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

                                  FORM 10-K/A

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

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

            Commission File Number:  1934 Act File Number:  1-13174

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

                  Maryland                              54-1681655
     (State or other jurisdiction of                 (I.R.S. Employer
      incorporation or organization)               Identification No.)

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

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

          Securities registered pursuant to Section 12(b) of the Act:
 
   Title of each class               Name of each exchange on which registered
   -------------------               -----------------------------------------
 Shares of Common Stock                         New York Stock Exchange

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

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes  X   No    
                                               ---     ---

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

     The aggregate market value of the 18,216,170 Shares of Common Stock held by
non-affiliates of the Registrant was approximately $535,099,994 based upon the
closing price on the New York Stock Exchange for such stock on March 1, 1999.

     As of March 1, 1999, there were 18,411,540 Shares of Common Stock of the
Registrant issued and outstanding.

<PAGE>
 
                           FORWARD-LOOKING STATEMENTS

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


                                     PART I

Item 1.   Business.

     Charles E. Smith Residential Realty, Inc. (the "Company") is a self-
administered and self-managed equity real estate investment trust ("REIT") that
is engaged primarily in the acquisition, development, management and operation
of multifamily properties. The Company, together with its subsidiaries as
described below, is a fully integrated real estate organization with in-house
acquisition, development, financing, marketing, leasing and property management
expertise. The Company's primary strategy for growth is to acquire, develop,
own and manage high quality multifamily properties for income generation and
long-term value appreciation.

     The Company is structured as an umbrella partnership REIT whereby all of
the Company's properties, property interests, and business assets are owned by,
and its operations are conducted through, Charles E. Smith Residential Realty
L.P., a Delaware limited partnership (the "Operating Partnership") of which the
Company is the sole general partner and holder of approximately 62% of the
common and preferred units of limited partnership interest ("Units") as of March
1, 1999. The other limited partners of the Operating Partnership (the "Minority
Interest") primarily consist of the former limited and general partners of
properties and the former owners of the property service businesses acquired by
the Operating Partnership (see "History of the Company" below). The Operating
Partnership owns 100% of the nonvoting common stock, which represents 99% of the
total economic interest, of three operating companies (collectively, the
"Property Service Businesses") which provide property services to the properties
owned by the Operating Partnership and to other multifamily, retail, and office

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properties. The three Property Service Businesses are: Smith Realty Company,
which directly provides management, leasing, financing, development and
insurance services and indirectly provides furnished corporate apartments
through a wholly-owned subsidiary; Consolidated Engineering Services, Inc.,
which provides engineering and technical services; and Smith Management
Construction, Inc., which provides construction and interior renovation
services. As the sole general partner of the Operating Partnership, the Company
has the exclusive power to manage and conduct the business of the Operating
Partnership, subject to the consent of the holders of Units in connection with
the sale of all or substantially all of the assets of the Operating Partnership.
Some references made herein to the Company include the Operating Partnership and
the Property Service Businesses, as the context requires.

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

     The Company's executive offices are located at 2345 Crystal Drive, Crystal
City, Arlington, Virginia 22202, and its telephone number is (703) 920-8500.
The Company is a Maryland corporation formed in 1993. The Company completed its
initial public offering of common stock on June 30, 1994. The Operating
Partnership is a Delaware limited partnership formed in 1993; it commenced
business operations on June 30, 1994.

History of the Company

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

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Mortgage Loans and the Company's contribution of offering proceeds to repay
approximately $454 million of mortgage indebtedness, $26.2 million in related
party indebtedness and $11.1 million in notes payable to a bank, to pay $13.8
million in prepayment penalties related to the early extinguishment of debt, to
pay $14.7 million in transfer taxes and other costs associated with the
formation of the Company and the Operating Partnership, and to pay $18.5 million
of mortgage recording taxes, origination fees and other expenses associated with
the Mortgage Loans, and to supply $15.4 million of working capital; and (iv) the
Operating Partnership established a $100 million line of credit to fund
development activities and property acquisitions and for general corporate
purposes (collectively, the "Formation Transactions").

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

Business Strategy

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

Financing Strategy

     To the extent that the Company's board of directors determines to seek
additional capital for acquisitions or otherwise, the Company may raise such
capital through additional equity offerings, debt financing or retention of cash
flow (subject to provisions of the Internal Revenue

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Code of 1986, as amended, requiring the distribution by a REIT of a certain
percentage of taxable income and taking into account taxes that would be imposed
on undistributed taxable income), or a combination of these methods.

Equity

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

     In January 1998, the Company sold 500 shares of Series C Cumulative
Redeemable Preferred Stock ("Series C Preferred Shares"), $0.01 par value, to
Cobalt Capital, L.L.C.

     The Company amended the Articles of Incorporation to designate and
establish the rights and privileges of the Series C Preferred Shareholders which
include certain voting, dividend and liquidation preferences over the common
shareholders.  The Series C Preferred Shares have a liquidation preference of
$100,000 per share and an initial annual dividend of $7,910 per share (7.91% of
purchase price).  If the securities receive an investment grade rating, the
dividend  will decrease to $7,660 per share.  Dividends are cumulative and are
payable quarterly.  The Company may redeem Series C Preferred Shares after
February 1, 2028, at the liquidation price plus accrued dividends.

     In April 1998, the Company sold the remaining 978,581 shares of Series
A Cumulative Convertible Redeemable Preferred Stock ("Series A Preferred
Shares") to Security Capital Preferred Growth Inc. under the May 1997 agreement.

     In July 1998, the Company completed the sale of 1,400,000 shares of
common stock (par value of $0.01 per share) under its existing shelf
registration statement.

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

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

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Debt

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

Property Management

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

Property Service Businesses

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

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

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

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

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

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

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

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

Employees

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

Recent Developments

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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Prepurchase Agreements

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

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

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

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

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

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

Tax Status

     The Company has made an election to be taxed as a REIT under Sections 856
through 860 of the Code, commencing with its taxable year ended December 31,
1994. The Company believes that it qualifies for taxation as a REIT, in which
case the Company generally will not be subject to federal income tax on income
that it distributes to shareholders provided it distributes at least 95% of its
REIT taxable income to its shareholders. Even if the Company qualifies for
taxation as a REIT, the Company may be subject to certain state and local taxes
on its income and property and to Federal income and excise taxes on its
undistributed income. In addition, the Property Service Businesses, which do not
qualify as REITs, are subject to federal, state, and local taxes on their net
taxable income.

Financial Information

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

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Executive Officers of the Company

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

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

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

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

     Wesley D. Minami.  Mr. Minami is Senior Vice President and Chief  Financial
Officer of the Company and Smith Realty Company, one of the Property Service
Businesses, and is responsible for the Company's debt portfolio, corporate
financial planning, local acquisitions, and its treasury, accounting, controls
and information systems departments.  Prior to joining the

                                       11
<PAGE>
 
Company in 1997, Mr. Minami was the Chief Financial Officer for Ascent
Entertainment Company where he was responsible for an $86 million initial public
offering spin-off of Ascent, which had been a wholly-owned subsidiary of Comsat
Corporation. Formerly, he had served as the Treasurer of Comsat Corporation.
From 1985 to 1993, Mr. Minami held several positions, including Senior Vice
President, Chief Financial Officer at Oxford Realty Services Corporation which
developed and managed a portfolio of over 45,000 apartment units. Mr. Minami is
42 years old.

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

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

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

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

     John W. Guinee. Mr. Guinee is Senior Vice President and Chief Investment 
Officer of the Company and Smith Realty Company, one of the Property Service 
Businesses, and is responsible for the acquisition efforts of the Company, 
particularly the acquisition of individual assets and multifamily portfolios in 
major metropolitan areas other than Washington, D.C. Prior to joining the 
Company in 1997, Mr. Guinee was a Managing Director with LaSalle Advisors, where
he headed an acquisitions group with an annual investment volume of $250-300 
million and led the REIT securities private placement effort. Additional 
responsibilities during his 12 years with LaSalle Advisors included asset 
management and investor relations. From 1982 through 1985, Mr. Guinee was a 
development manager with Gerald D. Hines Interests in San Francisco. Mr. Guinee 
is 43 years old.

                                       12

<PAGE>
 
Item 2.   Properties

General

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

     All of the Company's properties are located in developed areas that include
other residential and retail properties.  The number of competitive residential
properties in a particular area could have a material effect on the Company's
ability to lease apartment units and on the rents charged.  In addition, other
forms of single and multifamily residential properties provide housing
alternatives to tenants and potential tenants of the Company's residential
properties.  The Company's retail properties face similar competition with other
retail properties with respect to tenant leases.  The Company believes that the
properties are well located in their markets and are well constructed and
designed.  In the opinion of management, the Company's properties are adequately
covered by insurance.

Multifamily Properties

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

     Each of the Multifamily Properties is established in its local market and
provides residents with numerous amenities and services, which may include
24-hour desk service,

                                       13
<PAGE>
 
swimming pools, tennis courts, exercise rooms and/or saunas, day care centers,
party or meeting rooms, tenant newsletters, and laundry facilities. Nearly all
units are wired for cable television, and many units also offer additional
features, such as washer/dryer, microwave, fireplace, and patio/balcony. The
Company maintains an ongoing program of regular maintenance and capital
improvements and renovations, including roof replacement and exterior
maintenance, kitchen and bath renovations, balcony repairs, and replacements
of various building systems.

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

                                       14
<PAGE>
 
                   CHARLES E. SMITH RESIDENTIAL REALTY, INC.
    Residential  Portfolio  Statistics for the Year Ended December 31, 1998

<TABLE> 
<CAPTION> 
                                                       Number of       Average       Monthly       Average
                                         Property      Apartment       Sq. Ft.       Revenue       Economic
Property Type/Property Name                Type          Units         Per Unit      Per Unit      Occupancy  
---------------------------              --------      ---------       --------      --------      --------- 
<S>                                      <C>           <C>             <C>           <C>           <C> 
Core Residential Portfolio
 
NW Washington, D.C.
  1841 Columbia Road                    High-rise         115             634        $  955          99.0%
  2501 Porter Street                    High-rise         202             760         1,472          97.5%
  Albemarle                             High-rise         235           1,097         1,226          98.9%
  Calvert-Woodley                       High-rise         136           1,001         1,169          99.0%
  Cleveland House                       High-rise         216             894         1,138          99.2% 
  Connecticut Heigh                     High-rise         519             536           889          95.6%
  Corcoran House                        High-rise         138             464           832          99.2%
  Statesman                             High-rise         281             593           798          97.7%
  Van Ness South                        High-rise         625             956         1,109          98.7%
                                                       ------           -----        ------          -----
                                                        2,467             778         1,051          98.0%

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

Other Northern Virginia - Inside Beltway
  Crystal City
  ------------
  The Bennington                        High-rise         348             804         1,059          96.0% 
  Crystal House I                       High-rise         426             917         1,010          97.2%
  Crystal House II                      High-rise         402             938           987          96.6%
  Crystal Square                        High-rise         378           1,121         1,179          99.0%
  Crystal Place                         High-rise         180             894         1,310          97.7%
  Gateway Place                         High-rise         162             826         1,792          94.7%
  Water Park Towers                     High-rise         360             881         1,436          92.9%
                                                       ------           -----        ------          -----
                                                        2,256             923         1,190          96.2%

  Rosslyn/Ballston
  ----------------
  Courthouse Plaza                      High-rise         396             772         1,299          96.9%

  Other
  -----
  Arlington Overlook                    Mid-rise          711             877           780          95.6%
  Bedford Village                       Garden            752           1,070           914          95.0%
  Berkeley                              Mid-rise          138             891           744          97.4%
  Boulevard of Old Town                 Garden            159             603           934          98.3%
  Columbia Crossing                     Garden            247             976         1,122          95.8%
  Columbian Stratford                   Mid-rise          227             942           767          97.8% 
  Concord Village                       Garden            531           1,025           820          95.4%
  Newport Village                       Garden            937           1,115           911          97.1%
  Orleans Village                       Garden            851           1,061           828          94.6%
  Patriot Village                       Garden          1,065           1,162           915          96.6%
  Skyline Towers                        High-rise         940           1,221           988          95.5%
  Windsor Towers                        Mid-rise          280           1,025           812          98.0%
                                                       ------           -----        ------          -----
                                                        6,838           1,063           887          96.0%

Other Northern Virginia - Outside Beltway
  Charter Oak                           Garden            262           1,097           956          96.8%
  Oaks of Tysons                        Garden            218             968         1,047          97.2%
  Potomac View                          Garden            192             965           791          97.8%
  Westerly at Worldgate                 Garden            320             921         1,120          95.5%             
                                                       ------           -----        ------          -----
                                                          992             986           997          96.6%

Suburban Maryland
  The Manor                             Garden            435             999           774          96.9% 
  Suburban Tower                        High-rise         172             677           830          98.1%       
                                                       ------           -----        ------          -----
                                                          607             908           790          97.2%
                                                       ------           -----        ------          -----
                                
     Subtotal/Average                                  14,301             972        $  970          96.6%
                                                       ------           -----        ------          -----
</TABLE> 

                                       15
<PAGE>
 
<TABLE>
<CAPTION>
                                                       Number of       Average       Monthly       Average
                                         Property      Apartment       Sq. Ft.       Revenue       Economic
Property Type/Property Name                Type          Units         Per Unit      Per Unit      Occupancy  
---------------------------              --------      ---------       --------      --------      --------- 
<S>                                      <C>           <C>             <C>           <C>           <C> 
Acquisition Portfolio
 
  The Kenmore (NW Washington, D.C.)     High-rise         376             725           756          97.8%
  Crystal Plaza (Crystal City)          High-rise         540           1,129         1,254          98.4%
  Crystal Towers (Crystal City)         High-rise         912           1,107         1,139          97.5%
  Lincoln Towers (Rosslyn/Ballston)     High-rise         714             879         1,276          93.5%
  2000 Commonwealth (Boston)            High-rise         188             878         1,649          96.2%
  One East Delaware (Chicago)           High-rise         306             704         1,886          98.0%
  Tunlaw Gardens (NW Washington, D.C.)  Garden            167             850           767          97.0%
  Tunlaw Park (NW Washington, D.C.)     Mid-rise          120             856         1,105          97.8%
  Parc Vista (Crystal City)             High-rise         299             770           n/a           n/a  
  McClurg Court (Chicago)               High-rise       1,075             688           n/a           n/a
  Cronin's Landing (Boston)             Mid-rise          281           1,129           n/a           n/a
                                                       ------           -----        ------          -----
     Sub-Total/Average                                  4,978             890           n/a           n/a
                                                       ------           -----        ------          -----
 
 
Development Portfolio
 
 Springfield Station
  (Other Northern Virginia)             Mid-rise/Garden   631
 Courthouse Place (Rosslyn/Ballston)    High-rise         564
 One Superior Place (Chicago)           High-rise         809
 Park Connecticut
  (NW Washington, D.C.)                 High-rise         142
                                                       ------ 
     Sub-Total                                          2,146
                                                       ------   
All Residential Properties                             21,425
                                                       ======
</TABLE>

                                       16
<PAGE>
 
     The following table sets forth the total number of apartment units in the
Core Residential Portfolio, the economic occupancy, and the average monthly
rental revenue per unit as of the end of 1998 and in each of the previous five
years:
 
Multifamily Properties

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


Retail Properties

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

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

     Skyline Mall.  Skyline Mall is a two-level, enclosed community retail
center located on Route 7 in Northern Virginia, at the intersection of  Fairfax
County, Arlington County, and the City of Alexandria, Virginia. Originally
developed by the Smith Companies in 1977, it is part of a mixed-use community
which also includes over two million square feet of office space and over 3,300
high-rise condominium and apartment units (including Skyline Towers, a 940-unit
Multifamily Property 

                                       17
<PAGE>
 
owned by the Company), all within walking distance. The Property has 204,914
square feet of leasable area and had an average occupancy rate of 97.2% in 1998.
It contains the 79,920 square foot Skyline Racquet and Health Club, an AMC
Cinema, and approximately 40 other stores, including restaurants, fashion and
specialty retailers, and various business and general services. Approximately
12% of the leases, based on net rentable area, are scheduled to expire prior to
the year 2003.

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

Retail Properties

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

Property Markets

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

Employment Growth - 1998

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

                                       18
<PAGE>
 
     In the Washington D.C. metropolitan area, employment and population growth
in recent years, and expected in future years, has been strongest in the
Northern Virginia segment of the metropolitan area, which is the sector where
the majority (68%) of the Company's Properties are located.  The growth in
Northern Virginia is substantially attributable to continuing strong growth 
in the technology sector, particularly the Internet technology and
telecommunications segments.  The Company believes that this trend will continue
due to the concentration of technology firms in Northern Virginia and the growth
outlook for the Internet technology and telecommunications industries.  The
outlook for the District of Columbia economy has improved  significantly due to
the return to positive employment growth late in 1998 after several years of
federal government cutbacks and the election of a new mayor.

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

Apartment Occupancy and Rental Rate Growth for Smith Residential Markets

<TABLE>
<CAPTION>
Metro area market                       Occupancy       % Rental Rate Growth
------------------                 -------------------  ---------------------
<S>                               <C>         <C>       <C>          <C> 
                                   1997        1998        1997        1998
                                   ----        ----        ----        ----
Boston                             97.6%       98.0%        5.7%        6.7%
                                                                       
Chicago                            97.2%       97.3%        4.7%        3.0%
- Downtown                         97.0%       97.2%        5.5%        7.0%
                                                                       
Washington D.C. area                                                   
- Northern Virginia                96.2%       96.6%        3.5%        3.5%
- Washington D.C.                  96.9%       97.0%        3.4%        4.7%
                                
Southeast Florida             
- Fort Lauderdale                  96.1%       96.1%        4.0%        3.6%
</TABLE>
-------------------------
Source: The REIS Reports, Inc., February, 1999, and Appraisal Research Corp.,
March 1999


     The supply of new rental apartment properties in the more urbanized
portions of the Company's markets has been extremely limited in recent years,
particularly in the more desirable submarkets where the Company concentrates its
focus. In the Washington metro area the supply of new multifamily properties has
been increasing moderately over the past several years and is likely to continue
to do so based on multifamily permits data compiled by the U.S. Census Bureau.
These data show that the number of multifamily permits issued in the area were,
7,786 in 1996, 6,907 in 1997, and 8,935 in 1998, which includes both for-sale
condominium and rental apartment properties. These levels remain well below the
peak of over 13,000 in 1987. Most of the new supply of rental apartments is
occurring in the outer suburban areas and does not compete directly with the
Company's properties, which are predominantly in the vicinity of and within
Interstate 495, the 

                                       19
<PAGE>
 
Capital Beltway. Downtown Chicago has actually experienced a net decrease in
higher end rental apartments in recent years due to condo conversions, and the
Company's 809-unit Superior Place property is currently the only new apartment
property under construction in the downtown area.

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

Mortgage Financing

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

                                       20
<PAGE>
 
<TABLE>
                                                     12/31/98                            
Mortgage Pool/                                       Outstanding      Interest       Maturity
Collateral                        Location           Principal          Rate         Date
------------------------------------------------------------------------------------------------------- 
                                                      (000's)                
<S>                        <C>                       <C>                <C>           <C>  
FNMA                                                  $ 140,000         6.75%        October 30, 2013 (2)
-------------------------                                             
  Bedford Village          Fairfax County, Virginia                   
  Car Barn                 Washington, D.C.                           
  Concord Village          Arlington, Virginia                        
  Crystal Place            Arlington, Virginia                        
  Crystal Square           Arlington, Virginia                        
  Arlington Overlook (1)   Arlington, Virginia                        
  Fort Chaplin             Washington, D.C.                           
  Newport III (1)          Alexandria, Virginia                       
  Orleans Village          Fairfax County, Virginia                   
                                                                      
Mortgage Pool Three                                     117,000         7.99%        June 30, 2009 (3)
-------------------------                                             
  Berkeley                 Arlington, Virginia                        
  Calvert Woodley          Washington, D.C.                           
  Cleveland House          Washington, D.C.                           
  Columbia Crossing        Arlington, Virginia                        
  Courthouse Plaza         Arlington, Virginia                        
  Gateway Place            Arlington, Virginia                        
  Newport I/II (1)         Alexandria, Virginia                       
  Skyline Mall             Fairfax County, Virginia                   
  2501 Porter Street       Washington, D.C.                           
                                                                      
Prudential                                               53,000         6.88%        June 5, 2008 (2)
-------------------------                                             
  Waterpark                Arlington, Virginia                        
  Parc Vista               Arlington, Virginia                        
                                                                      
Individual Mortgages                                                  
-------------------------                                             
   1841 Columbia Road      Washington, D.C.               3,173          9.00%       August 1, 1999 (6)
   Crystal Towers          Arlington, Virginia           44,198          7.16%       January 1, 2006 (6)
   2000 Commonwealth       Boston, Massachusetts         17,100          6.30%       December 3, 2006 (2)
   Connecticut Heights     Washington, D.C.              20,000          7.10%       March 18, 2008 (2)
   Cronin's Landing        Boston, Massachusetts         33,208          6.90%       March 1, 2009 (7)
   Patriot Village         Fairfax County, Virginia      31,095          8.24%       August 1, 2009 (4)
   Crystal Plaza           Arlington, Virginia           33,615          6.86%       November 1, 2009 (6)
   Crystal House I / II    Arlington, Virginia           38,250          6.29%       December 30, 2010 (5)
   Skyline Towers          Fairfax County, Virginia      49,300          6.45%       December 10, 2010 (5)
   The Bennington          Arlington, Virginia           12,447          7.50%       October 1, 2020 (7)
                                                      ---------          ----
                                                                      
                                                      $ 592,386          7.10%
                                                      =========          ==== 
------------------------------------------------------------------------------------------------------
</TABLE> 
(1) Operated as a single property, but divided for collateralization purposes.
(2) Interest only.
(3) Twenty-five year amortization begins June 30, 1999.
(4) Thirty-year amortization begins in August 2004.
(5) Thirty-year amortization begins in December 2008.
(6) Thirty-year amortization.
(7) Twenty-five year amortization.
    The loan secured by Mortgage Pool Three is interest only through June 30,
1999, at which time amortization begins using a 25-year amortization schedule
with a balloon payment at maturity. In addition, this loan may not be prepaid
until May 1, 1999, at which time it would be subject to a yield maintenance
premium. The loan is cross-collateralized with the $83 million line of credit
from 

                                       21
<PAGE>
 
the same lender, as described below. Certain predecessor partners executed
guarantees for $42 million of the mortgage loans secured by Mortgage Pool Three.

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

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

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

Lines of Credit

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

    The Company also has an $83 million acquisition credit facility which allows
for debt maturities up through July 2004.  The line of credit provides for an
interest rate that is fixed at the 

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time of each borrowing at 150 basis points over 10-year Treasury Bills and is
cross-collateralized with Mortgage Pool Three. Debt outstanding of $30 million
at December 31, 1998 bears interest at a weighted-average fixed rate of 7.27%
and is collateralized by two Properties. The agreement contains certain
restrictive covenants including a limit on debt to asset value and maintenance
of debt service coverage ratios. In February 1999, the unused portion, or 
$53 million, of the line expired.

Construction Loans

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

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

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


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

    None.

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                                  SIGNATURE 

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on this
30th day of April, 1999.


                    CHARLES E. SMITH RESIDENTIAL REALTY, INC.



                    By   /s/ Ernest A. Gerardi, Jr.
                         ------------------------------------
                         Ernest A. Gerardi, Jr.
                         President and Chief Operating Officer
                         (Duly Authorized Representative of the Registrant)