Furthermore, we sold our interest in SMC during February
2003; see Note 18.

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 the Operating Trust or to Archstone-Smith. 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
plus the unfunded amount of the Ameriton $10 million
committed credit

63



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

facility described below. A summary of our
investments in and advances to unconsolidated entities follows
(in thousands):

|                           |  |      |         |      |  |   |         | 
|-------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                           |  | 2002 |         | 2001
|                           |  |      |         |     
|Ameriton                   |  | $    | 292,043 |      |  | $ | 244,654 | 
|CES(1)                     |  |      |        |      |  |   | 133,878 | 
|SMC(2)                     |  |      |        |      |  |   | 1,894   | 
|Real estate joint ventures |  |      | 54,903  |      |  |   | 56,939  | 
|                           |  |      |         |      |  |   |         | 
|                           |  | $    | 346,946 |      |  | $ | 437,365 | 
|                           |  |      |         |      |  |   |         | 



---



|    |                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | CES was sold in December 2002, see Note 2
    for further discussion.                                                                                        
|   
|(2) | Cash distributions from SMC have exceeded
    investments in and advances to the company, therefore the
    investment balance at December 31, 2002, is zero.

Ameriton and
Service Businesses

We own 100% of the non-voting stock in Ameriton,
representing a 95% economic interest. In June 2001, Ameriton
Holdings acquired the voting stock of Ameriton from third
parties, representing the remaining 5% economic interest, for
approximately $5.8 million. We also own 95% of the
membership interests in Ameriton Holdings. Our chief executive
officer owns 5% of the membership interests in Ameriton Holdings
and is the manager of Ameriton Holdings. 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 $3.38 million to
certain other executive officers and employees of
Archstone-Smith related to realized returns on investments sold
during 2002. Four members of Ameritons board
(James H. Polk, III, John C. Schweitzer,
R. Scot Sellers and Charles E. Mueller, Jr.) are
Trustees or executive officers of Archstone-Smith.

We have extended a $10 million committed
unsecured credit facility with Ameriton to facilitate working
capital advances, with $4.8 million outstanding and
$5.2 million available at December 31, 2002. We also
have an uncommitted unsecured credit facility with Ameriton,
with $106.3 million of available capacity at
December 31, 2002. Advances to Ameriton under this
uncommitted facility are made solely at our discretion.

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 Archstone-Smith, our subsidiaries or our
affiliates in connection with the purchase of his interests in
CES. All CES board members (Ernest A Gerardi, Jr.,
Robert H. Smith, Dana K. Hamilton and
Messrs. Sellers and Mueller) were Trustees or executive
officers of Archstone-Smith. 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.

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 Archstone-Smith, our
subsidiaries or our affiliates in connection with the purchase
of his interests in SMC. All SMC board members (Robert P.
Kogod, Ms. Hamilton and Messrs. Smith, Sellers and
Mueller) were Trustees or executive officers of Archstone-Smith.
During February 2003, we sold our interest in SMC. See
Note 18 for additional information on the sale of SMC.

64



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Real Estate
Joint Ventures

At December 31, 2002, we had investments in
10 real estate joint ventures with economic interests ranging
from 20% to 48%. In aggregate, these ventures own
15,084 apartment units. These joint ventures were formed
with institutional investors who seek investment opportunities
with us to leverage our expertise in acquiring, developing and
operating apartment communities and properties.

Following is a summary of the three most
significant joint ventures formed during 2001. This information
is presented as of the formation date. The joint ventures were
formed through the contribution of apartment communities located
in 16 non-core markets throughout the United States (dollar
amounts in millions):

|                                                                                                          |  |      |       |   |  |   |       |    
|--------------------------------------------------------------------------------------------------------- |  | ---- | ----- | - |  | - | ----- | ---
|                                                                                                          |  |      |       |  
|                                                                                                          |  |     
|                                                                                                          |  | 2001
|                                                                                                          |  |     
|Month of venture formation                                                                                |  |      | March |   |  |   | May   | (1)
|Number of apartment communities in the ventures                                                           |  |      | 12    |   |  |   | 15    |    
|Archstone ownership percentage                                                                            |  |      | 25    | % |  |   | 25    | %  
|Investor partner ownership percentage                                                                     |  |      | 75    | % |  |   | 75    | %  
|Aggregate fair value of apartment communities                                                             |  | $    | 310.0 |   |  | $ | 339.5 |    
|Aggregate net book value of apartment communities                                                         |  |      | 268.5 |   |  |   | 301.4 |    
|Aggregate net book value of debt and other
    liabilities assumed by the venture                         |  |      | 18.5  |   |  |   | 16.8  |    
|Aggregate amount of mortgages obtained by the
    venture                                                 |  |      | 202.0 |   |  |   | 225.3 |    
|Cash contributions by investor partner                                                                    |  |      | 71.3  |   |  |   | 82.0  |    
|Cash distributions to Archstone upon contribution
    of operating communities                            |  |      | 267.4 |   |  |   | 297.5 |    
|Aggregate net book value of communities
    contributed, less debt and liabilities assumed by the venture |  |      | 250.0 |   |  |   | 284.6 |    
|Gain recognized                                                                                           |  |      | 17.4  |   |  |   | 12.9  |    
|Gain deferred(2)                                                                                          |  | $    | 23.8  |   |  | $ | 27.3  |    



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Reflects the formation of two joint ventures. One
    of the joint ventures formed in May includes two operating
    communities sold to the joint venture by Ameriton or its
    affiliates. The fair value and net book value related to these
    communities were $40.9 million and $33.9 million,
    respectively. In accordance with GAAP, no gain was recognized by
    Archstone-Smith on these two transactions.
|   
|(2) | As of December 31, 2002, the remaining
    deferred gains were $46.2 million for the joint ventures
    formed in March and May 2001.                                                                                                                                                                                                                                                                                     

For financial reporting purposes, we accounted
for the transactions as a partial disposition of communities. As
a result of our continuing economic interest in the joint
ventures formed in 2001, we deferred the recognition of gains as
outlined above and reduced the carrying value of our investment
on the date of formation to zero. Gains on these transactions
have been recorded using the cost recovery method of accounting.
The cost recovery method results in application of cash proceeds
from the partial disposition to the carrying value of the entire
asset as if a 100% interest were sold. Under the cost recovery
method, gain is recognized only to the extent that such proceeds
exceed the entire carrying value. Generally, the deferred gains
noted above will be recognized in future periods in the event of
a sale of the related assets to a third party. A portion of the
deferred gain may also be recognized as income from
unconsolidated real estate entities to the extent that our net
investment recorded using the equity method of accounting is
reduced to an amount less than zero. This could result from cash
distributions exceeding our share of joint venture income in a
reporting period. The ventures formed in 2001 have a ten-year
life with flexible liquidation terms to ensure an orderly
disposition of the communities based on prevailing market
conditions. Cash distributions to the joint venture partners are
paid quarterly. The venture partners have no ongoing capital
commitments and no

65



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

obligation to repay cash distributions. We
receive management fees for managing the ventures and
communities.

In June and July of 2000, we formed two joint
ventures with another institutional investor. The ventures were
formed through our contribution of a total of 11 apartment
communities with an estimated aggregate fair value of
approximately $237.0 million. The investor contributed a
total of $66.7 million of cash for an 80% ownership
interest in each of the ventures. The ventures also obtained an
aggregate of $153.7 million in mortgage loans from Freddie
Mac secured by the 11 communities. We maintained a 20%
ownership interest in each of the ventures valued at
approximately $16.7 million and received cash distributions
totaling $220.4 million. For financial reporting purposes,
we accounted for the transactions as a partial disposition of
the communities, which resulted in recognition of an aggregate
net gain of $13.3 million. At formation, we only recognized
80% of the total gain, due to the 20% continuing ownership
interest in the joint ventures. The ventures have a five-year
life with flexible liquidation terms to ensure an orderly
disposition of the communities, based on prevailing market
conditions. We receive management fees for managing the
communities and the ventures.

Summary
Financial Information

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

|                                |                                               |                   |                                      |           |           |           |   |           |           |           | 
|------------------------------- | --------------------------------------------- | ----------------- | ------------------------------------ | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                |                                               | 2002              |                                      | 2001     
|                                |                                               |                   |                                      |          
|Assets:                         |                                               |                   |                                      |           |           |           |   |          
|                                | Real estate                                   |                   | $                                    | 1,582,145 |           |           | $ | 1,403,902 |          
|                                | Other assets                                  |                   |                                      | 69,575    |           |           |   | 282,255   |          
|                                |                                               |                   |                                      |           |           |           |   |          
|                                |                                               | Total assets      |                                      | $         | 1,651,720 |           |   | $         | 1,686,157 |          
|                                |                                               |                   |                                      |           |           |           |   |          
|Liabilities and owners equity: |                                               |                   |                                      |           |           |           |   |          
|                                | Inter-company debt payable to Archstone-Smith |                   | $                                    | 149,627   |           |           | $ | 211,839   |          
|                                | Mortgages payable                             |                   |                                      | 923,205   |           |           |   | 800,193   |          
|                                | Other liabilities                             |                   |                                      | 69,354    |           |           |   | 126,250   |          
|                                |                                               |                   |                                      |           |           |           |   |          
|                                |                                               | Total liabilities |                                      |           | 1,142,186 |           |   |           | 1,138,282 |          
|                                |                                               |                   |                                      |           |           |           |   |          
|                                | Owners equity                                |                   |                                      | 509,534   |           |           |   | 547,875   |          
|                                |                                               |                   |                                      |           |           |           |   |          
|                                |                                               |                   | Total liabilities and owners equity |           | $         | 1,651,720 |   |           | $         | 1,686,157 | 
|                                |                                               |                   |                                      |           |           |           |   |          

Selected summary results of operations for our
significant unconsolidated investees presented on a stand-alone
basis follows (only periods with reportable activity are
presented):

|               |  |          |        |                    |  |                |        |        |  |      |        |      |  |      |         |      |  |      |        |      |  |      |         |  |  |   |        |  |  |   |        |   |  |   |         |  |  |   |         |  |  |   |        | 
|-------------- |  | -------- | ------ | ------------------ |  | -------------- | ------ | ------ |  | ---- | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ------ | ---- |  | ---- | ------- |  |  | - | ------ |  |  | - | ------ | - |  | - | ------- |  |  | - | ------- |  |  | - | ------ | 
|               |  |          |        |                    |  |                |        |        |  |      |        |      |  |      |         |      |  |     
|               |  |          |        |                    |  | Real Estate    |        |       
|               |  | Ameriton |        | Service Businesses |  | Joint Ventures |        | Totals
|               |  |          |        |                    |  |                |        |       
|               |  | 2002     |        | 2001               |  | 2000           |        | 2002   |  | 2001 |        | 2002 |  | 2001 |         | 2000 |  | 2002 |        | 2001 |  | 2000
|               |  |          |        |                    |  |                |        |        |  |      |        |      |  |      |         |      |  |      |        |      |  |     
|Total revenues |  | $        | 53,470 |                    |  | $              | 44,364 |        |  | $    | 22,218 |      |  | $    | 432,193 |      |  | $    | 79,246 |      |  | $    | 145,054 |  |  | $ | 97,338 |  |  | $ | 16,134 |   |  | $ | 630,717 |  |  | $ | 220,948 |  |  | $ | 38,352 | 
|               |  |          |        |                    |  |                |        |        |  |      |        |      |  |      |         |      |  |      |        |      |  |      |         |  |  |   |        |  |  |   |        |   |  |   |         |  |  |   |         |  |  |   |        | 
|Net earnings   |  | $        | 19,689 |                    |  | $              | 11,518 |        |  | $    | 4,533  |      |  | $    | 5,227   |      |  | $    | 2,885  |      |  | $    | 16,388  |  |  | $ | 10,130 |  |  | $ | (243   | ) |  | $ | 41,303  |  |  | $ | 24,533  |  |  | $ | 4,290  | 
|               |  |          |        |                    |  |                |        |        |  |      |        |      |  |      |         |      |  |      |        |      |  |      |         |  |  |   |        |  |  |   |        |   |  |   |         |  |  |   |         |  |  |   |        | 

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; (ii) the impact of 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.

66



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(6)     Borrowings

Unsecured
Credit Facilities

We have a $700 million unsecured revolving
credit facility provided by a group of financial institutions
led by JPMorgan Chase Bank. The $700 million facility
matures in December 2003 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 0.65%. 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. Under a competitive bid option
contained in the credit agreement, we may be able to borrow up
to $350 million at a lower interest rate spread over LIBOR,
depending on market conditions. 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 on our $700 million line of
credit (in thousands, except for percentages):

|                                                  |  |              |         |      |  |   |         |  
|------------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                                  |  |             
|                                                  |  | Years Ended 
|                                                  |  | December 31,
|                                                  |  |             
|                                                  |  | 2002         |         | 2001
|                                                  |  |              |         |     
|Total unsecured revolving credit facility         |  | $            | 700,000 |      |  | $ | 700,000 |  
|Borrowings outstanding at December 31.            |  |              | 348,500 |      |  |   | 173,000 |  
|Outstanding letters of credit under this facility |  |              | 11,890  |      |  |   | 35,791  |  
|Weighted average daily borrowings                 |  |              | 248,398 |      |  |   | 52,575  |  
|Maximum borrowings outstanding during the period  |  |              | 465,000 |      |  |   | 250,000 |  
|Weighted average daily nominal interest rate      |  |              | 2.26    | %    |  |   | 5.31    | %
|Weighted average daily effective interest rate(1) |  |              | 3.08    | %    |  |   | 9.76    | %



---



|    |                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The higher effective interest rate during 2001
    was due to the amortization of fixed credit facility fees over
    the relatively low average outstanding balance during the year.

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 1.90% to 2.45% during 2002. At December 31, 2002 and
2001, there were $17.1 million and $15.6 million of
borrowings outstanding under this agreement, respectively.

Long-Term
Unsecured Debt

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 its 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, 2002, the Operating Trust had
$465 million available in debt shelf registered securities
which can be issued subject to our ability to effect offerings
on satisfactory terms based on prevailing market conditions.

67



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A summary of our Long-Term Unsecured Debt
outstanding at December 31, 2002 and 2001 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) |   | 2002         |      | 2001         |   | (Years)       
|                                 |               |                |      |                  |   |              |      |              |   |               
|Long-term unsecured senior notes |               |                | 6.93 | %                |   |              | 7.06 | %            |   | $              | 1,692,727 |           |  | $ | 1,255,537 |           |  |  | 5.93  |     
|Unsecured tax-exempt bonds       |               |                | 2.03 | %                |   |              | 2.26 | %            |   |                | 83,376    |           |  |   | 78,353    |           |  |  | 26.42 |     
|                                 |               |                |      |                  |   |              |      |              |   |                |           |           |  |   |           |           |  |  |       |     
|                                 | Total/average |                |      | 6.70             | % |              |      | 6.83         | % |                | $         | 1,776,103 |  |   | $         | 1,333,890 |  |  |       | 6.89 | 
|                                 |               |                |      |                  |   |              |      |              |   |                |           |           |  |   |           |           |  |  |       |     



---



|    |                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------
|(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 $1.7 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 in 2029
(see  Scheduled Debt Maturities). 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.

Mortgages
Payable

In connection with the Smith Merger, we acquired
approximately $1.4 billion of mortgages payable, at fair value,
with interest rates ranging from 6.10% to 8.51% and maturities
from July 2004 to October 2027. We repaid or refinanced an
aggregate $553.1 million in mortgages payable during 2002
in order to release the mortgages, free up $993.7 million
of previously encumbered assets and increase our unencumbered
asset pool. Due to the costs associated with early retirement of
this debt, we recorded an extraordinary item of
$34.4 million, net of $4.2 million minority interest,
in 2002. 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 at December 31, 2002 follows (dollar
amounts in thousands):

|                                      |                             |                    |      |                         |   |      |           |           |  |   |           |           | 
|------------------------------------- | --------------------------- | ------------------ | ---- | ----------------------- | - | ---- | --------- | --------- |  | - | --------- | --------- | 
|                                      |                             |                    |      |                        
|                                      |                             |                    |      | Principal Balance(2) at
|                                      |                             |                    |      | December 31,           
|                                      |                             | Effective Interest |      |                        
|                                      |                             | Rate(1)            |      | 2002                    |   | 2001
|                                      |                             |                    |      |                         |   |     
|Fannie Mae secured debt(3)            |                             |                    | 6.48 | %                       |   | $    | 540,364   |           |  | $ | 661,764   |          
|Freddie Mac secured line of credit(4) |                             |                    | 2.51 | %                       |   |      | 10,725    |           |  |   | 163,768   |          
|Conventional fixed rate               |                             |                    | 6.47 | %                       |   |      | 1,054,750 |           |  |   | 1,266,569 |          
|Tax-exempt fixed rate                 |                             |                    | 7.26 | %                       |   |      | 7,035     |           |  |   | 7,216     |          
|Tax-exempt floating rate              |                             |                    | 2.31 | %                       |   |      | 325,103   |           |  |   | 207,716   |          
|Other                                 |                             |                    | 3.80 | %                       |   |      | 22,850    |           |  |   | 23,500    |          
|                                      |                             |                    |      |                         |   |      |           |           |  |   |           |          
|                                      | Total/average mortgage debt |                    |      | 5.75                    | % |      | $         | 1,960,827 |  |   | $         | 2,330,533 | 
|                                      |                             |                    |      |                         |   |      |           |           |  |   |           |          



---



|    |                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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, 2002.

68



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes net fair market value adjustment
    recorded in connection with the Smith Merger of
    $69.7 million and $83.5 million at December 31,
    2002 and 2001, 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.                                                                                                                                                                                    
|   
|(4) | The Freddie Mac facility was assumed in
    connection with the Smith Merger and provides for maximum
    borrowings of up to $300 million if we have sufficient
    collateral in place. Borrowings under the Freddie Mac facility
    bear interest at a floating rate over LIBOR based on debt
    service coverage ratios. The facility expires on May 31, 2010.
    In January 2002, one of our real estate properties was released
    from the collateral pool, leaving one asset collateralizing this
    facility.

The change in mortgages payable during 2002 and
2001 consisted of the following (in thousands):

|                        |                                                           |      |           |          |   |   |           |           |  
|----------------------- | --------------------------------------------------------- | ---- | --------- | -------- | - | - | --------- | --------- | -
|                        |                                                           | 2002 |           | 2001    
|                        |                                                           |      |           |         
|Balance at January 1.   |                                                           | $    | 2,330,533 |          |   | $ | 875,804   |          
|                        | Mortgages assumed in Smith Merger                         |      |           | 9,905    |   |   |           | 1,393,057 |  
|                        | Mortgage assumptions related to property
    acquisitions |      |           | 195,637  |   |   |           | 167,289   |  
|                        | Regularly scheduled principal amortization                |      |           | (11,181  | ) |   |           | (4,820    | )
|                        | Prepayments, final maturities and other                   |      |           | (564,067 | ) |   |           | (100,797  | )
|                        |                                                           |      |           |          |   |   |           |          
|Balance at December 31. |                                                           | $    | 1,960,827 |          |   | $ | 2,330,533 |          
|                        |                                                           |      |           |          |   |   |           |          

Scheduled
Debt Maturities

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

|              |       |           |         |                   |  |            |         |         |  |   |           |           |  |   |           |           | 
|------------- | ----- | --------- | ------- | ----------------- |  | ---------- | ------- | ------- |  | - | --------- | --------- |  | - | --------- | --------- | 
|              |       |           |         |                   |  |           
|              |       |           |         | Mortgages Payable |  |           
|              |       |           |         |                   |  |           
|              |       |           |         | Regularly         |  |            |         |        
|              |       | Long-Term |         | Scheduled         |  | Final      |         |        
|              |       | Unsecured |         | Principal         |  | Maturities |         |        
|              |       | Debt      |         | Amortization      |  | and Other  |         | Total  
|              |       |           |         |                   |  |            |         |        
|2003          |       | $         | 171,250 |                   |  | $          | 11,719  |         |  | $ | 40,913    |           |  | $ | 223,882   |          
|2004          |       |           | 51,250  |                   |  |            | 13,850  |         |  |   | 37,877    |           |  |   | 102,977   |          
|2005          |       |           | 251,250 |                   |  |            | 14,946  |         |  |   | 10,061    |           |  |   | 276,257   |          
|2006          |       |           | 51,250  |                   |  |            | 15,043  |         |  |   | 277,364   |           |  |   | 343,657   |          
|2007          |       |           | 386,250 |                   |  |            | 15,559  |         |  |   | 119,151   |           |  |   | 520,960   |          
|Thereafter(1) |       |           | 864,853 |                   |  |            | 229,338 |         |  |   | 1,175,006 |           |  |   | 2,269,197 |          
|              |       |           |         |                   |  |            |         |         |  |   |           |           |  |   |           |          
|              | Total |           | $       | 1,776,103         |  |            | $       | 300,455 |  |   | $         | 1,660,372 |  |   | $         | 3,736,930 | 
|              |       |           |         |                   |  |            |         |         |  |   |           |           |  |   |           |          



---



|    |                                                                                             
|--- | --------------------------------------------------------------------------------------------
|(1) | The average annual principal payments due from
    2008 to 2022 are $140.2 million per year.

The $700 million unsecured credit facility
matures in December 2003 and has a one-year extension option.

Other

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, 2002. See Note 11 for a summary of
derivative financial instruments used in connection with our
debt instruments.

69



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(7)     Distributions
to Shareholders

To maintain our status as a REIT, we are
generally required to distribute at least 90% of our taxable
income (95% for taxable years ending prior to January 1,
2001). 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 2002 Board
meeting, the Board announced an anticipated increase in the
annual distribution from $1.70 to $1.71 per Common Share.

The following table summarizes the cash dividends
paid per share on Common Shares and Preferred Shares during
2002, 2001 and 2000:

|                                 |  |      |          |      |  |      |      |  |  |   |      | 
|-------------------------------- |  | ---- | -------- | ---- |  | ---- | ---- |  |  | - | ---- | 
|                                 |  | 2002 |          | 2001 |  | 2000
|                                 |  |      |          |      |  |     
|Common Shares and A-1 Units      |  | $    | 1.70     |      |  | $    | 1.64 |  |  | $ | 1.54 | 
|Series A Preferred Shares        |  |      | 2.29     |      |  |      | 2.21 |  |  |   | 2.07 | 
|Series B Preferred Shares(1)     |  |      |         |      |  |      | 0.79 |  |  |   | 2.25 | 
|Series C Preferred Shares(2)     |  |      | 1.38     |      |  |      | 2.16 |  |  |   | 2.16 | 
|Series D Preferred Shares        |  |      | 2.19     |      |  |      | 2.19 |  |  |   | 2.19 | 
|Series H Preferred Shares(3)     |  |      | 3.36     |      |  |      |     |  |  |   |     | 
|Series I Preferred Shares(3),(4) |  |      | 7,660.00 |      |  |      |     |  |  |   |     | 
|Series J Preferred Shares(3),(5) |  |      | 1.71     |      |  |      |     |  |  |   |     | 
|Series K Preferred Shares(3)     |  |      | 3.36     |      |  |      |     |  |  |   |     | 
|Series L Preferred Shares(3)     |  |      | 3.36     |      |  |      |     |  |  |   |     | 



---



|    |                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | All of the outstanding Series B Preferred
    Shares were redeemed on May 7, 2001. The cash dividend paid
    for the period from January 1, 2001 to May 7, 2001 was
    $0.79 per share.
|   
|(2) | The Series C Preferred Shares were redeemed
    at liquidation value, plus accrued and unpaid distributions, on
    August 20, 2002.                                                     
|   
|(3) | Series H, I, J, K and L did not exist before
    the Smith Merger.                                                                                                                       
|   
|(4) | The Series I Preferred Shares have a par
    value of $100,000.                                                                                                                          
|   
|(5) | 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

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,
we converted Series J Preferred Shares to Common Shares. In
May 2001, we redeemed and retired all outstanding shares of
Series B Preferred Shares at the liquidation preference of
$25 per share, plus accrued and unpaid dividends, for a total of
$104.7 million.

70



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Common Share
Repurchase

In the fourth quarter of 2002, Archstone-Smith
repurchased 668,900 Common Shares for an average price of
$22.97 per share. In February 2001, Archstone facilitated the
liquidation of Security Capitals ownership of Common
Shares. Of the 31.8 million Common Shares held by Security
Capital prior to the transaction, we purchased 2.3 million
shares from Security Capital at $22.08 per share and
29.5 million shares were sold to the public in an
underwritten secondary offering.

Preferred
Shares

A summary of our Convertible Preferred Shares
outstanding at December 31, 2002 and 2001, including their
significant rights, preferences, and privileges follows:

|                                                                                                                                              |  |            |          |            |  |             |        |               |  |                        |       |      |  |   |      |  |  |   |         |  |  |   |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- | -------- | ---------- |  | ----------- | ------ | ------------- |  | ---------------------- | ----- | ---- |  | - | ---- |  |  | - | ------- |  |  | - | ------- | 
|                                                                                                                                              |  |            |          |            |  |             |        |               |  |                       
|                                                                                                                                              |  |            |          |            |  |             |        | Annual        |  | December 31,          
|                                                                                                                                              |  | Redemption |          | Conversion |  | Liquidation |        | Dividend Rate |  |                       
|Description                                                                                                                                   |  | Date       |          | Ratio      |  | value       |        | Per Share     |  | 2002                   |       | 2001
|                                                                                                                                              |  |            |          |            |  |             |        |               |  |                        |       |     
|                                                                                                                                              |  |            |          |            |  |             |        |               |  |                       
|                                                                                                                                              |  |            |          |            |  |             |        |               |  | (Amounts in thousands)
|Series A Preferred Shares; 2,926,835 and
    3,154,035 shares issued and outstanding at
    December 31, 2002 and 2001, respectively(1)(2)(3) |  |            | 11/30/03 |            |  |             | 1.3469 |               |  | $                      | 25.00 |      |  | $ | 2.29 |  |  | $ | 73,171  |  |  | $ | 78,851  | 
|Series H Preferred Shares;
    2,640,325 shares issued and outstanding at
    December 31, 2002 and December 31, 2001(1)(3)                   |  |            | 05/15/03 |            |  |             | 1.975  |               |  |                        | 27.08 |      |  |   | 3.36 |  |  |   | 71,500  |  |  |   | 71,500  | 
|Series J Preferred Shares;
    684,931 shares issued and outstanding at December 31,
    2001(4)                                              |  |            |         |            |  |             |       |               |  |                        |      |      |  |   |     |  |  |   |        |  |  |   | 25,000  | 
|Series K Preferred Shares;
    666,667 shares issued and outstanding at December 31,
    2002 and December 31, 2001(1)(3)                     |  |            | 10/01/04 |            |  |             | 1.975  |               |  |                        | 37.50 |      |  |   | 3.36 |  |  |   | 25,000  |  |  |   | 25,000  | 
|Series L Preferred Shares;
    641,026 shares issued and outstanding at December 31,
    2002 and December 31, 2001(1)(3)                     |  |            | 11/05/05 |            |  |             | 1.975  |               |  |                        | 39.00 |      |  |   | 3.36 |  |  |   | 25,000  |  |  |   | 25,000  | 
|                                                                                                                                              |  |            |          |            |  |             |        |               |  |                        |       |      |  |   |      |  |  |   |         |  |  |   |         | 
|                                                                                                                                              |  |            |          |            |  |             |        |               |  |                        |       |      |  |   |      |  |  | $ | 194,671 |  |  | $ | 225,351 | 
|                                                                                                                                              |  |            |          |            |  |             |        |               |  |                        |       |      |  |   |      |  |  |   |         |  |  |   |         | 



---



|    |                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 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.
|   
|(2) | During 2002, 2001 and 2000 approximately 227,000,
    152,000 and 399,000 of Series A Preferred Shares were
    converted into approximately 306,000, 205,000 and 538,000 Common
    Shares, respectively.                                                         
|   
|(3) | Series A, H, K and L 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.                                                                                           
|   
|(4) | The Series J Preferred Shares were converted
    into Common Shares on July 13, 2002.                                                                                                                                                                              

71



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A summary of our Perpetual Preferred Shares
outstanding at December 31, 2002 and 2001, including their
significant rights, preferences, and privileges follows:

|                                                                                                                                        |  |            |          |             |  |               |         |                        |  |      |       |  |  |   |        |  |  |   |         | 
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- | -------- | ----------- |  | ------------- | ------- | ---------------------- |  | ---- | ----- |  |  | - | ------ |  |  | - | ------- | 
|                                                                                                                                        |  |            |          |             |  |               |         |                       
|                                                                                                                                        |  |            |          |             |  | Annual        |         | December 31,          
|                                                                                                                                        |  | Redemption |          | Liquidation |  | Dividend Rate |         |                       
|Description                                                                                                                             |  | Date(1)    |          | Value       |  | Per Share     |         | 2002                   |  | 2001
|                                                                                                                                        |  |            |          |             |  |               |         |                        |  |     
|                                                                                                                                        |  |            |          |             |  |               |         |                       
|                                                                                                                                        |  |            |          |             |  |               |         | (Amounts in thousands)
|Series C Preferred Shares; 1,966,715 shares
    issued and outstanding at December 31, 2001(2)                                          |  |            |         |             |  | $             |        |                        |  | $    |      |  |  | $ |       |  |  | $ | 49,168  | 
|Series D Preferred Shares; 1,974,806 and
    1,983,816 shares issued and outstanding at December 31,
    2002 and 2001, respectively(1) |  |            | 08/06/04 |             |  |               | 25.00   |                        |  |      | 2.19  |  |  |   | 49,370 |  |  |   | 49,595  | 
|Series I Preferred Shares; 500 shares
    issued and outstanding at December 31, 2002 and 2001,
    respectively(1)                     |  |            | 02/01/28 |             |  |               | 100,000 |                        |  |      | 7,660 |  |  |   | 50,000 |  |  |   | 50,000  | 
|                                                                                                                                        |  |            |          |             |  |               |         |                        |  |      |       |  |  |   |        |  |  |   |         | 
|                                                                                                                                        |  |            |          |             |  |               |         |                        |  |      |       |  |  | $ | 99,370 |  |  | $ | 148,763 | 
|                                                                                                                                        |  |            |          |             |  |               |         |                        |  |      |       |  |  |   |        |  |  |   |         | 



---



|    |                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.
|   
|(2) | Series C Preferred Shares were redeemed at
    liquidation value, plus accrued and unpaid dividends, on
    August 20, 2002.                                                                                                                                       

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, when and as declared and authorized by the Board, out
of funds legally available for the payment of distributions,
cumulative preferential cash distributions. All Preferred Share
distributions are cumulative from date of original issue and all
series of Preferred Shares rank as a parity 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 arrears in dividends 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 at a two percent discount from market prices, based on
the average of the high and low sales price of a Common Share on
the day of the purchase. Additionally, existing and prospective
investors have the ability to directly purchase additional
Common Shares. The amount purchased by an individual is limited
to a maximum of $5,000 per month, with any investments above the
limitation requiring our approval. We have not granted approvals
for any purchases above the $5,000 threshold since inception of
the plan. In April 2002, we filed a

72



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

registration statement with the Securities and
Exchange Commission registering the offering of 3,556,267 Common
Shares pursuant to the terms of the plan. As of
December 31, 2002 we had 1,933,334 Common Shares left to
issue under this plan.

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 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,
2002.

73



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(9)     Minority
Interest

Minority interest consists of the following at
December 31, 2002 and 2001 (in thousands):

|                                   |       |      |         |         |  |   |         |         | 
|---------------------------------- | ----- | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                   |       | 2002 |         | 2001   
|                                   |       |      |         |        
|A-1 Common Units                   |       | $    | 484,049 |         |  | $ | 499,876 |        
|DownREIT Perpetual Preferred Units |       |      | 61,180  |         |  |   | 73,180  |        
|DownREIT OP Units(1)               |       |      |        |         |  |   | 18,747  |        
|Other minority interests           |       |      | 2,600   |         |  |   | 2,600   |        
|                                   |       |      |         |         |  |   |         |        
|                                   | Total |      | $       | 547,829 |  |   | $       | 594,403 | 
|                                   |       |      |         |         |  |   |         |        



---



|    |                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------
|(1) | In August 2002, the Operating Trust converted all
    of the outstanding DownREIT operating units into A-1 Common
    Units.

A-1 Common
Units

As of December 31, 2002 and
December 31, 2001, we owned an 88.0% and 87.3% 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 Common
Shares. The A-1 Common Unitholders aggregate minority
interest in the Operating Trust was approximately 12.0% and
12.7% at December 31, 2002 and 2001, respectively. During
the twelve months ended December 31, 2002, Class A-1
Common Units of 2,100,638 were redeemed for Common Shares.

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

74



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

certain dates. Following is a summary of
outstanding DownREIT Perpetual Preferred Units as of
December 31, 2002 and 2001:

|                                                                                                                                     |  |                    |          |                   |  |                 |       |              |  |      |      |  |  |   |        |  |  |   |        | 
|------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | -------- | ----------------- |  | --------------- | ----- | ------------ |  | ---- | ---- |  |  | - | ------ |  |  | - | ------ | 
|                                                                                                                                     |  |                    |          |                   |  |                 |       |             
|                                                                                                                                     |  |                    |          |                   |  |                 |       | Amounts in  
|                                                                                                                                     |  |                    |          |                   |  |                 |       | Thousands   
|                                                                                                                                     |  |                    |          |                   |  |                 |       | December 31,
|                                                                                                                                     |  |                    |          |                   |  | Annual Dividend |       |             
|Description                                                                                                                          |  | Redemption Date(1) |          | Liquidation Value |  | Rate Per Share  |       | 2002         |  | 2001
|                                                                                                                                     |  |                    |          |                   |  |                 |       |              |  |     
|Series E Perpetual Preferred Units;
    1,120,000 and 1,600,000 Units issued and outstanding at
    December 31, 2002 and 2001(2)(3) |  |                    | 08/13/04 |                   |  | $               | 25.00 |              |  | $    | 2.09 |  |  | $ | 27,123 |  |  | $ | 39,123 | 
|Series F Perpetual Preferred Units; 800,000
    Units issued and outstanding at December 31, 2002 and
    2001(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, 2002 and
    2001(2)                    |  |                    | 03/03/05 |                   |  |                 | 25.00 |              |  |      | 2.16 |  |  |   | 14,593 |  |  |   | 14,593 | 
|                                                                                                                                     |  |                    |          |                   |  |                 |       |              |  |      |      |  |  |   |        |  |  |   |        | 
|                                                                                                                                     |  |                    |          |                   |  |                 |       |              |  |      |      |  |  | $ | 61,180 |  |  | $ | 73,180 | 
|                                                                                                                                     |  |                    |          |                   |  |                 |       |              |  |      |      |  |  |   |        |  |  |   |        | 



---



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

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. As of December 31, 2002, Archstone-Smith
had 6,325,331 share awards available for future grants. The plan
has a ten-year term.

Share Options
and Trustee Options

The exercise price of each employee share option
granted is equal to the fair market value at the close of
business on the day immediately preceding the date of grant. The
share 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 Shares for issuance to 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 of
the options granted to Outside Trustees prior to 1999 have a
five-year term and are exercisable in

75



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

whole or in part at any time. The options issued
to Outside Trustees subsequent to 1998 have a DEU feature, a
10-year term and vest over a four-year period.

During 1997, as part of the employee share
purchase plan, certain officers and other employees purchased
Common Shares of the company. Archstone-Smith financed 95% of
the total purchase price by issuing notes representing
approximately $17.1 million. As of December 31, 2002,
the aggregate outstanding balances on these notes were
approximately $2.0 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.

A summary of all share options outstanding at
December 31, 2002 follows:

|                                                                    |       |           |           |                 |  |         |              |                  |  |                  |       |       |  |  |           |  |  |  |            |  | 
|------------------------------------------------------------------- | ----- | --------- | --------- | --------------- |  | ------- | ------------ | ---------------- |  | ---------------- | ----- | ----- |  |  | --------- |  |  |  | ---------- |  | 
|                                                                    |       |           |           |                 |  |         |              |                 
|                                                                    |       |           |           | Exercise Prices |  |         |              | Weighted-Average
|                                                                    |       | Number of |           |                 |  |         |              | Remaining       
|                                                                    |       | Options   |           | Range           |  | Average |              | Expiration Date  |  | Contractual Life
|                                                                    |       |           |           |                 |  |         |              |                  |  |                 
|Matching options under the 1997 employee share
    purchase program |       |           | 792,244   |                 |  | $       | 21.19-$23.34 |                  |  | $                | 22.20 |       |  |  | 2007-2008 |  |  |  | 4.74 years | 
|Share options with DEUs                                             |       |           | 1,261,122 |                 |  | $       | 19.00-$23.34 |                  |  |                  | 20.54 |       |  |  | 2007-2009 |  |  |  | 6.04 years | 
|Share options without DEUs                                          |       |           | 4,733,182 |                 |  | $       | 22.56-$28.86 |                  |  |                  | 24.76 |       |  |  | 2003-2012 |  |  |  | 9.01 years | 
|Outside Trustees                                                    |       |           | 76,250    |                 |  | $       | 22.13-$23.95 |                  |  |                  | 23.01 |       |  |  | 2003-2011 |  |  |  | 6.97 years | 
|Exchanged options                                                   |       |           | 2,373,564 |                 |  | $       | 12.16-$23.18 |                  |  |                  | 18.86 |       |  |  | 2004-2011 |  |  |  | 6.91 years | 
|                                                                    |       |           |           |                 |  |         |              |                  |  |                  |       |       |  |  |           |  |  |  |            | 
|                                                                    | Total |           |           | 9,236,362       |  |         | $            | 12.16-$28.86     |  |                  | $     | 22.44 |  |  |           |  |  |  |            |  | 
|                                                                    |       |           |           |                 |  |         |              |                  |  |                  |       |       |  |  |           |  |  |  |            | 

A summary of the status of our share option plans
as of December 31, 2002, 2001 and 2000, 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, 1999. |                                  |           | 4,196,414 |                  |   | $           | 21.36 |       |  |  | 873,325   | 
|                                       |                                  |           |           |                  |   |             |       |       |  |  |           | 
|                                       | Granted                          |           |           | 1,259,776        |   |             |       | 24.51 |  |  |           |  | 
|                                       | Exercised                        |           |           | (371,333         | ) |             |       | 21.49 |  |  |           |  | 
|                                       | Forfeited                        |           |           | (931,644         | ) |             |       | 21.40 |  |  |           |  | 
|                                       |                                  |           |           |                  |   |             |       |       |  |  |           | 
|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 | 
|                                       |                                  |           |           |                  |   |             |       |       |  |  |           | 

76



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Restricted
Share Unit Awards

During 2002, 2001 and 2000 we awarded 331,048,
168,066 and 131,942 RSUs with a DEU feature to certain
employees under the long-term incentive plan, respectively, of
which 32,141 have been forfeited. Ten 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 is
subject to certain vesting provisions, and upon settlement
provides the holder with one Common Share. 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 share options are
calculated by taking the average number of share options held at
each record date and multiplying by the difference between the
average annual dividend yield on Common Shares 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, 2002, there were a total
of 241,434 DEUs outstanding awarded to 90 holders of share
options and RSUs. The outstanding DEUs were valued at
$5.7 million on December 31, 2002 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 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. 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
are accrued based on the amount that would be payable if he had
used the cash to purchase Common Shares on the date the fee was
credited and

77



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

reinvested any dividends received during the
deferral period into additional phantom Common Shares. Dividends
can be deferred up to the date the Trustee ceases to serve on
the Board and are payable in Common Shares. Alternatively, the
Trustee can elect to have his or her deferred fees invested in
one or more of the investment funds that are otherwise available
under the deferred compensation plan, which amounts are payable
only in cash.

(11)     Financial
Instruments and Hedging Activities

Fair Value of
Financial Instruments

At December 31, 2002 and 2001, 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
actual amounts that we could realize upon disposition. The
following table summarizes these financial instruments (in
thousands):

|                         |                             |                              |   |                              |   |          |   |            |   |  |   |           |   |  |   |           |  
|------------------------ | --------------------------- | ---------------------------- | - | ---------------------------- | - | -------- | - | ---------- | - |  | - | --------- | - |  | - | --------- | -
|                         |                             |                              |   |                             
|                         |                             | Balance at December 31, 2002 |   | Balance at December 31, 2001
|                         |                             |                              |   |                             
|                         |                             | Carrying                     |   | Estimated                    |   | Carrying |   | Estimated 
|                         |                             | Amounts                      |   | Fair Value                   |   | Amounts  |   | Fair Value
|                         |                             |                              |   |                              |   |          |   |           
|Borrowings:              |                             |                              |   |                              |   |          |   |            |   |  |   |           |   |  |   |          
|                         | Unsecured credit facilities |                              | $ | 365,578                      |   |          | $ | 365,578    |   |  | $ | 188,589   |   |  | $ | 188,589   |  
|                         | Long-Term Unsecured Debt    |                              |   | 1,776,103                    |   |          |   | 1,969,102  |   |  |   | 1,333,890 |   |  |   | 1,344,917 |  
|                         | Mortgages payable           |                              |   | 1,960,827                    |   |          |   | 1,838,611  |   |  |   | 2,330,533 |   |  |   | 2,330,149 |  
|Interest rate contracts: |                             |                              |   |                              |   |          |   |            |   |  |   |           |   |  |   |          
|                         | Interest rate swaps         |                              | $ | (1,235                       | ) |          | $ | (1,235     | ) |  | $ | (770      | ) |  | $ | (770      | )
|                         | Interest rate caps          |                              |   | 3                            |   |          |   | 3          |   |  |   | 20        |   |  |   | 20        |  

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. 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. 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.

78



---



##### Table of Contents



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.

Derivatives
and Hedging Activities

We adopted SFAS No. 133/138,
Accounting for Derivative Instruments and Hedging
Activitieson January 1, 2001. This new
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. In addition, for
the years ended December 31, 2002 and 2001 we recorded a
$20,000 and $490,000 charge, respectively, to other expense
related to the change in time value of our interest rate caps.
During the years ended December 31, 2002 and 2001 we
recorded a net charge of $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.

The following table summarizes the notional
amount, carrying value and estimated fair value of our
derivative financial instruments, as of December 31, 2002
(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     |         |                |  | 2006      |           |           | $ | 3       |        
|                   | Interest rate swaps        |                         |              | 150,000    |         |                |  | 2005      |           |           |   | (13,361 | )      
|                   |                            |                         |              |            |         |                |  |           |           |           |   |        
|                   |                            | Total cash flow hedges  |              | $          | 184,508 |                |  |           | 2005-2006 |           |   | $       | (13,358 | )     
|                   |                            |                         |              |            |         |                |  |           |           |           |   |        
|Fair value hedges: |                            |                         |              |            |         |                |  |           |           |           |   |        
|                   | Interest rate swaps        |                         | $            | 104,005    |         |                |  | 2006-2008 |           |           | $ | 11,050  |        
|                   | Total rate of return swaps |                         |              | 69,756     |         |                |  | 2004-2007 |           |           |   | 1,076   |        
|                   |                            |                         |              |            |         |                |  |           |           |           |   |        
|                   |                            | Total fair value hedges |              | $          | 173,761 |                |  |           | 2004-2008 |           |   | $       | 12,126  |       
|                   |                            |                         |              |            |         |                |  |           |           |           |   |        
|                   |                            |                         | Total hedges |            | $       | 358,269        |  |           |           | 2004-2008 |   |         | $       | (1,232 | )
|                   |                            |                         |              |            |         |                |  |           |           |           |   |        

(12)     Selected
Quarterly Financial Data (Unaudited)

Selected quarterly financial data (in thousands,
except per share amounts) for 2002 and 2001 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.

79



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |        |  |   |           |        | 
|----- | ------------------------------------------------------------ | ------------------------------------------ | - | ---------- | ----- | ------- | - | -------- | ----- | -------- | - | ------- | ----- |  | - | ------- | ------ |  | - | --------- | ------ | 
|      |                                                              |                                            |   |           
|      |                                                              | Three Months Ended                         |   |           
|      |                                                              |                                            |   | Year Ended
|      |                                                              | 3-31(1)                                    |   | 6-30(1)    |       | 9-30(1) |   | 12-31(1) |       | 12-31(1)
|      |                                                              |                                            |   |            |       |         |   |          |       |         
|2002: |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |        |  |   |          
|      | Total revenues                                               |                                            | $ | 250,589    |       |         | $ | 260,160  |       |          | $ | 271,489 |       |  | $ | 300,053 |        |  | $ | 1,082,291 |       
|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |        |  |   |          
|      | Earnings from operations                                     |                                            |   | 62,593     |       |         |   | 64,268   |       |          |   | 62,857  |       |  |   | 86,572  |        |  |   | 276,290   |       
|      | Gains on dispositions of depreciated real estate,
    net(2) |                                            |   | 1,281      |       |         |   | 23,263   |       |          |   | 3,399   |       |  |   | 8,007   |        |  |   | 35,950    |       
|      | Less minority interest:                                      |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |        |  |   |           |       
|      |                                                              | Perpetual preferred units                  |   |            | 1,567 |         |   |          | 1,567 |          |   |         | 1,567 |  |   |         | 1,316  |  |   |           | 6,017  | 
|      |                                                              | Convertible operating partnership units(3) |   |            | 6,276 |         |   |          | 8,827 |          |   |         | 9,053 |  |   |         | 10,351 |  |   |           | 34,683 | 
|      | Plus net earnings from discontinued operations               |                                            |   | 3,105      |       |         |   | 15,863   |       |          |   | 7,967   |       |  |   | 46,743  |        |  |   | 73,678    |       
|      | Less extraordinary item, net(3)                              |                                            |   |           |       |         |   | 9,074    |       |          |   | 653     |       |  |   | 20,486  |        |  |   | 30,155    |       
|      | 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   |       |          | $ | 55,248  |       |  | $ | 102,126 |        |  | $ | 282,878   |       
|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |        |  |   |          
|      | Net earnings per Common Share:                               |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |        |  |   |           |       
|      |                                                              | Basic                                      |   | $          | 0.29  |         |   | $        | 0.43  |          |   | $       | 0.31  |  |   | $       | 0.56   |  |   | $         | 1.59   | 
|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |        |  |   |          
|      |                                                              | Diluted                                    |   | $          | 0.29  |         |   | $        | 0.42  |          |   | $       | 0.31  |  |   | $       | 0.56   |  |   | $         | 1.58   | 
|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |        |  |   |          
|2001: |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |        |  |   |          
|      | Total revenues                                               |                                            | $ | 163,572    |       |         | $ | 149,295  |       |          | $ | 151,422 |       |  | $ | 215,256 |        |  | $ | 679,545   |       
|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |        |  |   |          
|      | Earnings from operations                                     |                                            |   | 34,897     |       |         |   | 40,121   |       |          |   | 36,668  |       |  |   | 52,307  |        |  |   | 163,993   |       
|      | Gains on dispositions of depreciated real estate,
    net(2) |                                            |   | 35,051     |       |         |   | 35,470   |       |          |   | 9,767   |       |  |   | 19,985  |        |  |   | 100,273   |       
|      | Less minority interest:                                      |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |        |  |   |           |       
|      |                                                              | Perpetual preferred units                  |   |            | 1,567 |         |   |          | 1,567 |          |   |         | 1,568 |  |   |         | 1,567  |  |   |           | 6,269  | 
|      |                                                              | Convertible operating partnership units(3) |   |            | 370   |         |   |          | 370   |          |   |         | 370   |  |   |         | 6,534  |  |   |           | 8,929  | 
|      | Plus net earnings from discontinued operations               |                                            |   | 2,684      |       |         |   | 2,682    |       |          |   | 2,871   |       |  |   | 2,803   |        |  |   | 11,040    |       
|      | Less extraordinary item, net(3)                              |                                            |   |           |       |         |   |         |       |          |   |        |       |  |   | 2,078   |        |  |   | 2,230     |       
|      | Less Preferred Share dividends                               |                                            |   | 6,307      |       |         |   | 4,904    |       |          |   | 3,913   |       |  |   | 7,153   |        |  |   | 22,277    |       
|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |        |  |   |          
|      | Net earnings attributable to Common
    Shares  Basic(3)    |                                            | $ | 64,388     |       |         | $ | 71,432   |       |          | $ | 43,455  |       |  | $ | 57,763  |        |  | $ | 235,601   |       
|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |        |  |   |          
|      | Net earnings per Common Share:                               |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |        |  |   |           |       
|      |                                                              | Basic                                      |   | $          | 0.53  |         |   | $        | 0.59  |          |   | $       | 0.36  |  |   | $       | 0.37   |  |   | $         | 1.81   | 
|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |        |  |   |          
|      |                                                              | Diluted                                    |   | $          | 0.52  |         |   | $        | 0.58  |          |   | $       | 0.36  |  |   | $       | 0.37   |  |   | $         | 1.79   | 
|      |                                                              |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |        |  |   |          



---



|    |                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------
|(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 amounts do not equal
    the year to date total.

80



---



##### Table of Contents



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. We rely primarily on NOI for purposes of
making decisions about allocating resources and assessing
segment 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,               
|                                                   |                      |                                        
|                                                   |                      | 2002                                    |        | 2001    |           | 2000
|                                                   |                      |                                         |        |         |           |     
|Reportable apartment communities segment revenues: |                      |                                         |        |         |           |      |        |         |         |  |        |        
|                                                   | Garden communities   |                                         | $      | 628,637 |           |      | $      | 591,816 |         |  | $      | 642,902 |        
|                                                   | High-rise properties |                                         |        | 366,804 |           |      |        | 56,480  |         |  |        |        |        
|Other non-reportable operating segment revenues    |                      |                                         | 86,850 |         |           |      | 31,249 |         |         |  | 38,796 |        
|                                                   |                      |                                         |        |         |           |      |        |         |         |  |        |        
|                                                   |                      | Total segment and consolidated revenues |        | $       | 1,082,291 |      |        | $       | 679,545 |  |        | $       | 681,698 | 
|                                                   |                      |                                         |        |         |           |      |        |         |         |  |        |        

|                                              |                                            |                                       |       |          |         |      |       |          |         |  |       |          |         | 
|--------------------------------------------- | ------------------------------------------ | ------------------------------------- | ----- | -------- | ------- | ---- | ----- | -------- | ------- |  | ----- | -------- | ------- | 
|                                              |                                            |                                      
|                                              |                                            | Years Ended December 31,             
|                                              |                                            |                                      
|                                              |                                            | 2002                                  |       | 2001     |         | 2000
|                                              |                                            |                                       |       |          |         |     
|Reportable apartment communities segment NOI: |                                            |                                       |       |          |         |      |       |          |         |  |       |         
|                                              | Garden communities                         |                                       | $     | 416,093  |         |      | $     | 400,030  |         |  | $     | 431,953  |        
|                                              | High-rise properties                       |                                       |       | 217,904  |         |      |       | 36,372   |         |  |       |         |        
|Other non-reportable operating segment NOI    |                                            |                                       | 3,004 |          |         |      | 3,597 |          |         |  | 4,094 |         
|                                              |                                            |                                       |       |          |         |      |       |          |         |  |       |         
|                                              |                                            | Total segment NOI                     |       |          | 637,001 |      |       |          | 439,999 |  |       |          | 436,047 | 
|                                              |                                            |                                       |       |          |         |      |       |          |         |  |       |         
|Reconciling items:                            |                                            |                                       |       |          |         |      |       |          |         |  |       |         
|                                              | Income from unconsolidated entities        |                                       |       | 73,075   |         |      |       | 14,375   |         |  |       | 2,752    |        
|                                              | Other income                               |                                       |       | 11,467   |         |      |       | 12,768   |         |  |       | 31,938   |        
|                                              | Depreciation on real estate investments    |                                       |       | (192,447 | )       |      |       | (123,308 | )       |  |       | (135,465 | )      
|                                              | Interest expense                           |                                       |       | (194,955 | )       |      |       | (130,027 | )       |  |       | (134,999 | )      
|                                              | General and administrative expenses        |                                       |       | (43,340  | )       |      |       | (26,503  | )       |  |       | (23,157  | )      
|                                              | Provision for possible loss on investments |                                       |       |         |         |      |       | (14,927  | )       |  |       | (5,200   | )      
|                                              | Other expenses                             |                                       |       | (14,511  | )       |      |       | (8,384   | )       |  |       | (3,936   | )      
|                                              |                                            |                                       |       |          |         |      |       |          |         |  |       |         
|                                              |                                            | Consolidated earnings from operations |       | $        | 276,290 |      |       | $        | 163,993 |  |       | $        | 167,980 | 
|                                              |                                            |                                       |       |          |         |      |       |          |         |  |       |         

|                                                 |                      |                         |        |           |           |  |        |           |           | 
|------------------------------------------------ | -------------------- | ----------------------- | ------ | --------- | --------- |  | ------ | --------- | --------- | 
|                                                 |                      |                        
|                                                 |                      | Year Ended December 31,
|                                                 |                      |                        
|                                                 |                      | 2002                    |        | 2001     
|                                                 |                      |                         |        |          
|Reportable operating communities segment assets: |                      |                         |        |           |           |  |        |          
|                                                 | Garden communities   |                         | $      | 4,731,919 |           |  | $      | 4,649,561 |          
|                                                 | High-rise properties |                         |        | 3,500,900 |           |  |        | 3,188,074 |          
|Other non-reportable operating segment assets    |                      |                         | 34,755 |           |           |  | 31,585 |          
|                                                 |                      |                         |        |           |           |  |        |          
|                                                 |                      | Total segment assets    |        |           | 8,267,574 |  |        |           | 7,869,220 | 
|                                                 |                      |                         |        |           |           |  |        |          

81



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                   |                                                           |                           |  |         |           |  |  |         |           | 
|------------------ | --------------------------------------------------------- | ------------------------- |  | ------- | --------- |  |  | ------- | --------- | 
|                   |                                                           |                          
|                   |                                                           | Year Ended December 31,  
|                   |                                                           |                          
|                   |                                                           | 2002                      |  | 2001   
|                   |                                                           |                           |  |        
|Reconciling items: |                                                           |                           |  |         |           |  |  |        
|                   | Investment in and advances to unconsolidated
    entities |                           |  | 346,946 |           |  |  | 437,365 |          
|                   | Cash and cash equivalents                                 |                           |  | 12,846  |           |  |  | 7,027   |          
|                   | Restricted cash in tax-deferred exchange escrow           |                           |  |        |           |  |  | 120,421 |          
|                   | Other assets                                              |                           |  | 227,702 |           |  |  | 115,882 |          
|                   |                                                           |                           |  |         |           |  |  |        
|                   |                                                           | Consolidated total assets |  | $       | 8,855,068 |  |  | $       | 8,549,915 | 
|                   |                                                           |                           |  |         |           |  |  |        

Total capital expenditures for garden communities
were $56.3 million and $36.3 million for the years
ended December 31, 2002 and 2001, respectively. Total
capital expenditures for high-rise properties were
$136.3 million and $23.0 million for the years ended
December 31, 2002 and 2001, 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 (95% for tax years ending on or prior
to December 31, 2000). 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 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.

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,                                
|                         |                                              |                                                                
|                         |                                              | 2002                                                            |         | 2001    |         | 2000
|                         |                                              |                                                                 |         |         |         |     
|                         |                                              | (estimated)                                                     |         |         |         |     
|GAAP net earnings        |                                              | $                                                               | 315,063 |         |         | $    | 257,878 |          |         | $ | 261,385 |        
|Book to tax differences: |                                              |                                                                 |         |         |         |      |         |          |         |   |         |        
|                         | Gain on sale of CES(1)                       |                                                                 |         | (39,484 | )       |      |         |         |         |   |         |        |        
|                         | Depreciation and amortization(2)             |                                                                 |         | (13,813 | )       |      |         | (5,722   | )       |   |         | (7,311  | )      
|                         | Gain or loss from capital transactions(3)    |                                                                 |         | (2,294  | )       |      |         | 23,109   |         |   |         | (29,077 | )      
|                         | Deferred compensation and gain contingencies |                                                                 |         | 15,300  |         |      |         |         |         |   |         |        |        
|                         | Merger expenses                              |                                                                 |         |        |         |      |         | (21,673  | )       |   |         |        |        
|                         | Other, net                                   |                                                                 |         | 4,055   |         |      |         | 3,991    |         |   |         | 1,772   |        
|                         |                                              |                                                                 |         |         |         |      |         |          |         |   |         |        
|Taxable income           |                                              |                                                                 | 278,827 |         |         |      | 257,583 |          |         |   | 226,769 |        
|                         | Less: capital gains recognized               |                                                                 |         | (75,013 | )       |      |         | (111,052 | )       |   |         | (73,574 | )      
|                         |                                              |                                                                 |         |         |         |      |         |          |         |   |         |        
|                         |                                              | Taxable income subject to dividend distribution
    requirement |         | $       | 203,814 |      |         | $        | 146,531 |   |         | $       | 153,195 | 
|                         |                                              |                                                                 |         |         |         |      |         |          |         |   |         |        

82



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.
|   
|(3) | The negative tax adjustment during 2000 was due
    to certain gains, which were included in GAAP earnings but were
    deferred through 1031 exchanges for tax purposes and therefore
    excluded from taxable net earnings. This was offset during 2001
    as certain taxable gains were deferred according to GAAP (see
    Note 5).                                                                              

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

|                                    |                                                |                                 |         |         |         |      |         |        |         |   |         |     |         | 
|----------------------------------- | ---------------------------------------------- | ------------------------------- | ------- | ------- | ------- | ---- | ------- | ------ | ------- | - | ------- | --- | ------- | 
|                                    |                                                |                                
|                                    |                                                | For the Year Ended December 31,
|                                    |                                                |                                
|                                    |                                                | 2002                            |         | 2001    |         | 2000
|                                    |                                                |                                 |         |         |         |     
|                                    |                                                | (estimated)                     |         |         |         |     
|Taxable component of dividends paid |                                                | $                               | 334,322 |         |         | $    | 240,073 |        |         | $ | 226,597 |    
|                                    | Plus: dividends designated from following year |                                 |         |        |         |      |         | 17,682 |         |   |         | 172 |        
|                                    | Less: dividends designated to prior year       |                                 |         | (17,682 | )       |      |         | (172   | )       |   |         |    |        
|                                    |                                                |                                 |         |         |         |      |         |        |         |   |         |    
|                                    |                                                | Dividends paid deduction(1)     |         | $       | 316,640 |      |         | $      | 257,583 |   |         | $   | 226,769 | 
|                                    |                                                |                                 |         |         |         |      |         |        |         |   |         |    



---



|    |                                                                    
|--- | -------------------------------------------------------------------
|(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,      
|                 |  |                   
|                 |  | 2002               |       | 2001 |  | 2000
|                 |  |                    |       |      |  |     
|Ordinary income  |  |                    | 78.0  | %    |  |      | 54.0  | % |  |  | 68.0  | %
|Capital gains(1) |  |                    | 22.0  | %    |  |      | 46.0  | % |  |  | 32.0  | %
|                 |  |                    |       |      |  |      |       |   |  |  |       |  
|                 |  |                    | 100.0 | %    |  |      | 100.0 | % |  |  | 100.0 | %
|                 |  |                    |       |      |  |      |       |   |  |  |       |  



---



|    |                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------
|(1) | Includes 6.2%, 22.0% and 13.0% of unrecaptured
    section 1250 gains in 2002, 2001, and 2000, respectively.

(15)     Homestead
Mortgage Notes

In July 2000, we completed a transaction to
repurchase approximately 17.5 million of our Common Shares held
by Security Capital in exchange for Homestead mortgage notes
with a face amount of $221.3 million and cash of
$178.7 million. The Homestead mortgage notes and related
balances had a net book value of $195.7 million on the date
of the transaction. We recognized a gain of $9.3 million
related to this transaction in the third quarter of 2000.

In March 2000, we determined that the conversion
feature associated with our investment in Homestead mortgage
notes had no continuing economic value. Therefore, a write-off
of the net unamortized balance of the conversion feature,
aggregating $2.8 million, was recorded. The remaining
balances associated with the convertible mortgage notes were not
affected.

83



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(16)     Commitments
and Contingencies

Commitments

At December 31, 2002 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, 2002
(in thousands):

|                       |       |   |         |         | 
|---------------------- | ----- | - | ------- | ------- | 
|2003                   |       | $ | 7,879   |        
|2004                   |       |   | 7,392   |        
|2005                   |       |   | 6,368   |        
|2006                   |       |   | 4,876   |        
|2007                   |       |   | 4,877   |        
|Thereafter (2008-2095) |       |   | 194,865 |        
|                       |       |   |         |        
|                       | Total |   | $       | 226,257 | 
|                       |       |   |         |        

See Note 3 for real estate related
commitments.

Guarantees
and Indemnifications

We have extended approximately $80.7 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. 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.

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 plus
the unfunded amount of the $10 million Ameriton credit
facility. See Note 5 for a summary of our investments in
and advances to unconsolidated entities.

Litigation
and Contingencies

For the year ended December 31, 2002, we
have incurred and/or accrued a liability for approximately
$30.8 million relating to moisture infiltration and
resulting mold issues at one of our high-rise properties in
Southeast Florida. Of this amount, approximately
$11.3 million represents amounts expensed during the

84



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

second half of 2002 for the estimated cost of
repairing or replacing residents property 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.

We are in the process of addressing this issue,
and there are still considerable uncertainties that affect our
ability to estimate the ultimate cost of remediation efforts.
These uncertainties include the exact nature and extent of the
issues, the extent of required remediation efforts and varying
costs of alternative strategies for addressing the issues. The
accrual represents managements best estimate of the
probable and reasonably estimable costs and is based, in part,
on estimates obtained from third-party environmental contractors
and actual costs incurred to date. It is possible that these
estimates could increase or decrease as better information
becomes available.

The company is also subject to litigation in
connection with these issues. We intend to vigorously contest
the claims asserted in the litigation. Due to the preliminary
nature of the litigation, it is not possible to predict or
determine the outcome of the legal actions nor is it reasonably
possible to estimate the amount of loss associated with an
adverse outcome.

We believe these costs are covered by our
insurance policies and are pursuing recovery from our carriers.
In addition, we believe there is a basis for other potential
recoveries from third parties. As of December 31, 2002, no
estimated recovery has been recorded because we have no basis
for making such an estimate at this time. While mold issues have
resulted in significant claims at only one of our properties to
date, 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.

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.

We are subject to environmental regulations
related to the ownership, operation, development and acquisition
of real estate. As part of our due diligence investigation
procedures, we conduct Phase I environmental assessments on each
property prior to acquisition. We are not aware of any other
environmental condition of any of our communities, which is
likely to have a material effect on our financial condition or
results of operations.

(17)     Supplemental
Cash Flow Information

Significant non-cash investing and financing
activities for the years ended December 31, 2002, 2001 and
2000 are as follows:



| |       |                                                                                                                                                                          
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | We redeemed $41.7 million A-1 Common Units
    for Common Shares during the year ended December 31, 2002;                                                                
|
| | (ii)  | Converted $25 million Series J
    Preferred Shares into Common Shares during the year ended
    December, 31, 2002;                                                     
|
| | (iii) | 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;
|
| | (iv)  | 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;            
|
| | (v)   | See Note 2 regarding the Smith Merger;                                                                                                                                   

85



---



##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Concluded)



| |        |                                                                                                                                                                                                                                                                                                                                            
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (vi)   | We repurchased approximately 17.5 million
    Common Shares held by Security Capital in exchange for Homestead
    mortgage notes with a face amount of $221.3 million and
    cash of $178.7 million during the year ended
    December 31, 2000. See Note 15 for more information;                                                       
|
| | (vii)  | In connection with the acquisition of apartment
    communities, we assumed mortgage debt of $195.6 million,
    $167.3 million and $71.0 million (excluding mortgage
    debt assumed in the Smith Merger) during the years ended
    December 31, 2002, 2001 and 2000, respectively;                                                     
|
| | (viii) | Holders of Series A Preferred Shares
    converted $5.7 million, $3.8 million and
    $10.0 million of their shares into Common Shares during the
    years ended December 31, 2002, 2001 and 2000, respectively;                                                                                                                          
|
| | (ix)   | We 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
    and $19.7 million during the years ended December 31,
    2001 and 2000, respectively;
|
| | (x)    | We refinanced approximately $54.8 million in
    tax-exempt bonds during the year ended December 31, 2000.                                                                                                                                                                                                                                 

(18)     Subsequent
Events

Sale of Smith
Management Construction, Inc.

Smith Management Construction, Inc. 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. SMC provides construction management and
building maintenance services. On February 12, 2003,
Archstone-Smith sold SMC to members of SMCs senior
management. The sale will be recorded in the first quarter of
2003 and is not expected to have a material effect on the
financial results of the company.

86



---



##### Table of Contents






INDEPENDENT AUDITORS REPORT

The Board of Trustees and Shareholders

Archstone-Smith Trust:


Under date of January 24, 2003, except as to
Note 18 which is as of February 12, 2003, we reported
on the consolidated balance sheets of Archstone-Smith Trust
(successor registrant to Archstone Communities Trust) as of
December 31, 2002 and 2001, 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, 2002. 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 the company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.



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

Denver, Colorado

January 24, 2003


87



---



##### Table of Contents



ARCHSTONE-SMITH TRUST





SCHEDULE III


REAL ESTATE AND ACCUMULATED
DEPRECIATION

December 31, 2002


(Dollar amounts in thousands)


|                                                                  |                                            |       |        |         |  |                            |           |              |  |               |           |         |  |   |           |           |  |   |           |          |  
|----------------------------------------------------------------- | ------------------------------------------ | ----- | ------ | ------- |  | -------------------------- | --------- | ------------ |  | ------------- | --------- | ------- |  | - | --------- | --------- |  | - | --------- | -------- | -
|                                                                  |                                            |       |        |         |  |                            |           |             
|                                                                  |                                            |       |        |         |  | Initial Cost to Archstone- |           |             
|                                                                  |                                            |       |        |         |  | Smith Trust                |           | Costs       
|                                                                  |                                            |       |        |         |  |                            |           | Capitalized 
|                                                                  |                                            |       |        | Encum-  |  |                            |           | Buildings &  |  | Subsequent to
|                                                                  |                                            | Units |        | brances |  | Land                       |           | Improvements |  | Acquisition  
|                                                                  |                                            |       |        |         |  |                            |           |              |  |              
|Apartment Communities:                                            |                                            |       |        |         |  |                            |           |              |  |               |           |         |  |   |           |           |  |   |           |         
|East Division (garden communities):                               |                                            |       |        |         |  |                            |           |              |  |               |           |         |  |   |           |           |  |   |           |         
|                                                                  | Atlanta, Georgia                           |       |        | 3,403   |  |                            | $         | 71,171       |  |               | $         | 34,534  |  |   | $         | 195,690   |  |   | $         | 27,098   |  
|                                                                  | Austin, Texas                              |       |        | 714     |  |                            |           |             |  |               |           | 3,508   |  |   |           | 7,431     |  |   |           | 22,723   |  
|                                                                  | Boston, Massachusetts                      |       |        | 1,967   |  |                            |           | 40,705       |  |               |           | 194,576 |  |   |           | 56,976    |  |   |           | 34,251   |  
|                                                                  | Charlotte, North Carolina                  |       |        | 668     |  |                            |           |             |  |               |           | 5,945   |  |   |           | 16,489    |  |   |           | 24,218   |  
|                                                                  | Chicago, Illinois                          |       |        | 3,912   |  |                            |           | 87,764       |  |               |           | 159,036 |  |   |           | 143,651   |  |   |           | 14,160   |  
|                                                                  | Dallas, Texas                              |       |        | 1,616   |  |                            |           | 14,840       |  |               |           | 11,899  |  |   |           | 61,314    |  |   |           | 25,717   |  
|                                                                  | Denver, Colorado                           |       |        | 2,620   |  |                            |           | 26,116       |  |               |           | 20,693  |  |   |           | 50,777    |  |   |           | 127,905  |  
|                                                                  | Houston, Texas                             |       |        | 1,408   |  |                            |           | 27,360       |  |               |           | 16,391  |  |   |           | 22,993    |  |   |           | 34,001   |  
|                                                                  | Nashville, Tennessee                       |       |        | 445     |  |                            |           | 4,703        |  |               |           | 3,657   |  |   |           | 20,719    |  |   |           | (706     | )
|                                                                  | Greater NYC Metropolitan Area              |       |        | 160     |  |                            |           |             |  |               |           | 5,775   |  |   |           | 1,225     |  |   |           | 28,486   |  
|                                                                  | Orlando, Florida                           |       |        | 312     |  |                            |           |             |  |               |           | 3,110   |  |   |           | 17,620    |  |   |           | 721      |  
|                                                                  | Raleigh, North Carolina                    |       |        | 1,840   |  |                            |           | 13,712       |  |               |           | 13,836  |  |   |           | 78,399    |  |   |           | 38,212   |  
|                                                                  | San Antonio, Texas                         |       |        | 530     |  |                            |           | 8,705        |  |               |           | 2,789   |  |   |           |          |  |   |           | 28,714   |  
|                                                                  | Southeast, Florida                         |       |        | 1,786   |  |                            |           |             |  |               |           | 16,307  |  |   |           | 72,683    |  |   |           | 43,320   |  
|                                                                  | Greater Washington, D.C. Metropolitan Area |       |        | 10,120  |  |                            |           | 226,823      |  |               |           | 328,786 |  |   |           | 668,497   |  |   |           | 164,436  |  
|                                                                  | West Coast, Florida                        |       |        | 746     |  |                            |           |             |  |               |           | 5,430   |  |   |           | 30,765    |  |   |           | 7,013    |  
|                                                                  |                                            |       |        |         |  |                            |           |              |  |               |           |         |  |   |           |           |  |   |           |         
|East Division Total                                               |                                            |       | 32,247 |         |  | $                          | 521,899   |              |  | $             | 826,272   |         |  | $ | 1,445,229 |           |  | $ | 620,269   |         
|West Division (garden communities):                               |                                            |       |        |         |  |                            |           |              |  |               |           |         |  |   |           |           |  |   |           |         
|                                                                  | Albuquerque, New Mexico                    |       |        | 1,491   |  |                            | $         |             |  |               | $         | 11,238  |  |   | $         | 30,527    |  |   | $         | 34,925   |  
|                                                                  | Inland Empire, California:                 |       |        | 1,884   |  |                            |           | 17,284       |  |               |           | 178,161 |  |   |           | 243,921   |  |   |           | (308,947 | )
|                                                                  | Las Vegas, Nevada                          |       |        | 896     |  |                            |           |             |  |               |           | 15,020  |  |   |           | 85,133    |  |   |           | (52,694  | )
|                                                                  | Los Angeles, California                    |       |        | 2,002   |  |                            |           | 53,540       |  |               |           | 5,904   |  |   |           | 33,561    |  |   |           | 218,401  |  
|                                                                  | Orange County, California                  |       |        | 1,647   |  |                            |           | 48,190       |  |               |           | 127,547 |  |   |           | 51,703    |  |   |           | (550     | )
|                                                                  | Phoenix, Arizona                           |       |        | 2,268   |  |                            |           |             |  |               |           | 25,612  |  |   |           | 46,136    |  |   |           | 64,525   |  
|                                                                  | Portland, Oregon                           |       |        | 826     |  |                            |           |             |  |               |           | 15,974  |  |   |           | 19,943    |  |   |           | 17,282   |  
|                                                                  | Salt Lake City, Utah                       |       |        | 776     |  |                            |           | 7,035        |  |               |           | 5,780   |  |   |           |          |  |   |           | 48,521   |  
|                                                                  | San Diego, California                      |       |        | 2,791   |  |                            |           | 64,040       |  |               |           | 55,215  |  |   |           | 136,874   |  |   |           | 124,342  |  
|                                                                  | San Francisco, California                  |       |        | 5,142   |  |                            |           | 113,157      |  |               |           | 7,864   |  |   |           | 14,171    |  |   |           | 624,511  |  
|                                                                  | Seattle, Washington                        |       |        | 3,230   |  |                            |           | 28,354       |  |               |           | 37,339  |  |   |           | 99,114    |  |   |           | 128,257  |  
|                                                                  | Ventura County, California                 |       |        | 1,247   |  |                            |           |             |  |               |           | 13,526  |  |   |           | 53,473    |  |   |           | 59,765   |  
|                                                                  |                                            |       |        |         |  |                            |           |              |  |               |           |         |  |   |           |           |  |   |           |         
|West Division Total                                               |                                            |       | 24,200 |         |  | $                          | 331,600   |              |  | $             | 499,180   |         |  | $ | 814,556   |           |  | $ | 958,338   |         
|Charles E. Smith Division (high rise properties):                 |                                            |       |        |         |  |                            |           |              |  |               |           |         |  |   |           |           |  |   |           |         
|                                                                  | Boston, Massachusetts                      |       |        | 693     |  |                            | $         | 64,054       |  |               | $         | 41,345  |  |   | $         | 121,883   |  |   | $         | 13,417   |  
|                                                                  | Chicago, Illinois                          |       |        | 3,839   |  |                            |           | 133,799      |  |               |           | 149,558 |  |   |           | 444,357   |  |   |           | 68,756   |  
|                                                                  | Southeast Florida                          |       |        | 5,054   |  |                            |           | 80,645       |  |               |           | 207,359 |  |   |           | 248,503   |  |   |           | 90,427   |  
|                                                                  | Greater NYC Metropolitan Area              |       |        | 630     |  |                            |           | 137,986      |  |               |           | 72,340  |  |   |           | 154,735   |  |   |           | 2,773    |  
|                                                                  | Greater Washington, D.C. Metropolitan Area |       |        | 11,325  |  |                            |           | 690,844      |  |               |           | 561,856 |  |   |           | 1,231,411 |  |   |           | 136,605  |  
|                                                                  |                                            |       |        |         |  |                            |           |              |  |               |           |         |  |   |           |           |  |   |           |         
|Charles E. Smith Division Total                                   |                                            |       | 21,541 |         |  | $                          | 1,107,328 |              |  | $             | 1,032,458 |         |  | $ | 2,200,889 |           |  | $ | 311,978   |         
|                                                                  |                                            |       |        |         |  |                            |           |              |  |               |           |         |  |   |           |           |  |   |           |         
|Total Apartment Communities- Operating and Under
    Construction |                                            |       | 77,988 |         |  | $                          | 1,960,827 |              |  | $             | 2,357,910 |         |  | $ | 4,460,674 |           |  | $ | 1,890,585 |         
|                                                                  |                                            |       |        |         |  |                            |           |              |  |               |           |         |  |   |           |           |  |   |           |         
|Other:                                                            |                                            |       |        |         |  |                            |           |              |  |               |           |         |  |   |           |           |  |   |           |         
|Development communities In Planning and Owned                     |                                            |       |        |         |  |                            |           |              |  |               |           |         |  |   |           |           |  |   |           |         
|Hotel, retail and other assets                                    |                                            |       |        |         |  |                            |           |              |  |               |           |         |  |   |           |           |  |   |           |         
|Total real estate assets                                          |                                            |       |        |         |  |                            |           |              |  |               |           |         |  |   |           |           |  |   |           |         

[Additional columns below]

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

|                                                                  |                                            |                         |           |              |  |        |           |              |   |              |           |           |  |   |         |        |  |  |  |           |  |  |  |           | 
|----------------------------------------------------------------- | ------------------------------------------ | ----------------------- | --------- | ------------ |  | ------ | --------- | ------------ | - | ------------ | --------- | --------- |  | - | ------- | ------ |  |  |  | --------- |  |  |  | --------- | 
|                                                                  |                                            |                         |           |              |  |        |           |              |   |             
|                                                                  |                                            | Gross Amount at Which   |           |              |  |        |           |              |   |             
|                                                                  |                                            | Carried at December 31, |           |              |  |        |           |              |   |             
|                                                                  |                                            | 2002                    |           |              |  |        |           |              |   |             
|                                                                  |                                            |                         |           |              |  |        |           |              |   |             
|                                                                  |                                            |                         |           | Buildings &  |  |        |           | Accumulated  |   | Construction |           | Year     
|                                                                  |                                            | Land                    |           | Improvements |  | Totals |           | Depreciation |   | Year         |           | Acquired 
|                                                                  |                                            |                         |           |              |  |        |           |              |   |              |           |          
|Apartment Communities:                                            |                                            |                         |           |              |  |        |           |              |   |              |           |           |  |   |         |        |  |  |  |           |  |  |  |          
|East Division (garden communities):                               |                                            |                         |           |              |  |        |           |              |   |              |           |           |  |   |         |        |  |  |  |           |  |  |  |          
|                                                                  | Atlanta, Georgia                           |                         | $         | 34,534       |  |        | $         | 222,788      |   |              | $         | 257,322   |  |   | $       | 38,612 |  |  |  | 1978-1999 |  |  |  | 1998-2001 | 
|                                                                  | Austin, Texas                              |                         |           | 3,508        |  |        |           | 30,154       |   |              |           | 33,662    |  |   |         | 6,850  |  |  |  | 1979-1996 |  |  |  | 1993      | 
|                                                                  | Boston, Massachusetts                      |                         |           | 194,576      |  |        |           | 91,227       |   |              |           | 285,803   |  |   |         | 19,182 |  |  |  | 1975-2002 |  |  |  | 1999-2002 | 
|                                                                  | Charlotte, North Carolina                  |                         |           | 5,945        |  |        |           | 40,707       |   |              |           | 46,652    |  |   |         | 4,247  |  |  |  | 1997-2001 |  |  |  | 1998      | 
|                                                                  | Chicago, Illinois                          |                         |           | 159,036      |  |        |           | 157,811      |   |              |           | 316,847   |  |   |         | 19,079 |  |  |  | 1968-1988 |  |  |  | 1999-2001 | 
|                                                                  | Dallas, Texas                              |                         |           | 11,899       |  |        |           | 87,031       |   |              |           | 98,930    |  |   |         | 16,373 |  |  |  | 1983-1998 |  |  |  | 1993-1998 | 
|                                                                  | Denver, Colorado                           |                         |           | 20,693       |  |        |           | 178,682      |   |              |           | 199,375   |  |   |         | 20,908 |  |  |  | 1981-2002 |  |  |  | 1992-2001 | 
|                                                                  | Houston, Texas                             |                         |           | 16,391       |  |        |           | 56,994       |   |              |           | 73,385    |  |   |         | 13,713 |  |  |  | 1972-1996 |  |  |  | 1994-1996 | 
|                                                                  | Nashville, Tennessee                       |                         |           | 3,657        |  |        |           | 20,013       |   |              |           | 23,670    |  |   |         | 3,335  |  |  |  | 1986      |  |  |  | 1998      | 
|                                                                  | Greater NYC Metropolitan Area              |                         |           | 5,775        |  |        |           | 29,711       |   |              |           | 35,486    |  |   |         | 238    |  |  |  | 2001-2002 |  |  |  | 2000      | 
|                                                                  | Orlando, Florida                           |                         |           | 3,110        |  |        |           | 18,341       |   |              |           | 21,451    |  |   |         | 3,097  |  |  |  | 1988      |  |  |  | 1998      | 
|                                                                  | Raleigh, North Carolina                    |                         |           | 13,836       |  |        |           | 116,611      |   |              |           | 130,447   |  |   |         | 19,938 |  |  |  | 1985-1999 |  |  |  | 1998      | 
|                                                                  | San Antonio, Texas                         |                         |           | 2,789        |  |        |           | 28,714       |   |              |           | 31,503    |  |   |         | 6,750  |  |  |  | 1979-1996 |  |  |  | 1992-1993 | 
|                                                                  | Southeast, Florida                         |                         |           | 16,307       |  |        |           | 116,003      |   |              |           | 132,310   |  |   |         | 15,003 |  |  |  | 1986-2001 |  |  |  | 1998-1999 | 
|                                                                  | Greater Washington, D.C. Metropolitan Area |                         |           | 328,786      |  |        |           | 832,933      |   |              |           | 1,161,719 |  |   |         | 44,889 |  |  |  | 1941-2002 |  |  |  | 1998-2002 | 
|                                                                  | West Coast, Florida                        |                         |           | 5,430        |  |        |           | 37,778       |   |              |           | 43,208    |  |   |         | 6,572  |  |  |  | 1982-1988 |  |  |  | 1998      | 
|                                                                  |                                            |                         |           |              |  |        |           |              |   |              |           |           |  |   |         |        |  |  |  |           |  |  |  |          
|East Division Total                                               |                                            | $                       | 826,272   |              |  | $      | 2,065,498 |              |   | $            | 2,891,770 |           |  | $ | 238,786 |        |  |  |  |           |  |  |  |          
|West Division (garden communities):                               |                                            |                         |           |              |  |        |           |              |   |              |           |           |  |   |         |        |  |  |  |           |  |  |  |          
|                                                                  | Albuquerque, New Mexico                    |                         | $         | 11,238       |  |        | $         | 65,452       |   |              | $         | 76,690    |  |   | $       | 16,086 |  |  |  | 1981-1996 |  |  |  | 1991-1996 | 
|                                                                  | Inland Empire, California:                 |                         |           | 178,161      |  |        |           | (65,026      | ) |              |           | 113,135   |  |   |         | 17,373 |  |  |  | 1985-1990 |  |  |  | 1995-1997 | 
|                                                                  | Las Vegas, Nevada                          |                         |           | 15,020       |  |        |           | 32,439       |   |              |           | 47,459    |  |   |         | 8,068  |  |  |  | 1986      |  |  |  | 1995      | 
|                                                                  | Los Angeles, California                    |                         |           | 5,904        |  |        |           | 251,962      |   |              |           | 257,866   |  |   |         | 9,944  |  |  |  | 1985-2002 |  |  |  | 1998-2002 | 
|                                                                  | Orange County, California                  |                         |           | 127,547      |  |        |           | 51,153       |   |              |           | 178,700   |  |   |         | 18,107 |  |  |  | 1986-2002 |  |  |  | 1996-1999 | 
|                                                                  | Phoenix, Arizona                           |                         |           | 25,612       |  |        |           | 110,661      |   |              |           | 136,273   |  |   |         | 21,596 |  |  |  | 1980-2001 |  |  |  | 1993-1997 | 
|                                                                  | Portland, Oregon                           |                         |           | 15,974       |  |        |           | 37,225       |   |              |           | 53,199    |  |   |         | 7,993  |  |  |  | 1985-1998 |  |  |  | 1995-1996 | 
|                                                                  | Salt Lake City, Utah                       |                         |           | 5,780        |  |        |           | 48,521       |   |              |           | 54,301    |  |   |         | 5,608  |  |  |  | 1985-2000 |  |  |  | 1997      | 
|                                                                  | San Diego, California                      |                         |           | 55,215       |  |        |           | 261,216      |   |              |           | 316,431   |  |   |         | 29,057 |  |  |  | 1985-2001 |  |  |  | 1996-1998 | 
|                                                                  | San Francisco, California                  |                         |           | 7,864        |  |        |           | 638,682      |   |              |           | 646,546   |  |   |         | 67,440 |  |  |  | 1965-2002 |  |  |  | 1995-2000 | 
|                                                                  | Seattle, Washington                        |                         |           | 37,339       |  |        |           | 227,371      |   |              |           | 264,710   |  |   |         | 34,155 |  |  |  | 1986-2002 |  |  |  | 1995-1999 | 
|                                                                  | Ventura County, California                 |                         |           | 13,526       |  |        |           | 113,238      |   |              |           | 126,764   |  |   |         | 9,587  |  |  |  | 1985-2002 |  |  |  | 1997-1999 | 
|                                                                  |                                            |                         |           |              |  |        |           |              |   |              |           |           |  |   |         |        |  |  |  |           |  |  |  |          
|West Division Total                                               |                                            | $                       | 499,180   |              |  | $      | 1,772,894 |              |   | $            | 2,272,074 |           |  | $ | 245,014 |        |  |  |  |           |  |  |  |          
|Charles E. Smith Division (high rise properties):                 |                                            |                         |           |              |  |        |           |              |   |              |           |           |  |   |         |        |  |  |  |           |  |  |  |          
|                                                                  | Boston, Massachusetts                      |                         | $         | 41,345       |  |        | $         | 135,300      |   |              | $         | 176,645   |  |   | $       | 4,347  |  |  |  | 1986-1998 |  |  |  | 2001      | 
|                                                                  | Chicago, Illinois                          |                         |           | 149,558      |  |        |           | 513,113      |   |              |           | 662,671   |  |   |         | 17,055 |  |  |  | 1969-2002 |  |  |  | 2001      | 
|                                                                  | Southeast Florida                          |                         |           | 207,359      |  |        |           | 338,930      |   |              |           | 546,289   |  |   |         | 10,631 |  |  |  | 1964-2000 |  |  |  | 2001      | 
|                                                                  | Greater NYC Metropolitan Area              |                         |           | 72,340       |  |        |           | 157,508      |   |              |           | 229,848   |  |   |         | 2,991  |  |  |  |           |  |  |  | 2002      | 
|                                                                  | Greater Washington, D.C. Metropolitan Area |                         |           | 561,856      |  |        |           | 1,368,016    |   |              |           | 1,929,872 |  |   |         | 47,027 |  |  |  | 1923-2002 |  |  |  | 2001      | 
|                                                                  |                                            |                         |           |              |  |        |           |              |   |              |           |           |  |   |         |        |  |  |  |           |  |  |  |          
|Charles E. Smith Division Total                                   |                                            | $                       | 1,032,458 |              |  | $      | 2,512,867 |              |   | $            | 3,545,325 |           |  | $ | 82,051  |        |  |  |  |           |  |  |  |          
|                                                                  |                                            |                         |           |              |  |        |           |              |   |              |           |           |  |   |         |        |  |  |  |           |  |  |  |          
|Total Apartment Communities- Operating and Under
    Construction |                                            | $                       | 2,357,910 |              |  | $      | 6,351,259 |              |   | $            | 8,709,169 |           |  | $ | 565,851 |        |  |  |  |           |  |  |  |          
|                                                                  |                                            |                         |           |              |  |        |           |              |   |              |           |           |  |   |         |        |  |  |  |           |  |  |  |          
|Other:                                                            |                                            |                         |           |              |  |        |           |              |   |              |           |           |  |   |         |        |  |  |  |           |  |  |  |          
|Development communities In Planning and Owned                     |                                            |                         |           |              |  |        |           |              |   |              | 89,501    |           |  |   |        |        |  |  |  |           |  |  |  |          
|Hotel, retail and other assets                                    |                                            |                         |           |              |  |        |           |              |   |              | 40,151    |           |  |   | 5,396   |        |  |  |  |           |  |  |  |          
|                                                                  |                                            |                         |           |              |  |        |           |              |   |              |           |           |  |   |         |        |  |  |  |           |  |  |  |          
|Total real estate assets                                          |                                            |                         |           |              |  |        |           |              |   | $            | 8,838,821 |           |  | $ | 571,247 |        |  |  |  |           |  |  |  |          
|                                                                  |                                            |                         |           |              |  |        |           |              |   |              |           |           |  |   |         |        |  |  |  |           |  |  |  |          

88



---



##### Table of Contents



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,
|                                 |                                                              |                        
|                                 |                                                              | 2002                    |           | 2001     |   | 2000
|                                 |                                                              |                         |           |          |   |     
|Carrying Amounts                 |                                                              |                         |           |          |   |      |           |            |   |   |           |         
|Balance at January 1             |                                                              | $                       | 8,276,004 |          |   | $    | 5,058,910 |            |   | $ | 5,086,486 |         
|                                 |                                                              |                         |           |          |   |      |           |            |   |   |           |         
|Apartment communities:           |                                                              |                         |           |          |   |      |           |            |   |   |           |         
|                                 | Apartment properties acquired in the Smith Merger            |                         |           | 31,877   |   |      |           | 3,733,936  |   |   |           |         |  
|                                 | Acquisition-related expenditures                             |                         |           | 413,502  |   |      |           | 339,055    |   |   |           | 372,539  |  
|                                 | Redevelopment expenditures                                   |                         |           | 152,389  |   |      |           | 39,136     |   |   |           | 37,547   |  
|                                 | Recurring capital expenditures                               |                         |           | 40,235   |   |      |           | 20,184     |   |   |           | 13,937   |  
|                                 | Development expenditures, excluding land
    acquisitions    |                         |           | 195,809  |   |      |           | 185,988    |   |   |           | 228,819  |  
|                                 | Acquisition and improvement of land for
    development      |                         |           | 53,165   |   |      |           | 48,120     |   |   |           | 68,308   |  
|                                 | Dispositions                                                 |                         |           | (330,118 | ) |      |           | (1,152,668 | ) |   |           | (743,287 | )
|                                 | Provision for possible loss on investments                   |                         |           | (2,611   | ) |      |           | (2,710     | ) |   |           | (5,200   | )
|                                 |                                                              |                         |           |          |   |      |           |            |   |   |           |         
|Net apartment community activity |                                                              | $                       | 554,248   |          |   | $    | 3,211,041 |            |   | $ | (27,337   | )       
|                                 |                                                              |                         |           |          |   |      |           |            |   |   |           |         
|Other:                           |                                                              |                         |           |          |   |      |           |            |   |   |           |         
|                                 | Disposition of retail asset acquired in the Smith
    Merger |                         |           | (5,990   | ) |      |           | 5,976      |   |   |           |         |  
|                                 | Change in other real estate assets                           |                         |           | 14,559   |   |      |           | 77         |   |   |           | (239     | )
|                                 |                                                              |                         |           |          |   |      |           |            |   |   |           |         
|Net other activity               |                                                              |                         | 8,569     |          |   |      | 6,053     |            |   |   | (239      | )       
|                                 |                                                              |                         |           |          |   |      |           |            |   |   |           |         
|Balance at December 31.          |                                                              | $                       | 8,838,821 |          |   | $    | 8,276,004 |            |   | $ | 5,058,910 |         
|                                 |                                                              |                         |           |          |   |      |           |            |   |   |           |         

|                                                         |  |              |         |      |  |      |          |   |  |   |         |  
|-------------------------------------------------------- |  | ------------ | ------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                                         |  |             
|                                                         |  | December 31,
|                                                         |  |             
|                                                         |  | 2002         |         | 2001 |  | 2000
|                                                         |  |              |         |      |  |     
|Accumulated Depreciation                                 |  |              |         |      |  |      |          |   |  |   |         |  
|Balance at January 1                                     |  | $            | 406,784 |      |  | $    | 375,672  |   |  | $ | 300,658 |  
|Depreciation for the year                                |  |              | 199,971 |      |  |      | 132,126  |   |  |   | 143,694 |  
|Accumulated depreciation on real estate
    dispositions |  |              | (35,407 | )    |  |      | (101,014 | ) |  |   | (68,624 | )
|Other                                                    |  |              | (101    | )    |  |      |         |   |  |   | (56     | )
|                                                         |  |              |         |      |  |      |          |   |  |   |         |  
|Balance at December 31.                                  |  | $            | 571,247 |      |  | $    | 406,784  |   |  | $ | 375,672 |  
|                                                         |  |              |         |      |  |      |          |   |  |   |         |  

89



---



##### Table of Contents



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) |  | February 28, 2003
|                                                  
|/s/ CHARLES E. MUELLER, JR.Charles E. Mueller, Jr. |  | Executive Vice President and Chief Financial
    Officer (principal financial officer)       |  | February 28, 2003
|                                                  
|/s/ MARK A. SCHUMACHERMark A. Schumacher           |  | Senior Vice President and Controller (principal
    accounting officer)                      |  | February 28, 2003
|                                                  
|/s/ JAMES A. CARDWELLJames A. Cardwell             |  | Trustee                                                                                      |  | February 28, 2003
|                                                  
|/s/ ERNEST A. GERARDI, JR.Ernest A. Gerardi, Jr.   |  | Trustee                                                                                      |  | February 28, 2003
|                                                  
|/s/ NED S. HOLMESNed S. Holmes                     |  | Trustee                                                                                      |  | February 28, 2003
|                                                  
|/s/ ROBERT P. KOGODRobert P. Kogod                 |  | Trustee                                                                                      |  | February 28, 2003
|                                                  
|/s/ JAMES H. POLK IIIJames H. Polk III             |  | Trustee                                                                                      |  | February 28, 2003
|                                                  
|/s/ JOHN M. RICHMANJohn M. Richman                 |  | Trustee                                                                                      |  | February 28, 2003
|                                                  
|/s/ JOHN C. SCHWEITZERJohn C. Schweitzer           |  | Trustee                                                                                      |  | February 28, 2003
|                                                  
|/s/ ROBERT H. SMITHRobert H. Smith                 |  | Trustee                                                                                      |  | February 28, 2003

90



---



##### Table of Contents






CERTIFICATIONS

I, R. Scot Sellers, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                            
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this annual report on
    Form 10-K of Archstone-Smith Trust (the
    registrant).                                                                                                                                                                                                                                       
|
| | 2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the years covered by this
    annual report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the years presented in this annual report;                        
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                       



| |    |                                                                                                                                                                                                                                                                                                            
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | Designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the years in
    which this annual report is being prepared;
|
| | b) | Evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                     
|
| | c) | Presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                               



| |    |                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of trustees (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | All significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | Any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



| |    |                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.



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

| |                                     
| | ------------------------------------
| |                                     
| | R. Scot Sellers                     
| | Chairman and Chief Executive Officer

Date: February 28, 2003

91



---



##### Table of Contents



CERTIFICATIONS

I, Charles E. Mueller, Jr., certify that:



| |    |                                                                                                                                                                                                                                                                                                                                            
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this annual report on
    Form 10-K of Archstone-Smith Trust (the
    registrant).                                                                                                                                                                                                                                       
|
| | 2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the years covered by this
    annual report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the years presented in this annual report;                        
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                       



| |    |                                                                                                                                                                                                                                                                                                            
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | Designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the years in
    which this annual report is being prepared;
|
| | b) | Evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                     
|
| | c) | Presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                               



| |    |                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of trustees (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | All significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | Any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



| |    |                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.



| |     |                            
| | --- | ---------------------------
| | By: | /s/ CHARLES E. MUELLER, JR.

| |                              
| | -----------------------------
| |                              
| | Charles E. Mueller, Jr.      
| | Chief Financial Officer      
| | (Principal Financial Officer)

Date: February 28, 2003

92



---



##### Table of Contents






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 August 31,
    2001, by and between Archstone-Smith Trust and Mellon Investor
    Services, LLC, including the form of rights certificate
    (incorporated by reference to Exhibit 3.13 to
    Archstone-Smith Trusts Registration Statement on
    Form S-4 (File No. 333-63734))                                                                                                                                                                                                            
|       | 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))                                                                                                                                                                                                                                                                                                                    
|       | 4.6  |             |  | Form of Archstone-Smith Trust share certificate
    for Series A Preferred Shares (incorporated by reference to
    Exhibit 3.4 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))                                                                                                                                                                                                                                                                                                       
|       | 4.9  |             |  | Form of Archstone-Smith Trust share certificate
    for Series H Preferred Shares (incorporated by reference to
    Exhibit 3.7 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))                                                                                                                                                                                                                                                                                                       
|       | 4.11 |             |  | Form of Archstone-Smith Trust share certificate
    for Series J Preferred Shares (incorporated by reference to
    Exhibit 3.9 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))                                                                                                                                                                                                                                                                                                      

93



---



##### Table of Contents



INDEX TO EXHIBITS 
(Continued)


|       |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------ | ----- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |       | Description
|       |       |            
|       | 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))                                                                                                                                                                                                                                                                                                                                        
|       | 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 (incorporated by reference to Exhibit 10.6 to
    Archstone-Smiths Annual Report on Form 10-K for the
    year ended December 31, 2001)                                                                                                                                                                                                                                                                             
|       | 10.7  |             |  | Form of Change in Control Agreement between
    Archstone-Smith Trust and certain of its officers                                                                                                                                                                                                                                                                                                                                                                                                                                               
|       | 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 |             |  | Master Credit Facility Agreement, dated as of
    December 1, 1998, by and among Archstone-Smith Operating
    Trust and ASN Multi-family Limited Partnership and Berkshire
    Mortgage Finance Limited Partnership (incorporated by reference
    to Exhibit 10.10 to Archstone Communities Trusts
    Annual Report on Form 10-K for the year ended
    December 31, 1998)                                                                                                                                                                  
|       | 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))                                                                                                                                                                                                                                                                                                                                    

94



---



##### Table of Contents



INDEX TO EXHIBITS 
(Continued)


|       |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|------ | ----- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |       | Description
|       |       |            
|       | 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)                                                                                                                                                                                       
|       | 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)

95



---



##### Table of Contents



INDEX TO EXHIBITS 
(Continued)


|       |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                     
|------ | ----- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |       | Description
|       |       |            
|       | 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)                                                                                                                                     
|       | 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                                                                                                                                                                                                                                                                                                                                                                 
|       | 99.1  |             |  | Certification of Chief Executive Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                              
|       | 99.2  |             |  | Certification of Chief Financial Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                              

96