## UNITED STATESSECURITIES 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 March 31, 2004

**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 1-10272ARCHSTONE-SMITH OPERATING 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.)             9200 E Panorama Circle, Suite 400Englewood, Colorado 80112(Address of principal executive offices and zip code)**(**303) 708-5959****(Registrant's telephone number, including area code)(Former name, former address and former fiscal year,if changed since last report)**
     Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing for the past 90 days. 
Yes   X   No           Indicate by check mark whether the registrant is an accelerated filer (asdefined in Rule 12b-2 of the Act).  Yes [X]  No [  ]At April 30, 2004,there were approximately 24,999,000 Class A-1 and Class B Common Unitsoutstanding held by non-affiliates.
**Table of Contents****PageItemDescriptionNumber                                                        PART 1**1.   Financial Statements     Condensed Consolidated Balance Sheets - March 31, 2004 (unaudited) and December 31, 2003..............     3     Condensed Consolidated Statements of Earnings - Three months ended March 31, 2004      and 2003 (unaudited).................................................................................     4     Condensed Consolidated Statement of Unitholders' Equity, Other Common Unitholders' Interest and        Comprehensive Income - Three months ended March 31, 2004 (unaudited)...............................     5     Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2004     and 2003 (unaudited)..................................................................................     6     Notes to Condensed Consolidated Financial Statements (unaudited)......................................     7     Independent Accountants' Review Report................................................................    182.   Management's Discussion and Analysis of Financial Condition and Results of Operations.................    193.   Quantitative and Qualitative Disclosures About Market Risk............................................    304.   Controls and Procedures...............................................................................    30                                                    **PART II**1.   Legal Proceedings.....................................................................................    312.   Changes in Securities, Use of Proceeds and Issuer Purchases of Equity.................................    326.   Exhibits and Reports on Form 8-K......................................................................    32PART I– FINANCIAL INFORMATIONItem 1. Financial StatementsArchstone-Smith OperatingTrustCondensedConsolidated Balance Sheets(Inthousands, except unit data)**March 31,        December 31,                                         ASSETS                                                  2004              2003                                                                                           ----------------   ----------------                                                                                              (Unaudited)**Real estate...........................................................................          $ 8,708,155       $ 8,583,056Real estate - held for sale...........................................................              532,619           416,124Less accumulated depreciation.........................................................              684,701           648,982                                                                                           -----------------  ----------------                                                                                                  8,556,073         8,350,198Investments in and advances to unconsolidated entities................................               91,256            86,367                                                                                           -----------------  ----------------     Net investments..................................................................            8,647,329         8,436,565Cash and cash equivalents.............................................................                5,706             5,230Restricted cash in tax-deferred exchange escrow.......................................              113,769           180,920Other assets..........................................................................              246,177           298,980                                                                                           -----------------  ----------------     Total assets.....................................................................          $ 9,012,981       $ 8,921,695                                                                                           =================  ================                          **LIABILITIES AND UNITHOLDERS' EQUITY**Liabilities:   Unsecured credit facilities........................................................           $  204,043        $  103,790   Long-Term Unsecured Debt...........................................................            1,830,657         1,871,965   Mortgages payable..................................................................            1,929,769         1,872,787   Mortgages payable - held for sale..................................................               54,738            54,838   Distribution payable...............................................................                1,584             1,593   Accounts payable, accrued expenses and other liabilities...........................              256,976           279,619                                                                                           -----------------  ----------------     Total liabilities................................................................            4,277,767         4,184,592                                                                                           -----------------  ----------------Minority interest.....................................................................                2,158            11,510                                                                                           -----------------  ----------------Other common unitholders' interest, at redemption value (A-1 and B Common Units:   25,020,280 in 2004 and 25,301,069 in 2003).........................................              738,348            707,924Unitholders' equity:   Convertible Preferred Units........................................................               50,000            50,000   Perpetual Preferred Shares.........................................................              160,120           160,120   Common unitholders' equity (A-2 Common Units: 195,767,911 in 2004     and 194,762,263 in 2003).........................................................            3,779,090         3,793,314   Accumulated other comprehensive earnings...........................................                5,498            14,235                                                                                           ----------------   ----------------     Total unitholders' equity........................................................            3,994,708         4,017,669                                                                                           -----------------  ----------------     Total liabilities and equity.....................................................          $ 9,012,981       $ 8,921,695                                                                                           =================  ================
                   The accompanying notes are an integral part of these condensed consolidated financial statements.Archstone-SmithOperating TrustCondensedConsolidated Statements of Earnings(Inthousands, except per unit amounts)(Unaudited)**Three Months Ended                                                                                           March 31,                                                                                  -----------------------------                                                                                      2004            2003                                                                                  -------------    ------------Revenues:     Rental revenues............................................................     $ 222,442      $  203,970     Other income...............................................................         3,697           6,316                                                                                  -------------    ------------                                                                                       226,139         210,286                                                                                  -------------    ------------Expenses:     Rental expenses............................................................        57,554          51,337     Real estate taxes..........................................................        22,583          20,168     Depreciation on real estate investments....................................        52,003          42,404     Interest expense...........................................................        43,840          38,482     General and administrative expenses .......................................        12,433          12,867     Other expenses.............................................................         1,336           4,208                                                                                  -------------    ------------                                                                                       189,749         169,466                                                                                  -------------    ------------Earnings from operations........................................................        36,390          40,820     Minority interest..........................................................           352              81     Gains on sale of marketable equity securities..............................        10,510               -       Income from unconsolidated entities......................................         5,276             455                                                                                  -------------    ------------Earnings before discontinued operations.........................................        52,528          41,356     Plus: earnings from discontinued apartment        communities.............................................................        61,434          56,511                                                                                  -------------    ------------Net earnings....................................................................       113,962          97,867     Less: Preferred Unit distributions.........................................         4,447           8,358                                                                                  -------------    ------------Net earnings attributable to Common Units - Basic...............................     $ 109,515         $ 89,509                                                                                  =============    ============Weighted average Common Units outstanding - Basic...............................       220,080         206,886                                                                                  -------------    ------------Weighted average Common Units outstanding - Diluted.............................       223,619         219,054                                                                                  -------------    ------------Earnings per Common Unit - Basic:       Earnings before discontinued operations..................................      $   0.22         $  0.16       Discontinued operations, net.............................................          0.28            0.27                                                                                  -------------    ------------       Net earnings.............................................................      $   0.50         $  0.43                                                                                  =============    ============Earnings per Common Unit - Diluted:       Earnings before discontinued operations..................................      $   0.21         $  0.16       Discontinued operations, net.............................................          0.28            0.27                                                                                  -------------    ------------       Net earnings.............................................................      $   0.49         $  0.43                                                                                  =============    ============Distributions paid per Common Unit..............................................     $  0.4300        $ 0.4275                                                                                  =============    ============
The accompanying notes are an integral part of these condensed consolidated financial statements.Archstone-SmithOperating TrustCondensed Consolidated Statement of Unitholders' Equity, Other Common Unitholders'Interest and Comprehensive IncomeThree MonthsEnded March 31, 2004(Inthousands)(Unaudited)**Convertible   Perpetual                                  Preferred    Preferred                                   Units at     Units at                   Accumulated                     Other                                  Aggregate    Aggregate      Common          Other         Total          Common                                 Liquidation  Liquidation   Unitholder's  Comprehensive   Unitholders'   Unitholders'                                  Preference   Preference     Equity         Earnings       Equity        Interest        Total**                                 ------------ ------------ ------------- --------------- ------------- ------------- --------------Balances at December 31, 2003.... $  50,000     $  160,120  $ 3,793,314      $14,235      $ 4,017,669      $707,924    $ 4,725,593Comprehensive income:   Net earnings..................         -             -       100,102            -          100,102        13,860        113,962   Change in fair value of     cash flow hedges............         -             -             -          128              128             -            128     Change in fair value of     marketable securities.......         -             -             -       (8,865)          (8,865)            -         (8,865)                                                                                                                     --------------Comprehensive income                                                                                                       105,225   attributable to Common Units..                                                                                                                     --------------Preferred Unit distributions.....         -             -        (4,447)           -           (4,447)            -         (4,447)UPREIT Preferred Unit     distributions...............         -             -         1,316            -            1,316        (1,316)             -Common Unit distributions........         -             -       (85,107)           -          (85,107)      (10,759)       (95,866)A-1 Common Units converted   into A-2 Common Units.........         -             -        13,114            -           13,114       (13,114)             -A-2 Common Unit repurchases......         -             -       (31,917)           -          (31,917)            -        (31,917)Exercise of options..............         -             -        23,249            -           23,249             -         23,249Issuance of A-1 Common Units.....         -             -             -            -                -        10,788         10,788Issuance of A-2 Common Units.....         -             -         4,502            -            4,502             -          4,502Adjustment to redemption value...         -             -       (30,965)           -          (30,965)       30,965              -Other, net.......................         -             -        (4,071)           -           (4,071)            -         (4,071)                                 ------------ ------------ --------------- ----------- --------------- ------------- --------------Balances at March 31, 2004.......  $ 50,000    $  160,120   $ 3,779,090      $ 5,498     $  3,994,708     $ 738,348    $ 4,733,056                                 ============ ============ =============== =========== =============== ============= ==============
        Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements. 
Archstone-SmithOperating TrustCondensedConsolidated Statements of Cash Flows(In thousands)(Unaudited)**Three Months Ended                                                                                                                March 31,                                                                                                  --------------------------------------                                                                                                        2004                2003                                                                                                  ------------------  ------------------**Operating activities:   Net earnings..............................................................................     $ 113,962               $ 97,867   Adjustments to reconcile net earnings to net cash flow provided by operating activities:     Depreciation and amortization...........................................................        55,382                 53,612     Gains on dispositions of depreciated real estate, net...................................       (62,496)               (52,347)     Gains on sale of marketable equity securities...........................................       (10,510)                     -     Provision for possible loss on real estate investments..................................             -                  3,714     Minority interest.......................................................................          (352)                   (81)     Equity in earnings from unconsolidated entities.........................................        (5,276)                  (455)   Change in other assets....................................................................         2,470                 (3,931)   Change in accounts payable, accrued expenses and other liabilities........................       (34,582)               (24,756)   Other, net................................................................................        (3,623)                (4,181)                                                                                                  ------------------  ------------------     Net cash flow provided by operating activities..........................................                                                                                                     54,975                 69,442                                                                                                  ------------------  ------------------Investing activities:   Real estate investments, net..............................................................      (304,361)               (99,756)   Advances to (distributions from) to unconsolidated entities, net..........................        (1,231)                 3,906   Proceeds from dispositions, net of closing costs..........................................       194,382                164,628   Change in tax-deferred exchange escrow....................................................        67,151                    (48)   Other, net................................................................................        55,520                (34,374)                                                                                                  ------------------  ------------------     Net cash flow provided by investing activities..........................................        11,461                 34,356                                                                                                  ------------------  ------------------Financing activities:   Payments on Long-Term Unsecured Debt......................................................       (40,450)               (18,750)   Principal prepayment of mortgages payable, including prepayment penalties.................       (27,788)               (49,101)   Regularly scheduled principal payments on mortgages payable...............................        (3,344)                (2,690)   Proceeds from mortgage notes payable......................................................        16,076                 21,930   Proceeds from unsecured credit facilities, net............................................       100,253                 44,032   Proceeds from Common Units issued under DRIP and employee stock options...................        23,249                 20,544   Repurchase of Common Units and Preferred Units............................................       (31,917)               (13,361)   Cash distributions paid on Common Units...................................................       (96,066)               (88,224)   Cash dividends paid on Preferred Units....................................................        (4,447)                (8,358)   Other, net................................................................................        (1,526)                (8,625)                                                                                                  ------------------  ------------------     Net cash flow used in financing activities..............................................       (65,960)              (102,603)                                                                                                  ------------------  ------------------Net change in cash and cash equivalents......................................................           476                  1,195Cash and cash equivalents at beginning of period.............................................         5,230                 12,846                                                                                                  ------------------  ------------------Cash and cash equivalents at end of period...................................................      $  5,706               $ 14,041                                                                                                  ==================  ==================Significant non-cash investing and financing activities:   A-1 Common Units issued in exchange for real estate.......................................      $ 10,788               $ 33,355   A-1 Common Units converted to A-2 Common Units............................................        13,114                 15,632   Assumption of mortgages payable upon purchase of apartment communities....................        74,900                      -   A-2 Common Units issued in exchange for real estate.......................................         4,502                      -
The accompanying notes are an integral part of these condensed consolidated financial statements.Archstone-SmithOperating TrustNotes toCondensed Consolidated Financial StatementsMarch 31,2004 and 2003(Unaudited)(1)  Description ofthe Business and Summary of Significant Accounting Policies
     *Business*
          Archstone-Smith is structured as an UPREIT under whichsubstantially all property ownership and business operations are conductedthrough the Operating Trust. Archstone-Smith is our sole trustee and owns approximately 88.7%of the Operating Trust’s outstanding Common Units; the remaining 11.3% areowned by minority interest holders. As used herein, “we”,“our” and the “company” refers to the Operating Trust andArchstone-Smith, collectively, except where the context otherwise requires.Archstone-Smith is an equity REIT organized under the laws of the State ofMaryland. We focus on creating value for our shareholders by acquiring,developing and operating apartments in markets characterized by: (i) protectedlocations with limited land on which to build new housing; (ii) expensivesingle-family home prices; and (iii) a strong, diversified economic base and jobgrowth potential. 

      *Interim Financial Reporting*
            The accompanying condensedconsolidated financial statements of the Operating Trust are unaudited and certaininformation and footnote disclosures normally included in financial statementshave been omitted. While management believes that the disclosures presented areadequate for interim reporting, these interim financial statements should beread in conjunction with the financial statements and notes included inthe Operating Trust’s 2003 Form 10-K. See the glossary in our 2003 Form 10-Kfor all defined terms not defined herein. 

            In the opinion ofmanagement, the accompanying unaudited financial statements contain alladjustments necessary for a fair presentation of the Operating Trust’sfinancial statements for the interim periods presented. The results ofoperations for the three months ended March 31, 2004 are not necessarilyindicative of the results to be expected for the entire year. 

      *Use of Estimates*
            The preparation offinancial statements in conformity with accounting principles generally acceptedin the United States of America requires management to make estimates andassumptions that affect amounts reported in the financial statements and therelated notes. Actual results could differ from those estimates. Estimates andassumptions are reviewed periodically and the effects of revisions are reflectedin the period they are determined to be necessary. 

      *Moisture Infiltration and Resulting Mold Remediation Costs*
            We estimate and accruecosts related to the correction of moisture infiltration and related moldremediation when we anticipate incurring such remediation costs because of theassertion of a legal claim or threatened litigation. When we incur remediationcosts at our own discretion, the cost is recognized as incurred. Costs ofaddressing moisture infiltration and resulting mold remediation issues are onlycapitalized, subject to recoverability, when it is determined by management thatsuch costs also extend the life, increase the capacity, or improve the safety orefficiency of the property relative to when the community was originallyconstructed or acquired, if later. All other related costs are expensed. 
Archstone-SmithOperating TrustNotes toCondensed Consolidated Financial Statements – (Continued)
      *Legal Fees*
          Wegenerally recognize legal expenses as incurred; however, if such fees arerelated to the accrual for an estimated legal settlement, we accrue for therelated incurred and anticipated legal fees at the same time we accrue the costof settlement. 

      *Real Estate and Depreciation*
          We allocate the cost ofnewly acquired properties between net tangible and identifiable intangibleassets. The primary intangible asset associated with an apartment communityacquisition is the value of the existing lease agreements. When allocating costto an acquired property, we estimate the value of land, building and fixturesassuming the property is vacant, and then allocate costs to the intangible valueof the existing lease agreements. We depreciate the building and fixtures basedon the expected useful life of the asset and amortize the intangible value ofthe lease agreements over the average remaining life of the existing leases. 

      *Stock-Based Compensation*
          As of March 31, 2004, thecompany has one stock-based employee compensation plan. Effective January 1,2003, we adopted the fair value recognition provision of FASB Statement No. 123,*“Accounting for Stock-Based Compensation,”* prospectively to allemployee awards granted, modified or settled after January 1, 2003, whichresults in expensing of options. During the three months ended March 31, 2004,we granted approximately 300,000 Restricted Share Units and 643,000 stockoptions. For employee awards granted prior to January 1, 2003, we accounted forthis plan under the recognition and measurement provisions of APB Opinion No.25, *“Accounting for Stock Issued to Employees,”* and relatedInterpretations. With respect to options granted under the plan prior to January1, 2003, no stock-based employee compensation expense is reflected in theaccompanying condensed consolidated statements of earnings, as all optionsgranted under those plans had an exercise price equal to the market value of theunderlying common stock on the date of grant. The following table illustratesthe effect on net earnings and earnings per unit if the fair value based methodhad been applied to all outstanding and unvested awards in each period (dollaramounts in thousands, except per unit amounts): 
Archstone-SmithOperating TrustNotes toCondensed Consolidated Financial Statements – (Continued)**Three Months Ended                                                                        March 31,                                                              ------------------------------                                                                   2004           2003**                                                              -------------- ---------------Net earnings attributable to Common Units - Basic.........     $ 109,515       $  89,509Add:  Stock-based employee compensation  expense included in reported net earnings...............            75               -Deduct:  Total stock-based employee compensation expense  determined under fair value based method for all awards.          (508)           (505)                                                              -------------- ---------------Pro forma net earnings attributable to Common Units - Basic    $ 109,082       $  89,004                                                              ============== ===============Net earnings per Common Unit:    Basic - as reported...................................     $    0.50       $    0.43                                                              ============== ===============    Basic - pro forma.....................................     $    0.50       $    0.43                                                              ============== ===============    Diluted - as reported.................................     $    0.49       $    0.43                                                              ============== ===============    Diluted - pro forma...................................     $    0.49       $    0.43                                                              ============== ===============Weighted average risk-free interest rate.........................      3.48%          3.54%Weighted average dividend yield..................................      6.92%          6.74%Weighted average volatility......................................     15.33%         19.58%Weighted average expected option life............................  5.0 years      5.0 years
      *Reclassifications*
            Certain 2003 amounts have been reclassified to conform to the 2004 presentation.
     *Comprehensive Income*
        Comprehensiveincome, which is defined as net earnings and all other non-owner changes inequity, is displayed in the accompanying Condensed Consolidated Statements ofUnitholder’s Equity, Other Common Unitholders’ Interest andComprehensive Income. Other comprehensive income reflects unrealized holdinggains and losses on the available-for-sale investments and changes in the fairvalue of effective cash flow hedges. 

        Ouraccumulated other comprehensive income for the quarter ended March 31, 2004 isas follows (in thousands):
**Unrealized                          Accumulated                                                            Gains on                              Other                                                           Marketable        Cash Flow        Comprehensive                                                           Securities          Hedges            Income**                                                          --------------    -------------    ----------------Balance at December 31, 2003.......................         $  23,808         $ (9,573)          $ 14,235Net unrealized holding gains arising during period.             1,645                -              1,645Change in fair value of cash flow hedges...........                -                                                                  128              128Less:  reclassification  adjustments  for  net gains realized in net gain........................           (10,510)               -            (10,510)                                                          --------------    -------------    ----------------Balance at March 31, 2004..........................         $  14,943         $ (9,445)          $  5,498                                                          ==============    =============    ================
      *Per Unit Data*
            Following is a reconciliation of basic net earnings attributable to CommonUnits to diluted net earnings per Common Unit for the periods indicated (in thousands):**Three Months Ended                                                                                         March 31,                                                                             ----------------------------------                                                                                  2004               2003**                                                                             ----------------   ---------------Reconciliation of numerator between basic and diluted net earnings per Common Unit (1):Net earnings attributable to Common Units - Basic............................     $ 109,515         $ 89,509   Dividends on Convertible Preferred Units..................................         1,104            5,011                                                                             ----------------   ---------------Net earnings attributable to Common Units - Diluted.........................      $ 110,619         $ 94,520                                                                             ================   ===============Reconciliation of denominator between basic and diluted net earnings per Common Unit (1):Weighted average number of Common Units outstanding - Basic.................        220,080          206,886   Assumed conversion of Convertible Preferred Units into       Common Units.........................................................          2,583           11,740   Assumed exercise of options..............................................            956              428                                                                             ----------------   ---------------Weighted average number of Common Shares outstanding - Diluted..............        223,619          219,054                                                                             ================   ===============
            (1)  Excludes the impact of potentially dilutive equity securities during periods in which they are anti-dilutive.Archstone-SmithOperating TrustNotes toCondensed Consolidated Financial Statements – (Continued)(2)  Real Estate
      *Investments in Real Estate*
            Investments in real estate (at cost including held for sale) were as follows (dollar amounts in thousands):**March 31, 2004              December 31, 2003                                                         ----------------------------- ----------------------------                                                           Investment     Units (1)     Investment     Units (1)**                                                         --------------- ------------- ----------------------------Operating Trust apartment communities:   Operating communities...............................    $ 8,250,405       63,839     $ 8,067,075        63,848   Communities under construction......................        310,723        2,487         301,634         2,607   Development communities In Planning:     Owned.............................................         70,074        1,533          95,911         2,633     Under control (2).................................              -          418               -           112                                                         --------------- ------------- ----------------------------      Total development communities In Planning........         70,074        1,951          95,911         2,745                                                         --------------- ------------- ----------------------------        Total Operating Trust apartment communities....      8,631,202       68,277       8,464,620        69,200                                                                         -------------               --------------Ameriton apartment communities.........................        550,511        6,289         494,338         5,646                                                                         -------------               --------------Land ..................................................         28,482                        9,648Other..................................................         30,579                       30,574        Total real estate..............................    $ 9,240,774       74,566     $ 8,999,180        74,846                                                         =============== ============= ============================
                        (1) Unit information is based on management's estimates and has not been audited or reviewed by our independent auditors.                        (2)Our investment as of March 31, 2004 and December 31, 2003 for developments Under Control was $4.2 million and                        $1.1 million, respectively, and is reflected on the "Other assets" caption of our Balance Sheets.
          The change in investments in real estate, at cost, consisted of the following (in thousands):Balance at December 31, 2003............................................................         $   8,999,180     Acquisition-related expenditures...................................................               318,062     Redevelopment expenditures.........................................................                 6,306     Recurring capital expenditures.....................................................                 7,681     Development expenditures, excluding land acquisitions..............................                69,637     Dispositions.......................................................................              (150,187)                                                                                            --------------------       Net apartment community activity.................................................             9,250,679     Change in other real estate assets ................................................                (9,905)                                                                                            --------------------Balance at March 31, 2004...............................................................          $  9,240,774                                                                                            ====================
          At March 31, 2004we had unfunded contractual commitments related to real estate investmentactivities aggregating approximately $430.8 million, of which $419.5 millionrelated to communities under construction. 
Archstone-SmithOperating TrustNotes toCondensed Consolidated Financial Statements – (Continued)(3)  Discontinued Operations
          Consistent with our capitalrecycling program, we had nine operating apartment communities, representing5,163 units, classified as held for sale under the provisions of SFAS 144, atMarch 31, 2004. Accordingly, we have classified the operating earnings fromthese nine properties within discontinued operations for the three months endedMarch 31, 2004 and 2003. During the three months ended March 31, 2004, we soldfive operating communities. The operating results of these five communities andthe related gain/loss on sale are also included in discontinued operations forboth 2004 and 2003. During the twelve months ended December 31, 2003 we sold 48operating communities. The operating results of these 48 operating communitiesand the related gain/loss on the sale are also included in discontinuedoperations for the three months ended March 31, 2003. The following is a summaryof earnings from discontinued operations (in thousands): 
**Three Months Ended                                                                                         March 31,                                                                             -----------------------------------                                                                                  2004                2003**                                                                             ----------------    ---------------Rental revenues...........................................................     $  16,453            $  60,059Rental expenses...........................................................        (6,274)             (18,845)Real estate taxes.........................................................        (2,233)              (6,685)Depreciation on real estate investments...................................        (1,768)              (9,525)Interest expense (1)......................................................        (6,332)             (16,968)Provision for possible loss on real estate investments....................             -               (3,714)Debt extinguishment costs related to dispositions.........................          (908)                (158)Gains on dispositions of real estate investments, net.....................        62,496               52,347                                                                             ----------------    ---------------Earnings from discontinued apartment communities..........................     $  61,434            $  56,511                                                                             ================    ===============
          (1) The portion of interest  expense  included in discontinued  operations thatis allocated to properties  based on the company'sleverage ratio was $5.3 million and $13.4 million for the three months endedMarch 31, 2004 and 2003, respectively.(4)  Investments in and Advances to Unconsolidated Entities
     *Real Estate Joint Ventures*
          We have investments inentities that we account for using the equity method. At March 31, 2004, theinvestment balance consists of $52.3 million in our joint venturesand $39.0 million in Ameriton joint ventures. At December 31, 2003, theinvestment balance consists of $42.9 million in our joint venturesand $43.5 million in Ameriton joint ventures. 
Archstone-SmithOperating TrustNotes toCondensed Consolidated Financial Statements – (Continued)(5)  Borrowings
     *Unsecured Credit Facilities*
          The following tablesummarizes our $600 million unsecured revolving credit facility borrowings (inthousands, except for percentages): 
**As of and for the         As of and for the                                                                       Three Months               Year Ended                                                                          Ended                   December 31,                                                                      March 31, 2004                 2003**                                                                    ------------------        ------------------Total unsecured revolving credit facility..........................     $   600,000             $   600,000Borrowings outstanding at end of period............................         150,000                  97,000Outstanding letters of credit under this facility..................           1,050                   1,050Weighted average daily borrowings..................................          63,022                 231,354Maximum borrowings outstanding during the period...................         150,000                 511,500Weighted average daily nominal interest rate.......................           1.56%                   1.95%Weighted average daily effective interest rate.....................           2.51%                   2.55%
          We also have a short-termunsecured borrowing agreement with JPMorgan Chase Bank, which provides formaximum borrowings of $100 million. The agreement bears interest at an overnightrate agreed to at the time of borrowing and ranged from 1.60% to 1.65% duringthe three months ended March 31, 2004. There were $54.0 million and $6.8 millionof borrowings outstanding under this agreement at March 31, 2004 and December31, 2003, respectively. 

     *Long-Term Unsecured Debt*
          Following is a summary of our Long-Term Unsecured Debt (dollar amounts in thousands):**Effective        Balance at                              Average                                            Coupon         Interest         March 31,           Balance at        Remaining             Type of Debt                  Rate (1)        Rate (2)           2004          December 31, 2003    Life (Years)**---------------------------------------  --------------  -------------  ------------------  ------------------- --------------Long-term unsecured senior notes....             6.33%          6.52%       $  1,752,339        $  1,771,167          5.2Unsecured tax-exempt bonds..........             1.56%          1.81%             78,318             100,798         19.2                                         --------------  -------------  ------------------  ------------------- --------------     Total/average..................             6.13%          6.32%       $  1,830,657        $  1,871,965          5.8                                         ==============  =============  ==================  =================== ==============
                    (1)  Represents a fixed rate for the long-term unsecured notes and avariable rate for the unsecured tax-exempt bonds.                    (2)  Includes the effect of fair value hedges, loan cost amortizationand other ongoing fees and expenses, where applicable.Archstone-SmithOperating TrustNotes toCondensed Consolidated Financial Statements – (Continued)
     *Mortgages payable*
          Our mortgages payablegenerally feature either monthly interest and principal payments or monthlyinterest-only payments with balloon payments due at maturity. Following is asummary of our mortgages payable including debt on assets held for sale (dollaramounts in thousands): 
**Average                                           Effective Interest            Principal Balance (2) at               Remaining           Type of Mortgage                    Rate (1)           March 31, 2004       December 31, 2003       Life (Years)**----------------------------------------  --------------------  -------------------  ----------------------  -----------------Conventional fixed rate (3).............        6.45%               $   1,478,490         $   1,511,277                5.8Tax-exempt floating rate................        1.88%                     391,185               317,351               20.1Construction loans......................        4.31%                      72,204                56,129                1.2Conventional floating rate..............        2.70%                      21,705                21,705                4.6Other...................................        4.97%                      20,923                21,163               19.3                                          --------------------  -------------------  ----------------------  -----------------     Total/average mortgage debt........        5.42%               $   1,984,507         $   1,927,625                8.6                                          ====================  ===================  ======================  =================
(1)  Includes  the  effect of fair  value  hedges,  credit  enhancement  fees,  the  amortization  of fair  market  value  purchase         adjustment, and other related costs, where applicable as of March 31, 2004.(2)  Includes net fair market value  adjustment  recorded in connection with the Smith Merger of $55.6 million and $58.5 million at         March 31, 2004 and December 31, 2003, respectively.(3)  Includes a long-term  secured  debt  agreement  with Fannie Mae.  The Fannie Mae secured  debt  matures on dates  ranging from         January  2006 to July  2009,  although  we have the  option to extend  the term of any  portion  of the debt for up to an         additional 30-year period at any time, subject to Fannie Mae's approval.
          The change in mortgagespayable, including properties classified as held for sale, during the threemonths ended March 31, 2004 consisted of the following (in thousands): 
Balance at December 31, 2003..................................      $  1,927,625    Regularly scheduled principal amortization................            (3,344)    Prepayments, final maturities and other...................           (30,750)    Mortgage assumptions related to property acquisitions.....            74,900    Proceeds from mortgage notes payable......................            16,076                                                                   ------------------Balance at March 31, 2004.....................................      $  1,984,507                                                                   ==================
     *Other*
          The book value of totalassets pledged as collateral for mortgage loans and other obligations at March31, 2004 and December 31, 2003 is $3.9 billion and $3.8 billion, respectively.Our debt instruments generally contain certain covenants common to the type offacility or borrowing, including financial covenants establishing minimum debtservice coverage ratios and maximum leverage ratios. We were in compliance withall financial covenants pertaining to our debt instruments during the threemonths ended March 31, 2004. 

          For the three months endedMarch 31, 2004 and 2003, the total interest paid on all outstanding debt was$73.8 million and $77.6 million, respectively. We capitalize interest incurredduring the construction period as part of the cost of apartment communitiesunder development. Interest capitalized during the three months ended March 31,2004 and 2003 was $5.9 million for both periods presented. 
Archstone-SmithOperating TrustNotes toCondensed Consolidated Financial Statements – (Continued)
**(6)Distributions to Unitholders**

        Thefollowing table summarizes the quarterly cash distributions paid per unit onCommon and Preferred Units during the three months ended March 31, 2004 and theannualized distributions we expect to pay for 2004: 
**Quarterly          Annualized                                                               Cash                Cash                                                           Distributions       Distributions                                                             Per Unit            Per Unit**                                                          ----------------    ----------------     Common Units and A-1 Units....................            $   0.4300           $    1.72     Series D Preferred Units .....................                0.5475                2.19     Series E Preferred Units......................                0.5225                2.09     Series F Preferred Units......................                0.5075                2.03     Series G Preferred Units......................                0.5400                2.16     Series I Preferred Units (1)..................                 1,915               7,660     Series K Preferred Units .....................                0.8500                3.40     Series L Preferred Units .....................                0.8500                3.40
(1)  Series I PreferredUnits have a par value of $100,000 per share.Archstone-SmithOperating TrustNotes toCondensed Consolidated Financial Statements – (Continued)(7)  SegmentData
          We define our gardencommunities and high-rise properties each as individual operating segments. Wehave determined that each of our garden communities and each of our high-riseproperties have similar economic characteristics and also meet the other GAAPcriteria, which permit the garden communities and high-rise properties to beaggregated into two reportable segments. Net Operating Income (NOI) is definedas rental revenues less rental expenses and real estate taxes. We rely on NOIfor purposes of making decisions about resource allocations and assessingsegment performance. We also believe NOI is a valuable means of comparingyear-to-year property performance. 

          Following arereconciliations, which exclude the amounts classified as discontinuedoperations, of each reportable segment’s (i) revenues to consolidatedrevenues; (ii) NOI to consolidated earnings from operations; and (iii) assets toconsolidated assets, for the periods indicated (in thousands): 
**Three Months Ended                                                                                  March 31,**                                                                       --------------------------------                                                                           2004              2003                                                                       --------------    --------------Reportable apartment communities segment revenues:   Same-Store:     Garden communities................................................   $  121,121        $  123,049     High-rise properties..............................................       74,600            74,491   Non Same-Store:     Garden communities................................................       19,458             3,587     High-rise properties..............................................        6,598             2,143        Other non-reportable operating segment revenues................        4,632             7,016                                                                       --------------    --------------     Total segment and consolidated revenues...........................   $  226,139        $  210,286                                                                       ==============    ==============                                                                             **Three Months Ended                                                                                  March 31,**                                                                       --------------------------------                                                                           2004              2003                                                                       --------------    --------------Reportable apartment communities segment NOI:   Garden communities..................................................   $   90,653         $  84,929   High-rise properties................................................       51,122            46,981     Other non-reportable operating segment NOI........................          530               555                                                                       --------------    --------------     Total segment and consolidated NOI................................      142,305           132,465                                                                       --------------    --------------Reconciling items:   Other income........................................................        3,697             6,316   Depreciation on real estate investments.............................      (52,003)          (42,404)   Interest expense....................................................      (43,840)          (38,482)   General and administrative expenses.................................      (12,433)          (12,867)   Other expenses......................................................       (1,336)           (4,208)                                                                       --------------    --------------     Consolidated earnings from operations.............................   $   36,390         $  40,820                                                                       ==============    ==============Archstone-SmithOperating TrustNotes toCondensed Consolidated Financial Statements – (Continued)**March 31,        December 31,                                                                           2004               2003**                                                                       --------------    ---------------Reportable operating communities segment assets:   Same-Store:     Garden communities...............................................   $  3,363,157       $  3,586,989     High-rise properties.............................................      2,751,692          2,466,129   Non Same-Store:     Garden communities...............................................      1,491,153          1,195,470     High-rise properties.............................................        882,297          1,072,039 Other non-reportable operating segment assets........................         67,774             29,571                                                                       --------------    ---------------     Total segment assets.............................................      8,556,073          8,350,198                                                                       --------------    ---------------Reconciling items:   Investment in and advances to unconsolidated entities..............         91,256             86,367   Cash and cash equivalents..........................................          5,706              5,230   Restricted cash in tax-deferred exchange escrow....................        113,769            180,920   Other assets.......................................................        246,177            298,980                                                                       --------------    ---------------     Consolidated total assets........................................   $  9,012,981       $  8,921,695                                                                       ==============    ===============
          Total capital expendituresfor garden communities were $5.6 million and $6.0 million for the three monthsended March 31, 2004 and 2003, respectively. Total capital expenditures forhigh-rise properties were $8.7 million and $10.3 million for the three monthsended March 31, 2004 and 2003, respectively. 
(8)  Litigationand Contingencies
          We are party to allegedmoisture infiltration and resulting mold lawsuits at various apartmentproperties. We have negotiated a settlement with the named plaintiffs in certainof these lawsuits and our estimates include the amounts from this negotiatedsettlement. It is possible that these estimates could increase or decrease asbetter information becomes available. Our accruals represent management’sbest estimate of the probable and reasonably estimable costs and are based, inpart, on the status of settlement discussions, estimates obtained fromthird-party contractors and actual costs incurred to date. Not all plaintiffshave accepted the negotiated settlement, and further court proceedings andadditional legal fees and damages may be required to fully resolve these claims. 

          We are aggressivelypursuing recovery of a significant portion of these costs from our insurancecarriers. During the quarter ended March 31, 2004, we received $5.1 million ininsurance recoveries pertaining to ongoing moisture infiltration and resultingmold litigation. Of this amount, approximately $1.3 million was recorded toother income as it pertains to legal and professional fees previously expensed;the remaining $3.8 million was a reduction of previously capitalized costs. Weare still in discussions with our insurance providers and therefore we have notrecorded an estimate for future insurance recoveries. In addition, we arecontinuing to pursue potential recoveries from third parties who we believe bearresponsibility for a considerable portion of the costs we have incurred. Wecannot make assurances that we will obtain these recoveries or that our ultimateliability associated with these claims will not be material to our results ofoperations. 

          We are a party to variousother claims and routine litigation arising in the ordinary course of business.We do not believe that the results of any such claims or litigation,individually or in the aggregate, will have a material adverse effect on ourbusiness, financial position or results of operations. 
Archstone-SmithOperating TrustNotes toCondensed Consolidated Financial Statements – (Concluded)(9)  Derivatives and Hedging Activities
          We are exposed to theimpact of interest rate changes and will occasionally utilize interest rateswaps and interest rate caps as hedges with the objective of lowering ouroverall borrowing costs. These derivatives are designated as either cash flow orfair value hedges. We are also exposed to price risk associated with changes inthe fair value of certain equity securities. We have entered into forward saleagreements to protect against a reduction in the fair value of these securities.We have designated such forward sale agreements as fair value hedges. We do notuse these derivatives for trading or other speculative purposes. Further, as amatter of policy, we only enter into contracts with major financial institutionsbased upon their credit ratings and other factors. When viewed in conjunctionwith the underlying and offsetting exposure that the derivatives are designed tohedge, we have not, nor do we expect to sustain a material loss from the use ofthese hedging instruments. 

          We formally assess, both atinception of the hedge and on an ongoing basis, whether each derivative ishighly effective in offsetting changes in fair values or cash flows of thehedged item. We measure hedge effectiveness by comparing the changes in the fairvalue or cash flows of the derivative instrument with the changes in the fairvalue or cash flows of the hedged item. We exclude the hedging instrument’stime value component when assessing hedge effectiveness. If it is determinedthat a derivative is not highly effective as a hedge or if a derivative ceasesto be a highly effective hedge, we will discontinue hedge accountingprospectively. 

          To determine the fairvalues of derivative and other financial instruments, we use a variety ofmethods and assumptions that are based on market value conditions and risksexisting at each balance sheet date. These methods and assumptions includestandard market conventions and techniques such as discounted cash flowanalysis, option pricing models, replacement cost and termination cost. Allmethods of assessing fair value result in a general approximation of value, andtherefore, are not necessarily indicative of the actual amounts that we couldrealize upon disposition. During 2003, we entered into forward saleagreements with an aggregate notional amount, which represents the fair value ofthe underlying marketable securities, of approximately $128.5 million and anaggregate fair value of the forward sale agreements of approximately $486,000.As of March 31, 2004 the remaining forward sale agreements had an aggregatenotional value of $81.7 million and an aggregate fair value of $76,000. Duringthe three months ended March 31, 2004, we settled one of the forward salesagreements for 1.0 million shares and sold 308,200 shares of marketablesecurities, which were not subject to forward sales agreements, resulting in anaggregate gain of approximately $10.5 million. The total net proceeds from the sale were $61.4 million,with the marketable securities basis determined using the average costs of thesecurities.  Settlement of the remaining forward saleagreements will result in additional 2004 gains of approximately $14.9 million.
(10)  Subsequent Events
          In April 2004, theOperating Trust filed a shelf registration statement on Form S-3 to register anadditional $450 million (for a total of $1 billion) in unsecured debtsecurities. This registration statement was declared effective in April 2004. 

          In April 2004,Archstone-Smith filed two registration statements on Form S-3 registering156,332 Common Shares issued in connection with a property acquisition andregistering 2,521,236 Common Shares to be issued upon redemption of certain A-1Common Units. These registration statements were declared effective in April andMay****of 2004, respectively. 

          In April 2004, theBoard of Trustees increased the total authorizationfor unit repurchase of $225 million.  The company has approximately $55 millionof remaining capacity in our currently authorized unit repurchase program.INDEPENDENTACCOUNTANTS’ REVIEW REPORT
The Trustee and UnitholdersArchstone-Smith Operating Trust:
          We have reviewed theaccompanying condensed consolidated balance sheet of Archstone-Smith Operating Trust andsubsidiaries as of March 31, 2004, and the related condensed consolidatedstatements of earnings for the three month periods ended March 31, 2004 and2003, the condensed consolidated statement of unitholders’ equity, other common unitholders' interestand comprehensive income for the three month period ended March 31, 2004 and thecondensed consolidated statements of cash flows for the three month periodsended March 31, 2004 and 2003. These condensed consolidated financial statementsare the responsibility of Archstone-Smith Operating Trust’s management. 

          We conducted our review inaccordance with standards established by the American Institute of CertifiedPublic Accountants. A review of interim financial information consistsprincipally of applying analytical procedures and making inquiries of personsresponsible for financial and accounting matters. It is substantially less inscope than an audit conducted in accordance with auditing standards generallyaccepted in the United States of America, the objective of which is theexpression of an opinion regarding the financial statements taken as a whole.Accordingly, we do not express such an opinion. 

          Based on our review, we arenot aware of any material modifications that should be made to the condensedconsolidated financial statements referred to above for them to be in conformitywith accounting principles generally accepted in the United States of America. 

          We have previously audited,in accordance with auditing standards generally accepted in the United States ofAmerica, the consolidated balance sheet of Archstone-Smith Operating Trust as of December31, 2003, and the related consolidated statements of earnings,unitholders’ equity, other common unitholders' interest and comprehensive income, and cash flows for the yearthen ended (not presented herein); and in our report dated February 9, 2004, weexpressed an unqualified opinion on those consolidated financial statements. Inour opinion, the information set forth in the accompanying condensedconsolidated balance sheet as of December 31, 2003 is fairly stated, in allmaterial respects, in relation to the consolidated balance sheet from which ithas been derived. 

KPMG LLP
Denver, ColoradoApril 23, 2004Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
**          The followinginformation should be read in conjunction with Archstone-Smith OperatingTrust’s 2003 Form10-K as well as the financial statements and notes included in Item 1 of thisreport.**

          *Forward-Looking Statements*
*          Certain statements inthis Form 10-Q that are not historical facts are “forward-lookingstatements” as that term is defined under the Private Securities LitigationReform Act of 1995. These forward-looking statements are based on our currentexpectations, beliefs, assumptions, estimates and projections about the industryand markets in which we operate. Words such as “expects,”“anticipates,” “intends,” “plans,”“believes,” “seeks,” “estimates” and variations ofsuch words and similar expressions are intended to identify such forward-lookingstatements. Information concerning expected investment balances, expectedfunding sources, planned investments, forecasted dates and revenue and expensegrowth assumptions are examples of forward-looking statements. These statementsare not guarantees of future performance and involve certain risks,uncertainties and assumptions, which are difficult to predict and many of whichare beyond our control. Therefore, actual outcomes and results may differmaterially from what is expressed, forecasted or implied in such forward-lookingstatements. We undertake no obligation to update publicly any forward-lookingstatements, whether as a result of new information, future events or otherwise,except as required by applicable law.*

*          Our operating resultsdepend primarily on income from apartment communities, which is substantiallyinfluenced by supply and demand for apartment units, operating expense levels,property level operations and the pace and price at which we can develop,acquire or dispose of apartment communities. Capital and credit marketconditions, which affect our cost of capital, also influence operating results.See Archstone-Smith Operating Trust’s 2003 Form 10-K “Item 1. Business” for amore complete discussion of risk factors that could impact our future financialperformance.*

     *The Company
          We are engagedprimarily in the operation, development,redevelopment, acquisition, management and long-term ownership of apartmentcommunities throughout the United States. Archstone-Smith is structured as anUPREIT, under which all property ownership and business operations are conductedthrough the Operating Trust and their subsidiaries and affiliates. Archstone-Smith is our sole trustee and owns 88.7% of our Common Units at March 31, 2004. 

          **Results of Operations**
     *Overview*
          In conjunction with ourcapital recycling strategy, rental revenues and rental expenses, including realestate taxes, will fluctuate based upon the timing and volume of dispositions,acquisitions and development lease-ups. Accordingly, our results are not onlydriven by the performance of our operating portfolio but also by gains/lossesfrom the disposition real estate, the corresponding loss of ongoing income fromassets sold, as well as increased income generated from acquisitions anddevelopments. These factors all contribute to the overall financial performanceof the company. 

          Basic net earningsattributable to Common Units increased $20.0 million, or 22.3%, for the threemonths ended March 31, 2004 as compared to the same period in 2003. Thisincrease is primarily attributable to: 
- A $10.1 million increase in gains from the sale of depreciable real estate consistentwith an increased disposition volume during the first quarter of 2004 comparedto 2003, as we continue to take advantage of the current low capitalizationrate environment; A $10.5 million gain from the sale and settlement of a forward contract on marketable equitysecurities during the three months ended March 31, 2004;Increased revenue less operating expenses associated with $824.9 million inasset acquisitions that occurred during the last three quarters of 2003 and thefirst quarter of 2004 and the continued lease up of new development projects; and
- A $3.9 million reduction in Preferred Unit distributions due to the conversion ofSeries A and H Preferred Units during 2003 in order to eliminate the impact ofthese preferred unit distributions on our fixed charge coverage ratio.    
        Thisincrease was partially offset by: 
- A 0.9% decrease in Same-Store rental revenues primarily due to slightly lowereffective rent per unit (defined as average rent per unit net of concessions andloss to lease but before vacancy loss and bad debt costs). Fluctuations ineffective rent per unit are driven by supply/demand and economic conditions inindividual markets; A 2.2% increase in expenses from our Same-Store portfolio for the three monthsended March 31, 2004, as compared to the same period in 2003, primarily due toan increases in insurance, repair and maintenance and personnel costs, and;The loss of rental revenues and a corresponding decrease in rental expense dueto $201.6 million and $1.6 billion in total dispositions in the first threemonths of 2004 and the twelve months ended December 31, 2003, respectively.
     *Apartment Community Operations*
        Weutilize net operating income (NOI) as the primary measure to evaluate theperformance of our operating communities. NOI is defined as rental revenues lessrental expenses and real estate taxes for each of our operating properties. Werely on NOI for purposes of making decisions about resource allocations andassessing segment performance. We also believe NOI is a valuable means ofcomparing period-to-period property performance. Our Same-Store populationexcludes Ameriton properties as they are acquired or developed to achieveshort-term opportunistic gains. Additionally, Ameriton’s average holdingperiod is typically much shorter than the holding period of assets operated bythe REIT. The following is a reconciliation of Same-Store NOI to earnings fromoperations (in thousands): 
**Three Months Ended                                                                                     March 31,**                                                                            -----------------------------                                                                                2004            2003                                                                            --------------  -------------Same-Store NOI..........................................................      $ 126,986       $ 130,298NOI for properties not in Same Store, including Ameriton properties.....         23,265          36,696NOI classified as discontinued operations - communities sold............         (1,057)        (27,492)NOI classified as discontinued operations - communities held for sale...         (6,889)         (7,037)                                                                            --------------  -------------   Net Operating Income.................................................        142,305         132,465Other income............................................................          3,697           6,316Depreciation on real estate investments.................................        (52,003)        (42,404)Interest expense........................................................        (43,840)        (38,482)General and administrative expenses.....................................        (12,433)        (12,867)Other expense...........................................................         (1,336)         (4,208)                                                                            --------------  -------------   Earnings from operations.............................................       $ 36,390        $ 40,820                                                                            ==============  =============
          At March 31, 2004,investments in operating apartment communities comprised over 99% of our totalreal estate portfolio, based on NOI. The following table summarizes theperformance of our operating portfolio (in thousands, except for percentages): 
**Three Months Ended March 31,                                                               ----------------------------------                                                                     2004              2003**                                                               ----------------  ----------------Rental revenues............................................         $ 221,777        $ 203,270Property operating expenses................................            80,002           71,360                                                               ----------------  ----------------NOI........................................................         $ 141,775        $ 131,910                                                               ----------------  ----------------Operating margin (NOI/rental revenues).....................             63.9%            64.9%                                                               ================  ================Average occupancy during period............................             95.3%            94.5%                                                               ================  ================
          The following table reflects  revenue,  expense and NOI growth for Same-Storecommunities  that were fully  operating  during the three months ended March 31for each respective comparison period (the Same-Store population excludes allAmeriton communities):**Same-Store           Same-Store            Same-Store                                               Revenue              Expense                 NOI                                          Growth/(Decline)     Growth/(Decline)      Growth/(Decline)**                                          ------------------  --------------------   ------------------Q1 2004 vs Q1 2003......................       (0.9%)                2.2%                 (2.5%)Q1 2003 vs Q1 2002......................       (1.9%)                2.1%                 (3.9%)
          The $9.9 million increasein reported NOI is directly attributable to increased NOI contributions from $824.9million in asset acquisitions that occurred during the last three quarters of2003 and the first quarter of 2004 and the continued lease up of new developmentprojects. The slight decrease in operating margins is consistent with the 0.9%decrease in Same-Store revenue and the 2.2% increase in Same Store expenses.
          These amounts, which correspond to the Statement of Earnings, exclude NOIcontributions from 5,163 units, classified as held for sale as of March 31, 2004as well as all NOI from the disposition of five operating communities during thethree months ended March 31, 2004 and 48 operating communities sold during 2003.As the disposition of non-core assets and the redeployment of the proceeds fromthese sales into new acquisitions and developments is an integral part of ourcapital recycling program, we believe it is important to understand ouroperating results inclusive of amounts classified within discontinuedoperations.  NOI for the entireapartment portfolio, including amounts reported in discontinued operations,decreased $16.7 million, or 10.0%, for the three months ended March 31, 2004 ascompared to the same period in 2003 primarily due to:- The loss of rentalrevenues and a corresponding decrease in rental expense due to $201.6 millionand $1.6 billion in total dispositions in the first three months of 2004 andthe twelve months ended December 31, 2003, respectively; A 0.9% decreasein Same-Store rental revenues primarily due to slightly lower effective rentper unit (defined as average rent per unit net of concessions and loss to leasebut before vacancy loss and bad debt costs). Fluctuations in effective rent perunit are driven by supply/demand and economic conditions in individual markets, and;A 2.2% increase in expenses from our Same-Store portfolio for the three monthsended March 31, 2004, as compared to the same period in 2003, primarily due toincreases in insurance, repair and maintenance and personnel costs.
          As noted above, thisoverall decrease, including amounts reported in discontinued operations, waspartially off-set by the contribution of NOI from $824.9 million in assetacquisitions that occurred during the last three quarters of 2003 and the firstquarter of 2004 and the continued lease up of new development projects. 

          Based on our reportedSame-Store revenue results in the first quarter of 2004, our strongest coremarkets during the three months ended March 31, 2004, were the greaterWashington D.C. metropolitan area, Southern California and Southeast Florida(which collectively represent 61.4% of our portfolio), all of which producedpositive revenue growth. Our most challenging core markets during the firstquarter of 2004 were the San Francisco Bay Area, Boston, Seattle and Chicago,based on revenue results. 

     *Other Income*
          Other income decreased $2.6million, or 41.5%, for the three months ended March 31, 2004 as compared to thesame period in 2003, principally as a result of a collection of contingentproceeds related to indemnification of certain CES accounts receivable over 120days and dividend income on stock investments during the three month ended March31, 2003. These increases were partially offset by $1.3 million in insurance recoveriesduring the three months ended March 31, 2004. 

     *Depreciation Expense*
          The $1.8 million, or 3.5%,increase in depreciation expense, including properties included in discontinuedoperations, during the three months ended March 31, 2004, as compared to thesame period in 2003 is principally attributable to an increase in theamortization of the intangible value of lease agreements obtained in connectionwith apartment community acquisitions, which are amortized over the average lifeof the underlying lease, and acquisitions during the three months ended 2004 andall of 2003. This increase is partially offset by the cessation of depreciationexpense on assets classified as held for sale during 2004. 

     *Interest Expense*
          Including interest expense onproperties reflected in discontinued operations, interest expense decreased $5.3million, or 9.5% during the three months ended March 31, 2004, as compared to thesame period in 2003. The decrease is primarily a result of lower debt balances,a reduction in interest rates on floating rate debt and refinanced debt, and therepayment of Long-Term Unsecured Debt with proceeds from our unsecured creditfacilities, which were at lower interest rates during the period. 

     *General and Administrative Expenses*
          The $0.4 million, or 3.4%,decrease in general and administrative expenses for the three months ended March31, 2004 as compared to the same period in 2003 is primarily due to lowerseverance costs and the corresponding decrease in compensation expense duringthe first quarter of 2004, partially offset by higher legal fees due to moistureinfiltration and resulting mold issues. 

     *Other Expenses*
          The $2.9 million, or 68.3%,decrease in other expense for the three months ended March 31, 2004, as comparedto the same period in 2003 is primarily due to a decrease in Ameriton incometaxes and lower moisture infiltration and resulting mold related expenses duringthe first quarter of 2004. 

     *Income from Unconsolidated Entities*
          Income from unconsolidatedentities increased $4.8 million during the three months ended March 31, 2004 ascompared to the same period of 2003 primarily due to gains on disposition ofjoint venture operating communities. 

     *Provision for Possible Loss on Investments*
          During the first quarter of2003 we recognized a $3.7 million provision for possible loss on investments dueto an impairment and related write-down to the estimated fair value of threereal estate investments held for sale, which is included in net earnings fromdiscontinued operations during the three months ended March 31, 2003. Noprovision was recognized for the three months ended March 31, 2004. 

     *Preferred Unit Distributions*
          The $3.9 million, or 46.8%,decrease in Preferred Unit distributions for the three months ended March 31, 2004,is primarily the result of the conversion of Series H Preferred Units intoCommon Units in May 2003 and the conversion of Series A Preferred Shares intoCommon Shares in December 2003. We expect our Preferred Unit distributions tofurther decrease as a result of the planned redemption of our Series D, E and FPreferred Units during 2004. 

     *Discontinued Operations*
          For properties accountedfor as discontinued operations, the results of operations for properties soldduring the period or designated as held for sale at the end of the period arerequired to be classified as discontinued operations. The property-specificcomponents of net earnings that are classified as discontinued operationsinclude rental revenues, rental expenses, real estate taxes, depreciationexpense, interest expense (actual interest expense forencumbered properties and a pro-rata allocation of interest expense for anyunencumbered portion up to our weighted average leverage ratio), as well as thenet gain or loss on the eventual disposal of properties held for sale. 

          Consistent with our capitalrecycling program, we had nine operating apartment communities, representing5,163 units, classified as held for sale under the provisions of SFAS 144, atMarch 31, 2004. Accordingly, we have classified the operating earnings fromthese nine properties within discontinued operations for the three months endedMarch 31, 2004 and 2003. During the three months ended March 31, 2004, we soldfive operating communities. The operating results of these five communities andthe related gain/loss on sale are also included in discontinued operations forboth 2004 and 2003. During the twelve months ended December 31, 2003 we sold 48operating communities. The operating results of these 48 operating communitiesand the related gain/loss on the sale are also included in discontinuedoperations for the three months ended March 31, 2003. The following is a summaryof earnings from discontinued operations (in thousands): 
**Three Months Ended March 31,                                                                               -----------------------------                                                                                   2004             2003**                                                                               ------------     ------------                 Rental revenues............................................     $ 16,453        $  60,059                 Rental expenses............................................       (6,274)         (18,845)                 Real estate taxes..........................................       (2,233)          (6,685)                 Depreciation on real estate investments....................       (1,768)          (9,525)                 Interest expense (1).......................................       (6,332)         (16,968)                 Provision for possible loss on real estate investment......           --           (3,714)                 Debt extinguishment costs related to dispositions...........        (908)            (158)                 Gain on dispositions of real estate investments, net.......       62,496           52,347                                                                               ------------     ------------                                                                                 $ 61,434       $   56,511                                                                               ============     ============
(1) The portion of interestexpense  included in discontinued  operations that is allocated to properties based on the company'sleverage ratio was $5.3 million and $13.4 million for the three monthsended March 31, 2004 and 2003, respectively.
     *Gains on Dispositions of Real Estate Investments*
          We recognized $62.5 millionand $52.3 million of net gains on the disposition of depreciated real estateassets (all of which were included in discontinued operations), during the threemonths ended March 31, 2004 and 2003, respectively. These gains are a result ofour capital recycling program, which involves the disposition of non-coreoperating communities with less attractive growth prospects to fund investmentsin our core protected markets, and opportunistic acquisitions and developmentsby Ameriton. 
Liquidity andCapital Resources
          We are committed tomaintaining a strong balance sheet and preserving our financial flexibility,which we believe enhances our ability to capitalize on attractive investmentopportunities, as they become available. As a result of the significant cashflow generated by our operations, current cash positions, the available capacityunder our unsecured credit facilities, and future proceeds from the forward saleof marketable equity securities during 2004, we believe our liquidity andfinancial condition are sufficient to meet all of our reasonably anticipatedcash flow needs during 2004. 

     *Operating Activities*
          Net cash flow provided byoperating activities decreased $14.5 million, or 20.8%, for the three monthsended March 31, 2004 as compared to the same period of 2003. This decrease wasprincipally due to a decrease in net operating income associated with $201.6million and $1.6 billion in dispositions in the first three months of 2004 andthe twelve months ended December 31, 2003, respectively. See Results ofOperations for a more complete discussion of the factors impacting our operatingperformance. 

     *Investing and Financing Activities*
          For the three months endedMarch 31, 2004, cash flows provided by investing activities decreased $22.9million, or 66.6%, as compared to the same period in 2003. The decrease isprincipally attributable to a $204.6 million increase in net real estate investmentvolume during the first quarter of 2004 as compared to 2003. This decrease ispartially offset by a $29.8 million increase in net proceeds from dispositionsof real estate assets and proceeds from the sale of marketable securities duringthe first quarter of 2004. 

          Cash flows used in financingactivities decreased by $35.7 million, or 36.6%, as compared to the same periodin 2003. This decrease is primarily due to increased borrowings on our creditfacilities to finance a net increase in real estate investments as compared toprior year, partially offset by a decrease associated with greaterdistributions and an increase in cash used to repurchase Common Units. 

          Our most significantnon-cash investing and financing activities during the three months ended March31, 2004 and 2003 included: (i) the issuance of A-1 Common Units in exchange forreal estate in 2004 and 2003, (ii) the conversion of A-1 Common Units to A-2 CommonUnits in both 2004 and 2003, (iii) the assumption of mortgages payable upon thepurchase of apartment communities in 2004 and (iv) the issuance of A-2 Common Unitsin exchange for real estate in 2004. 

     *Scheduled Debt Maturities and Interest Payment Requirements*
          We have structured therepayments of our long-term debt to create a relatively level principal maturityschedule and to avoid significant repayment obligations in any year, which wouldimpact our financial flexibility. As of March 31, 2004, we have approximately$68.2 million of long-term debt maturing during the remainder of 2004, $330.1million maturing during 2005 and $356.4 million maturing during 2006. 

          We currently have $657.1 millionof liquidity, including cash, liquid assets, restricted cash in escrows and capacityon our unsecured credit facilities at April 30, 2004. Our unsecured credit facilities, Long-Term UnsecuredDebt and mortgages payable had effective average interest rates of 2.28%, 6.32%and 5.42%, respectively, during the three months ended March 31, 2004. Theserates give effect to the impact of interest rate swaps and caps, as applicable. 

          We were in compliance will all financial covenants pertaining to our debtinstruments during the period ended March 31, 2004.
     *Unitholder Dividend Requirements*
          Based on anticipateddistribution levels for 2004 and the number of shares and units outstanding asof March 31, 2004, we anticipate that we will pay distributions of$397.6 million in the aggregate during 2004. However, during 2004 we plan onredeeming our Series D, E and F Preferred Units,which will reduce our total distribution level for the year. Thisamount represents distributions on our Common Units and allPreferred Units. 

     *Planned Investments*
          Following is a summary ofunfunded planned investments as of March 31, 2004, including amounts forAmeriton (dollar amounts in thousands). The amounts labeled“Discretionary” represent future investments that we plan to make,although there is not a contractual commitment to do so. The amounts labeled“Committed” represent the approximate amount that we are contractuallycommitted to fund for properties under construction. 
**Planned Investments                                                                                   ---------------------------------                                                                      Units         Discretionary      Committed**                                                                  ---------------  ----------------  ---------------Properties under redevelopment.................................            3,862         $  18,369        $  11,222Properties under construction..................................            4,888                 -          419,546Properties In Planning and owned...............................            2,461           370,570                -Properties In Planning and Under Control.......................              418            76,645                -Property acquisitions under contract...........................            1,721           301,502                -                                                                  ---------------  ----------------  ---------------     Total.....................................................           13,350        $  767,086       $  430,768                                                                  ===============  ================  ===============
          In addition to the plannedinvestments noted above, we expect to make additional investments relating toplanned expenditures on recently acquired communities, as well as recurringexpenditures to improve and maintain our established operating communities. 

          We anticipate completion ofmost of the communities that are currently under construction and the plannedoperating community improvements during the remainder of 2004 and 2005. Weexpect to start construction on approximately $300 - $400 million, based onTotal Expected Investment, of communities that are currently classified as InPlanning during the remainder of 2004. We expect to fund the costs of thesedevelopment projects over a two-to-three year period following the dateconstruction commences. No assurances can be given that communities we do notcurrently own will be acquired or that planned developments will actually occur.In addition, actual costs incurred could be greater or less than our currentestimates. 

     *Funding Sources*
          We anticipate financing ourplanned investment and operating needs primarily with cash flow from operatingactivities, disposition proceeds from our capital redeployment program andborrowings under our unsecured credit facilities, prior to arranging long-termfinancing. We anticipate that net cash flow from operating activities and gainson dispositions during 2004 will be sufficient to fund anticipated distributionrequirements and debt principal amortization payments. To fund plannedinvestment activities, we had $540 million in available capacity on ourunsecured credit facilities, $70 million in tax-deferred exchange escrow and $1million of cash on hand at April 30, 2004*.*In addition, we expect tocomplete the disposition of $400 - $600 million of operating communities during2004. During the remainder of 2004, we will receive approximately $46.1 millionfrom the sale of certain marketable securities in accordance with our forwardsales agreements. 

          In April 2004, theOperating Trust filed a shelf registration statement on Form S-3 to register anadditional $450 million (for a total of $1 billion) in unsecured debtsecurities. This registration statement was declared effective in April 2004. AtApril 30, 2004, Archstone-Smith and the Operating Trust had $1.5 billionavailable in shelf registered debt and equity securities which can be issuedsubject to our ability to effect offerings on satisfactory terms based onprevailing market conditions. 

     *Other Contingencies and Hedging Activities*
          We are party to allegedmoisture infiltration and resulting mold lawsuits at various apartmentproperties. We have negotiated a settlement with the named plaintiffs in certainof these lawsuits and our estimates include the amounts from this negotiatedsettlement. It is possible that these estimates could increase or decrease asbetter information becomes available. Our accruals represent management’sbest estimate of the probable and reasonably estimable costs and are based, inpart, on estimates obtained from third-party contractors and actual costsincurred to date. Not all plaintiffs have accepted the negotiated settlement,and further court proceedings and additional legal fees and damages may berequired to fully resolve these claims. 

          We are aggressivelypursuing recovery of a significant portion of these costs from our insurancecarriers. During the quarter ended March 31, 2004, we received $5.1 million ininsurance recoveries pertaining ongoing moisture infiltration and resulting moldlitigation. Of this amount, approximately $1.3 million was recorded to otherincome as it pertains to legal and professional fees previously expensed; theremaining $3.8 million was a reduction of previously capitalized costs. We arestill in discussions with our insurance providers and therefore we have notrecorded an estimate for future insurance recoveries. In addition, we arecontinuing to pursue potential recoveries from third parties who we believe bearresponsibility for a considerable portion of the costs we have incurred. Wecannot make assurances that we will obtain these recoveries or that our ultimateliability associated with these claims will not be material to our results ofoperations. 

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

          As a general matter,concern about indoor exposure to mold has been increasing as such exposure hasbeen alleged to have a variety of adverse effects on health. There has been anincreasing number of lawsuits in our industry against owners and managers ofapartment communities relating to moisture infiltration and resulting mold.Whenever we receive a resident complaint concerning moisture infiltration,condensation or mold problems and/or become aware that an air quality concernexists, we implement corrective measures in accordance with guidelines andprotocols we have developed with the assistance of indoor air quality experts.We are working proactively with all of our residents to resolve all moistureinfiltration and mold-related issues. However, we can make no assurance thatadditional material legal claims relating to moisture infiltration and thepresence of, or exposure to, mold will not arise in the future. 

          The terms of our propertyand general liability policies after June 30, 2002, may exclude certainmold-related claims. Should an uninsured loss arise against the company, we maybe required to use our own funds to resolve the issue, including litigationcosts. 

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

          We formally assess, both atinception of the hedge and on an ongoing basis, whether each derivative ishighly effective in offsetting changes in fair values or cash flows of thehedged item. We measure hedge effectiveness by comparing the changes in the fairvalue or cash flows of the derivative instrument with the changes in the fairvalue or cash flows of the hedged item. We exclude the hedging instrument’stime value component when assessing hedge effectiveness. If it is determinedthat a derivative is not highly effective as a hedge or if a derivative ceasesto be a highly effective hedge, we will discontinue hedge accountingprospectively. 

          To determine the fairvalues of derivative and other financial instruments, we use a variety ofmethods and assumptions that are based on market value conditions and risksexisting at each balance sheet date. These methods and assumptions includestandard market conventions and techniques such as discounted cash flowanalysis, option pricing models, replacement cost and termination cost. Allmethods of assessing fair value result in a general approximation of value, andtherefore, are not necessarily indicative of the actual amounts that we couldrealize upon disposition. During 2003, we entered into forward saleagreements with an aggregate notional amount, which represents the fair value ofthe underlying marketable securities, of approximately $128.5 million and anaggregate fair value of the forward sale agreements of approximately $486,000.As of March 31, 2004 the remaining forward sale agreements had an aggregatenotional value of $81.7 million and an aggregate fair value of $76,000. Duringthe three months ended March 31, 2004, we settled one of the forward salesagreements for 1.0 million shares and sold 308,200 shares of marketablesecurities, which were not subject to forward sales agreements, resulting in anaggregate gain of approximately $10.5 million. Settlement of the remaining forward saleagreements will result in additional 2004 gains of approximately $14.9 million 
CriticalAccounting Policies
          We define criticalaccounting policies as those accounting policies that require our management toexercise their most difficult, subjective and complex judgments. Our managementhas discussed the development and selection of all of these critical accountingpolicies with our audit committee, and the audit committee has reviewed thedisclosure relating to these policies. Our critical accounting policies relateprincipally to the following key areas: 

     *Internal Cost Capitalization*
          We have an investmentorganization that is responsible for development and redevelopment of apartmentcommunities. Consistent with GAAP, all direct and certain indirect costs,including interest and real estate taxes, incurred during development andredevelopment activities are capitalized. Interest is capitalized on real estateassets that require a period of time to get them ready for their intended use.The amount of interest capitalized is based upon the average amount ofaccumulated development expenditures and indirect project costs associated withour development and redevelopment activities. Indirect project costs consistprimarily of personnel costs associated with construction administration anddevelopment accounting, legal fees, and various office costs that clearly relateto projects under development. Because the estimation of capitalizable internalcosts requires management’s judgment, we believe internal costcapitalization is a “critical accounting estimate”. 

*     Valuation of Real Estate*
          Long-lived assets to beheld and used are carried at cost and evaluated for impairment when events orchanges in circumstances indicate such an evaluation is warranted. We alsoevaluate assets for potential impairment when we deem them to be held for sale.Valuation of real estate is considered a “critical accountingestimate” because the evaluation of impairment and the determination offair values involve a number of management assumptions relating to futureeconomic events that could materially affect the determination of the ultimatevalue, and therefore, the carrying amounts of our real estate. 

          When determining if thereis an indication of impairment, we estimate the asset’s NOI over theanticipated holding period on an undiscounted cash flow basis and compare thisamount to its carrying value. Estimating the expected NOI and holding periodrequires significant management judgment. If it is determined that there is anindication of impairment for assets to be held and used, or if an asset isdeemed to be held for sale, we then determine the asset’s fair value. 

          The apartment industry usescapitalization rates as the primary measure of fair value. Specifically, annualNOI for a community is divided by an estimated capitalization rate to determinethe fair value of the community. Determining the appropriate capitalization raterequires significant judgment and is typically based on the prevailing rate forthe market or submarket. Further, capitalization rates can fluctuate up or downdue to a variety of factors in the overall economy or within local markets. Ifthe actual capitalization rate for a community is significantly different fromour estimated rate, the impairment evaluation for an individual asset could bematerially affected. Historically we have had limited and infrequent impairmentcharges, and the majority of our apartment community sales have produced gains.We evaluate a real estate asset for potential impairment when events or changesin circumstances indicate that its carrying amount may not be recoverable. 

     *Capital Expenditures and Depreciable Lives*
          We incur costs relating toredevelopment initiatives, revenue enhancing and expense reducing capitalexpenditures, and recurring capital expenditures that are capitalized as part ofour real estate. These amounts are capitalized and depreciated over estimateduseful lives determined by management. We allocate the cost of newly acquiredproperties between net tangible and identifiable intangible assets. The primaryintangible asset associated with an apartment community acquisition is the valueof the existing lease agreements. When allocating cost to an acquired property,we estimate value of the land, building and fixtures assuming the property isvacant and then allocate costs to the intangible value of the existing leaseagreements. We depreciate the building and fixtures based on the expected usefullife of the asset and amortize the intangible value of the lease agreements overthe average remaining life of the existing leases. 

          Determining whetherexpenditures meet the criteria for capitalization, the assignment of depreciablelives and determining the appropriate amounts to allocate between tangible andintangible assets for property acquisitions requires our management to exercisesignificant judgment and is therefore considered a “significant accountingestimate.” 

     *Pursuit Costs*
          We incur costs relating tothe potential acquisition of real estate, which we refer to as pursuit costs. Tothe extent that these costs are identifiable with a specific property and wouldbe capitalized if the property were already acquired, the costs are accumulatedby project and capitalized in the Other Asset section of the balance sheet. Ifthese conditions are not met, the costs are expensed as incurred. Capitalizedcosts include but are not limited to earnest money, option fees, environmentalreports, traffic reports, surveys, photos, blueprints, direct and incrementalpersonnel costs and legal costs. Upon acquisition, the costs are included in thebasis of the acquired property. When it becomes probable that a prospectiveacquisition will not be acquired, the accumulated costs for the property arecharged to other expense on the statement of earnings in the period such adetermination is made. Because of the inherent judgment involved in evaluatingwhether a prospective property will ultimately be acquired, we believecapitalizable pursuit costs are a “critical accounting estimate.” 

     *Moisture Infiltration and Resulting Mold Remediation Costs*
          Accounting for correctionof moisture infiltration and mold remediation costs is considered a“critical accounting estimate” because significant judgment isrequired by management to determine when to record a liability, how much shouldbe accrued as a liability and whether such costs meet the criteria forcapitalization. 

          We estimate and accruecosts related to correcting the moisture infiltration and remediating resultingmold when we anticipate incurring costs because of the threat of litigation orthe assertion of a legal claim. When we incur costs at our own discretion, thecost is recognized as incurred. Moisture infiltration and resulting moldremediation costs are only capitalized when it is determined by management thatsuch remediation costs also extend the life, increase the capacity, or improvethe safety or efficiency of the property relative to when the community wasoriginally constructed or acquired, if later. All other related costs areexpensed. 

          There are considerableuncertainties that affect our ability to estimate the ultimate cost ofcorrection and remediation efforts. These uncertainties include, but are notlimited to, assessing the exact nature and extent of the issues, the extent ofrequired remediation efforts and the varying costs of alternative strategies foraddressing the issues. Any accrual represents management’s best estimate ofthe probable and reasonably estimable costs and is based, in part, on estimatesobtained from third-party contractors and actual costs incurred to date. It ispossible that these estimates could increase or decrease as better informationbecomes available. 

          We accrue for litigationsettlement costs when a loss contingency is both probable and the amount of losscan be reasonably estimated. Estimating the likelihood and amount of a losscontingency requires significant judgment by management and is thereforeconsidered a “critical accounting estimate”. We base these estimateson the best information available as of the end of the period, which includes,but is not limited to, estimates obtained from third-party contractors as wellas actual costs incurred to date. It is possible that these estimates couldincrease or decrease as better information becomes available. We generallyrecognize legal expenses as incurred; however, if such fees are related to theaccrual for a known legal settlement, we accrue for the related incurred andanticipated legal fees at the same time we accrue the cost of settlement. 
Off BalanceSheet Arrangements
          Investments in entities thatare not controlled through majority economic interest are not consolidated andare reported as investments in unconsolidated entities. Our investments inunconsolidated entities consist of $91.3 million in real estatejoint ventures, which generally consists of our percentage ownership in the GAAPequity of the joint ventures. 

          CES is a service businessthat we acquired during the Smith Merger in 2001 and prior to its sale had beenreported as an unconsolidated entity in our financial statements. CES providesengineering services for commercial and residential real estate owners acrossthe country. On December 19, 2002, CES was sold to a third party for $178million in cash. As a condition of sale, we agreed to indemnify the buyer forcertain representations and warranties contained in the sale contract. Theindemnifications terminate on June 30, 2004, and while we do not believe it isprobable that the indemnities will reach the maximum amount, the relatedliability is limited to a maximum exposure of $44.5 million with exceptionsincluding third party claims, insurance, arbitration, environmental issues andcollection of specified accounts receivable, each of which is without deductionor limitation. There are no recourse provisions available to us to recover anypotential future payments from third parties. 

          SMC is a service businessthat we acquired in the Smith Merger during 2001. We sold SMC during February2003 to former members of SMC’s senior management. Prior to the sale, wereported SMC as an unconsolidated entity in our financial statements. Wereceived two notes receivable totaling $5.8 million and bearing an interest rateof 7.0% as consideration for the sale. The first note for $3.5 million hadprincipal payments that began in October 2003 with payment in full by February2008. At March 31, 2004 the balance of this note was $3.3 million. The secondnote for $2.3 million was fully repaid along with all accrued interest dueduring May 2003. For accounting purposes, we will not recognize the divestitureuntil our responsibilities for certain performance guarantees, which pertain toongoing construction projects at the time of sale, expire. Principal andinterest payments received prior to the recognition of this transaction as adivestiture will be recorded as a reduction to our investment basis, which isincluded in other assets in the accompanying condensed consolidated balancesheets. 

          Prior to their sale, weextended approximately $54.7 million in performance bond guarantees relating tocontracts entered into by CES and SMC, which are customary to the type ofbusiness in which these entities engage. As of March 31, 2004, $1.2 million ofthese performance bond guarantees were still outstanding, based upon informationprovided by these companies. Archstone-Smith, our subsidiaries and investeeshave not been required to perform on these guarantees, nor do we anticipatebeing required to perform on such guarantees. Other than for projects pending atthe time of sale and specifically agreed to by the company, we have not extendedperformance bond guarantees to either CES or SMC subsequent to their sale dates.Since we believe that our risk of loss under these contingencies is remote, noaccrual for potential loss has been made in the accompanying financialstatements. There are recourse provisions available to us to recover anypotential future payments from the new owners of CES and SMC. 

          As part of the SmithMerger, we are required to indemnify the former Smith Partnership unitholdersfor any personal income tax expense resulting from the sale of certain high-riseproperties acquired in the Smith Merger. 
ContractualCommitments
          The following tablesummarizes information contained in Management’s Discussion and Analysis ofFinancial Condition and Results of Operations and in our financial statements inthis Form 10-Q regarding contractual commitments (amounts in millions): 
**2005          2007       2009 thru                                                       2004        and 2006      and 2008        2095          Total**                                                  -------------  ------------- ------------- ------------- --------------Scheduled long-term debt maturities...............    $   68.2       $  686.5      $  977.3     $ 2,083.2      $ 3,815.2Unsecured credit facilities (1)...................        54.0          150.0             -             -          204.0Development and redevelopment expenditures........       430.8              -             -             -          430.8Performance bond guarantees (2)...................        27.8            8.7             -           1.1           37.6Lease commitments and other (3)...................         7.3            6.8          12.9         202.5          229.5                                                  -------------  ------------- ------------- ------------- --------------   Total..........................................    $  588.1       $  852.0      $  990.2     $ 2,286.8      $ 4,717.1                                                  =============  ============= ============= ============= ==============
(1)     The $600  million  unsecured  facility  matures  on October  30,  2006,  with a one-year  extension  option  available  at our          discretion.(2)     The Operating Trust, our subsidiaries and investees have not been required to perform on these  guarantees,  nor do we anticipate          being required to perform on such  guarantees.  Since we believe that our risk of loss under these  contingencies  is remote,          no  accrual  for  potential  loss  has been  made in the  accompanying  financial  statements.  We are  still  obligated  for          performance  bond guarantees for CES and SMC subsequent to their sale, but there are recourse  provisions  available to us to          recover any potential future payments from the new owners of CES and SMC.(3)     Lease  commitments  relate  principally to ground lease payments as of December 31, 2003.  There have been no material changes          since that date.Item 3.Quantitative and Qualitative Disclosures About Market Risk
          Our capital structureincludes the use of both fixed and floating rate debt and we are exposed to theimpact of changes in interest rates. We also use interest rate swap and interestrate cap derivative financial instruments in order to modify interest ratecharacteristics of our debt in an effort to minimize our overall borrowingcosts. We do not utilize these derivative financial instruments for speculativepurposes. To assist us in evaluating our interest rate risk and counter-partycredit risk, we use the services of third party consultants. 

          As a result of our balancesheet management philosophy, we have managed our debt maturities to create arelatively level principal maturity schedule, without significant repaymentobligations in any year. If current market conditions do not permit us toreplace maturing debt at comparable interest rates, we are not exposed tosignificant portfolio level interest rate volatility due to the management ofour maturity schedules. There have been no material changes to our market riskprofile since December 31, 2003. See Item 7a in our 2003 Form 10-K for detailedinformation about the qualitative and quantitative disclosures about our marketrisk. 
Item 4.Controls and Procedures
          An evaluation was carriedout under the supervision and with the participation of management, includingour Chief Executive Officer and Chief Financial Officer, of the effectiveness ofour disclosure controls and procedures (as defined in Rule 13a-14(c) under theSecurities Exchange Act of 1934). Based on their evaluation, our Chief ExecutiveOfficer and Chief Financial Officer have concluded that our disclosure controlsand procedures were, to the best of their knowledge, effective as of March 31,2004, to ensure that information required to be disclosed in reports that arefiled or submitted under the Securities Exchange Act are recorded, processed,summarized and reported within the time periods specified in Securities andExchange Commission rules and forms. Subsequent to March 31, 2004, there were nosignificant changes in the Operating Trust’s disclosure controls or inother factors that could significantly affect these controls, including anycorrective actions with regard to significant deficiencies and materialweaknesses. 
PART II– OTHER INFORMATIONItem 1. LegalProceedings
          We are subject to thefollowing claims in connection with moisture infiltration and resulting moldissues at high-rise properties in Southeast Florida. 

*          Henriques, et al. v.Archstone-Smith Operating Trust, et al.,* filed on August 27, 2002 (the“Henriques Claim”), in the Circuit Court of the Eleventh JudicialCircuit in and for Miami-Dade County, Florida, on behalf of a class of residentsat Harbour House. We have reached a court-approved settlement with theplaintiffs in this matter. The case alleged that water infiltration andresulting mold contamination at the property had been caused by faultyair-conditioning and had resulted in both personal injuries to the plaintiffsand damage to their property. Based on the settlement, we have recorded aliability for estimated legal fees associated with known and anticipated costsfor our counsel and plaintiffs’ counsel, as well as estimated settlementcosts. Not all plaintiffs have accepted the court-approved settlement, and someof these individuals have filed separate lawsuits. We are in the process ofdetermining the merits of their claims and therefore, potential legal fees anddamages associated with these claims are not contemplated in our currentaccrual. See Management’s Discussion and Analysis of Financial Conditionsand Results of Operations in this Quarterly Report for further discussion regardingthis accrual. 

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

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

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

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

**Item 2. Changes inSecurities, Use of Proceeds and Issuer Purchases of Equity Securities**
The following table summarizes the A-1 Common Units that were repurchased for either cash or A-2 Common Units:**Total Number of                                                                Units Purchased          Maximum Approximate                                Number of       Average           as Part of            Dollar Value That May                                  Units       Price Paid          Publicily               Yet Be Purchased       Period                   Purchased       per Unit       Announced Plan              Under the Plan**  -----------------          -------------- --------------- ----------------------- -----------------------------  1/1/04-1/31/04                536,684       $  29.35                      -                         -  2/1/04-2/29/04                108,729       $  28.00                      -                         -  3/1/04-3/31/04                 10,296       $  27.35                      -                         -                             --------------                 ----------------------  Total                         655,709              -                      -                             ==============                 ======================Item 6.Exhibits and Reports on Form 8-K
(a)     Exhibits:     12.1     Computation ofRatio of Earnings to Fixed Charges     12.2     Computation ofRatio of Earnings to Combined Fixed Charges and Preferred Unit Distributions     15.1     Letter from KPMGLLP dated May 7, 2004, regarding unaudited financial information     31.1     Certificationof Chief Executive Officer     31.2     Certificationof Chief Financial Officer     32.1     Certificationof Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002     32.2     Certificationof Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of2002(b)     Reports on Form8-K:          None.
**SIGNATURES**
     Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized. 

                                         ARCHSTONE-SMITH OPERATING TRUST                                    BY:     /S/ R. SCOT SELLERS                                                 R. Scot Sellers*Chief Executive Officer                                    BY:     /S/ CHARLES E. MUELLER, JR.                                                 Charles E. Mueller, Jr.*Chief Financial Officer                                               (Principal Financial Officer)*                                    BY:     /S/ MARK A. SCHUMACHER                                                     Mark A. Schumacher*Controller and Senior Vice President                                                  (Principal Accounting Officer)*
Date: May 7, 2004
**EXHIBIT 12.1ARCHSTONE-SMITHOPERATING TRUSTCOMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(Dollaramounts in thousands)(Unaudited)**Three Months Ended                                      March 31,                             Twelve Months Ended December 31,                               -------------------------   ------------ --------------------------------------------------                                 2004(1)      2003(1)        2003(1)      2002(1)      2001(1)     2000(1)      1999(1)**                               ------------ ------------   ------------ ------------ ------------ ----------- ------------Earnings from operations......   $ 36,390     $ 40,820       $ 170,467    $ 199,443    $156,688    $181,534    $ 192,864Add:   Interest expense...........     43,840       38,482         231,222      301,992     205,813     184,969      140,704                               ------------ ------------   ------------ ------------ ------------ ----------- ------------Earnings as adjusted..........   $ 80,230     $ 79,302       $ 401,689    $ 501,435   $ 362,501    $366,503    $ 333,568                               ============ ============   ============ ============ ============ =========== ============Fixed charges:   Interest expense...........   $ 43,840     $ 38,482       $ 231,222    $ 301,992   $ 205,813    $184,969    $ 140,704   Capitalized interest.......      5,915        5,906          26,854       32,377      29,186      37,079       41,099                               ------------ ------------   ------------ ------------ ------------ ----------- ------------     Total fixed charges......   $ 49,755     $ 44,388       $ 258,076    $ 334,369   $ 234,999    $222,048     $181,803                               ============ ============   ============ ============ ============ =========== ============Ratio of earnings to fixedcharges.......................        1.6          1.8             1.6          1.5         1.5         1.7          1.8                               ============ ============   ============ ============ ============ =========== ============
(1)  Net earnings from discontinued operations have been reclassifiedfor all periods presented.

**EXHIBIT 12.2**
ARCHSTONE-SMITHOPERATING TRUSTCOMPUTATIONOF RATIO OF EARNINGS TO COMBINED FIXED CHARGESANDPREFERRED UNIT DISTRIBUTIONS(Dollaramounts in thousands)(Unaudited)**Three Months Ended                                                              March 31,                            Twelve Months Ended December 31,                                                       ------------------------------------------------------------------------------------                                                         2004(1)     2003(1)    2003(1)      2002(1)     2001(1)     2000(1)      1999(1)**                                                       ----------- ----------- ----------- ----------- ------------ ---------- ------------Earnings from operations............................     $ 36,390    $ 40,820   $170,467     $199,443    $156,688    $181,534    $192,864Add:    Interest expense................................       43,840      38,482    231,222      301,992     205,813     184,969     140,704                                                       ----------- ----------- ---------- ------------ ------------ ---------- -----------Earnings as adjusted................................     $ 80,230    $ 79,302   $401,689     $501,435   $ 362,501    $366,503    $333,568                                                       =========== =========== =========== =========== ============ ========== ============Combined fixed charges and Preferred Unitdistributions:    Interest expense................................     $ 43,840    $ 38,482   $231,222     $301,992   $ 205,813    $184,969    $140,704    Capitalized interest............................        5,915       5,906     26,854       32,377      29,186      37,079      41,099                                                       ----------- ----------- ----------- ----------- ------------ ---------- ------------     Total fixed charges............................       49,755      44,388    258,076      334,369     234,999     222,048     181,803                                                       ----------- ----------- ----------- ----------- ------------ ---------- ------------    Preferred Unit distributions....................        4,447       8,358     26,153       34,309      25,877      25,340      23,733                                                       ----------- ----------- ----------- ----------- ------------ ---------- ------------Combined fixed charges and Preferred Unitdistributions.......................................     $ 54,202    $ 52,746   $284,229     $368,678    $260,876    $247,388    $205,536                                                       =========== =========== =========== =========== ============ ========== ============Ratio of earnings to combined fixed charges and    Preferred Unit distributions....................          1.5         1.5        1.4          1.4         1.4         1.5         1.6                                                       =========== =========== =========== =========== ============ ========== ============
(1)  Net earnings from discontinued operations have been reclassified for all periods presented.

**EXHIBIT 15.1**

The Board of Trustees******