<PAGE>
 

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-Q
                                        

[X]            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended June 30, 1998

                                      OR
                                        
[_]        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 1-10272


                          ARCHSTONE COMMUNITIES TRUST
            (Exact name of registrant as specified in its charter)
                                        

                Maryland                                         74-6056896
    (State or other jurisdiction of                           (I.R.S. Employer
     incorporation or organization)                          Identification No.)


       7670 South Chester Street,                                   80112
          Englewood, Colorado                                    (Zip Code)
(Address of principal executive offices)


                                (303) 708-5959
             (Registrant's telephone number, including area code)


                        SECURITY CAPITAL PACIFIC TRUST
             (Former name, former address and former fiscal year,
                         if changed since last report)

                                        
     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 for the past 90 days.

                                Yes  X   No 
                                    ---     ---               


     The number of the Registrant's common shares outstanding as of August 11,
1998 was 143,146,073.
<PAGE>
 

                          ARCHSTONE COMMUNITIES TRUST

                                     INDEX

<TABLE>
<CAPTION>
                                                                           Page
                                                                          Number
                                                                          ------
<S>                                                                       <C>
PART I.   Condensed Financial Information

  Item 1. Financial Statements

          Condensed Balance Sheets--June 30, 1998 (unaudited)
          and December 31, 1997........................................      3

          Condensed Statements of Earnings--Three and six months ended
          June 30, 1998 and 1997 (unaudited)...........................      4

          Condensed Statement of Shareholders' Equity--Six months
          ended June 30, 1998 (unaudited)..............................      5

          Condensed Statements of Cash Flows--Six months ended
          June 30, 1998 and 1997 (unaudited)...........................      6

          Notes to Condensed Financial Statements (unaudited)..........      7

          Independent Accountants' Review Report.......................     16

  Item 2. Management's Discussion and Analysis of Financial Condition
          and Results of Operations....................................     17

PART II.  Other Information

  Item 4. Submission of Matters to a Vote of Security Holders..........     30

  Item 6. Exhibits and Reports on Form 8-K.............................     31
</TABLE>

                                       2
<PAGE>
 

                          ARCHSTONE COMMUNITIES TRUST

                           CONDENSED BALANCE SHEETS

                       (In thousands, except share data)

<TABLE>
<CAPTION>
                                                            June 30,       December 31,
                        ASSETS                                1998             1997
                        ------                             -----------     ------------
                                                           (unaudited)
<S>                                                        <C>             <C>

Real estate............................................    $ 2,785,753     $  2,604,919

Less accumulated depreciation..........................        156,033          129,718
                                                           -----------     ------------
                                                             2,629,720        2,475,201

Homestead convertible mortgage notes receivable........        228,551          272,556

Other mortgage notes receivable........................          9,196           12,682
                                                           -----------     ------------
      Net investments..................................      2,867,467        2,760,439

Cash and cash equivalents..............................          2,650            4,927

Restricted cash in tax-deferred exchange escrow........          2,362               --

Other assets...........................................         47,592           40,320
                                                           -----------     ------------
      Total assets.....................................    $ 2,920,071     $  2,805,686
                                                           ===========     ============

         LIABILITIES AND SHAREHOLDERS' EQUITY
         ------------------------------------

Liabilities:

  Credit facilities....................................    $   237,100     $    231,500

  Long-Term Debt.......................................        755,000          630,000

  Mortgages payable....................................        260,282          265,652

  Distributions payable................................             --           31,495

  Accounts payable.....................................         34,590           35,352

  Accrued expenses and other liabilities...............         74,423           71,251
                                                           -----------     ------------
      Total liabilities................................      1,361,395        1,265,250
                                                           -----------     ------------

Shareholders' equity:

  Series A Preferred Shares (5,089,195 convertible
   shares in 1998 and 5,408,393 in 1997; stated
   liquidation preference of $25 per share)............        127,230          135,210

  Series B Preferred Shares (4,200,000 shares;
   stated liquidation preference of $25 per share).....        105,000          105,000

  Common Shares (95,090,151 shares in 1998 and
   92,633,724 in 1997).................................         95,090           92,634

  Additional paid-in capital...........................      1,317,837        1,268,741

  Employee share purchase notes........................        (16,505)         (17,238)

  Unrealized holding gain on Homestead convertible
   mortgage notes receivable...........................         26,770           83,794

  Distributions in excess of net earnings..............        (96,746)        (127,705)
                                                           -----------     ------------
      Total shareholders' equity.......................      1,558,676        1,540,436
                                                           -----------     ------------
      Total liabilities and shareholders' equity.......    $ 2,920,071     $  2,805,686
                                                           ===========     ============
</TABLE>
 
              The accompanying notes are an integral part of the 
                        condensed financial statements.

                                       3
<PAGE>

                          ARCHSTONE COMMUNITIES TRUST

                        CONDENSED STATEMENTS OF EARNINGS

                   (In thousands, except per share amounts)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                   Three Months Ended     Six Months Ended
                                                                        June 30,              June 30,
                                                                  -------------------   -------------------
                                                                    1998       1997       1998       1997
                                                                  --------   --------   --------   --------
<S>                                                               <C>        <C>        <C>        <C>
Revenues:
    Rental revenues ...........................................   $ 91,552   $ 81,412   $180,105   $161,362
    Interest income on Homestead convertible mortgage notes ...      5,717      3,800     11,240      6,974
    Other income ..............................................        907        968      2,442      1,338
                                                                  --------   --------   --------   --------
                                                                    98,176     86,180    193,787    169,674
                                                                  --------   --------   --------   --------
Expenses:
    Rental expenses:
        Paid to affiliate .....................................         --      2,813         --      5,503
        Paid to third parties .................................     24,123     20,067     47,523     40,684
    Real estate taxes .........................................      7,631      6,656     15,652     13,924
    Depreciation on real estate investments ...................     16,115     12,639     32,373     24,688
    Interest ..................................................     16,006     15,798     31,629     29,759
    General and administrative:
        Paid to affiliate .....................................        786      4,706      1,739      9,323
        Paid to third parties .................................      2,256        316      4,124        588
    Provision for possible loss on investments ................      3,000         --      3,000      1,500
    Other .....................................................        211        120        400        364
                                                                  --------   --------   --------   --------
                                                                    70,128     63,115    136,440    126,333
                                                                  --------   --------   --------   --------
Earnings from operations ......................................     28,048     23,065     57,347     43,341
    Gains on dispositions of depreciated real estate, net .....         --     11,872     15,484     37,207
                                                                  --------   --------   --------   --------
Net earnings ..................................................     28,048     34,937     72,831     80,548
    Less:  Preferred Share dividends ..........................      4,757      4,805      9,469      9,840
                                                                  --------   --------   --------   --------
Net earnings attributable to Common Shares ....................   $ 23,291   $ 30,132   $ 63,362   $ 70,708
                                                                  ========   ========   ========   ========
Weighted average Common Shares outstanding -- Basic ...........     94,442     77,398     93,617     76,639
                                                                  --------   --------   --------   --------
Weighted average Common Shares outstanding -- Diluted .........    101,416     85,504    100,834     84,915
                                                                  --------   --------   --------   --------
Net earnings and distributions paid per Common Share:
    Basic .....................................................   $   0.25   $   0.39   $   0.68   $   0.92
                                                                  ========   ========   ========   ========
    Diluted ...................................................   $   0.25   $   0.38   $   0.68   $   0.89
                                                                  ========   ========   ========   ========
    Distributions paid ........................................   $   0.34   $  0.325   $   0.68   $   0.65
                                                                  ========   ========   ========   ========
</TABLE>


                 The accompanying notes are an integral part 
                    of the condensed financial statements.


                                       4

<PAGE>
 
                          ARCHSTONE COMMUNITIES TRUST

                  CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY

                        Six Months Ended June 30, 1998

                       (In thousands, except share data)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                    Shares of beneficial
                                 interest, $1.00 par value
                                 -------------------------
                                  Series A     Series B                                      Unrealized                 
                                  Preferred    Preferred                                       holding                  
                                  Shares at    Shares at     Common                Employee    gain on                  
                                  aggregate    aggregate    Shares at  Additional   share     Homestead   Distributions 
                                 liquidation  liquidation      par      paid-in    purchase  convertible  in excess of  
                                 preference   preference     value      capital     notes     mortgages   net earnings      Total
                                 -----------  -----------  ----------  ----------  --------  -----------  -------------  ----------
<S>                               <C>         <C>          <C>         <C>         <C>       <C>          <C>            <C>
Balances at December 31, 1997...    $135,210     $105,000     $92,634  $1,268,741  $(17,238)    $83,794      $(127,705)  $1,540,436
                                                                                                                         ----------
 Comprehensive income:                                                                                                  
  Net earnings...................         --           --          --          --        --          --         72,831       72,831
  Preferred Share dividends paid.         --           --          --          --        --          --         (9,469)      (9,469)
  Other comprehensive income -                                                                  (57,024)                    (57,024)
  Change in unrealized holding                                                                                          
   gain on Homestead convertible                                                                                        
   mortgage notes receivable.....         --           --          --          --        --                         --  
 Comprehensive income                                                                                                   
  attributable to Common Shares..                                                                                             6,338
                                                                                                                         ----------
 Common Share distributions                                                                                             
  paid...........................         --           --          --          --        --          --        (32,403)     (32,403)
 Sale of shares, net of expenses.         --           --       2,050      41,959        --          --             --       44,009
 Common Shares issued under                                                                                             
  dividend reinvestment plan.....         --           --           4         103        --          --             --          107
 Net shares repurchased under                                                                                           
  Incentive Plan.................         --           --         (36)       (771)      733          --             --          (74)
 Accrued dividend equivalent                                                                                            
  units..........................         --           --          --         134        --          --             --          134
 Conversion of 319,198 Series A                                                                                         
  Preferred Shares into 429,892                                                                                         
  Common Shares..................     (7,980)          --         430       7,550        --          --             --           --
 Exercise of warrants and                                                                                               
  options........................         --           --           8         121        --          --             --          129
                                    --------     --------     -------  ----------  --------     -------      ---------   ----------
Balances at June 30, 1998........   $127,230     $105,000     $95,090  $1,317,837  $(16,505)    $26,770      $ (96,746)  $1,558,676
                                    ========     ========     =======  ==========  ========     =======      =========   ==========
</TABLE>
                                                                                




                                        
    The accompanying notes are an integral part of the condensed financial 
                                  statements.

                                       5
<PAGE>
 
                          ARCHSTONE COMMUNITIES TRUST

                      CONDENSED STATEMENTS OF CASH FLOWS
                                (In thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                              Six Months Ended
                                                                                  June 30,
                                                                     ---------------------------------
                                                                           1998               1997
                                                                     ---------------     ---------------
<S>                                                                 <C>                 <C>
Operating activities:
  Net earnings.....................................................     $  72,831           $  80,548
  Adjustments to reconcile net earnings to net cash flow provided 
   by operating activities:
     Depreciation and amortization.................................        33,056              25,521
     Gains on dispositions of depreciated real estate, net.........       (15,484)            (37,207)
     Provision for possible loss on investments....................         3,000               1,500
  Change in accounts payable.......................................        (2,961)               (176)
  Change in accrued expenses and other liabilities.................         3,172               3,966
  Change in other operating assets.................................        (2,153)             (4,034)
                                                                        ---------           ---------
     Net cash flow provided by operating activities................        91,461              70,118 
                                                                        ---------           ---------
Investing activities:
  Real estate investments..........................................      (246,771)           (371,250)
  Proceeds from dispositions, net of closing costs.................        99,538             244,122
  Change in tax-deferred exchange escrow...........................        (2,362)            (19,665)
  Funding of Homestead convertible mortgage notes receivable.......       (11,895)            (41,250)
  Advances on other mortgage notes receivable......................            --                (200)
  Principal repayments on other mortgage notes receivable..........         1,186                 864
                                                                        ---------           ---------
     Net cash flow used in investing activities....................      (160,304)           (187,379)
                                                                        ---------           ---------
Financing activities:
  Proceeds from Long-Term Debt.....................................       125,000              50,000
  Debt issuance costs incurred.....................................        (6,926)               (700)
  Principal prepayment of mortgages payable........................       (25,876)            (19,850)
  Regularly scheduled principal payments on mortgages payable......        (2,170)             (1,547)
  Proceeds from credit facilities..................................       401,370             464,920
  Principal payments on credit facilities..........................      (395,770)           (372,105)
  Proceeds from sale of Common Shares, net.........................        44,009              54,255
  Cash distributions paid on Common Shares.........................       (63,898)            (49,657)
  Cash dividends paid on Preferred Shares..........................        (9,469)             (9,840)
  Other............................................................           296               1,754
                                                                        ---------           ---------
     Net cash flow provided by financing activities................        66,566             117,230
                                                                        ---------           ---------
Net change in cash and cash equivalents............................        (2,277)                (31)
Cash and cash equivalents at beginning of period...................         4,927               5,601
                                                                        ---------           ---------
Cash and cash equivalents at end of period.........................     $   2,650           $   5,570
                                                                        =========           =========
Non-cash investing and financing activities:
  Assumption of mortgages payable upon purchase of multifamily 
   communities.....................................................     $  22,676           $  82,827
  Series A Preferred Shares converted to Common Shares.............     $   7,980           $  23,024 
  Change in unrealized holding gain on Homestead convertible mortgage
   notes receivable................................................     $ (57,024)          $  28,219
</TABLE>

    The accompanying notes are an integral part of the condensed financial
                                  statements.

                                       6
<PAGE>
 
                          ARCHSTONE COMMUNITIES TRUST

                    NOTES TO CONDENSED FINANCIAL STATEMENTS

                             June 30, 1998 and 1997
                                  (Unaudited)
                                        

(1) General


  On June 29, 1998, the shareholders of Security Capital Pacific Trust ("PTR")
and Security Capital Atlantic Incorporated ("Atlantic") approved a merger
transaction (the "Atlantic Merger") which was consummated in July 1998, whereby
Atlantic was merged with and into PTR. The combined company has continued
operating under the name Archstone Communities Trust ("Archstone"). See Note 2
for a more complete discussion of the Atlantic Merger.

  The accompanying condensed financial statements and footnotes of Archstone
represent the financial position and results of operations for PTR on a stand-
alone basis and do not reflect the financial position or results of operations
for Atlantic or the combined company (unless otherwise indicated), due to the
fact that the Atlantic Merger was consummated after June 30, 1998.

  These condensed financial statements are unaudited and certain information and
footnote disclosures normally included in financial statements have been
omitted. While management believes that the disclosures presented are adequate,
these interim financial statements should be read in conjunction with the
financial statements and notes included in PTR's 1997 Annual Report on Form 10-K
("1997 Form 10-K").

  In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary for a fair presentation of Archstone's
financial statements for the interim periods presented. The results of
operations for the three and six month periods ended June 30, 1998 and 1997 are
not indicative of the results to be expected for the entire year. See Note 2 for
a discussion of the recently consummated Atlantic Merger.

  The accounts of Archstone and its controlled subsidiaries are consolidated in
the accompanying condensed financial statements. All significant intercompany
accounts and transactions have been eliminated in consolidation.

  The preparation of these financial statements in conformity with generally
accepted accounting principles ("GAAP") required management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the dates of the financial statements
and the reported amounts of revenues and expenses during the reporting periods.
Actual amounts realized or paid could differ from those estimates.

 Reclassifications

  Certain 1997 amounts have been reclassified to conform to the 1998
presentation.

 New Accounting Rules

  In April 1998, new accounting rules were issued requiring that costs
associated with start-up activities such as the opening of a new business or
division be expensed as incurred. The new rules, which become effective January
1, 1999, are not expected to have a material impact on Archstone's financial
position or results of operations.

  In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" was issued, establishing
standards for the accounting and reporting for derivative instruments. The new
rules, which become effective January 1, 2000, are not expected to have a
material impact on Archstone's financial position or results of operations.

 Per Share Data

  Following is a reconciliation of the calculation used to compute basic net
earnings per Archstone common share of beneficial interest, par value $1.00 per
share ("Common Share"), to that used to compute diluted net earnings per Common
Share, for the periods indicated (in thousands, except per share amounts):

                                       7
<PAGE>
 
                          ARCHSTONE COMMUNITIES TRUST

                    NOTES TO CONDENSED FINANCIAL STATEMENTS

                             June 30, 1998 and 1997
                                  (Unaudited)

                                        
<TABLE>
<CAPTION>
                                                            Three  Months Ended          Six Months Ended
                                                                  June 30                     June 30
                                                           ----------------------       ---------------------
                                                             1998          1997           1998        1997
                                                           --------      --------       --------     --------
<S>                                                      <C>           <C>            <C>          <C>
Reconciliation of numerator between basic and diluted net earnings per Common Share:

Net earnings attributable to Common Shares -- Basic.....   $ 23,291      $ 30,132       $ 63,362     $ 70,708
  Dividends on Series A Preferred Shares................      2,414         2,443          4,784        5,116
Net earnings attributable to Common Shares -- Diluted...   --------      --------       --------     --------
                                                           $ 25,705      $ 32,575       $ 68,146     $ 75,824 
                                                           ========      ========       ========     ========
Reconciliation of denominator between basic and diluted net earnings per Common Share:

Weighted average number of Common Shares outstanding 
 -- Basic...............................................     94,442        77,398         93,617       76,639
  Assumed conversion of Series A Preferred Shares into 
    Common Shares.......................................      6,890         8,089          7,133        8,259
    Incremental options outstanding.....................         84            17             84           17
                                                           --------      --------       --------     --------
Weighted average number of Common Shares outstanding 
 -- Diluted.............................................    101,416        85,504        100,834       84,915
                                                           ========      ========       ========     ========
                                                          
Net earnings per Common Share -- Basic..................   $   0.25      $   0.39       $   0.68     $   0.92      
                                                           ========      ========       ========     ========
Net earnings per Common Share -- Diluted................   $   0.25      $   0.38       $   0.68     $   0.89
                                                           ========      ========       ========     ========
</TABLE>

(2)  Atlantic Merger

  On June 29, 1998, the shareholders of both PTR and Atlantic, approved a merger
transaction which was consummated in July 1998, whereby Atlantic, a multifamily
real estate investment trust ("REIT") which operated primarily in the mid-
Atlantic and southeastern United States, was merged with and into PTR. The
combined company has continued its existence under the name Archstone and is
traded on the New York Stock Exchange ("NYSE") under the symbol "ASN". In
accordance with the terms of the Atlantic Merger, each outstanding Atlantic
common share was converted into the right to receive one Common Share and each
outstanding Atlantic Series A preferred share was converted into the right to
receive one comparable share of a new class of Archstone Series C preferred
shares. In addition, Archstone assumed Atlantic's debt and other liabilities
upon consummation of the Atlantic Merger. The Atlantic Merger was structured as
a tax-free merger and was accounted for under the purchase method.

  The following pro forma summary information represents the combined financial
position for PTR and Atlantic with the appropriate purchase accounting
adjustments, assuming the Atlantic Merger and the sale of Atlantic's Homestead
convertible mortgage notes receivable had occurred on June 30, 1998. The pro
forma information presented is not necessarily indicative of what Archstone's
actual financial position would have been had these events been consummated on
June 30, 1998 (dollar amounts in thousands):

<TABLE>
<CAPTION>
                                                                June 30, 1998
                                                                -------------
<S>                                                          <C>
  Real estate................................................    $  4,571,006
  Total assets...............................................    $  4,722,917
  Credit facilities..........................................    $    517,237
  Long-Term Debt.............................................    $    909,122
  Mortgages payable..........................................    $    420,611
  Total liabilities and minority interest....................    $  2,027,533
  Total shareholders' equity.................................    $  2,695,384

  Common Shares outstanding..................................     142,842,203

  Ratio of total debt to total undepreciated book 
    capitalization...........................................           39.31%
  Ratio of long-term debt to long-term undepreciated book 
    capitalization...........................................           31.80%
</TABLE>

                                       8
<PAGE>
 
                          ARCHSTONE COMMUNITIES TRUST

              NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
                                        

  In addition to approving the Atlantic Merger, PTR shareholders also approved
the following matters: (i) an amended and restated declaration of trust of PTR
which, among other things, changed PTR's name to Archstone, increased the
authorized shares from 150,000,000 to 250,000,000, divided the Archstone Board
of Trustees ("Archstone Board") into three classes, each serving staggered three
year terms, and eliminated certain restrictions on the company's operations and
ability to enter into certain types of transactions; and (ii) an increase in the
number of Common Shares available for award under the Archstone 1997 Long-Term
Incentive Plan ("Incentive Plan") and the Archstone 1996 Share Option Plan for
Outside Trustees in amounts equal to the number of shares authorized under the
corresponding Atlantic option plans.

  Upon consummation of the Atlantic Merger, Security Capital Group Incorporated
("Security Capital"), which voted its shares in favor of the Atlantic Merger,
owned approximately 38.2% of the outstanding Common Shares and is Archstone's
largest shareholder.

  As part of the Atlantic Merger, Archstone's Common Share and Series A
cumulative convertible preferred share (the "Series A Preferred Share")
distributions were adjusted subsequent to the close of the transaction to an
annualized level of $1.42 per Common Share and $1.91 per Series A Preferred
Share, respectively.

  Based upon the multifamily portfolios of PTR and Atlantic at June 30, 1998,
Archstone had 323 multifamily communities, consisting of 94,997 units, including
26,568 units under construction or In Planning, (including 27
communities aggregating 8,327 units that are Under Control but not owned as of
June 30, 1998), in markets that include 29 of the nation's 50 largest
metropolitan markets. Additionally, Archstone's total market capitalization was
approximately $5.4 billion at June 30, 1998.


(3) Real Estate

 Investments in Real Estate

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

<TABLE>
<CAPTION>
                                                      June 30, 1998          December 31, 1997
                                                 --------------------------------------------------
                                                 Investment     Units       Investment       Units
                                                 ----------    --------     ----------      -------
<S>                                             <C>            <C>         <C>              <C>
Multifamily:
                                                                  
  Operating communities.......................   $2,371,908     44,513      $2,237,789       43,465
 
  Communities under construction (1)..........      305,802      7,485         232,770        5,545

  Development communities In Planning (1) (2):
                                                                 
    Owned.....................................       42,007      2,870          80,781        4,468
     
    Under Control (2) (3).....................           --      6,855              --        6,090
                                                 ----------     ------      ----------       ------  
      Total development communities In
        Planning...............................      42,007      9,725          80,781       10,558
                                                                                 
  Other land held..............................      43,166         --          27,517           -- 
                                                 ----------     ------      ----------       ------  
      Total multifamily........................   2,762,883     61,723       2,578,857       59,568
                                                                ======                       ======
  Non-multifamily..............................      22,870                     26,062
                                                 ----------                 ----------
      Total real estate........................  $2,785,753                 $2,604,919
                                                 ==========                 ==========
</TABLE>

----------
(1)  Unit information is based on management's estimates and has not been
     audited or reviewed by Archstone's independent accountants.

(2)  "In Planning" is defined as parcels of land owned or Under Control upon
     which multifamily construction is expected to commence within 36 months.
     "Under Control" means Archstone has an exclusive right (through contingent
     contract or letter of intent) during a contractually agreed-upon time
     period to acquire land for future development of multifamily communities at
     a fixed price, subject to approval of contingencies during the due
     diligence process, but does not currently own the land. There can be no
     assurance that such land will be acquired.

(3)  Archstone's investment as of June 30, 1998 and December 31, 1997 for
     developments Under Control was $3.7 million and $3.8 million, respectively,
     and is reflected in the "Other assets" caption of Archstone's balance
     sheets.

                                       9
<PAGE>
 
                          ARCHSTONE COMMUNITIES TRUST
                                        

            NOTES TO CONDENSED FINANCIAL STATEMENTS -- (Continued)



Capital Expenditures


  As part of its operating strategy, Archstone conducts regular reviews of its
assets which involves an evaluation of each community's physical condition
relative to management's business objectives as well as the community's
competitive position in its market. In conducting these evaluations, management
considers Archstone's return on investment in relation to its long-term cost of
capital as well as its research and analysis of competitive market factors.

  In conjunction with the acquisition and related underwriting of a multifamily
operating community, Archstone prepares acquisition budgets that encompass the
incremental capital needed to achieve Archstone's investment objectives. These
expenditures, combined with the initial acquisition costs, are capitalized and
classified as "acquisition-related" capital expenditures, as incurred.

  Other capital expenditures on operating communities are classified as either
"redevelopment" or "recurring". The redevelopment category includes
redevelopment, revenue-enhancing and expense-reducing capital expenditures.
Redevelopment initiatives are intended to reposition the community in the
marketplace and include items such as significant upgrades to the interiors,
exteriors, landscaping and amenities. Revenue-enhancing expenditures include
investments which are expected to produce incremental community revenues, such
as building garages/carports, adding storage facilities or gating a community.
Expense-reducing expenditures include items such as water submetering systems
and xeriscaping which 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 Archstone's stringent operating
standards. Examples of recurring capital expenditures include roof replacements,
parking lot resurfacing and exterior painting.

  Repairs and maintenance and make-ready expenditures, including carpet and
appliance replacements, are expensed as incurred, to the extent they are not
acquisition-related costs identified during Archstone's pre-acquisition due
diligence. Make-ready expenditures are costs incurred in preparing a vacant
multifamily unit for the next resident. The change in investments in real
estate, at cost, consisted of the following (in thousands):

<TABLE>
    <S>                                                            <C>
     Balance at January 1, 1998.................................... $2,604,919
 
       Multifamily:

         Acquisition-related expenditures..........................     94,502  
                                                                          
         Redevelopment expenditures................................     17,705 

         Recurring capital expenditures............................      3,408
                                                                         
         Development expenditures, excluding land acquisitions.....    119,597
                                                                          
         Acquisition and improvement of land for development.......     35,959

         Dispositions..............................................    (84,297) 

         Provision for possible loss on investments................       (700)
                                                                    ----------
     Net multifamily activity......................................  2,791,093

     Non-multifamily dispositions..................................     (5,340)
                                                                    ----------
     Balance at June 30, 1998...................................... $2,785,753
                                                                     =========
</TABLE>

  At June 30, 1998, Archstone had unfunded multifamily construction and
redevelopment commitments aggregating approximately $353.7 million.


                                      10
<PAGE>
 
                          ARCHSTONE COMMUNITIES TRUST

             NOTES TO CONDENSED FINANCIAL STATEMENTS -- (Continued)



 Gains on Dispositions of Investments

  During the six months ended June 30, 1998, Archstone disposed of five
multifamily communities and certain non-multifamily real estate assets,
representing gross proceeds of $101.1 million. Archstone disposed of 23
multifamily communities and certain non-multifamily real estate assets,
representing gross proceeds of $249.8 million during the six months ended June
30, 1997. For federal income tax purposes, the dispositions were generally
structured as tax-deferred exchanges, which deferred gain recognition. However,
for financial reporting purposes, the transactions qualified for profit
recognition, and aggregate gains of $15.5 million and $37.2 million were
recorded for the six months ended June 30, 1998 and 1997, respectively.

  As part of Archstone's asset optimization strategy, four multifamily
communities and certain non-multifamily real estate assets with an aggregate
carrying value of approximately $70.3 million were held for disposition as of
June 30, 1998. Each property's carrying value is less than or equal to its
estimated fair market value, net of estimated costs to sell. Operating
communities are not depreciated during the period for which they are determined
to be held for disposition. Subject to normal closing risks, Archstone expects
to complete the disposition of these properties and redeploy the net proceeds
into the development or acquisition of multifamily communities using tax-
deferred exchanges, where appropriate. The property level earnings, after
interest and depreciation, from communities held for disposition at June 30,
1998 were $3.1 million and $2.7 million for the six months ended June 30, 1998
and 1997, respectively.


(4) Mortgage Notes Receivable

  During the six month period ended June 30, 1998, Archstone funded the final
$11.9 million under its $198.8 million funding commitment to Homestead Village
Incorporated ("Homestead"). Following is a reconciliation of the Homestead
convertible mortgage notes receivable components to the amount reflected in the
accompanying condensed balance sheet (in thousands):

<TABLE>
<CAPTION>
                                                                   June 30, 1998
                                                                   -------------
<S>                                                                  <C>
Face amount of Homestead convertible mortgage notes receivable....... $221,334
 
Original issue discount..............................................  (22,501)
                                                                      --------  
Amount funded........................................................  198,833

Amortization of original issue discount..............................    1,761

Conversion feature - initial value...................................   15,590

Unamortized discount on conversion feature...........................  (14,403)

Fair value adjustment................................................   26,770
                                                                      --------  
Carrying value and fair value........................................ $228,551
                                                                      ========
</TABLE>


  The Homestead convertible mortgage notes receivable are convertible into
Homestead common stock on the basis of one share of Homestead common stock for
every $11.50 of principal face amount outstanding. The difference between the
fair value of the Homestead convertible mortgage notes receivable (assuming
conversion), as calculated based upon the trading price of Homestead's common
stock on the NYSE at June 30, 1998 ($11.875), and the amortized cost of the
Homestead convertible mortgage notes receivable, is reflected as an additional
component of the Homestead convertible mortgage notes receivable balance and as
an unrealized holding gain in shareholders' equity. There was no unrealized gain
on these notes as of July 24, 1998.

  During the three months ended June 30, 1998, management concluded that the
full collectibility of certain other mortgage notes receivable secured by non-
multifamily assets was doubtful. As a result, a provision for possible loss was
recorded to reduce these notes to their estimated net realizable value.

                                      11
<PAGE>
 
                          ARCHSTONE COMMUNITIES TRUST

             NOTES TO CONDENSED FINANCIAL STATEMENTS -- (Continued)



(5) Borrowings

 Credit Facilities

  The following table summarizes Archstone's line of credit borrowings (dollars
in thousands):


<TABLE>
<CAPTION>
                                                        Six Months                                 
                                                          Ended         Year Ended     
                                                      June 30, 1998  December 31, 1997 
                                                      -------------  -----------------
    <S>                                                   <C>         <C>
     Total line of credit..............................   $350,000        $350,000
     Borrowings outstanding at end of period...........   $187,100        $223,500
     Weighted average daily borrowings.................   $177,741        $121,038
     Weighted average daily nominal interest rate......        6.6%            6.7%
     Weighted average daily effective interest rate....        7.5%            8.4%
     Weighted average nominal interest rate at end of                              
       period..........................................        6.4%            6.9% 
</TABLE>

  Upon consummation of the Atlantic Merger in July 1998, Archstone replaced its
$350 million unsecured revolving line of credit with a $750 million unsecured
revolving line of credit provided by a group of financial institutions led by
Chase Bank of Texas, National Association ("Chase") (collectively the
"Lenders"). The new $750 million line of credit matures in July 2001, at which
time it may be converted into a two-year term loan at Archstone's option. The
new line of credit bears interest at the greater of prime or the federal funds
rate plus 0.50%, or at Archstone's option, LIBOR (5.6875% at June 30, 1998) plus
0.65%. The spread over LIBOR can vary from LIBOR plus 0.50% to LIBOR plus 1.25%
based upon the rating of Archstone's long-term unsecured senior notes ("Long-
Term Debt"). Under a competitive bid option contained in the credit agreement,
Archstone may be able to borrow at a lower interest rate spread over LIBOR,
depending on market conditions, on up to $375 million of borrowings. Under the
new agreement, Archstone will pay a facility fee, which is equal to 0.15% of the
commitment.

  On September 9, 1996, Archstone entered into a short-term, unsecured borrowing
agreement with Chase. This borrowing agreement was renegotiated by Archstone
upon consummation of the Atlantic Merger under similar terms as the previous
agreement. The agreement matures in July 1999 and bears interest at an overnight
rate that ranged from 6.0% to 7.1% during the six months ended June 30, 1998. At
June 30, 1998, there was $50 million outstanding under this agreement.


                                      12
<PAGE>
 
                          ARCHSTONE COMMUNITIES TRUST
                                        

            NOTES TO CONDENSED FINANCIAL STATEMENTS -- (Continued)



Long-Term Debt


     Archstone has issued Long-Term Debt which bears interest at fixed rates,
payable semi-annually. Funds from such issuances were used primarily for
acquisition, development and redevelopment of multifamily communities and to
repay balances on credit facilities incurred for such purposes. The following
table summarizes the Long-Term Debt as of June 30, 1998:



<TABLE>
<CAPTION>



                                                    Issuance                  Average Effective
                                                      and                       Interest Rate,     Average
                                                  Outstanding      Average    including offering  Original
                                                   Principal        Coupon      discounts and       Life
               Date of Issuance                      Amount          Rate       issuance costs    (Years)
----------------------------------------------------------------------------------------------------------
<S>                                              <C>               <C>             <C>            <C>
March 6, 1998..................................   $125  million      7.200%         7.864%        13.00
March 31, 1997.................................     50  million      7.905          7.850         16.00
October 21, 1996...............................    130  million      7.350          7.500          6.85
August 6, 1996.................................    100  million      7.840          7.950         15.60
February 23, 1996..............................    150  million      7.710          7.840         15.50
February 8, 1994...............................    200  million      7.240          7.370         14.25
                                                  -------------      -----          -----         -----
Grand Total/Average............................   $755  million      7.469%         7.670%        13.31
                                                  =============      =====          =====         =====
</TABLE>
  Mortgages Payable

   Mortgages payable at June 30, 1998 consisted of the following (dollar amounts
in thousands):

<TABLE>
<CAPTION>


                                           Effective      Principal         Principal
                                           Interest      Balance at        Balance at
           Type of Mortgage                Rate (1)     June 30, 1998   December 31, 1997
-----------------------------------------------------------------------------------------
<S>                                        <C>          <C>                 <C>
  Conventional fixed rate...........        8.01%         $136,089          $143,963
  Tax-exempt fixed rate (2).........        6.62            45,614            46,298
  Tax-exempt floating rate (2)......        4.69            70,848            68,440
  Combined (3)......................        8.84             5,761             5,794
  Other.............................        5.41             1,970             1,157
                                            ----          --------          --------
    Total/average mortgage debt.....        6.86%         $260,282          $265,652
                                            ====          ========          ========       
</TABLE>

(1) Represents the effective interest rate, including loan cost amortization and
    other ongoing fees and expenses.
(2) Tax-exempt effective interest rates include credit enhancement and other
    bond-related costs, where applicable.
(3) This category represents one multifamily community which was refinanced in
    1990 pursuant to multifamily bonds aggregating $6.2 million. The bonds
    consist of $4.5 million Series A tax-exempt fixed rate bonds and $1.7
    million Series B taxable fixed rate bonds.

    The change in mortgages payable during the six months ended June 30, 1998
consisted of the following (in thousands):

<TABLE>
<CAPTION>
<S>                                                                      <C>
      Balance at January 1, 1998........................................  $265,652
      Mortgage notes assumed............................................    22,676
      Principal payments, including prepayments.........................   (28,046)
      Balance at June 30, 1998..........................................  --------
                                                                          $260,282   
                                                                          ========
</TABLE>


                                       13
<PAGE>
 
                          ARCHSTONE COMMUNITIES TRUST

             NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)


 Scheduled Debt Maturities

  Approximate principal payments due during each of the calendar years in the
20-year period ending December 31, 2017 and thereafter, as of June 30, 1998, are
as follows (in thousands):

<TABLE>
<CAPTION>
                                           Credit         Long-Term
                                         Facilities          Debt          Mortgages       Total
                                         -----------      ----------       ---------      ---------- 
<S>                                      <C>              <C>              <C>             <C> 
1998.................................    $     --         $     --         $ 26,948        $ 26,948
1999.................................      50,000           30,000            8,886          88,886
2000.................................          --               --           16,678          16,678
2001.................................     187,100           12,500           24,754         224,354
2002.................................          --           32,500           18,332          50,832
2003.................................          --           38,750            3,114          41,864
2004.................................          --           38,750            3,042          41,792
2005.................................          --           38,750           13,287          52,037
2006.................................          --           38,750            9,937          48,687
2007.................................          --           38,750            4,044          42,794
2008.................................          --           38,750           20,097          58,847
2009.................................          --           61,250            2,919          64,169
2010.................................          --           63,750            6,322          70,072
2011.................................          --           50,000            3,332          53,332
2012.................................          --           55,000            3,325          58,325
2013.................................          --           60,000            3,377          63,377
2014.................................          --           42,500           16,483          58,983
2015.................................          --           40,000           38,231          78,231
2016.................................          --           45,000            3,139          48,139
2017.................................          --           30,000            3,385          33,385
  Thereafter.........................          --               --           30,650          30,650
                                         --------         --------         --------      ----------
  Total.......................           $237,100         $755,000         $260,282      $1,252,382
                                         ========         ========         ========      ==========
</TABLE> 

 General

  Archstone's debt instruments generally contain certain covenants common to the
type of facility or borrowing, including financial covenants establishing
minimum debt service coverage ratios and maximum leverage ratios. Archstone was
in compliance with all debt covenants at June 30, 1998.

  Interest paid on all borrowings for the six months ended June 30, 1998 was
$27.3 million, net of $11.1 million of interest capitalized during construction.
Interest paid on all borrowings for the six months ended June 30, 1997 was $26.0
million, net of $8.8 million of interest capitalized during construction.

  Amortization of loan costs included in interest expense for the six months
ended June 30, 1998 and 1997 was $1.8 million and $1.5 million, respectively.

                                       14
<PAGE>
 
                          ARCHSTONE COMMUNITIES TRUST

            NOTES TO CONDENSED FINANCIAL STATEMENTS -- (Concluded)
                                        


(6) Cash Distributions

  Archstone paid first and second quarter 1998 distributions of $0.34 per Common
Share on February 25, 1998 and May 28, 1998. On July 8, 1998, the Archstone
Board declared a cash distribution of $0.355 per Common Share, payable on August
27, 1998, to Archstone shareholders of record on August 13, 1998. On March 31,
1998 and June 30, 1998, Archstone paid quarterly dividends of $0.4579 per Series
A Preferred Share and $0.5625 per Series B cumulative redeemable preferred share
of beneficial interest (the "Series B Preferred Shares") (collectively the
"Preferred Shares").

(7) Shareholders' Equity

  On April 23, 1998, Archstone sold 2,049,587 Common Shares at $22.6875 per
share in an underwritten public offering. The net proceeds of $44.0 million (net
of underwriting discount and offering costs) were used to repay borrowings under
Archstone's credit facilities.

  After giving effect to the April 23, 1998 Common Share offering and the $125
million in Long-Term Debt issued March 6, 1998, Archstone has approximately
$399.4 million in shelf-registered securities available for issuance. Archstone
can issue these securities in the form of Long-Term Debt, Common Shares and
preferred shares on an as-needed basis, subject to Archstone's ability to effect
offerings on satisfactory terms.






 

 

                                       15
<PAGE>
 
                    INDEPENDENT ACCOUNTANTS' REVIEW REPORT

                                        


The Board of Trustees and Shareholders
ARCHSTONE COMMUNITIES TRUST:


  We have reviewed the accompanying condensed balance sheet of ARCHSTONE
COMMUNITIES TRUST as of June 30, 1998, the related condensed statements of
earnings for the three and six month periods ended June 30, 1998 and 1997, the
condensed statement of shareholders' equity for the six month period ended June
30, 1998 and the related condensed statements of cash flows for the six month
periods ended June 30, 1998 and 1997. These condensed financial statements are
the responsibility of the Trust's management.

  We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.

  Based on our review, we are not aware of any material modifications that
should be made to the condensed financial statements referred to above for them
to be in conformity with generally accepted accounting principles.

  We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of SECURITY CAPITAL PACIFIC TRUST as of December
31, 1997, and the related statements of earnings, shareholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
January 31, 1998, except as to Note 13, which is as of March 6, 1998, we
expressed an unqualified opinion on those financial statements. In our opinion,
the information set forth in the accompanying condensed balance sheet as of
December 31, 1997 is fairly stated, in all material respects, in relation to the
balance sheet from which it has been derived.


                                  KPMG Peat Marwick  LLP


Chicago, Illinois
July 24, 1998

                                      16
<PAGE>
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

  The information presented in "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations" is based on the financial
position and results of operations for PTR on a stand-alone basis and does not
consider Atlantic or the combined company (unless otherwise indicated), since
the Atlantic Merger was consummated after June 30, 1998.

  The following information should be read in conjunction with PTR's 1997 Form
10-K as well as the financial statements and notes included in Item 1 of this
report. See PTR's 1997 Form 10-K "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations" for a discussion of various
risk factors associated with forward-looking statements made in this document.

Atlantic Merger

  On June 29, 1998, shareholders of both PTR and Atlantic approved the Atlantic
Merger, whereby Atlantic, a multifamily REIT which operated primarily in the 
mid-Atlantic and southeastern United States, was merged with and into PTR. The
combined company has continued its existence under the name Archstone and is
traded on the NYSE under the symbol "ASN". In accordance with the terms of the
Atlantic Merger, each outstanding Atlantic common share was converted into the
right to receive one Common Share and each outstanding Atlantic Series A
preferred share was converted into the right to receive one comparable share of
a new class of Archstone Series C preferred shares. In addition, Archstone
assumed Atlantic's debt and other liabilities upon consummation of the Atlantic
Merger. The Atlantic Merger was structured as a tax-free merger and was
accounted for under the purchase method.

  The following pro forma summary information represents the combined financial
position for PTR and Atlantic with the appropriate purchase accounting
adjustments, assuming the Atlantic Merger and the sale of Atlantic's Homestead
convertible mortgage notes receivable had occurred on June 30, 1998. The pro
forma information presented is not necessarily indicative of what Archstone's
actual financial position would have been had the Atlantic Merger been
consummated on June 30, 1998 (dollar amounts in thousands):

<TABLE>
<CAPTION>

                                                                                   June 30, 1998
                                                                                  ----------------
<S>                                                                               <C>
  Real estate...................................................................  $  4,571,006
  Total assets..................................................................  $  4,722,917
  Credit facilities.............................................................  $    517,237
  Long-Term Debt................................................................  $    909,122
  Mortgages payable.............................................................  $    420,611
  Total liabilities and minority interest.......................................  $  2,027,533
  Total shareholders' equity....................................................  $  2,695,384

  Common Shares outstanding.....................................................   142,842,203
  Ratio of total debt to total undepreciated book capitalization................         39.31%
  Ratio of long-term debt to long-term undepreciated book capitalization........         31.80%
</TABLE>


  In addition to approving the Atlantic Merger, PTR shareholders also approved
the following matters: (i) an amended and restated declaration of trust of PTR
which, among other things, changed PTR's name to Archstone, increased the
authorized shares from 150,000,000 to 250,000,000, divided the Archstone Board
into three classes, each serving staggered three-year terms, and eliminated
certain restrictions on the company's operations and ability to enter into
certain types of transactions; and (ii) an increase in the number of Common
Shares available for award under the Incentive Plan and the Archstone 1996 Share
Option Plan for Outside Trustees in amounts equal to the number of shares
authorized under the corresponding Atlantic option plans.

   Upon consummation of the Atlantic Merger, Security Capital, which voted its
shares in favor of the Atlantic Merger, owned approximately 38.2% of the
outstanding Common Shares and is Archstone's largest shareholder.

                                      17
<PAGE>
 
  As part of the Atlantic Merger, Archstone's Common Share and Series A
Preferred Share distributions were adjusted subsequent to the close of the
transaction to an annualized level of $1.42 per Common Share and $1.91 per
Series A Preferred Share.

  Management expects the combined company resulting from the Atlantic Merger to
have the following important characteristics, which are intended to create long-
term shareholder value:

  (1)  A highly focused investment strategy emphasizing markets and submarkets
       with strong economic fundamentals and high barriers to entry, as
       identified by Archstone's research.
  (2)  An investment strategy focused on producing consistent growth from three
       principal sources:

       (i)   The development of new multifamily communities in submarkets
             identified through research as having optimal long-term
             prospects. Management believes that Archstone will be the
             dominant multifamily development community in the United States,
             with a development pipeline of more than $2.1 billion.
       (ii)  An investment strategy emphasizing the creation of shareholder
             value through deploying capital to take advantage of growth
             opportunities created by changing market fundamentals.
       (iii) A highly focused operating strategy designed to create the
             highest level of performance at the property level.
  (3)  A national branding strategy emphasizing a high level of customer service
       with the objective of achieving long-term brand loyalty, lower resident
       turnover and greater market share. Archstone's objective is to create a
       dominant national brand in the multifamily industry.
  (4)  A larger market capitalization and national presence providing:

       (i)   increased liquidity for shareholders;
       (ii)  the resources for continued investment in research and development;
             and
       (ii)  the ability to attract and retain a significant depth of
             management, emphasizing thoughtful succession planning at all
             levels of management.
  (5)  Economies of scale that are expected to produce identified cost savings
       in excess of $5 million annually, beginning in 1999.
  (6)  A strong balance sheet featuring:

      (i)  an original weighted average life to maturity for unsecured long-term
           fixed rate debt currently outstanding of 13.02 years; and
      (ii) a conservative debt strategy, with a relatively level principal
           maturity schedule, emphasizing unsecured long-term, fixed rate debt.

  Based upon the multifamily portfolios of PTR and Atlantic at June 30, 1998,
Archstone had 323 multifamily communities, consisting of 94,997 units, including
26,568 units under construction or In Planning (including 27 communities
aggregating 8,327 units that are Under Control but not owned as of June 30,
1998) in markets that include 29 of the nations 50 largest metropolitan markets.
Additionally, Archstone's total market capitalization was approximately $5.4
billion at June 30, 1998.

                                      18
<PAGE>
 
Overview

 General

  Archstone's results of operations, financial position and liquidity have been
influenced primarily by the operations of and investments made in Archstone's
multifamily communities.  Following is an overview of Archstone's multifamily
portfolio and related investment activity for the periods indicated (dollar
amounts in thousands):

<TABLE>
<CAPTION>
                                                   Three Months      Three Months       Six Months
                                                      Ended             Ended             Ended
                                                  March 31, 1998    June 30, 1998     June 30, 1998
                                                  --------------    -------------     -------------
<S>                                                <C>               <C>               <C>
Operating Communities:
        Communities............................             138               143               143
        Units..................................          42,859            44,513            44,513
        Total expected investment (1)..........    $  2,296,990      $  2,420,441      $  2,420,441

Communities Under Construction:
    Starts During Period:
        Communities............................               3                 8                11
        Units..................................           1,040             2,438             3,478
        Total expected investment (1)..........    $     94,312      $    226,836      $    321,148

    Completions During Period:
        Communities............................               3                 2                 5
        Units..................................             698               840             1,538
        Total expected investment (1)..........    $     41,261      $     56,043      $     97,304

    Stabilizations During Period:
        Communities............................               5                 3                 8
        Units..................................           1,622               594             2,216
        Total expected investment (1)..........    $     92,173      $     36,399      $    128,572

    Under Construction at End of Period:
        Communities............................              18                24                24
        Units..................................           5,887             7,485             7,485
        Total expected investment (1)..........    $    473,656      $    646,993      $    646,993

    In Planning at End of Period:
        Communities............................              35                33                33
        Units..................................          10,351             9,725             9,725
        Total expected investment (1)..........    $    923,924      $    857,611      $    857,611
    Development Expenditures During Period.....    $     58,442      $     61,155      $    119,597

Acquisitions:
        Communities............................               3                 3                 6
        Units..................................             568               814             1,382
        Total expected investment (1)..........    $     36,215      $     66,542      $    102,757

Dispositions:
        Communities............................               5                --                 5
        Units..................................           1,872                --             1,872
        Gross sales proceeds...................    $    101,109                --      $    101,109
        Gains (2)..............................    $     15,484                --      $     15,484
</TABLE> 
-------------
(1) For community developments, this represents total budgeted land and
    development costs; for operating communities, this represents costs plus
    budgeted expenditures, including planned redevelopment costs needed to
    conform to or maintain the community at Archstone's standards.

(2) Includes the disposition of certain non-multifamily real estate assets with
    aggregate gains of $1,057,020.

                                       19
<PAGE>                                       
                                             
 Current Development Activity                
                                             
  The following table summarizes Archstone's development communities under
construction as of June 30, 1998 (dollar amounts in thousands):
<TABLE>
<CAPTION>                                                                                   Actual or         Expected
                                                            Total                       Expected Date for  Stabilization
                                 Number of  Archstone      Expected      Start Date        First Units          Date          %
                                   Units    Investment  Investment(1)  (Quarter/Year)  (Quarter/Year)(2)   (Quarter/Year)  Leased(3)
                                 ---------  ----------  -------------  --------------  ------------------  --------------  ---------
<S>                              <C>        <C>         <C>            <C>             <C>                 <C>             <C>
Central Region:
 Austin, Texas:
  Monterey Ranch I.............        168  $    2,482  $      12,855           Q2/98               Q1/99           Q4/99       n/a
                                 ---------  ----------  -------------
 Denver, Colorado:
  Dutch Creek..................        480       5,385         35,541           Q1/98               Q1/99           Q4/00       n/a
  Fox Creek II.................        112       1,522          9,295           Q2/98               Q1/99           Q3/99       n/a
  Legacy Heights...............        384      22,172         23,139           Q2/97               Q1/98           Q3/98      100%
                                 ---------  ----------  -------------
   Total Denver................        976      29,079         67,975
                                 ---------  ----------  -------------
 Nashville, Tennessee:
  Cameron at Monthaven I.......        216       1,915         14,848           Q2/98               Q2/99           Q4/00       n/a
                                 ---------  ----------  -------------
 Houston, Texas:
  Oaks at Medical Center II....        318      11,001         20,229           Q4/97               Q3/98           Q3/99       n/a
                                 ---------  ----------  -------------
 Kansas City, Kansas:
  119th and Quivira............        220       3,927         15,809           Q1/98               Q2/99           Q1/00       n/a
                                 ---------  ----------  -------------
   Total Central Region........      1,898      48,404        131,716
                                 ---------  ----------  -------------
Northwest Region:
 Portland Oregon:
  Hedges Green.................        408      22,005         27,720           Q2/97               Q2/98           Q2/99      23.0%
                                 ---------  ----------  -------------
 Salt Lake City, Utah:
  River Oaks...................        448       7,495         37,483           Q2/98               Q2/99           Q4/00       n/a
                                 ---------  ----------  -------------
 Seattle, Washington:
  Forestview...................        192      14,709         15,577           Q2/97               Q2/98           Q1/99      59.9%
  Inglewood Hills..............        230       4,708         20,343           Q2/98               Q2/99           Q2/00       n/a
  Seventh Day Site.............        524       9.902         44,025           Q2/98               Q2/99           Q1/01       n/a
  Stonemeadow Farms............        280      20,319         22,111           Q2/97               Q2/98           Q1/99      13.9%
                                 ---------  ----------  -------------
   Total Seattle...............      1,226      49,638        102,056
                                 ---------  ----------  -------------
   Total Northwest Region......      2,082      79,138        167,259
                                 ---------  ----------  -------------
West Region:
 Orange County, California:
  Las Flores Apartment Homes...        504      39,245         45,669           Q4/96               Q2/98           Q2/99      39.5%
  Sorrento.....................        241      20,886         21,997           Q2/97               Q2/98           Q4/98      30.3%
                                 ---------  ----------  -------------
   Total Orange County.........        745      60,131         67,666
                                 ---------  ----------  -------------
 Phoenix, Arizona:
  Arrowhead I..................        272      17,211         18,805           Q3/96               Q1/98           Q4/98      60.7%
  Arrowhead II.................        200       3,114         13,535           Q2/98               Q1/99           Q2/00       n/a
  San Marbeya..................        404      10,542         28,246           Q4/97               Q4/98           Q1/00       n/a
  San Valiente II..............        228       6,622         14,459           Q4/97               Q4/98           Q4/99       n/a
                                 ---------  ----------  -------------
   Total Phoenix...............      1,104      37,489         75,045
                                 ---------  ----------  -------------
 Reno, Nevada:
  Meadowview I.................        228      15,588         16,063           Q2/97                Q2/98          Q4/98      65.4%
                                 ---------  ----------  -------------
 San Diego, California:
  Torrey Hills.................        340      14,068         42,963           Q1/98                Q2/99          Q2/00       n/a
                                 ---------  ----------  -------------
 San Francisco Bay Area,
  California:
  Hacienda.....................        540      23,595         74,451           Q2/98                Q2/99          Q4/00       n/a
  Monterey Road................        224      11,167         26,678           Q4/97                Q1/99          Q3/99       n/a
  Villas of Santa Rita.........        324      16,222         45,152           Q4/97                Q1/99          Q4/99       n/a
                                 ---------  ----------  -------------
   Total San Francisco Bay Area      1,088      50,984        146,281
                                 ---------  ----------  -------------
    Total West Region..........      3,505     178,260        348,018
                                 ---------  ----------  -------------
     Total Communities
      Under Construction.......      7,485  $  305,802  $     646,993
                                 =========  ==========  =============
</TABLE>
(1)  Represents total budgeted land and development costs.
(2)  Represents the quarter that the first completed units were made available
     for leasing (or are expected to be made available). Archstone begins
     leasing completed units prior to completion of the entire community.
(3)  The percentage leased is based on leased units divided by total number of
     units in the community (completed and under construction) as of June 30,
     1998. A "n/a" indicates the communities where lease-up has not yet
     commenced.

                                       20
<PAGE>
 
  See PTR's 1997 Form 10-K "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations-Current Development Activity" for
a discussion of various risks associated with Archstone's development and
construction activities.

 Recent Acquisitions

  In addition to its development activity (and the Atlantic Merger which was
consummated in July 1998), during the six month period ended June 30, 1998,
Archstone completed the acquisition of six operating multifamily communities
(1,382 units) in attractive markets including Seattle, Washington, Salt Lake
City, Utah and San Diego, California at a total expected investment of $102.8
million.

  See PTR's 1997 Form 10-K "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Recent Acquisitions" for a
discussion of various risks associated with Archstone's acquisition activities.

Results of Operations

 Six Months Ended June 30, 1998 Compared to June 30, 1997

  Net earnings for the six months ended June 30, 1998 and 1997 were $72.8
million and $80.5 million, respectively, a decrease of $7.7 million (9.6%). This
decrease resulted primarily from a $21.7 million decrease in net gains on
dispositions of depreciated real estate, partially offset by increased earnings
from multifamily operating communities. A discussion of the major components of
Archstone's results of operations follows.

 Community Operations

  At June 30, 1998 and 1997, multifamily investments comprised over 99% of
Archstone's total real estate portfolio, based on total expected investment. The
following table summarizes the net operating income generated from community
operations for each period (in thousands):

<TABLE>
<CAPTION>
                                                  Six Months Ended 
                                                       June 30,
                                                --------------------
                                                  1998        1997      Increase
                                                --------    --------    --------
<S>                                             <C>         <C>         <C>
Rental revenues...............................  $180,105    $161,362    $18,743
                                                --------    --------    -------
Property operating expenses:
   Rental expenses............................    47,523      46,187      1,336
   Real estate taxes..........................    15,652      13,924      1,728
                                                --------    --------    -------
      Total property operating expenses.......    63,175      60,111      3,064
                                                --------    --------    -------
Net operating income..........................  $116,930    $101,251    $15,679
                                                ========    ========    =======
Operating margin (net operating
  income/rental revenues).....................      64.9%       62.7%       2.2%
                                                ========    ========    =======
</TABLE>

  The increases in rental revenues and property operating expenses in each
period are primarily a result of rental rate increases and net increases in the
number of multifamily operating units resulting from Archstone's substantial
acquisition and development activity. Management has focused its investment
emphasis primarily on markets that are believed to have higher growth potential,
together with high barriers to entry against new development, while reducing
investments in certain other markets having less attractive growth prospects.
The positive impact of Archstone's investment strategy and customer-focused
property management program is reflected in an improving operating margin which
has grown from 62.7% during the six months ended June 30, 1997 to 64.9% during
the six months ended June 30, 1998. The higher profitability during the six
months ended June 30, 1998 is partially attributable to Archstone's acquisition
of SCG Realty Services Incorporated in September 1997. After that date,
Archstone directly incurred personnel and other costs related to property
management-related overhead, in lieu of paying a property management fee to
Security Capital, which resulted in a net reduction of property management
expenses during the six months ended June 30, 1998.

                                       21
<PAGE>
 
  Archstone categorizes operating multifamily communities (which include all
completed revenue-generating communities) as either "stabilized" or "pre-
stabilized." The term "stabilized" means that redevelopment, repositioning, new
management and new marketing programs (or development and marketing in the case
of newly developed communities) have been completed for a sufficient period of
time (but in no event longer than 12 months, except for major redevelopments) to
achieve 93% occupancy at market rents. Prior to being "stabilized", a community
is considered "pre-stabilized". Approximately 85.7% and 75.6% of Archstone's
operating multifamily portfolio was classified as stabilized as of June 30, 1998
and 1997, respectively, based on total expected investment.

 Analysis of Same Store Community Results

  The results of Archstone's operating communities which were fully operating on
April 1, 1997 ("Same Store Communities") continue to strengthen as a result of
Archstone's consistent emphasis on customer-focused operations, combined with
improving economic fundamentals in many of its markets. Following is a summary
of Same Store Community results comparing the second quarter 1998 to the second
quarter 1997 (dollars in thousands):

<TABLE>
<CAPTION>
                                                           Three months ended
                                                         June 30, 1998 vs. 1997
                                                         ----------------------
<S>                                                            <C>
Collections growth.....................................              4.52%
Property Operating Expense reduction (1)...............             (0.49%)
Net Operating Income growth (2)........................              7.55%
Number of units in Same Store Communities..............            31,673
Total expected investment of Same Store Communities....        $1,551,977
</TABLE>

(1) Property Operating Expense: Operating expenses (excluding depreciation and
    interest expense) as adjusted to remove the accounting differences which
    result from capitalizing certain costs during the period of pre-
    stabilization and expensing those costs once the community has reached
    stabilization.

(2) Net Operating Income: Total collected revenues less Property Operating
    Expenses, as defined in Note 1 above.

 Homestead Interest and Homestead Convertible Mortgage Notes Receivable

  During the six month period ended June 30, 1998, Archstone funded the final
$11.9 million under its $198.8 million total funding commitment to Homestead. As
of June 30, 1998 the face amount of the convertible mortgage notes aggregated
$221.3 million.

  During the six months ended June 30, 1998 and 1997, Archstone recorded $11.2
million and $7.0 million in interest income, respectively ($10.4 million and
$6.4 million, respectively for purposes of calculating funds from operations),
from the Homestead convertible mortgage notes receivable. The increase is a
direct result of higher average outstanding note balances during the six months
ended June 30, 1998 as compared to the six months ended June 30, 1997. Archstone
deducts from net earnings the interest income related to the amortization of the
conversion discount and warrant-related deferred revenue in calculating funds
from operations.

  The Homestead convertible mortgage notes receivable are convertible into
Homestead common stock on the basis of one share of Homestead common stock for
every $11.50 of principal face amount outstanding, which would result in the
ownership of approximately 19.2 million shares of Homestead common stock, if
converted.

  See "--Funding Sources" for a discussion of the potential monetization of
these notes and Atlantic's sale of its Homestead convertible mortgage notes
receivable prior to the consummation of the Atlantic Merger.

 Depreciation Expense

  The increase in depreciation expense resulted primarily from the increase in
the number and cost basis of operating communities, partially offset by
dispositions.

                                      22
<PAGE>
 
Interest Expense

  The following table summarizes Archstone's interest expense (in thousands):

<TABLE>
<CAPTION>
                                                      Six Months Ended June 30,
                                                      -------------------------
                                                         1998           1997
                                                       --------        -------
<S>                                                    <C>             <C>
   Credit facilities..............................     $  7,153        $ 7,298
   Long-Term Debt.................................       26,400         22,581
   Mortgages payable..............................        9,154          8,631
   Capitalized interest...........................      (11,078)        (8,751)
                                                       --------        -------
     Total interest expense.......................     $ 31,629        $29,759
                                                       ========        =======
</TABLE>

  The decrease in interest cost on Archstone's credit facilities in 1998
resulted primarily from lower average balances outstanding during the six months
ended June 30, 1998, as compared to the six months ended June 30, 1997. Long-
Term Debt interest cost increased due to the issuance of $50 million of Long-
Term Debt in March 1997 and $125 million of Long-Term Debt in March 1998.
Mortgage interest cost increased as a result of additional weighted average debt
outstanding due to mortgage assumptions related to community acquisitions which
were partially offset by prepayments during the six months ended June 30, 1998
and 1997. The increase in interest costs was partially offset by an increase in
capitalized interest which was attributable to higher levels of multifamily
development activity for the six months ended June 30, 1998 as compared to the
same period in 1997.

 General and Administrative Expenses

  Archstone's overall general and administrative expenses of $5.9 million during
the six months ended June 30, 1998 compares favorably to the $9.9 million
expensed during the six months ended June 30, 1997. This reduction is primarily
attributable to the fact that Archstone did not pay a REIT management fee during
the six months ended June 30, 1998 due to the termination of the REIT management
agreement upon the internalization of Archstone's management companies which
occurred in September 1997. This reduction is partially offset by: (i) the
actual personnel and other operating costs, the development-related portion of
which is capitalized, which are now paid directly by Archstone as a result of
the internalization of management; and (ii) amounts paid to Security Capital
under the administrative services agreement, the development-related portion of
which is capitalized, which was entered into in September 1997, upon closing of
the internalization transaction. Management believes that as a result of the
Atlantic Merger, Archstone will identify further general and administrative
expense savings due to incremental operating efficiencies and economies of scale
which are expected to be realized in the future.

 Provision for Possible Loss on Investments

  During the three months ended June 30, 1998, management concluded that the
full recovery of certain investments (primarily mortgage notes receivable
secured by non-multifamily assets) was doubtful. As a result, a provision for
possible loss was recorded to reduce these assets to their estimated net
realizable value. A similar provision relating to certain multifamily
investments held for disposition was recorded during the six months ended June
30, 1997.

 Gains on Dispositions of Depreciated Real Estate

  During the six months ended June 30, 1998, Archstone disposed of five
multifamily communities and certain non-multifamily real estate assets,
representing gross proceeds of $101.1 million. Archstone disposed of 23
multifamily communities and certain non-multifamily real estate assets,
representing gross proceeds of $249.8 million during the six months ended June
30, 1997. For federal income tax purposes, the dispositions were generally
structured as tax-deferred exchanges, which deferred gain recognition. However,
for financial reporting purposes, the transactions qualified for profit
recognition, and aggregate gains of $15.5 million and $37.2 million were
recorded for the six months ended June 30, 1998 and 1997, respectively.

  Four multifamily communities and certain non-multifamily real estate assets
having an aggregate carrying value of $70.3 million were held for disposition as
of June 30, 1998. Subject to normal closing risks, Archstone expects to complete
the disposition of these properties and use the proceeds to fund the development
and acquisition of multifamily communities, using tax-deferred exchanges where
appropriate.

                                      23
<PAGE>
 
 Three Months Ended June 30, 1998 and 1997

  Revenues and expenses for the three months ended June 30, 1998 compared to the
three months ended June 30, 1997 reflect changes similar to those discussed in
the preceding paragraphs for the comparison of the six months ended on the same
dates. The changes are substantially attributable to the same reasons discussed
in the preceding paragraphs for the six months ended June 30, 1998 and 1997.

Liquidity and Capital Resources

  Archstone, the combined company, considers its liquidity and ability to
generate cash from operations and financings to be adequate and expects it to
continue to be sufficient to meet all of its known cash flow requirements.

 Operating Activities

  Net cash flow provided by operating activities increased by $21.3 million
(30.4%) for the six months ended June 30, 1998 as compared to the same period in
1997. This increase was due primarily to increased cash generated by multifamily
communities, which is expected to further increase in future periods as a result
of the Atlantic Merger.

 Investing and Financing Activities

  During the six months ended June 30, 1998 and 1997, Archstone invested cash of
$246.8 million and $371.3 million, respectively, in real estate investments
relating primarily to the significant acquisition and development activity
summarized in "-Overview" above. The $246.8 million invested in real estate and
$11.9 million in fundings of Homestead convertible mortgage notes receivable
(which fulfilled Archstone's total Homestead funding commitment) during the six
months ended June 30, 1998 were financed primarily from $97.1 million of net
proceeds from property dispositions (excluding $2.4 million held in escrow
pending tax-deferred exchanges) and borrowings under Archstone's credit
facilities. These credit facilities were partially repaid with proceeds from the
issuance of $125 million of Long-Term Debt in March 1998 and $44.0 million in
net proceeds from the sale of Common Shares in April 1998. The $371.3 million
invested in real estate and $41.3 million in fundings of Homestead convertible
mortgage notes receivable during the six months ended June 30, 1997 were
financed primarily from $224.4 million in net proceeds from property
dispositions (excluding $19.7 million held in escrow pending tax-deferred
exchanges) and borrowings under Archstone's credit facilities which were
partially repaid with $50 million in proceeds from Long-Term Debt issued in
March 1997 and $54.3 million in net proceeds from the sale of 2.5 million Common
Shares in June 1997.

  Other significant financing activity included the payment of $73.4 million and
$59.5 million in Common Share distributions and Preferred Share dividends for
the six months ended June 30, 1998 and 1997, respectively. The increase is
primarily attributable to a 4.6% increase in the distributions paid per Common
Share and an increase in the overall number of Common Shares outstanding.
Preferred Share dividends decreased approximately $0.4 million during the
respective periods as a result of conversion of Series A Preferred Shares to
Common Shares which also resulted in increased Common Share distributions.
Archstone prepaid mortgages of $25.9 million and $19.9 million during the six
months ended June 30, 1998 and 1997, respectively.

  Significant non-cash investing and financing activities included the
assumption of $22.7 million and $82.8 million of mortgage debt during the six
months ended June 30, 1998 and 1997, respectively, and the conversion of Series
A Preferred Shares to Common Shares aggregating $8.0 million and $23.0 million
during the six months ended June 30, 1998 and 1997, respectively. The unrealized
gain associated with the Homestead convertible mortgage notes receivable
decreased $57.0 million to $26.8 million during the six months ended June 30,
1998 and increased $28.2 million to $103.1 million during the six months ended
June 30, 1997. There was no unrealized gain on these notes as of July 24, 1998.

                                      24
<PAGE>
 
 Borrowings and Recent Offerings

  Upon consummation of the Atlantic Merger in July 1998, Archstone replaced its
$350 million unsecured revolving line of credit with a $750 million unsecured
revolving line of credit provided by a group of financial institutions led by
Chase. This new line of credit has terms similar to those of the old $350
million line of credit facility and matures in July 2001, at which time it may
be converted into a two-year term loan, at Archstone's option. The new line of
credit had approximately $475.0 million of borrowings outstanding as of August
11, 1998.

  In May 1998, Atlantic entered into a $150 million unsecured credit facility to
provide bridge financing until the Atlantic Merger was consummated. This
obligation was assumed by Archstone (with all of Atlantic's other debt) in the
Atlantic Merger and matures in September 1998. Borrowings on this credit
facility bear interest at prime or, at Archstone's option, LIBOR plus 0.90%.
Archstone pays an annual facility fee of 0.15% on the unused commitment. This
credit facility had approximately $55.0 million of borrowings outstanding as of
August 11, 1998.

  On September 9, 1996, Archstone entered into a short-term, unsecured borrowing
agreement with Chase. This borrowing agreement was renegotiated by Archstone
upon consummation of the Atlantic Merger under terms similar to the previous
agreement. The agreement matures in July 1999 and bears interest at an overnight
rate that ranged from 6.0% to 7.1% during the six months ended June 30, 1998.
This agreement had approximately $34.4 million of borrowings outstanding as of
August 11, 1998.

  On March 6, 1998, Archstone issued $125 million of 7.20% Long-Term Debt, the
proceeds from which were used to pay down balances on Archstone's credit
facilities. The 7.20% Notes pay interest semi-annually on March 1 and September
1 of each year through maturity on March 1, 2013, and have an average effective
interest rate of 7.86% with an average life of 13.0 years. Annual principal
payments of $25 million commence on March 1, 2009.

  On April 23, 1998, Archstone sold 2,049,587 Common Shares at $22.6875 per
share in an underwritten public offering. The net proceeds of $44.0 million (net
of underwriting discount and offering costs) were used to repay borrowings under
Archstone's credit facilities.

  See "--Atlantic Merger" for a summary of Archstone's pro forma liabilities and
shareholders equity for the combined company as of June 30, 1998, giving effect
to the Atlantic Merger.

                                      25
<PAGE>
 
 Scheduled Debt Maturities and Interest Payment Requirements

  In order to minimize refinancing risk, Archstone's long-term debt obligations
are carefully structured to create a relatively level principal maturity
schedule without large payments due in any future year. Approximate principal
reductions due during each of the calendar years in the five-year period ending
December 31, 2017 and thereafter, as of June 30, 1998 for the combined company
on a pro forma basis giving effect to the Atlantic Merger, are as follows (in
thousands):

<TABLE>
<CAPTION>
                      Credit       Long-Term
                    Facilities       Debt        Mortgages        Total
                    ----------     ---------     ---------     ----------
<S>                  <C>           <C>           <C>           <C>
1998............     $ 39,530      $      -      $ 33,342      $   72,872
1999............       58,101        30,000        10,644          98,745
2000............            -             -        20,474          20,474
2001............      419,606        12,500        31,668         463,774
2002............            -        47,746        20,293          68,039
2003............            -        51,455        11,082          62,537
2004............            -        51,455         5,263          56,718
2005............            -        51,455        20,991          72,446
2006............            -        51,455        17,492          68,947
2007............            -        51,455         6,671          58,126
2008............            -        51,455        22,955          74,410
2009............            -        71,414         6,027          77,441
2010............            -        63,750         9,702          73,452
2011............            -        50,000         7,009          57,009
2012............            -        55,000         7,324          62,324
2013............            -        70,497         7,726          78,223
2014............            -        52,997        21,214          74,211
2015............            -        50,496        43,377          93,873
2016............            -        55,496         8,736          64,232
2017............            -        40,496         9,473          49,969
  Thereafter....            -             -        99,148          99,148
                     --------      --------      --------      ----------
  Total.........     $517,237      $909,122      $420,611      $1,846,970
                     ========      ========      ========      ==========
</TABLE>

  Archstone's (the combined company's) credit facilities, mortgages payable and
Long-Term Debt had overall effective interest rates of 6.98%, 6.43% and 7.65%,
respectively, as of June 30, 1998.

 Shareholder Dividends/Distributions

  Archstone paid first and second quarter 1998 distributions of $0.34 per Common
Share on February 25, 1998 and May 28, 1998. On July 8, 1998, the Archstone
Board declared a cash distribution of $0.355 per Common Share, payable on August
27, 1998, to Archstone shareholders of record on August 13, 1998. On March 31
and June 30, 1998, Archstone paid quarterly dividends of $0.4579 per Series A
Preferred Share and $0.5625 per Series B Preferred Share. See "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Atlantic Merger" for additional information on the increase in
Archstone's distribution levels subsequent to the closing of the Atlantic
Merger.

  Based on current distribution levels and the number of shares outstanding for
the combined company at June 30, 1998, Archstone has the following annual
dividend/distribution requirements (in thousands):

<TABLE>
     <S>                                                           <C>
     Common Share distributions..................................  $202,836
     Series A Preferred Share dividends..........................     9,736
     Series B Preferred Share dividends..........................     9,450
     Series C preferred share dividends..........................     4,312
                                                                   --------
     Total dividend/distribution requirements....................  $226,334
                                                                   ========
</TABLE> 
 
                                       26
<PAGE>
 
 Commitments and Contingencies

  At June 30, 1998, Archstone had unfunded multifamily construction and
redevelopment commitments aggregating approximately $353.7 million ($491.9
million on a pro forma basis giving effect to the Atlantic Merger). Archstone,
the combined company, anticipates completion of these communities that are
currently under construction and the planned redevelopments in 1998 and 1999.
Actual costs incurred could be greater or less than Archstone's current
estimates.

  Archstone is a party to various claims and routine litigation arising in the
ordinary course of business. Archstone does not believe that the results of any
such claims and litigation, individually or in the aggregate, will have a
material adverse effect on its business, financial position or results of
operations.

 Funding Sources

  Archstone expects to finance its investment and operating needs, including
those outlined above, with cash flow from operating activities, borrowings under
its credit facilities and disposition proceeds prior to arranging long-term
financing. Archstone uses its credit facilities to facilitate an efficient
response to market opportunities while minimizing the amount of cash invested in
short-term investments at lower yields.

  Other sources of future liquidity and financial flexibility include:

(i)  Archstone has $399.4 million in shelf-registered securities which can be
     issued in the form of Long-Term Debt, Common Shares or preferred shares on
     an as-needed basis, subject to its ability to effect offerings on
     satisfactory terms. Management expects to increase the dollar amount of
     shelf-registered securities to enhance Archstone's ability to utilize this
     option as a funding source. Archstone believes that its current
     conservative ratio of long-term debt to total long-term undepreciated book
     capitalization (the sum of long-term debt and shareholders' equity after
     adding back accumulated depreciation) of 31.8% at June 30, 1998, on a pro
     forma basis giving effect to the Atlantic Merger, provides considerable
     financial flexibility to fund its investment activities through the
     issuance of additional Long-Term Debt;



(ii) Archstone may monetize its $221.3 million (face amount at June 30, 1998)
     investment in the Homestead convertible mortgage notes receivable in the
     future. Management views the potential sale or other monetization of these
     assets as an attractive funding source that will be closely evaluated.
     Although there is no established market for these securities, management's
     ability to consummate this type of transaction was demonstrated in July
     1998 when, prior to the consummation of the Atlantic Merger, Atlantic sold
     all of its Homestead convertible mortgage notes receivable for $119.4
     million plus accrued interest of $1.0 million, which resulted in a taxable
     gain of approximately $8.9 million. The net proceeds from the sale of these
     notes were used to pay down Atlantic's credit facilities.

 Expected Impact of Year 2000 Issue

  Archstone has undertaken a review of all of its computer systems and
applications to determine if these programs are Year 2000 compliant and, if not,
the efforts that will be necessary to bring the programs into compliance. The
Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Certain computer programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations.

  Archstone has not identified any computer system or application for which a
failure to be Year 2000 compliant would result in a material adverse impact on
PTR's business activities or results of operations. However, the preliminary
results of this review indicate that certain of Archstone's accounting and
financial reporting applications are not Year 2000 compliant. In order to
enhance operating efficiencies, Archstone has already undertaken a project that
will replace these core financial systems with computer software that will
better serve Archstone in the future. This new software, which is expected to be
fully operational by the second quarter of 1999, is Year 2000 compliant.

  Archstone is currently evaluating Year 2000 modifications to other existing
software programs. The cost of these modifications is not expected to be
material and all conversions and modifications are expected to be completed in a
timely manner.

                                       27
<PAGE>
 
 Capital Expenditures

  As part of its operating strategy, Archstone conducts regular reviews of its
assets which involves an evaluation of each community's physical condition
relative to management's business objectives as well as the community's
competitive position in its market. In conducting these evaluations, management
considers Archstone's return on investment in relation to its long-term cost of
capital as well as its research and analysis of competitive market factors.

  In conjunction with the acquisition and related underwriting of a multifamily
operating community, Archstone prepares acquisition budgets that encompass the
incremental capital needed to achieve Archstone's investment objectives. These
expenditures, combined with the initial acquisition costs, are capitalized and
classified as "acquisition-related" capital expenditures, as incurred.

  Other capital expenditures on operating communities are classified as either
"redevelopment" or "recurring". The redevelopment category includes
redevelopment, revenue-enhancing and expense-reducing capital expenditures
Redevelopment initiatives are intended to reposition the community in the
marketplace and include items such as significant upgrades to the interiors,
exteriors, landscaping and amenities. Revenue-enhancing expenditures include
investments which are expected to produce incremental community revenues, such
as building garages/carports, adding storage facilities or gating a community.
Expense-reducing expenditures include items such as water submetering systems
and xeriscaping which reduce future operating costs. Archstone had 14
communities representing $328.5 million in total expected investment undergoing
major redevelopment activities as of June 30, 1998. Overall redevelopment
expenditures (including revenue-enhancing and expense-reducing expenditures)
aggregated $17.7 million during the six months ended June 30, 1998. 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 Archstone's stringent
operating standards. Examples of recurring capital expenditures include roof
replacements, parking lot resurfacing and exterior painting.

  Repairs and maintenance and make-ready expenditures, including carpet and
appliance replacements, are expensed as incurred, to the extent they are not
acquisition related costs identified during Archstone's pre-acquisition due-
diligence. Make-ready expenditures are costs incurred in preparing a vacant
multifamily unit for the next resident.

                                      28
<PAGE>
 
  Funds From Operations

  Funds from operations is defined as net earnings computed in accordance with
GAAP, excluding real estate depreciation, gains (or losses) from depreciated
real estate, provisions for possible losses, non-cash interest income,
extraordinary items and significant non-recurring items.  Funds from operations
should not be considered as an alternative to net earnings or any other GAAP
measurement of performance as an indicator of Archstone's operating performance
or as an alternative to cash flows from operating, investing or financing
activities as a measure of liquidity. Archstone believes that funds from
operations is helpful to the reader as a measure of the performance of an equity
REIT because, along with cash flow from operating, investing and financing
activities, it provides the reader with an indication of the ability of
Archstone to incur and service debt, to make capital expenditures and to fund
other cash needs.  The funds from operations measure presented by Archstone,
while consistent with the National Association of Real Estate Investment Trusts'
definition, will not be comparable to similarly titled measures of other REIT's
that do not compute funds from operations in a manner consistent with Archstone.
Funds from operations is not intended to represent cash made available to
shareholders.  Cash distributions paid to shareholders are described above under
"--Distributions."   Following is a reconciliation of net earnings to funds from
operations (amounts in thousands):


<TABLE>
<CAPTION>

                                                                                          Three Months             Six Months
                                                                                          Ended June 30,          Ended June 30,
                                                                                       --------------------------------------------
                                                                                         1998        1997        1998        1997
                                                                                       --------    --------    --------    --------
<S>                                                                                    <C>         <C>         <C>         <C>
Net earnings attributable to Common Shares -- Basic.............................       $ 23,291    $ 30,132    $ 63,362    $ 70,708

Add (Deduct):
  Depreciation on real estate investments.......................................         16,115      12,639      32,373      24,688
  Gains on dispositions of depreciated real estate, net.........................             --     (11,872)    (15,484)    (37,207)
  Provision for possible loss on investments....................................          3,000          --       3,000       1,500
  Other, net....................................................................           (307)       (283)       (739)       (528)
                                                                                       --------    --------    --------    --------
Funds from operations attributable to Common Shares -- Basic....................         42,099      30,616      82,512      59,161
Add Back: Dividends on Series A Preferred Shares................................          2,414       2,443       4,784       5,116
                                                                                       --------    --------    --------    --------
Funds from operations attributable to Common Shares -- Diluted..................       $ 44,513    $ 33,059    $ 87,296    $ 64,277
                                                                                       ========    ========    ========    ========
Weighted average Common Shares outstanding -- Basic.............................         94,442      77,398      93,617      76,639
                                                                                       ========    ========    ========    ========
Weighted average Common Shares outstanding -- Diluted (1).......................        101,416      85,504     100,834      84,915
                                                                                       ========    ========    ========    ========
</TABLE>

(1)  See "Item 1.  Financial Statements, Note 1, General" for a reconciliation
     of basic to diluted weighted average Common Shares outstanding.

                                      29

<PAGE>
 
                           PART II--OTHER INFORMATION
                                        
Item 4.  Submission of Matters to a Vote of Security Holders

  At the annual shareholders meeting held June 29, 1998, shareholders elected
the following Trustees to office:



<TABLE>
<CAPTION>
                                              Common Shares        Common Shares
                                                 in Favor             Against
                                              -------------        -------------
<S>                                          <C>                   <C>
Calvin K. Kessler..........................      86,465,147            311,418
James H. Polk, III.........................      82,607,915          4,168,650
John C. Schweitzer.........................      86,450,179            326,386
James A. Cardwell..........................      82,632,851          4,143,714
John T. Kelley, III........................      82,625,661          4,150,904
C. Ronald Blankenship......................      86,436,655            339,910
William G. Myers...........................      86,450,732            325,833
R. Scot Sellers............................      86,427,396            349,169
</TABLE>

  Additionally, shareholders approved the following proposals at the June 29,
1998 annual meeting:

     (i)  The proposed transaction whereby Security Capital Atlantic
          Incorporated, an affiliate of Security Capital Group Incorporated,
          would be merged with and into PTR, with 75,312,371 Common Shares voted
          in favor, 3,183,466 Common Shares voted against, 436,486 Common Shares
          abstained, and 7,844,242 Common Shares voted as broker non-votes.  As
          a result of the Atlantic Merger, the following additional trustees
          were elected to the Archstone Board: Constance B. Moore, James C.
          Potts, John M. Richman, Manuel A. Garcia, III, and Ned S. Holmes.
          Additionally, upon consummation and pursuant to the terms of the
          Atlantic Merger, Mr. Blankenship became an Advisory Trustee.

     (ii) An Amended and Restated Declaration of Trust which, among other
          things: (i) changed PTR's name to "Archstone Communities Trust"; (ii)
          increased the total number of authorized shares of beneficial interest
          from 150,000,000 to 250,000,000; (iii) divided the board of trustees
          into three classes of trustees, each serving three-year terms; and
          (iv) eliminated certain restrictions on the company's operations and
          ability to enter into certain types of transactions, with 65,607,866
          Common Shares voted in favor, 12,845,013 Common Shares voted against,
          479,441 Common Shares abstained, and 7,844,245 Common Shares voted as
          broker non-votes.

    (iii) Amendments to PTR's incentive plans increasing the number of PTR
          Common Shares available for award thereunder in an amount equal to the
          number of shares authorized under the corresponding Atlantic option
          plans, with 64,788,750 Common Shares voted in favor, 12,992,785 Common
          Shares voted against, 1,150,786 Common Shares abstained, and 7,844,244
          Common Shares voted as broker non-votes.

                                      30

<PAGE>
 
                           PART II--OTHER INFORMATION
                                  (Continued)
                                        

Item 6.  Exhibits and Reports on Form 8-K

  (a) Exhibits:

 
         10.1    --Amended and Restated Credit Agreement dated July 7, 1998
 
         12.2    --Computation of Ratio of Earnings to Combined Fixed Charges
                   and Preferred Share Dividend
 
         15      --Letter from KPMG Peat Marwick LLP dated August 13, 1998
                   regarding unaudited financial information
 
         27.1    --Financial Data Schedule
 
         27.2    --Restated Financial Data Schedule

  (b) Reports on Form 8-K:

<TABLE>
<CAPTION>
           Date                 Item Reported              Financial Statements
      ---------------           -------------              --------------------
      <S>                       <C>                        <C> 
      April 3, 1998             Item 5, Item 7                      No
      April 23, 1998            Item 5, Item 7                      Yes
      April 28, 1998            Item 5, Item 7                      No
      July 7, 1998              Item 5, Item 7                      No
      July 15, 1998             Item 2, Item 7                      No
</TABLE>
                                        
                                       31
<PAGE>
 
                                  SIGNATURES

                                        
  Pursuant to the requirements 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 COMMUNITIES TRUST



                                    By:  /s/ William Kell
                                        ------------------
                                           William Kell
                                       Senior Vice President
                                   (Principal Financial Officer)
                                        



                                    BY:   /s/   Ash K. Atwood
                                          ------------------- 
                                             Ash K. Atwood,
                                             Vice President
                                   (Principal Accounting Officer)


Date: August 13, 1998

                                      32