JONES LANG LASALLE INC - 10-K Annual Report

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

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d)
of the Securities Act of 1934

For the fiscal year
ended December 31, 2003 Commission File Number 1-13145

JONES LANG LASALLE INCORPORATED
(Exact name of registrant as specified in its charter)

Maryland 36-4150422
(State of organization) (I.R.S. Employer Identification No.)

200 East Randolph Drive, Chicago, IL 60601
(Address of principal executive office) (Zip Code)

Registrant's telephone number, including area code 312/782-5800

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange on
Title of each class which registered
------------------- ------------------------

Common Stock ($.01 par value) New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

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

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

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

The aggregate market value of the voting stock (common stock) held by non-
affiliates of the registrant as of the close of business on June 30, 2003
was $470,346,740.

The number of shares outstanding of the registrant's common stock (par
value $0.01) as of the close of business on March 5, 2004 was 31,858,195,
which includes 700,000 shares held by a subsidiary of the registrant.

Portions of the Registrant's Proxy Statement for its 2004 Annual Meeting of
Shareholders to be held on May 27, 2004 are incorporated by reference in
Part III of this report.

TABLE OF CONTENTS

Page
----
PART I

Item 1. Business. . . . . . . . . . . . . . . . . . . . 1

Item 2. Properties. . . . . . . . . . . . . . . . . . . 20

Item 3. Legal Proceedings . . . . . . . . . . . . . . . 20

Item 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . 21

PART II

Item 5. Market for the Registrant's Common Equity
and Related Shareholder Matters . . . . . . . . 21

Item 6. Selected Financial Data . . . . . . . . . . . . 22

Item 7. Management's Discussion and
Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . 26

Item 7A. Quantitative and Qualitative Disclosures
About Market Risk . . . . . . . . . . . . . . . 58

Item 8. Financial Statements and
Supplementary Data. . . . . . . . . . . . . . . 59

Item 9. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure. . . . . . . . . . . . 141

Item 9A. Controls and Procedures . . . . . . . . . . . . 141

PART III

Item 10. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . . . 141

Item 11. Executive Compensation. . . . . . . . . . . . . 141

Item 12. Security Ownership of Certain
Beneficial Owners and Management. . . . . . . . 141

Item 13. Certain Relationships and
Related Transactions. . . . . . . . . . . . . . 142

Item 14. Principal Accounting Fees and Services. . . . . 143

PART IV

Item 15. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . . 143

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS. . 144

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 146

i

PART I

ITEM 1. BUSINESS

COMPANY OVERVIEW

Jones Lang LaSalle Incorporated ("Jones Lang LaSalle", which may be
referred to as we, us, our, the Company or the Firm) was incorporated in
1997. Its operations presently include the businesses previously known as
LaSalle Partners (founded in 1968) and Jones Lang Wootton (founded in
1783). We are the global leader in real estate services and money
management. We serve our clients' real estate needs locally, regionally
and globally from offices in over 100 markets in 34 countries on five
continents, with approximately 17,300 employees, including approximately
9,200 directly reimbursable property maintenance employees. Our services
include: outsourcing; space acquisition and disposition (tenant
representation); facilities and property management; project and
development management services; consulting; agency leasing; buying and
selling properties; corporate finance; capital markets; hotel advisory; and
valuations. We also provide real estate money management on a global basis
for both public and private assets through LaSalle Investment Management.
Our services are enhanced by our integrated global business model, industry
leading research capabilities, account management focus and operational
excellence.

We have grown by expanding both our client base and the range of our
services and products, as well as through a series of strategic
acquisitions and a merger. Our extensive global platform and in-depth
knowledge of local real estate markets enable us to serve as a single
source provider of solutions for our clients' full range of real estate
needs. We solidified this network of services around the globe through the
merger of the businesses of the Jones Lang Wootton companies ("JLW") with
those of LaSalle Partners Incorporated ("LaSalle Partners") effective
March 11, 1999.

JONES LANG LASALLE HISTORY AND RECENT ACTIVITIES

Prior to our incorporation in Maryland on April 15, 1997 and our
initial public offering (the "Offering") of 4,000,000 shares of common
stock on July 22, 1997, Jones Lang LaSalle conducted business as LaSalle
Partners Limited Partnership and LaSalle Partners Management Limited
Partnership (collectively, the "Predecessor Partnerships"). Immediately
prior to the Offering, the general and limited partners of the Predecessor
Partnerships contributed all of their partnership interests in the
Predecessor Partnerships in exchange for an aggregate of 12,200,000 shares
of common stock.

In October 1998, we acquired all of the common stock of the COMPASS
group of real estate service companies (collectively referred to as
"COMPASS") from Lend Lease Corporation Limited. The acquisition of COMPASS
made us the largest property management services company in the United
States and expanded our international presence into Australia and South
America.

On March 11, 1999, LaSalle Partners merged its business with that of
JLW and changed its name to Jones Lang LaSalle Incorporated. In connection
with the merger, we issued 14.3 million shares of common stock and paid
cash consideration of $6.2 million.

[ graphics indicating -- ]
OUR VALUE MODEL

Performing Consistently and Maximizing Growth

VALUE CREATION
--------------

. Clients

. Employees

. Shareholders

VALUE DRIVERS
-------------

. Integrated Global Services

. Research

. Account Management

. Operational Excellence

. Strong Brand

[insert graphic - Occupiers and Investors encircling and indicating - ]

REAL ESTATE REAL ESTATE
OCCUPIER SERVICES MONEY MANAGEMENT

- Outsourcing - Global Investment
- Tenant Representation Capability
- Facilities Management - Institutional/Retail
- Project & Development Capital
Services - Direct and Indirect
- Consulting Vehicles
- Private & Public
- Income, Value-Add &
Opportunistic Investments

REAL ESTATE CAPITAL MARKETS REAL ESTATE INVESTOR SERVICES

- Investment Banking - Leasing
- Corporate Finance - Property Management
- Acquisitions & Dispositions - Project &
- Financial Restructuring Development Services
- Debt & Equity Raising - Consulting
- Hotel Advisory - Valuations
- Property Auctions

Articulating our range of services and approach to business, our
Value Model offers a graphical definition of our mission:

To deliver exceptional strategic, fully integrated
services and solutions for real estate owners,
occupiers and investors worldwide.

The model describes how we serve clients with four broad sets of
services:

. Real Estate Money Management,
. Real Estate Investor Services,
. Real Estate Capital Markets, and
. Real Estate Occupier Services.

We believe this combination of services, skills and expertise sets us
apart from our competitors. Consultancy practices typically do not share
our implementation capability and market awareness. Investment banking and
investment management competitors generally possess neither our local
market knowledge nor our real estate service capabilities. Traditional real
estate firms lack our financial expertise and experience.

Five key value drivers distinguish our business activities (see
"Competitive Advantages" below):

. our integrated global service platform,
. the quality and worldwide reach of our research function,
. our focus on account management as a means to provide superior
client service,
. our reputation for operational excellence as measured by best
practices and the skills and experience of our people, and
. the strength of our brand.

Our business model is designed to create value: for our clients, our
shareholders and our employees. Based on our established presence in, and
intimate knowledge of real estate and capital markets worldwide, and
supported by our investments in thought leadership, we believe that we
create value for clients by addressing not only their real estate needs,
but also their broader business, strategic, operating and financial goals.
We believe that the ability to create and deliver value drives our own
ability to grow our business and improve profitability and shareholder
value. In doing so, we enable our people to demonstrate their technical
competence and advance their careers by taking on new and increasing
responsibilities as our business expands.

BUSINESS SEGMENTS

We manage our business along a combination of functional and
geographic lines. We report our operations as four business segments: (i)
Investment Management, which offers Real Estate Money Management services
on a global basis, and the three geographic regions of Investor and
Occupier Services ("IOS"): (ii) Americas, (iii) Europe and (iv) Asia
Pacific, each of which offers our full range of Real Estate Investor
Services, Real Estate Capital Markets and Real Estate Occupier Services.
The Investment Management segment provides Real Estate Money Management
services to institutional investors and high-net-worth individuals. The IOS
business consists primarily of tenant representation and agency leasing,
capital markets and valuation services (collectively "implementation
services") and property management, facilities management services, project
and development management services (collectively "management services").
For financial information and a discussion of the operating performance of
each segment, refer to "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS AND NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS".

VALUE DELIVERY - IOS AMERICAS, EUROPE AND ASIA PACIFIC

To address the local, regional and global needs of real estate
investors and occupiers, we provide a full range of integrated property,
project management and transaction services in our regional operating
segments of the Americas, Europe and Asia Pacific. Services are delivered
through multiple delivery teams.

AGENCY LEASING SERVICES executes marketing and leasing programs on
behalf of investors, developers, property companies and public bodies to
secure tenants and negotiate leases with terms that reflect our client's
best interests. In 2003 we completed approximately 8,000 agency leasing
transactions representing approximately 63 million square feet of space.

Agency leasing fees are typically based on a percentage of the value
of the lease revenue commitment for leases consummated.

PROPERTY MANAGEMENT SERVICES provides on-site management services to
real estate investors for office, industrial, retail and specialty
properties. We seek to leverage our market share and buying power to
deliver superior service for clients. Our goal is to enhance our clients'
property values through aggressive day-to-day management focused on
maintaining high levels of occupancy and tenant satisfaction, while
lowering property operating costs. During 2003 we provided on-site Property
Management Services for office, retail, mixed-use and industrial properties
totaling approximately 505 million square feet.

Property management services are typically provided by an on-site
general manager and staff who are supported by regional supervisory teams
and central resources in such areas as training, technical and
environmental services, accounting, marketing and human resources. Our
general managers are responsible for property management activities, client
satisfaction and financial results. They are not compensated by fees or
commissions, but through a combination of base salary and performance bonus
that is directly linked to results produced for clients. Increasingly,
management agreements provide for incentive compensation relating to
operating expense reductions, gross revenue or occupancy objectives, or
tenant satisfaction levels. Consistent with industry custom, management
contract terms typically range from one to three years, but may be canceled
at any time following a short notice period, usually 30 to 60 days.

PROJECT AND DEVELOPMENT SERVICES units provide a variety of services-
- -including interior build-out and conversion management, move management
and strategic occupancy planning services--to tenants of leased space,
owners in self-occupied buildings and owners of real estate investments.
Project and Development Management Service units frequently manage
relocation and build-out initiatives for clients of our Property Management
Services, Corporate Property Services and Tenant Representation Services
units. Project and Development Management Services will also manage all
aspects of development and renovation of commercial projects for our
clients. During 2003 we continued to expand this service to the public
sector, particularly to the military services and educational institutions.

Project and Development Services units are typically compensated on
the basis of negotiated fees. Client contracts are typically multi-year in
duration and may govern a number of discrete projects, with individual
projects being completed in less than one year.

VALUATION SERVICES provides clients with professional valuation
services, helping them determine accurate values for office, retail,
industrial and mixed-use properties. Such services may involve valuing a
single property or a global portfolio of multiple property types.
Valuations, which typically involve commercial property, are completed for
a variety of purposes including acquisitions, dispositions, debt and equity
financings, mergers and acquisitions, securities offerings and
privatization initiatives. Clients include occupiers, investors and
financing sources from the public and private sectors. Our valuation
specialists provide valuation services to clients in nearly every developed
country. During 2003 we performed over 26,500 valuations of properties with
an aggregate value of approximately $254 billion.

Compensation for valuation services is generally negotiated for each
assignment based on its scale and complexity, and typically relates in part
to the value of the underlying assets.

CAPITAL MARKETS SERVICES includes institutional property sales and
acquisitions, real estate financings, private equity placements, portfolio
advisory activities, and corporate finance advice and execution. Combining
local market knowledge with our access to global capital sources, the
Capital Markets Services unit provides clients with superior execution in
raising capital for their real estate assets. By researching, developing
and introducing innovative new financial products and strategies, our
Capital Markets Services units are integral to the business development
efforts of our other businesses. In 2003 we completed institutional
property sales and acquisitions, debt financings and equity placements on
assets and portfolios valued at approximately $18 billion.

Capital Markets Services units are typically compensated on the basis
of the value of transactions completed or securities placed. In certain
circumstances, we receive retainer fees for portfolio advisory services.

TENANT REPRESENTATION SERVICES seeks to develop strategic alliances
with clients to deliver ongoing assistance to meet their real estate needs
and to help clients evaluate and execute transactions to meet their
occupancy requirements. We assist clients by defining space requirements,
identifying suitable alternatives, recommending appropriate occupancy
solutions and negotiating lease and ownership terms with third parties. We
seek to help our clients lower real estate costs, minimize real estate
occupancy risks, improve occupancy control and flexibility, and create more
productive office environments. We employ a multidisciplinary approach to
develop occupancy strategies linked to our clients' core business
objectives. In 2003 we completed over 2,800 tenant representation
transactions involving approximately 49 million square feet.

Compensation for Tenant Representation Services is generally
determined on a negotiated fee basis. Such fees often involve performance
measures related to targets that we and our clients establish prior to
engagement or, in the case of strategic alliances, at annual intervals
thereafter. Quantitative and qualitative measurements are used to assess
performance relative to these goals, and we are compensated accordingly,
with incentive fees often awarded for superior performance.

CORPORATE PROPERTY SERVICES provides comprehensive portfolio and
property management ("facilities management") services to corporations and
institutions that outsource the management of their occupied real estate.
Properties under management range from corporate headquarters to industrial
complexes. During 2003, the Corporate Property Services units provided
facilities management services for approximately 220 million square feet of
real estate. Our target clients typically have large portfolios (usually
over one million square feet) that offer significant opportunities to
reduce costs and improve service delivery. Performance measures are
generally developed to quantify progress made toward mutually determined
goals and objectives. Depending on client needs, the Corporate Property
Services units, either alone or partnering with other business units,
provide services that include portfolio planning, property management,
leasing, tenant representation, acquisition, finance, disposition, project
management, development management and land advisory services.

The Corporate Property Services units are compensated on the basis of
negotiated fees that are typically structured to include a base fee and
performance bonus. We base performance bonus compensation on a quantitative
evaluation of progress toward performance measures and regularly scheduled
client satisfaction surveys. Corporate Property Services agreements are
typically three to five years in duration but are cancelable at any time
upon a short notice period, usually 30 to 60 days, as is typical in the
industry.

STRATEGIC CONSULTING provides clients with specialized, value-added
real estate consulting services and strategies in such areas as mergers and
acquisitions, privatization, development and asset strategy, occupier
portfolio strategy, organizational strategy and work-process design.
Strategic Consulting professionals focus on translating global best
practices into local real estate solutions for clients.

VALUE DELIVERY - REAL ESTATE MONEY MANAGEMENT

Our global real estate money management business, a member of the
Jones Lang LaSalle group, operates under the name of LaSalle Investment
Management. LaSalle Investment Management shapes its strategy around three
priorities:

. developing and executing customized investment strategies
that meet the specific investment objectives of each of our
clients,
. providing superior investment performance, and
. delivering uniformly high levels of services.

We provide real estate money management services to institutional
investors and high net-worth individuals. We seek to establish and
maintain relationships with sophisticated investors who value our global
platform and extensive local market knowledge. As of December 31, 2003,
LaSalle Investment Management managed approximately $23 billion of public
and private real estate assets, making us one of the world's largest
managers of institutional capital invested in real estate assets and
securities.

LaSalle Investment Management serves clients with a broad range of
real estate investment products and services in the public and private
capital markets. These products and services are designed to meet the
differing strategic, risk/return and liquidity requirements of individual
clients. LaSalle Investment Management offers its clients a range of
investment alternatives, including private investments in multiple real
estate property types (e.g., office, retail, industrial and residential),
either through investment funds that LaSalle Investment Management manages
or through single client account relationships ("separate accounts"). We
also offer public indirect investments, primarily in publicly traded Real
Estate Investment Trusts ("REITs") and other real estate equities.

We believe the success of our money management business comes from
our industry-leading research capabilities, innovative investment
strategies, global presence and local market knowledge, and a strong client
focus. We maintain an extensive real estate research department whose
dedicated professionals monitor real estate and capital market conditions
around the world to enhance current investment decisions and identify
future opportunities. In addition to drawing on public sources for
information, our research department utilizes the extensive local presence
of Jones Lang LaSalle professionals throughout the world to gather and
share proprietary insight into local market conditions.

The investment and capital origination activities of our money
management business have grown increasingly global. As of December 31,
2003, 55% of LaSalle Investment Management's assets under management were
invested outside the United States. We expect money management activities
outside the United States, both fund raising and investing, to increase as
a proportion of total capital raised and invested, and we see a growing
trend of cross-border capital movement.

PRIVATE INVESTMENTS IN REAL ESTATE PROPERTIES. To serve our money
management clients, LaSalle Investment Management oversees the acquisition,
management, leasing, financing and divestiture of real estate investments
across a broad range of real estate property types. LaSalle Investment
Management introduced its first institutional investment fund in 1979 and
currently has a series of commingled investment funds, including six funds
that invest in assets in the United States, four funds that invest in
assets located in continental Europe and one fund that invests in assets in
Asia Pacific. LaSalle Investment Management also maintains separate
account relationships with investors for whom LaSalle Investment Management
manages private real estate investments. As of December 31, 2003 LaSalle
Investment Management had approximately $19 billion in assets under
management in these funds and separate accounts.

Some investors prefer to partner with money managers willing to co-
invest their own funds in order to more closely align the interests of the
investor and the investment manager. We believe that our ability to co-
invest funds alongside the investments of clients' funds will continue to
be an important factor in maintaining and continually improving our
competitive position. We also believe that our co-investment strategy will
greatly strengthen our ability to continue to raise capital for new
investment funds. By creating new investment funds, and thereby increasing
assets under management, we also gain the opportunity to provide additional
services related to the acquisition, financing, property management,
leasing and disposition of such assets. At December 31, 2003, we had a
total of $71 million of investments in, and loans to, co-investments.

LaSalle Investment Management conducts its operations with teams of
professionals dedicated to achieving specific client objectives. LaSalle
Investment Management establishes investment committees within each region
whose members have specialized knowledge applicable to underlying
investment strategies. These committees must approve all investment
decisions for private market investments. The investment committee
approval process is employed for LaSalle Investment Management's investment
funds and for all separate account relationships.

LaSalle Investment Management is generally compensated for money
management services for private equity investments based on initial capital
invested and managed, with additional fees tied to investment performance
above benchmark levels. The terms of contracts vary by the form of
investment vehicle involved and the type of service provided. Our
investment funds have various life spans, typically ranging between five
and ten years. Separate account advisory agreements generally have three-
year terms with "at will" termination provisions and may include
compensation arrangements that are linked to the market value of the assets
under management.

INVESTMENTS IN PUBLIC EQUITY AND DEBT SECURITIES. LaSalle Investment
Management also offers clients the ability to invest in separate accounts
focused on public real estate equity and debt securities. LaSalle
Investment Management invests the capital of these clients principally in
publicly traded securities of REITs and property company equities. As of
December 31, 2003, LaSalle Investment Management had approximately $4
billion of assets under management in these types of investments. LaSalle
Investment Management is typically compensated by securities investment
clients on the basis of the market value of assets under management.

COMPETITIVE ADVANTAGES

We believe that the five value drivers articulated in the Jones Lang
LaSalle Value Model create several competitive advantages that have
established us as a leader in the real estate services and real estate
money management industries.

INTEGRATED GLOBAL SERVICES. By offering a wide range of high quality,
complementary services, we can combine our services to develop and
implement real estate strategies that meet the increasingly complex needs
of our clients. We also believe that we have secured an established
business presence in the world's principal real estate markets, with the
result that we can grow revenues without a substantial increase in
infrastructure costs. With offices in over 100 markets in 34 countries on
five continents, we have in-depth knowledge of local and regional markets
and can provide a full range of real estate services around the globe.
This geographic coverage positions us to serve our multinational clients
and manage investment capital on a global basis. In addition, our cross-
selling potential across geographies and product lines creates revenue
sources for multiple business units within Jones Lang LaSalle.

INDUSTRY-LEADING RESEARCH. We invest in and rely on comprehensive
top-down and bottom-up research to support and guide the development of
real estate and investment strategy. Our Global Research Committee oversees
and coordinates the activities of more than 150 research professionals who
cover market and economic conditions in 36 countries around the world.
Jones Lang LaSalle produces more than 300 research publications annually.
Research also plays a key role in keeping colleagues throughout the
organization attuned to important events and changing conditions in world
markets. Dissemination of this information to colleagues is facilitated
through our company-wide intranet.

ACCOUNT MANAGEMENT. We believe that our ability to deliver superior
service to our clients is supported by our ongoing investments in Account
Management and Client Relationships Management. Our goal is to provide
each client with a single point of contact at our firm, an individual who
is answerable to, and accountable for, all the activities we undertake for
the client.

To institutionalize our Account Management orientation, we developed
Total Performance Management, a business philosophy that promotes a
standard of excellence in relationships with clients and colleagues. While
TPM draws from established practices of top-performing organizations, it is
unique to Jones Lang LaSalle. Superior client service is furthered through
best practices in Client Relationship Management, the practice of
soliciting and acting upon regular client feedback, and recognizing each
clients' definition of excellence.

Our client-driven focus enables us to develop long-term relationships
with real estate investors and occupiers. By developing these
relationships, we are able to generate repeat business and create recurring
revenue sources. In many cases we establish strategic alliances with
clients whose ongoing service needs mesh with our ability to deliver fully
integrated real estate services across multiple business units and office
locations. Our relationship focus is supported by an employee compensation
system that we believe is unique in the real estate industry. We
compensate our professionals through a salary and bonus plan designed to
reward client relationship building, teamwork and quality performance,
rather than on a commission basis, which is typical in the industry.

OPERATIONAL EXCELLENCE. We believe that our investments in research,
technology, people and innovation enable us to develop, share and
continually evaluate best practices across our global organization. As a
result, we believe that we are able to deliver the same, consistently high
levels of client service and operational excellence wherever our clients'
real estate investment and services needs take them.

Based on our general industry knowledge and specific client feedback,
we believe we are recognized as an industry leader in technology. We
possess the capability to provide sophisticated information technology
systems on a global basis to serve our clients and support our employees.
For example, the purpose of Delphi+, our client extranet technology, is to
provide clients with a detailed and comprehensive insight into their
portfolios, the markets in which they operate and the services we provide
to them. Delphi, our intranet technology, offers our employees easy access
to the firm's thinking regarding our experience, skills and best practices.

We believe that our investments in research, technology, people and
thought leadership position our firm as a leading innovator in our
industry. Major research initiatives, like our "World Winning Cities"
program and "Global Real Estate Transparency Index," which investigate
emerging trends, help us anticipate future conditions and shape new
services to benefit our clients. Professionals in our Strategic Consulting
practice identify and address shifting market and business trends to
address changing client needs and opportunities. Our Real Estate Money
Management business relies on our comprehensive investigation of global
real estate and capital markets to develop new investment products and
services tailored to the specific investment goals and risk/return
objectives of our clients. We believe that our commitment to innovation
helps us secure and maintain profitable long-term relationships with the
clients we target: the world's leading real estate owners, occupiers and
investors.

STRONG BRAND. Based on our industry knowledge, commissioned
marketing surveys, coverage in top-tier business publications and our
number of long-standing client relationships, we believe that we are widely
recognized by large corporations and institutional investors and occupiers
of real estate as a provider of high quality, professional real estate and
money management services. We believe that the strength of the Jones Lang
LaSalle brand and our reputation for quality services represent significant
advantages when we pursue new business opportunities.

INDUSTRY TRENDS

INCREASING DEMAND FOR GLOBAL SERVICES; GLOBALIZATION OF CAPITAL
FLOWS. Many corporations based in countries around the world have pursued
growth opportunities in international markets. This activity has increased
the demand for global real estate services, including corporate property
services, tenant representation and leasing and property management. We
believe that this trend will favor real estate service providers with the
capability to provide services--and consistently high service levels--in
multiple markets around the world. Additionally, real estate capital flows
have become increasingly global, as more investors seek real estate
investment opportunities beyond their existing borders. This trend has
created new markets for investment managers equipped to facilitate
international real estate capital flows and execute cross-border real
estate transactions.

CONSOLIDATION. The real estate services industry has experienced
significant consolidation in recent years. We believe that as a result of
substantial existing infrastructure investments and the ability to spread
fixed costs over a broader base of business, it is possible to recognize
incrementally higher margins on property management and corporate property
services assignments as the amount of square footage under management
increases.

Large users of commercial real estate services continue to
demonstrate a preference to work with single-source service providers able
to operate across local, regional and global markets. The ability to offer
a full range of services on this scale requires significant corporate
infrastructure investment, including information technology and personnel
training. Smaller regional and local real estate service firms, with
limited resources, are less able to make such investments.

GROWTH OF OUTSOURCING. In recent years, on a global level,
outsourcing of professional real estate services has increased
substantially, as corporations have focused corporate resources, including
capital, on core competencies. In addition, public and other non-corporate
users of real estate, including government agencies and health and
educational institutions, have begun to outsource real estate activities as
a means of reducing costs. As a result, we believe there are significant
growth opportunities for firms like ours that can provide integrated real
estate services across many geographic markets.

ALIGNMENT OF INTERESTS OF INVESTORS AND INVESTMENT MANAGERS.
Institutional investors continue to allocate significant portions of their
investment capital to real estate, and many investors have shown a desire
to commit their capital to investment managers willing to co-invest their
own funds in specific real estate investments or real estate funds. In
addition, investors are increasingly requiring that fees paid to investment
managers be more closely aligned with investment performance. As a result,
we believe that investment managers with co-investment capital, like
LaSalle Investment Management, will have an advantage in attracting real
estate investment capital. In addition, co-investment typically brings with
it the opportunity to provide additional services related to the
acquisition, financing, property management, leasing and disposition of
such investments.

GROWTH STRATEGY

We intend to capitalize on our competitive advantages, the
opportunities created by our global platform and broad product and service
lines, and our solutions approach to the marketplace by pursuing the
following growth strategies:

EXPANDING CLIENT RELATIONSHIPS. Based on our ability to deliver high-
quality real estate services, we have been able to leverage discrete client
assignments successfully into comprehensive relationships that engage
several or all of our business groups. Current industry trends,
particularly the globalization of corporate clients and the increased
outsourcing of real estate services on a global basis, provide a favorable
environment for us to increase the scope of our current client
relationships and develop new relationships through our broad array of
services. We are successfully expanding the strategic alliance approach to
our business units worldwide.

STRENGTHENING INTERNATIONAL PRESENCE. Supported by our extensive
global platform, we plan to add and expand services that are well developed
in particular regions and business units to our other regions and business
units. In particular, we have identified markets in Asia that offer new
client and product growth.

PROVIDING CONSISTENT, HIGH QUALITY SERVICE. The objective of our
Global Client Services unit is to ensure that worldwide operations interact
with each other at the consistently high levels our clients have come to
expect. Through the delivery of high quality service, we aim to expand
current client relationships, grow our business organically and further
strengthen our brand and reputation. Global Client Services also ensures
that our worldwide operations interact efficiently to effect the delivery
of our differentiated value drivers. In addition, Global Client Services
acts as a catalyst to assist professionals across all groups as they market
the multiple services of the firm to existing and prospective clients.

PURSUING CO-INVESTMENT OPPORTUNITIES. We believe that an important
growth driver of our business is our ability to co-invest our funds
alongside those of clients. Some investors continue to favor money managers
who co-invest their own funds in newly formed investment vehicles in order
to more closely align the interests of the investor and the investment
manager. Also, by creating new investment funds, and thereby increasing our
assets under management, we gain the opportunity to provide additional
services related to the acquisition, financing, property management,
leasing and disposition of such assets.

CONTINUING TO DEVELOP TECHNOLOGY. Our technology strategy is to
provide truly integrated, high-value-added information and tools to our
clients and employees worldwide by using proven technology architecture and
advancing innovative technology solutions.

EMPLOYEES

With the help of aggressive goal and performance measurements, we
attempt to instill in all of our people the commitment to be the best. Our
goal is to be the real estate advisor clients want to work with and the
employer of choice in our industry. Our objective is to invest in and
continue to attract, motivate and retain the best people. The following
table details our headcount at December 31, 2003 and 2002:

2003 2002
------ ------
Professional. . . . . . . . . . . . . . . 6,600 5,800
Support . . . . . . . . . . . . . . . . . 1,500 1,600
------ ------
8,100 7,400

Directly reimbursable property
maintenance . . . . . . . . . . . . . . 9,200 9,500

Total Employees . . . . . . . . . . . . . 17,300 16,900
====== ======

Directly reimbursable project
management employees included as
professionals above . . . . . . . . . . 2,100 1,600

The increase in headcount in 2003 is driven by increased outsourcing
engagements, as well as investments in our growing business in India and
China.

The directly reimbursable project management employees work with
clients that have a contracted fee structure comprised of a fixed
management fee as well as a separate component, which allows for scheduled
reimbursable personnel and other expenses to be billed directly to the
client.

Approximately 5,100 and 4,800 of our professional and support staff
in 2003 and 2002, respectively, were based in countries other than the
United States. Approximately 6,200 and 6,500 of our directly reimbursable
property maintenance workers in 2003 and 2002, respectively, were based in
countries other than the United States. None of our employees are members
of any labor union with the exception of approximately 630 of our directly
reimbursable property maintenance employees. We have generally had
satisfactory relations with our employees.

COMPANY WEBSITE

Jones Lang LaSalle's website address is www.joneslanglasalle.com
where we make available, free of charge, our Form 10-K, 10-Q and 8-K
reports as soon as reasonably practicable after electronic filing with the
Securities and Exchange Commission. The Company's Code of Business Ethics,
which applies to all employees of the Company, including our Chairman and
Chief Executive Officer, Chief Financial Officer, Global Controller and
members of our Board of Directors, can also be found on our website. In
addition, the Company intends to post any amendment of, or waiver to, the
Code of Business Ethics with respect to a member of our Board of Directors
or executive officers.

RISKS TO OUR BUSINESS

One of the challenges of a global business such as ours is to be able
to determine in a sophisticated manner the principal risks that in fact
exist and then to determine how best to employ available resources to
prevent, mitigate, and/or minimize those risks having the greatest
potential to occur and which have the greatest potential to cause
significant damage from an operational, financial or reputational
standpoint. An important dynamic that must be overlaid is how much and
what types of commercial insurance to obtain and how much risk may be
uninsured consistent with the infrastructure that is in place within the
organization to identify and properly manage it. While we attempt to
approach these issues in an increasingly sophisticated and coordinated
manner across the globe, our failure to identify or manage the risks that
exist in our business could result in a material adverse effect on our
business, results of operations and financial condition.

GENERAL ECONOMIC CONDITIONS AND REAL ESTATE MARKET CONDITIONS CAN
HAVE A NEGATIVE IMPACT ON OUR BUSINESS. We have recently experienced, and
can expect in the future, to be negatively impacted by periods of economic
slowdown or recession and declines in the demand for real estate. This has
been evidenced by our performance over the course of the last few years.
The real estate market tends to be cyclical and related to the condition of
the economy as a whole or, at least, to the perceptions of investors and
users as to the economic outlook. For example, corporations may be
hesitant to expand space or enter into long-term commitments if they are
concerned with the economic environment. Negative economic conditions and
declines in the demand for real estate in several markets or in significant
markets could have a material adverse effect on our business, results of
operations and financial condition, including as a result of the following
factors:

.. DECLINE IN LEASING ACTIVITY

A decline in leasing activity can lead to a reduction in fees and
commissions for arranging leases, both on behalf of owners and
tenants. Additionally, a decline in leasing activity can lead to a
reduction in the demand for, and fees earned from, other services,
such as Project Development Services (managing the build-out of
space) and Corporate Property Services (managing space occupied by
clients).

.. DECLINE IN ACQUISITION AND DISPOSITION ACTIVITY

A decline in acquisition and disposition activity can lead to a
reduction in fees and commissions for arranging such transactions as
well as fees and commissions for arranging financing for acquirers.

.. DECLINE IN REAL ESTATE INVESTMENT ACTIVITY

A decline in real estate investment activity can lead to a reduction
in investment management fees on the acquisition of property for
clients, as well as in fees and commissions for arranging
acquisitions, dispositions and financings.

.. DECLINE IN THE VALUE AND PERFORMANCE OF REAL ESTATE AND RENTAL RATES

A decline in the value and performance of real estate and in rental
rates can lead to a reduction in investment management fees (the most
significant portion of which generally are based upon the performance
of investments) and the value of co-investments we make with our
investment management clients. Additionally, such declines can lead
to a reduction of fees and commissions which are based upon the value
of, or revenues produced by, the properties with respect to which
services are provided, including fees and commissions for property
management and valuations and for arranging acquisitions,
dispositions, leasing and financings.

THE INTERNATIONAL SCOPE OF OUR OPERATIONS, AND OUR OPERATIONS IN
PARTICULAR REGIONS AND COUNTRIES, INVOLVE A NUMBER OF RISKS FOR OUR
BUSINESS. The fact that we operate in 34 countries presents risks for our
business in a number of ways. If the risks, including the following,
associated with the international scope of our operations and our
operations in particular regions and countries cannot be or are not
successfully managed, our business, operating results and financial
condition could be materially and adversely affected.

.. DIFFICULTIES AND COSTS OF STAFFING AND MANAGING INTERNATIONAL
OPERATIONS; COMMUNICATIONS AND ENFORCEMENT OF OUR POLICIES AND OUR
CODE OF ETHICS

The coordination and management of international operations poses
additional costs and difficulties. We must manage operations in many
time zones and involving people with language and cultural
differences. Our success depends on finding and retaining people
capable of effectively dealing with these challenges and who will
represent the Company with the highest levels of integrity. If we
are unable to attract and retain qualified personnel, our growth may
be limited and our business and operating results could suffer.

Among the challenges we face in retaining our people is to maintain a
compensation system that rewards our people consistent with local
markets and also consistent with our profitability, which can be
especially difficult where competitors may be attempting to gain
market share by hiring our best people at rates of compensation that
are well above the market. We have committed resources to
effectively coordinate our business activities around the world to
meet our clients' needs, whether they be local, regional or global.
We are also in the process of enhancing the organization and
communication of corporate policies, particularly where we determine
that the nature of our business poses the greatest risk of
noncompliance.

When addressing staffing in connection with a restructuring of our
organization or a downturn in economic conditions or activity,
we must take into account the employment laws of the countries in
which actions are contemplated, which in some cases can result in
significant costs and/or time delays in implementing headcount
reductions. Our ability to manage such operational fluctuations and
to maintain adequate long-term strategies in the face of such
developments will be critical to our continued growth and
profitability.

The geographical and cultural diversity in our organization makes it
more challenging to communicate the importance of adherence to our
Code of Business Ethics, to monitor and enforce compliance with
its provisions on a world-wide basis and in order to ensure local
compliance with United States laws that apply globally, such as the
Foreign Corrupt Practices Act and the Patriot Act. We have
introduced an Ethics Everywhere program to address these challenges
and to attempt to maintain a high level of awareness about, and
compliance with, our Code of Business Ethics. Breaches of our Code
of Business Ethics, particularly by our executive management, could
have a material adverse effect on our operating results or financial
condition.

.. CURRENCY RESTRICTIONS AND EXCHANGE RATE FLUCTUATIONS

We produce positive flows of cash in various countries and currencies
which can be most effectively used to fund operations in other
countries or to repay our indebtedness, which is primarily
denominated in euros and U.S. dollars. We face restrictions in
certain countries which limit or prevent the transfer of funds to
other countries or the exchange of the local currency to other
currencies. We also face risks associated with fluctuations in
currency exchange rates which may lead to a decline in the value of
the funds produced in certain jurisdictions.

Additionally, although we operate globally, we report our results in
U.S. dollars and thus our reported results may be positively or
negatively impacted by the strengthening or weakening of currencies
against the U.S. dollar. As an example, the euro, the pound sterling
and the Australian dollar, each a currency used in a significant
portion of our operations, weakened significantly against the U.S.
dollar in 2001 but gradually strengthened over the last nine months
of 2002 and has remained strong in 2003. For the year ended
December 31, 2003, 61.1% of our operating income was attributable to
operations with U.S. dollars as their functional currency, and 38.9%
was attributable to operations having other functional currencies.
In addition to the potential negative impact on reported earnings,
fluctuations in currencies relative to the U.S. dollar may make it
more difficult to perform period-to-period comparisons of the
reported results of operations.

We are authorized to use currency-hedging instruments, including
foreign currency forward contracts, purchased currency options and
borrowings in foreign currency. There can be no assurance that such
hedging will be effective, and an ineffective hedging instrument may
expose us to currency losses.

The following table sets forth the revenues derived from our most
significant currencies (based upon 2003 revenues, $ in millions). The
euro revenues include our businesses in France, Germany, Italy,
Ireland, Spain, Portugal, Holland, Belgium and Luxembourg.

MOST SIGNIFICANT CURRENCIES ON A REVENUE BASIS

2003 2002
------ ------
United States Dollar 368.4 331.7
United Kingdom Pound 196.5 186.0
Euro 164.2 146.9
Australian Dollar 77.8 63.4
Other currencies 142.9 134.6
------ ------
Total Revenues 949.8 862.6
====== ======

.. POTENTIALLY ADVERSE TAX CONSEQUENCES

Moving funds between countries can produce adverse tax consequences
in the countries from which and to which funds are transferred as
well as in other countries, such as the United States, in which we
have operations. Additionally, as our operations are global, we face
challenges in effectively gaining a tax benefit for costs incurred in
one country which benefit our operations in other countries.

.. BURDEN OF COMPLYING WITH MULTIPLE AND POTENTIALLY CONFLICTING LAWS
AND REGULATIONS AND DEALING WITH CHANGES IN LEGAL AND REGULATORY
REQUIREMENTS; LICENSING; REGULATORY AND CONTRACTUAL LIABILITIES

We face a broad range of legal and regulatory environments in the
countries in which we do business. Coordinating our activities to
deal with these requirements presents challenges. As an example, in
the United Kingdom, the Financial Services Authority (FSA) regulates
the conduct of investment businesses and the Royal Institute of
Chartered Surveyors (RICS) regulates the profession of Chartered
Surveyors, which is the professional qualification required for
certain of the services we provide in the United Kingdom, through
upholding standards of competence and conduct. Additionally, changes
in legal and regulatory requirements can impact our ability to engage
in business in certain jurisdictions or increase the cost of doing
so.

The brokerage of real estate sales and leasing transactions requires
us to maintain licenses in various jurisdictions in which we operate.
If we fail to maintain our licenses or conduct brokerage activities
without a license, we may be required to pay fines or return
commissions received or have licenses suspended. In addition,
because the size and scope of real estate sales transactions have
increased significantly during the past several years, both the
difficulty of ensuring compliance with the numerous licensing regimes
and the possible loss resulting from non-compliance have increased.
Furthermore, the laws and regulations applicable to our business,
both in the United States and in foreign countries, also may change
in ways that materially increase the costs of compliance.

As a licensed real estate service provider in various jurisdictions,
we and our licensed employees may be subject to various due
diligence, disclosure and standard-of-care obligations in the
jurisdictions in which we operate. Failure to fulfill these
obligations could subject us to litigation from parties who
purchased, sold or leased properties we brokered or managed. We
could become subject to claims by participants in real estate sales
or other services claiming that we did not fulfill our obligations
as a service provider or broker (including, for example, with
respect to conflicts of interests where we are acting, or are
perceived to be acting, for two or more different clients with
potentially contrary interests).

In addition, we hire and supervise third-party contractors to provide
construction and engineering services for our managed properties.
Under our contracts with clients, we may be subjected to claims for
construction defects or other similar actions. Adverse outcomes of
property management litigation could negatively impact our business,
financial condition or results of operations.

.. GREATER DIFFICULTY IN COLLECTING ACCOUNTS RECEIVABLE IN CERTAIN
COUNTRIES AND REGIONS

We face challenges to our ability to efficiently and/or effectively
collect accounts receivable in certain countries and regions. For
example, in Asia, many countries have underdeveloped insolvency laws
and clients often are slow to pay, and in Europe, clients in some
countries, particularly Spain, Italy and France, also tend to delay
payments, reflecting a different business culture.

.. POLITICAL AND ECONOMIC INSTABILITY

We operate in 34 countries with varying degrees of political and
economic stability. For example, certain Asian, Eastern European and
South American countries have experienced serious political and
economic instability within the last few years and such instability
will likely continue to arise from time to time in countries in which
we have operations.

REAL ESTATE SERVICES MARKETS ARE HIGHLY COMPETITIVE. We provide a
broad range of commercial real estate services and there is significant
competition, on an international, regional and local level with respect to
many of these services and in commercial real estate services generally.
Depending on the service, we face competition from other real estate
service providers, institutional lenders, insurance companies, investment
banking firms, investment managers, accounting firms and companies bringing
their real estate services in-house (any of which may be a global, regional
or local firm). Many of our competitors are local or regional firms, which
although substantially smaller in overall size may be larger in a specific
local or regional market.

We are substantially dependent on long-term client relationships and
on revenue received for services under various service agreements. Many of
these agreements are cancelable by the client for any reason on as little
as 30 to 60 days' notice, as is typical in the industry. In this
competitive market, if we are unable to maintain these relationships or we
are otherwise unable to retain existing clients and develop new clients,
our business, results of operations and financial condition will be
materially adversely affected.

THE SEASONALITY OF OUR BUSINESS EXPOSES US TO RISKS. Our revenues
and profits tend to be significantly higher in the fourth quarter of each
year than the other three quarters. This is a result of a general focus in
the real estate industry on completing transactions by calendar-year-end
and the fact that certain expenses are constant through the year.
Historically, we have reported a small loss in the first quarter, a small
profit or loss in the second and third quarters and a large profit in the
fourth quarter, excluding the recognition of investment generated
performance fees. The seasonality of our business makes it difficult to
determine during the course of the year whether plan results will be
achieved, and thus, to adjust to changes in expectations. Additionally,
negative economic or other conditions which arise at a time when they
impact performance in the fourth quarter may have a more significant impact
than if they occurred earlier in the year. To the extent we are not able
to identify and adjust for changes in expectations or we are confronted
with negative conditions which impact inordinately on the fourth quarter of
a year, this could have a material adverse effect on our business, results
of operations and financial condition.

WE MAY FACE LIABILITY WITH RESPECT TO ENVIRONMENTAL ISSUES OCCURRING
AT PROPERTIES WHICH WE MANAGE, INVEST IN, OR DEAL WITH. Various laws and
regulations impose liability on current or previous real property owners or
operators for the cost of investigating, cleaning up or removing
contamination caused by hazardous or toxic substances at the property. We
may face liability under these laws as a result of our role as an on-site
property manager. In addition, we may face liability if such laws are
applied to expand our limited liability with respect to our co-investments
in real estate as discussed below.

CO-INVESTMENT ACTIVITIES SUBJECT US TO REAL ESTATE INVESTMENT RISKS
AND POTENTIAL LIABILITIES. An important part of our investment strategy
includes investing in real estate along with our money management clients.
Investing in this manner exposes us to a number of risks which could have a
material adverse effect on our business, results of operations and
financial condition, including as a result of the following risks:

.. We may lose some or all of the capital which we invest if the
investments perform poorly.

.. We will have fluctuations in earnings and cash flow as we recognize
gains or losses, and receive cash, upon the disposition of
investments, the timing of which is geared towards the benefit of
our clients.

.. We generally hold our investments in real estate through subsidiaries
with limited liability; however, in certain circumstances it is
possible that this limited exposure may be expanded in the future
based upon, among other things, changes in applicable laws or the
application of existing or new laws. To the extent this occurs, our
liability could exceed the amount we have invested.

.. We make co-investments in real estate in many countries and this
presents risk as described above in "THE INTERNATIONAL SCOPE OF OUR
OPERATIONS, AND OUR OPERATIONS IN PARTICULAR REGIONS AND COUNTRIES,
INVOLVE A NUMBER OF RISKS FOR OUR BUSINESS".

WE HAVE INDEBTEDNESS THAT COULD IMPEDE OUR OPERATIONS AND
FLEXIBILITY. At December 31, 2003, we had $211.4 million of indebtedness
on a consolidated basis. We have borrowed through a euro 165 million
(year-end book value in U.S. dollars of $207.8 million) 9.0% Senior Euro
Notes offering and a $225 million revolving credit facility. Our average
outstanding borrowings under the Euro Notes and revolving credit facility
were $215.3 million during 2003, and the effective interest rate was 8.2%.

We need approximately $18.5 million annually to make required
interest payments on our Euro Notes and the outstanding portion of our
revolving credit facility. If the market conditions prove favorable, we
intend to redeem the Euro Notes in June 2004. If we were to redeem the
Euro Notes in June 2004, we would incur approximately $11.5 million
(dependent upon prevailing exchange rates) of expense, of which
approximately $2.5 million would relate to the non-cash acceleration of
debt issuance costs. The Euro Notes have a fixed rate of interest and the
revolving credit facility has a variable rate based on the market, plus a
margin. The variable rate and margin features of the revolving credit
facility could result in higher borrowing costs if market interest rates or
the margin rise. An increase of 50 basis points in the 2003 average
interest rate on the revolving credit facility would have resulted in a
$135,000 increase in our borrowing cost, less than one cent per share.

The terms of our debt contain a number of covenants that could
restrict our flexibility to finance future operations or capital needs or
to engage in other business activities that may be in our best interest.
The debt covenants limit us in, among other things:

. encumbering or disposing of assets;
. incurring indebtedness;
. engaging in acquisitions; and
. entering into transactions with affiliates.

In addition, the covenants require that we maintain a consolidated
net worth of at least $318 million and a leverage ratio not exceeding 3.0
to 1. We must also maintain a minimum interest coverage ratio of 2.5 to 1
and a minimum fixed charge coverage ratio of 1.1 to 1. There are no
covenants or triggers related to a change in credit rating or a material
adverse change.

If we are unable to make required payments on the Euro Notes or under
the revolving credit facility or if we breach any of the debt covenants, we
will be in default under the terms of the indenture or the revolving credit
agreement, as applicable. A default under either agreement could cause
acceleration of repayment of those amounts as well as defaults under other
existing and future debt obligations.

Regardless of our compliance with the terms of the debt, the
existence of the debt could adversely affect our ability to adjust to
changing market conditions or remain competitive with our competitors.

THE CHARTER AND THE AMENDED BYLAWS OF JONES LANG LASALLE AND THE
MARYLAND GENERAL CORPORATE LAW COULD DELAY, DEFER OR PREVENT A CHANGE OF
CONTROL. The charter and bylaws of Jones Lang LaSalle include provisions
that may discourage, delay, defer or prevent a takeover attempt that may be
in the best interest of shareholders of Jones Lang LaSalle and may
adversely affect the market price of our common stock.

Pursuant to the charter of Jones Lang LaSalle, we have a classified
board of directors, pursuant to which directors are divided into three
classes, with three-year staggered terms. The classified board provision
could increase the likelihood that, in the event an outside party acquired
a controlling block of our capital stock or initiated a proxy contest,
incumbent directors nevertheless would retain their positions for a
substantial period, which may have the effect of discouraging, delaying or
preventing a change in control of Jones Lang LaSalle. In addition, the
charter and bylaws provide for:

.. the ability of the board of directors to establish one or more
classes and series of capital stock including the ability to
issue up to 10,000,000 shares of preferred stock, and to determine
the price, rights, preferences and privileges of such capital stock
without any further shareholder approval;

.. a requirement that any shareholder action taken without a meeting be
pursuant to unanimous written consent; and

.. certain advance notice procedures for Jones Lang LaSalle shareholders
nominating candidates for election to the Jones Lang LaSalle board of
directors.

Under the Maryland General Corporate Law (the "MGCL"), certain
"Business Combinations" (including a merger, consolidation, share exchange
or, in certain circumstances, an asset transfer or issuance or
reclassification of equity securities) between a Maryland corporation and
any person who beneficially owns 10% or more of the voting power of the
corporation's shares or an affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then-outstanding
voting stock of the corporation (an "Interested Shareholder") or an
affiliate of the Interested Shareholder are prohibited for five years after
the most recent date on which the Interested Shareholder became an
Interested Shareholder. Thereafter, any such Business Combination must be
recommended by the board of directors of such corporation and approved by
the affirmative vote of at least (1) 80% of the votes entitled to be cast
by holders of outstanding voting shares of the corporation and (2) 66-2/3%
of the votes entitled to be cast by holders of outstanding voting shares of
the corporation other than shares held by the Interested Shareholder with
whom the Business Combination is to be effected, unless, among other
things, the corporation's shareholders receive a minimum price (as defined
in the MGCL) for their shares and the consideration is received in cash or
in the same form as previously paid by the Interested Shareholder for its
shares. Pursuant to the MGCL, these provisions also do not apply to
Business Combinations which are approved or exempted by the board of
directors of the corporation prior to the time that the Interested
Shareholder becomes an Interested Shareholder.

CLAIMS AND INVESTIGATIONS; LITIGATION MANAGEMENT. Substantial legal
liability or a significant regulatory action against the Company could have
a material adverse financial effect or cause us significant reputational
harm, which in turn could seriously harm our business prospects. We
generally provide our services under contracts and in many cases subject to
regulatory and fiduciary obligations (which may relate to, among other
matters, the decisions we may make on behalf of a client with respect to
purchasing products or services from third parties or from other divisions
within our firm). We face legal and reputational risks in the event we do
not perform, or are perceived to have not performed, under those contracts
or in accordance with those regulations or obligations, and the precautions
we take to prevent these types of occurrences, which we believe do
represent a significant commitment of corporate resources, may nevertheless
not be effective in all cases.

Since any disputes we have with third parties must generally be
adjudicated within the jurisdiction in which the dispute arose, our ability
to resolve our disputes successfully depends on the local laws that apply
and the operation of the local judicial system, the timeliness, quality and
sophistication of which varies widely from one jurisdiction to the next.
Our geographical diversity therefore makes it unusually challenging to
resolve any such disputes efficiently and/or effectively.

INFRASTRUCTURE DISRUPTIONS. Our ability to conduct a global business
may be adversely impacted by a disruption in the infrastructure that
supports our businesses and the communities in which they are located. This
may include a disruption involving electrical, communications,
transportation or other services used by Jones Lang LaSalle or third
parties with which we conduct business or disruptions as the result of
political instability or terrorist attacks. These disruptions may occur,
for example, as a result of events that affect only the buildings in which
we operate or of such third parties, or as a result of events with a
broader impact on the cities where those buildings are located. Nearly all
of our employees in our primary locations, including Chicago, London,
Singapore and Sydney, work in close proximity to each other, in one or more
buildings. If a disruption occurs in one location and our employees in that
location are unable to communicate with or travel to other locations, our
ability to service and interact with our clients may suffer and we may not
be able to successfully implement contingency plans that depend on
communication or travel.

SYSTEMS. Our business is highly dependent on our ability to process
transactions across numerous and diverse markets in many currencies. If any
of our financial, accounting or other data processing systems do not
operate properly or are disabled, we could suffer a disruption of our
businesses, liability to clients, regulatory intervention or reputational
damage. These systems may fail to operate properly or become disabled as a
result of events that are wholly or partially beyond our control, including
a disruption of electrical or communications services disruptions caused by
political instability or terrorist attack or our inability to occupy one or
more of our buildings.

EMPLOYEE MISCONDUCT. Like any business, we run the risk that
employee fraud or other misconduct could occur. It is not always possible
to deter employee misconduct and the precautions we take to prevent and
detect this activity may not be effective in all cases. We do have a
strong ethics policy, which is articulated in our Code of Business Ethics.
We reinforce our commitment to sound ethics through employee communication
and we are increasing our training efforts in this area.

ITEM 2. PROPERTIES

Our principal holding company headquarters are located at 200 East
Randolph Drive, Chicago, Illinois, where we currently occupy over 100,000
square feet of office space pursuant to a lease that expires in February
2006. Our principal operational headquarters are located at 22 Hanover
Square, London, England where approximately 83,000 square feet are occupied
under a lease expiring in December 2008. Regional headquarters are located
in Chicago, London and Singapore. We have 109 local offices worldwide
located in most major cities and metropolitan areas as follows: 33 offices
in 5 countries in the Americas (including 25 in the United States), 47
offices in 17 countries in Europe and 29 offices in 12 countries in Asia
Pacific. Our offices are each leased pursuant to agreements with terms
ranging from month-to-month to ten years. In addition, we have on-site
property and other offices located throughout the world. On-site property
management offices are generally located within properties that we manage
and are provided without cost.

ITEM 3. LEGAL PROCEEDINGS

The Company has contingent liabilities from various pending claims
and litigation matters arising in the ordinary course of business, some of
which involve claims for damages that are substantial in amount. Many of
these matters are covered by insurance, although they may nevertheless be
subject to large deductibles or retentions and the amounts being claimed
may exceed the available insurance. Although the ultimate liability for
these matters cannot be determined, based upon information currently
available, we believe the ultimate resolution of such claims and litigation
will not have a material adverse effect on our financial position, results
of operations or liquidity.

On November 8, 2002, Bank One N.A. ("Bank One") filed suit against
the Company and certain of its subsidiaries in the Circuit Court of Cook
County, Illinois with regard to services provided in 1999 and 2000 pursuant
to three different agreements relating to facility management, project
development and broker services. The suit generally alleged negligence,
breach of contract and breach of fiduciary duty on the part of Jones Lang
LaSalle and sought to recover a total of $40 million in compensatory
damages and $80 million in punitive damages. On December 16, 2002, the
Company filed a counterclaim for breach of contract seeking payment of
approximately $1.2 million for fees due for services provided under the
agreements. On December 16, 2003, the court granted the Company's motion
to strike the complaint because, after completion of significant discovery,
Bank One has been unable to substantiate its allegations that it suffered
damages of $40 million as it had previously claimed. Bank One was
authorized to file an amended complaint that seeks to recover compensatory
damages in an unspecified amount, plus an unspecified amount of punitive
damages. The amended complaint also includes allegations of fraudulent
misrepresentation, fraudulent concealment and conversion. The Company
continues to aggressively defend the suit. While there can be no
assurance, the Company continues to believe that the complaint is without
merit and, as such, will not have a material adverse impact on our
financial position, results of operations, or liquidity. As of the date of
this report, we are in the process of discovery and no trial date has been
set. As such, although we still have not seen or heard anything that leads
us to believe that the suit has merit, the outcome of Bank One's suit
cannot be predicted with any certainty and management is unable to estimate
an amount or range of potential loss that could result if an improbable
unfavorable outcome did occur.

In the third quarter of 2001 we established a reserve of $1.6 million
to cover our exposures resulting from the insolvency of HIH Insurance Ltd.
("HIH"), one of our former insurance providers. HIH provided public
liability coverage to the Australian operations of JLW for the years from
1994 to 1997, which coverage would typically provide protection against,
among other things, personal injury claims arising out of accidents
occurring at properties for which we had property management
responsibilities. As discussed in Note 6 to Notes to Consolidated
Financial Statements, we reduced the reserve by $0.6 million in the second
quarter of 2003. As of December 31, 2003, $0.6 million of the reserve
established remains to cover claims which would have been covered by the
insurance provided by HIH. Although there can be no assurance, we believe
this reserve is adequate to cover any remaining claims and expenses
resulting from the HIH insolvency. Due to the nature of the claims covered
by this insurance, it is possible that future claims may be made.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of Jones Lang LaSalle's
shareholders during the fourth quarter of 2003.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS

Our Common Stock is listed for trading on the New York Stock Exchange
under the symbol "JLL."

As of January 24, 2004, there were approximately 2,600 beneficial
holders of our Common Stock.

The following table sets forth the high and low sale prices of our
Common Stock as reported on the New York Stock Exchange.

2003 High Low
------ ------
First Quarter. . . . . . . . . . . . . . . . . . $16.01 $12.90
Second Quarter . . . . . . . . . . . . . . . . . $17.43 $13.52
Third Quarter. . . . . . . . . . . . . . . . . . $18.91 $15.75
Fourth Quarter . . . . . . . . . . . . . . . . . $21.50 $18.00

2002 High Low
------ ------
First Quarter. . . . . . . . . . . . . . . . . . $22.85 $16.74
Second Quarter . . . . . . . . . . . . . . . . . $24.80 $21.75
Third Quarter. . . . . . . . . . . . . . . . . . $24.70 $18.60
Fourth Quarter . . . . . . . . . . . . . . . . . $21.49 $14.04

We have not paid cash dividends on our common stock to date. We
intend to retain our earnings to support the expansion of the business and
continue to pay down debt levels. Any payment of future dividends and the
amounts thereof will be at the discretion of the Board of Directors and
will depend upon our financial condition, earnings and other factors deemed
relevant by the Board of Directors.

TRANSFER AGENT
Mellon Investor Services LLC
85 Challenger Road
Ridgefield Park, NJ 07760

ITEM 6. SELECTED FINANCIAL DATA (UNAUDITED)

The following table sets forth our summary historical consolidated financial data. The information should
be read in conjunction with our consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included elsewhere herein.

(1) Certain prior year amounts were reclassified to conform with current
presentation.

Beginning in January 2002, we began accounting for the revenues of
our Strategic Consulting unit on a gross basis, as opposed to netting
these revenues into expenses. The Strategic Consulting business unit
was created in 2000, therefore no reclassifications have been made
for the year ended December 31, 1999.

Beginning in December 2002, pursuant to the FASB's Emerging Issues
Task Force ("EITF") No. 01-14, "Income Statement Characterization of
Reimbursements Received for 'Out-of-Pocket' Expenses Incurred", we
have reclassified reimbursements received for out-of-pocket expenses
to revenues in the income statement, as opposed to being shown as a
reduction of expenses. These out-of-pocket expenses amounted to
$5.4 million for the year ended December 31, 2003. Out-of-pocket
expenses were not available for the year ended December 31, 1999
given that it was necessary to reconfigure our reporting systems
to separate these costs, therefore no reclassification has been
made for this year.

Beginning in December 2002, we have reclassified as revenue our
recovery of indirect costs related to our management services
business, as opposed to being classified as a reduction of expenses
in the income statement. This recovery of indirect costs for the
year ended December 31, 2003 totaled $37.8 million. The amounts
related to the recovery of indirect costs in our management services
business were not available for the year ended December 31, 1999
given that it was necessary to reconfigure our reporting systems to
separate these costs, therefore no reclassification has been made
for this year. In addition, the amounts related to the recovery of
these indirect costs in our Asia Pacific region were also not
available for the years ended December 31, 2001 and 2000 given that
it was necessary to reconfigure the reporting systems in this region
to separate these costs.

The following table lists total revenue and expenses as originally
reported in the annual reports for each of the years ended
December 31, 1999 through 2002, and lists the reclassifications as
discussed above, as well as the reclassified amounts ($ in
thousands):

2002 2001 2000 1999
-------- -------- -------- --------
Total revenue:
As originally reported. . $840,429 881,676 925,823 755,439

Reclassifications:
Strategic consulting. . . N/A 10,421 6,113 N/A
Out-of-pocket expenses. . 1,350 4,023 3,245 N/A
Indirect costs. . . . . . 20,792 9,329 7,343 N/A
-------- -------- -------- --------
As reclassified . . . . . . 862,571 905,449 942,524 755,439

Total operating expenses:
As originally reported. . 785,734 868,717 919,420 826,742

Reclassifications:
Strategic consulting. . . N/A 10,421 6,113 N/A
Out-of-pocket expenses. . 1,350 4,023 3,245 N/A
Indirect costs. . . . . . 20,792 9,329 7,343 N/A
-------- -------- -------- --------
As reclassified . . . . . . 807,876 892,490 936,121 826,742
-------- -------- -------- --------
Operating income (loss) . . 54,695 12,959 6,403 (71,303)
======== ======== ======== ========

(2) In December 2002, we exercised our option to purchase the remaining
45% interest in the joint venture company Jones Lang LaSalle Asset
Management Services, which exclusively provides asset management
services for all Skandia Life properties in Sweden. The purchase
price was below the fair value of the assets acquired, resulting in
an after-tax extraordinary gain of $341,000.

(3) The cumulative effect of change in accounting principle in 2000
relates to our adoption of the Securities and Exchange Commission's
("SEC") issuance of Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). Effective
January 1, 2000, we recorded a one-time, non-cash cumulative effect
of change in accounting principle of $14.2 million, net of $8.7
million of taxes. The adjustment represents revenues of $22.9
million that had been recognized prior to January 1, 2000 that would
not have been recognized if the new accounting policy had been in
effect in prior years. See Note 17 in Notes to Consolidated
Financial Statements for a detailed discussion of SAB 101.

The cumulative effect of change in accounting principle in 2002 is
the result of our adoption of Statement No. 142, "Goodwill and Other
Intangible Assets," ("SFAS 142"). As a result of adopting SFAS 142
on January 1, 2002, we credited $846,000 to the income statement, as
the cumulative effect of a change in accounting principle, which
represented our negative goodwill balance at January 1, 2002. See
Note 15 in Notes to Consolidated Financial Statements for a detailed
discussion of SFAS 142.

(4) EBITDA represents earnings before net interest expense, income taxes,
depreciation and amortization and excludes Minority Interests in
EBITDA. For 2002, EBITDA also excludes the cumulative effect of
change in accounting principle, and the extraordinary item. For the
twelve months ended December 31, 2000, EBITDA has been adjusted to
include the cumulative effect of change in accounting principle. We
believe that EBITDA is useful to investors as a measure of operating
performance, cash generation and ability to service debt. EBITDA is
also used in the calculations of certain covenants related to our
revolving credit facility. However, EBITDA should not be considered
as an alternative either to: (i) net earnings (loss) (determined in
accordance with GAAP); (ii) operating cash flow (determined in
accordance with GAAP); or (iii) liquidity.

Reconciliation from operating income (loss) to EBITDA ($ in
thousands):

Year Ended December 31,
----------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Operating income
(loss) $ 62,186 54,695 12,959 6,403 (71,303)
Plus: Deprecia-
tion and
amortization 36,944 37,125 47,420 43,126 36,676
Less: SAB 101
cumulative
effect of
change in
in accounting
principle -- -- -- 22,982 --
Less: Minority
interest in
EBITDA -- 1,098 612 96 --
-------- -------- -------- -------- --------
EBITDA $ 99,130 90,722 59,767 26,451 (34,627)
======== ======== ======== ======== ========

(5) For purposes of computing the ratio of earnings to fixed charges,
earnings represents net earnings (loss) before income taxes plus
fixed charges, less capitalized interest. Fixed charges consist of
interest expense, including amortization of debt discount and
financing costs, capitalized interest and one-third of rental expense
which we believe is representative of the interest component of
rental expense. Due to the merger related non-recurring charges,
earnings were insufficient to cover fixed charges by $89.5 million
for the year ended December 31, 1999.

(6) Investments under management represent the aggregate fair market
value or cost basis (where an appraisal is not available) of assets
managed by our Investment Management segment as of the end of the
periods reflected.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction
with the Selected Financial Data and Consolidated Financial Statements,
including the notes thereto, appearing elsewhere in this Form 10-K. The
following discussion and analysis contains certain forward-looking
statements which are generally identified by the words anticipates,
believes, estimates, expects, plans, intends and other similar expressions.

Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause Jones Lang LaSalle's actual
results, performance, achievements, plans and objectives to be materially
different from any future results, performance, achievements, plans and
objectives expressed or implied by such forward-looking statements. See
Cautionary Note Regarding Forward-Looking Statements below.

Management's Discussion and Analysis is presented in six sections.
The first section provides an executive summary, including how we create
value for our stakeholders. The second section is a summary of our
critical accounting policies and estimates. The third section discusses
certain items affecting the comparability of results and certain market and
other risks that we face. The fourth section analyzes the Results of our
Operations, first on a consolidated basis and then for each of our business
segments. The final two sections address Consolidated Cash Flows and
Liquidity and Capital Resources.

EXECUTIVE SUMMARY

BUSINESS OBJECTIVES AND STRATEGIES

We define our stakeholders as the clients we serve, the people we
employ and the shareholders who invest in our Company. We create value for
these stakeholders by utilizing the expertise of our employees to deliver
services to our clients that are acknowledged as adding value, as witnessed
by the repeat or expanded product requests they make and the strategic
alliances we have formed. The services we provide require "on the ground"
expertise in local real estate markets - expertise provided by research of
market conditions and trends, expertise in buildings and locations, and
expertise in competitive conditions. This real estate expertise is at the
heart of the history and strength of the Jones Lang LaSalle brand. We
enhance this local market expertise with a global team of research
professionals, with the best practice processes we have developed and
delivered repetitively for our clients and by the technology investments
that support these best practices. Our key differentiating factor is our
global reach and service footprint.

Our principal asset is the talent and the expertise of our people.
We seek to support our service based culture through a compensation system
that: (1) rewards superior client service performance, not just transaction
activity, and (2) includes a meaningful long-term compensation component.
We invest in training and believe in optimizing our talent base by internal
advancement. We believe that our people deliver our services with the
experience and expertise to maintain a balance of strong profit margins for
the Firm and competitive value-added pricing for our clients, while
achieving competitive compensation levels.

Our business is services, and therefore we are not capital intensive.
As a result, our profits also produce strong cash returns for our
shareholders. Over the last three years, we have used this cash: to
significantly pay down debt; to invest for growth in important markets in
New York, central and southern Europe, India and North Asia; and to ensure
appropriate compensation levels are maintained in our more developed
markets. We believe value is enhanced by investing appropriately in growth
opportunities, maintaining our market position in developed markets and in
keeping our balance sheet strong.

The services we deliver are managed as business strategies to enhance
the synergies and expertise of our people. As shown by our Value Model, the
principal businesses we are involved in are:

. real estate services,

. real estate outsourcing for corporate clients, and

. money management for investors desiring to invest solely
in real estate assets.

The market knowledge we develop in our real estate services and real estate
outsourcing businesses helps us identify investment opportunities and
capital sources for our money management clients. Consistent with our
fiduciary responsibilities, the investments we make or structure on behalf
of our money management clients help us identify new business opportunities
for our real estate services and real estate outsourcing businesses.

BUSINESSES

REAL ESTATE SERVICES - The real estate services we offer range from
critical but basic process services that enhance real estate values to very
sophisticated and complex transactional services that realize real estate
values and where we compete with consulting and investment banking firms
for corporate finance and capital markets business. The skill set required
to succeed in this environment includes financial knowledge coupled with
the delivery of market and property operating expertise. The critical but
basic services, such as property management, require disciplined operations
and process organizations, on-going technology investment, and strong cash
controls, as the business is a fiduciary for client funds. The revenue
streams associated with these services have annuity characteristics and
tend to be less impacted by underlying economic conditions. We compete in
this area with traditional real estate and property firms. The investment
banking services require client relationship skills and consulting
capabilities as we act as our client's trusted advisor. The level of
demand for these services is impacted by general economic conditions. Our
fee structure is generally transaction specific and conditioned upon the
successful completion of the transaction. We differentiate ourselves on
the basis of qualities such as our global platform, our research
capability, our technology platform, and our ability to innovate via new
products and services.

OUTSOURCING - The outsourcing product offerings have leveraged our
real estate services into best practice operations and process capabilities
that we can offer corporate clients. The value added to clients is a
transformation of their real estate assets into an integral part of their
core business strategies, delivered at more effective cost. The Firm's
client relationship model drives the business success as delivery of one
product successfully sells the next and on-going services. The skill set
required to succeed in this environment includes financial, project
management, and for some products, engineering. We compete in this area
with traditional real estate and property firms. We differentiate ourselves
on the basis of qualities such as our global platform, our research
capability, our technology platform, and our ability to innovate via new
products and services. Our strong strategic focus also provides a highly
effective point of differentiation to our competitors. We have seen the
demand for outsourcing by global corporations increase, and we expect this
trend to continue as these businesses seek to refocus on their core
competencies.

MONEY MANAGEMENT - LaSalle Investment Management provides real estate
money management services for large institutions, both in specialized funds
and separate account vehicles. Investing money on behalf of clients
requires not just asset selection, but also asset value activities to
enhance the asset's performance. The skill set required to succeed in this
environment includes knowledge of real estate values -- opportunity
identification (research), individual asset selection (acquisitions), asset
value creation (portfolio management), and investor relations. Our
competitors in this area tend to be quite different - investment banks,
fund managers and other financial services firms - but they commonly lack
the "on the ground" real estate expertise that our global platform
provides. We are compensated for our services through a combination of
recurring advisory fees that are asset based, together with incentive fees
based on underlying investment return to our clients, which are generally
recognized when agreed upon events or milestones are reached. We have been
successful in transitioning the mix of our fees for this business to the
more annuity revenue category of advisory fees, which were up 12% for the
year. Additionally, our strengthened balance sheet, and continued cash
generation, position us for expansion in co-investment activity, which we
believe will accelerate our growth in assets under management.

SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

An understanding of our accounting policies is necessary for a
complete analysis of our results, financial position, liquidity and trends.

The preparation of our financial statements requires management to make
certain critical accounting estimates that impact the stated amount of
assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amount of revenues
and expenses during the reporting periods. These accounting estimates are
based on management's judgment and are considered to be critical because of
their significance to the financial statements and the possibility that
future events may differ from current judgments, or that the use of
different assumptions could result in materially different estimates. We
review these estimates on a periodic basis to ensure reasonableness.
However, the amounts we may ultimately realize could differ from such
estimated amounts.

REVENUE RECOGNITION - We recognize advisory and management fees in
the period in which we perform the service. Transaction commissions are
recognized as income when we provide the service unless future
contingencies exist. If future contingencies exist, we defer recognition
of this revenue until the respective contingencies are satisfied.
Development management fees are generally recognized as billed, which we
believe approximates the percentage of completion method of accounting.
Incentive fees are generally tied to some form of contractual milestone and
are recorded in accordance with the specific terms of the underlying
compensation agreement. The Securities and Exchange Commission's Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"), as amended by SAB 104, provides guidance on the application of
generally accepted accounting principles to selected revenue recognition
issues. We believe that our revenue recognition policy is appropriate and
in accordance with accounting principles generally accepted in the United
States of America and SAB 101, as amended by SAB 104. We implemented SAB
101 in 2000 and this is discussed more fully in Note 17 to Notes to
Consolidated Financial Statements.

In certain of our businesses, primarily those involving management
services, we are reimbursed by our clients for expenses that are incurred
on their behalf. The treatment of reimbursable expenses for financial
reporting purposes is based upon the fee structure of the underlying
contracts. A contract that provides a fixed fee/billing, fully inclusive
of all personnel or other recoverable expenses that we incur, and not
separately scheduled as such, is reported on a gross basis. This means that
our reported revenues include the full billing to our client and our
reported expenses include all costs associated with the client. When the
fee structure is comprised of at least two distinct elements, namely the
fixed management fee and a separate component which allows for scheduled
reimbursable personnel or other expenses to be billed directly to the
client, we will account for the contract on a net basis. This means we
include the fixed management fee in reported revenues and we net the
reimbursement against expenses. This characterization is based on the
following factors which define us as an agent rather than a principal: (i)
the property owner generally has authority over hiring practices and the
approval of payroll prior to payment by Jones Lang LaSalle; (ii) Jones Lang
LaSalle is the primary obligor with respect to the property personnel, but
bears little or no credit risk under the terms of the management contract;
(iii) reimbursement to Jones Lang LaSalle is generally completed
simultaneously with payment of payroll or soon thereafter; and (iv) Jones
Lang LaSalle generally earns no margin in the arrangement, obtaining
reimbursement only for actual cost incurred. The majority of our service
contracts utilize the latter structure and are accounted for on a net
basis. We have always presented the above reimbursable contract costs on a
net basis in accordance with accounting principles generally accepted in
the United States of America. Such costs aggregated approximately $385
million and $360 million in 2003 and 2002, respectively. This treatment
has no impact on operating income (loss), net income (loss) or cash flows.
Information prior to 2002 is not available given that it was necessary to
reconfigure our reporting systems in 2002 to collect this information as
our global systems did not previously separately report these costs.

ACCOUNTS RECEIVABLE. We estimate the allowance necessary to provide
for uncollectible accounts receivable. This estimate includes specific
accounts for which payment has become unlikely. This estimate is also
based on historical experience, combined with a careful review of current
developments and with a strong focus on credit quality. The process by
which we calculate the allowance begins in the individual business units
where specific problem accounts are identified and reserved as part of an
overall reserve that is formulaic and driven by the age profile of the
receivables. These reserves are then reviewed on a quarterly basis by
regional and global management to ensure that they are appropriate. As part

of this review, a range of potential reserves is developed on a consistent
formulaic basis. Over the last three years we have placed considerable
focus on working capital management and in particular, collecting our
receivables on a more timely basis. As we are successful in doing this, the
range of potential reserves has narrowed and our bad debt expense has
reduced. We would normally expect that the allowance would fall within
this range. The table below sets out certain information regarding our
accounts receivable, allowance for uncollectible accounts receivable, range
of possible allowance and the bad debt expense we incurred by segment for
the last three years ($ in millions).

Accounts Allowance
Receivable for Uncol-
Gross More Than lectible Bad
Accounts 90 Days Accounts Maximum Minimum Debt
Receivable Past Due Receivable Allowance Allowance Expense
---------- ---------- ---------- --------- --------- -------

December 31,
2003
- ------------
Americas
IOS. . . . 87.8 0.8 0.6 0.6 0.3 --
Europe IOS . 104.3 4.0 2.7 3.6 1.8 0.6
Asia
Pacific
IOS. . . . 42.2 2.7 1.3 2.3 1.2 0.9
Investment
Manage-
ment . . . 23.6 0.4 0.2 0.3 0.1 0.1
----- ----- ----- ----- ----- -----
Consoli-
dated. . . 257.9 7.9 4.8 6.8 3.4 1.6
===== ===== ===== ===== ===== =====

December 31,
2002
- ------------
Americas
IOS. . . . 76.9 1.6 1.4 1.5 0.8 1.1
Europe IOS . 78.4 2.9 2.1 2.5 1.3 0.4
Asia
Pacific
IOS. . . . 32.8 2.6 1.5 2.4 1.2 1.3
Investment
Manage-
ment . . . 44.4 0.5 -- 0.5 0.2 (0.5)
----- ----- ----- ----- ----- -----
Consoli-
dated. . . 232.5 7.6 5.0 6.9 3.5 2.3
===== ===== ===== ===== ===== =====

Accounts Allowance
Receivable for Uncol-
Gross More Than lectible Bad
Accounts 90 Days Accounts Maximum Minimum Debt
Receivable Past Due Receivable Allowance Allowance Expense
---------- ---------- ---------- --------- --------- -------

December 31,
2001
- ------------
Americas
IOS. . . . 74.4 1.9 1.2 1.3 0.6 5.7
Europe IOS . 91.4 3.3 2.9 2.9 1.4 1.3
Asia
Pacific
IOS. . . . 36.6 3.0 1.2 2.7 1.4 1.3
Investment
Manage-
ment . . . 26.1 0.5 0.6 0.4 0.2 --
----- ----- ----- ----- ----- -----
Consoli-
dated. . . 228.5 8.7 5.9 7.3 3.6 8.3
===== ===== ===== ===== ===== =====

Included in the $5.7 million bad debt expense for the Americas IOS
segment in 2001 is a charge of $3.9 million for unrecoverable receivables
from technology related clients.

ACCOUNTING FOR INCENTIVE COMPENSATION - An important part of our
overall compensation package is incentive compensation, which is typically
paid out to our employees in the first quarter of the year after it is
earned.

As discussed in Note 13 to Notes to Consolidated Financial
Statements, we have a stock ownership program for certain of our senior
employees pursuant to which they receive a portion of their annual
incentive compensation in the form of restricted stock units of our common
stock. We enhance these restricted shares by 25%. These restricted shares
vest 50% at 18 months from the date of grant (January of the year following
that for which the bonus was earned) and 50% vest at 30 months from the
date of grant. The related compensation cost is amortized to expense over
the service period. The service period consists of the 12 months of the
year to which payment of the restricted stock relates, plus the periods
over which the shares vest. In 2002, we expanded the population of
employees who qualify for the program as part of our goal of broadening
employee stock ownership. In addition, beginning in 2002, the program was
amended to enable employees who currently own certain minimum levels of our
stock to elect not to participate in the program. Given that individual
incentive compensation awards are not finalized until after year-end, we
must estimate the portion of the overall incentive compensation pool that
will qualify for this program. This estimation factors in the performance
of the Company and individual business units, together with the target
bonuses for qualified individuals.

We determine, announce and pay incentive compensation in the first
quarter of the year following that to which the incentive compensation
relates, at which point we true-up the estimated stock ownership program
deferral and related amortization. We believe our methodology in estimating
this deferral produces appropriate results. The table below sets forth
certain information regarding this stock ownership program ($ in millions,
except employee data):

Year Ended December 31,
----------------------------
2003 2002 2001
-------- -------- --------

Number of employees qualified
for the stock ownership program. . . . 700 700 200

Deferral of compensation . . . . . . . . (11.5) (8.8) (4.8)

Enhancement of deferred compensation . . (2.9) (2.2) (1.2)

(Increase) decrease to deferred
compensation in the first quarter
of the following year. . . . . . . . . N/A 0.4 0.2
-------- -------- --------

Total deferred compensation. . . . . . . (14.4) (10.6) (5.8)

Compensation expense amortization
recognized with regard to the current
year stock ownership program . . . . . 4.8 3.8 1.8

Compensation expense amortization
recognized with regard to the
prior years' stock ownership
programs . . . . . . . . . . . . . . . 5.8 4.9 5.0
-------- -------- --------

Total compensation expense
amortization with regard to the
stock ownership programs . . . . . . . 10.6 8.7 6.8
======== ======== ========

ASSET IMPAIRMENT - We apply Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144") to recognize and
measure impairment of long-lived assets. SFAS 144 establishes accounting
and reporting standards for the impairment or disposal of long-lived assets
by requiring that those long-lived assets to be held and used be measured
at the lower of carrying costs or their fair value, and by requiring that
those long-lived assets to be held for sale be measured at the lower of
carrying costs or their fair value less costs to sell, whether reported in
continuing operations or in discontinued operations. We adopted SFAS 144 on
January 1, 2002. The effect of implementing SFAS 144 did not have a
material impact on our consolidated financial statements.

We review long-lived assets, including investments in real estate
ventures, intangibles and property and equipment for impairment on an
annual basis, or whenever events or circumstances indicate the carrying
value of an asset group may not be recoverable. The review of
recoverability is based on an estimate of the future undiscounted cash
flows expected to be generated by the asset group. If impairment exists due
to the inability to recover the carrying value of an asset group, we record
an impairment loss to the extent that the carrying value exceeds the
estimated fair value.

We invest in certain real estate ventures that own and operate
commercial real estate. These investments include non-controlling ownership
interests generally ranging from less than 1% to 47.85% of the respective
ventures. We generally account for these interests under the equity method
of accounting in the accompanying Consolidated Financial Statements due to
the nature of the non-controlling ownership. We apply the provisions of
SFAS 144 when evaluating these investments for impairment, including an
impairment evaluation of the individual assets held by investment funds.
We have recorded impairment charges in equity earnings of $4.1 million in
2003, representing our equity share of the impairment charge against
individual assets held by certain funds. There were no similar charges to
equity earnings in 2002 or 2001. Impairment charges of $3.0 million and
$3.5 million in 2002 and 2001, respectively, related to the exiting of our
Land Investment and Development groups were recorded to non-recurring
expense. For a further discussion of these non-recurring charges see
Note 6 of Notes to Consolidated Financial Statements.

Although the Land Investment Group was closed down in 2001, we
retained certain investments originated by this group. Included in the
value of investments in and loans to real estate ventures as of
December 31, 2003 is the book value of the three remaining Land Investment
Group investments of $2.0 million, net of impairment charges of $3.5
million recorded in prior years. We continue to monitor this portfolio and
have not recorded an impairment charge in 2003. In the third quarter of
2003 we sold one of the remaining assets in the Land Investment portfolio
for no gain or loss. We have provided guarantees associated with this
investment portfolio of $750,000, which we currently do not expect to be
required to fund. We expect to have liquidated the Land Investment Group
investments by the end of 2006.

Although we sold the Development Group in 2001, we retained certain
investments originated by this group. Included in investments in and loans
to real estate ventures as of December 31, 2003 is the book value of the
one remaining Development Group investment of $50,000. We continue to
monitor this investment and have not recorded an impairment charge in 2003.
We expect to have liquidated this investment by the middle of 2004.

During 2001, we reviewed our e-commerce investments on an investment-
by-investment basis, evaluating actual business performance against
original expectations, projected future performance and associated cash
flows, and capital needs and availability. As a result of this evaluation
we determined that our investments in e-commerce were impaired and fully
wrote down these investments by the end of 2001 as part of our non-
recurring charges. It is currently our policy to expense any additional
investments that are made into these ventures in the period they are made
due to the fact that recovery of such sums is uncertain. Any such charges
are recorded as ordinary recurring charges. We expensed a total of
$820,000 and $287,000 in 2003 and 2002, respectively.

Also during 2001, our Asia Pacific region underwent a realignment
from a traditional geographic structure to one that is managed according to
business lines. As part of this realignment, we decided to restructure our
operations to exit an arrangement with a third-party in Indonesia. This
decision resulted in the write-down of a net $1.0 million receivable from
this third-party.

We adopted FASB Statement No. 142, "Goodwill and Other Intangible
Assets," ("SFAS 142") effective January 1, 2002. SFAS 142 requires an
annual impairment evaluation of intangibles with indefinite useful lives.
Additional evaluations may be required if events or circumstances indicate
that the carrying value of an asset group may not be recoverable. To
accomplish this evaluation, we determine the carrying value of each
reporting unit by assigning the assets and liabilities, including the
existing goodwill and intangible assets, to those reporting units as of the
date of evaluation. For purposes of this evaluation we defined reporting
units based on how the Chief Operating Decision Makers (defined as our
Global Executive Committee, which is comprised of our Global Chief
Executive Officer, Global Chief Financial Officer and the Chief Executive
Officers of each of our reporting segments) looked at their segment when
determining strategic business decisions. The following reporting units
were determined: Investment Management, Americas IOS, Australia IOS, Asia
IOS, and by country groups in Europe IOS. We determine the fair value of
each reporting unit on the basis of a discounted cash flow methodology and
compare it to the reporting unit's carrying amount. The result of the 2002
evaluation was that the fair value of each reporting unit exceeded its
carrying amount, and therefore we did not recognize an impairment loss. We
completed the 2003 evaluation in the third quarter and concluded that the
fair value of each reporting unit exceeded its carrying amount and
therefore we did not recognize an impairment loss.

INCOME TAXES - We account for income taxes under the asset and
liability method. Because of the global and cross border nature of our
business, our corporate tax position is complex. We generally provide taxes
in each tax jurisdiction in which we operate based on local tax regulations
and rules. Such taxes are provided on net earnings and include the
provision of taxes on substantively all differences between accounting
principles generally accepted in the United States of America and tax
accounting, excluding certain non-deductible items and permanent
differences.

Our global effective tax rate is sensitive to the complexity of our
operations as well as to changes in the mix of our geographic
profitability, as local statutory tax rates range from 10% to 42% in the
countries in which we have significant operations. We evaluate our
estimated effective tax rate on a quarterly basis to reflect forecast
changes in (i) our geographic mix of income, (ii) legislative actions on
statutory tax rates, (iii) the impact of tax planning to reduce losses in
jurisdictions where we cannot recognize the tax benefit of those losses,
and (iv) tax planning for jurisdictions affected by double taxation. We
continuously seek to develop and implement potential strategies and/or
actions that would reduce our overall effective tax rate. We reflect the
benefit from tax planning actions when we believe it is probable that they
will be successful, which usually requires that certain actions have been
initiated. We provide for the effects of income taxes on interim financial
statements based on our estimate of the effective tax rate for the full
year. The 2003 effective tax rate of 27.7% on recurring operations
excludes (i) a specific tax benefit of $2.2 million related to non-
recurring and restructuring items, and (ii) a tax benefit of $3.0 million
related to a write-down of an e-commerce investment taken as a
restructuring action in 2001, which was not originally expected to be
deductible, but which, as a result of actions undertaken in 2003, was
deemed deductible. The 2002 effective tax rate of 34% on recurring
operations excluded (i) the specific tax benefit of $5.0 million related to
non-recurring and restructuring items, and (ii) a tax benefit of $1.8
million related to certain costs incurred in the restructuring actions
taken in 2001, which were not originally expected to be deductible, but
which, as a result of actions undertaken in 2002, were deemed deductible.

Based on our historical experience and future business plans we do
not expect to repatriate our foreign source earnings to the United States.
As a result, we have not provided deferred taxes on such earnings or the
difference between tax rates in the United States and the various foreign
jurisdictions where such amounts were earned. Further, there are various
limitations on our ability to utilize foreign tax credits on such earnings
when repatriated. As such, we may incur taxes in the United States upon
repatriation without credits for foreign taxes paid on such earnings.

We have established valuation allowances against the possible future
tax benefits of current losses where expected future taxable income does
not support the realization of the deferred tax assets. We formally assess
the likelihood of being able to utilize current tax losses in the future on
a country by country basis, with the determination of each quarter's income
tax provision; and we establish or increase valuation reserves upon
specific indications that the carrying value of a tax asset may not be
recoverable, or alternatively we reduce valuation reserves upon specific
indications that the carrying value of the tax asset is more likely than
not recoverable or upon the implementation of tax planning strategies
allowing an asset previously determined not realizable to be viewed as
realizable. The table below summarizes certain information regarding the
gross deferred tax assets and valuation allowance for the last three years
($ in millions):
December 31,
-------------------------
2003 2002 2001
----- ---- ----
Gross Deferred Tax Asset . . . . . . . . $84.4 70.0 62.4
Valuation Allowance. . . . . . . . . . . $ 9.0 12.2 12.1

The increases in gross deferred tax assets from 2002 to 2003 and from
2001 to 2002 were the result of tax loss carryovers in all regions, write
downs of investments, other differences in the timing of income recognition
on investments, and currency fluctuation. Gross deferred asset growth in
2002 and 2003 included a significant loss in a previously profitable
jurisdiction, which is expected to return to profitability by 2005 and for
which a valuation reserve was not provided.

We evaluate our segment operating performance before tax, and do not
consider it meaningful to allocate tax by segment. Estimations and
judgments relevant to the determination of tax expense, assets, and
liabilities require analysis of the tax environment and the future
profitability, for tax purposes, of local statutory legal entities rather
than business segments. Our statutory legal entity structure generally does
not mirror the way that we organize, manage and report our business
operations. For example, the same legal entity may include both Investment
Management and IOS businesses in a particular country.

ACCOUNTING FOR SELF-INSURANCE PROGRAMS - In our Americas business,
consistent with other American companies, we have chosen to retain certain
risks regarding workers' compensation and health insurance rather than
purchase third-party insurance. Estimating our exposure to such risks
involves subjective judgments about future developments. We engage the
services of an independent actuary to assist us in quantifying our
potential exposure.

. HEALTH INSURANCE - We chose to self-insure our health benefits
for all U.S. based employees for the first time in 2002,
although we did purchase stop loss coverage to limit our
exposure. We made this decision because we believed that on
the basis of our historic claims experience, the demographics
of our workforce and trends in the health insurance industry,
we would incur reduced expense in self-insuring our health
benefits as opposed to purchasing health insurance through a
third-party. We engage an actuary who specializes in health
insurance to estimate our likely full year cost at the
beginning of the year and expense this cost on a straight-line

basis throughout the year. In the fourth quarter, we employ
the same actuary to estimate the required reserve for unpaid
health costs we would need at year-end, together with an
initial estimate of costs for the following year, which we use
for periodic reporting purposes. With regard to the year-end
reserve, the actuary provides us with a point estimate. We
accrue to that estimate and adjust for a provision for adverse
deviation. Given the nature of medical claims, it may take up
to 24 months for claims to be processed and recorded. During
the third quarter of 2003, our external benefit provider
completed its analysis of the development of the 2002 reserve
estimate from year-end. As a result of this analysis, we
determined that we were over-reserved for our 2002 exposures by
$780,000 and we credited this to expense in the third quarter
of 2003 as a change in estimate. The reserve balances and
current year movements for the 2002 and 2003 programs are as
follows ($ in millions):

Program Year
----------------
2003 2002
------ ------

Reserve at December 31, 2002 . . . . . . $ -- 2.4
Claims paid. . . . . . . . . . . . . . . -- (1.2)
Adjustments to prior year reserves . . . -- (0.8)
Current year program reserves. . . . . . 4.1 --
------ ----
Reserves at December 31, 2003. . . . . . $ 4.1 0.4
====== ====

The table below sets out certain information related to the
cost of this program for the years ended December 31, 2003 and
2002 ($ in millions):
2003 2002
------ ------
Expense to company . . . . . . . . . . . $ 12.0 12.2
Adjustment to prior year reserve . . . . (0.8) --
------ ------
Total program cost to company. . . . . . $ 11.2 12.2
====== ======

As we had previously purchased health insurance from a
third-party, there were no similar accruals in 2001.

. WORKERS' COMPENSATION INSURANCE - Given our belief, based on
historical experience, that our workforce has experienced lower
costs than is normal for our industry, we have been self-
insured for worker's compensation insurance for a number of
years. On a periodic basis we accrue using the various state
rates based on job classifications and engage an independent
actuary who specializes in worker's compensation to estimate
our exposure based on actual experience. Given the significant
judgmental issues involved in this evaluation, the actuary
provides us a range of potential exposure and we reserve within
that range. The table below sets out the range and our actual
reserve for the last three years ($ in millions):

Maximum Minimum Actual
Reserve Reserve Reserve
------- ------- -------
December 31, 2003. . . $6.8 5.3 6.8
December 31, 2002. . . $6.4 4.9 6.1
December 31, 2001. . . $7.2 5.1 6.4

Given the uncertain nature of claim reporting and settlement
patterns associated with workers' compensation insurance, we
have accrued at the higher end of the range.

. CAPTIVE INSURANCE COMPANY - In order to better manage our
global insurance program, the Company and its predecessor
entities have used a captive insurance company to provide
professional indemnity insurance coverage on a "claims made"
basis to certain of our international operations in addition to
traditional insurance coverage. The maximum risk retained by
this captive insurance company in any one year is pound
sterling 1 million (approximately $1.8 million). Given the
nature of these types of claims, it may take several years for
there to be a resolution of the underlying claims and to
finalize the expense. We are required to estimate the ultimate
cost of these claims. This estimate includes specific claim
reserves that are developed on the basis of a review of the
circumstances of the individual claim. Given that the
timeframe for these reviews may be lengthy, we also provide a
reserve against the current year exposures on the basis of our
historic loss ratio. The table below provides details of the
year-end reserves, which can relate to multiple years, for the
last three years ($ in millions):

December 31, 2003. . . . . . . . . $2.7
December 31, 2002. . . . . . . . . $1.7
December 31, 2001. . . . . . . . . $2.0

COMMITMENTS AND CONTINGENCIES - We are subject to various claims and
contingencies related to lawsuits, taxes and environmental matters as well
as commitments under contractual obligations. Many of these claims are
covered under our current insurance programs, subject to deductibles. We
recognize the liability associated with commitments and contingencies when
a loss is probable and estimable. Our contractual obligations generally
relate to the provision of services by us in the normal course of our
business.

ITEMS AFFECTING COMPARABILITY

NON-RECURRING AND RESTRUCTURING CHARGES

We have incurred significant non-recurring and restructuring charges
for the years ended December 31, 2003, 2002 and 2001. These charges are
made up of the following ($ in millions):
2003 2002 2001
------ ------ ------
Non-Recurring & Restructuring Charges
- -------------------------------------
Impairment of E-commerce Investments . . . . $ -- (0.3) 18.0

Land Investment & Development Group
Impairment Charges . . . . . . . . . . . . -- 3.0 3.5

Insolvent Insurance Providers. . . . . . . . (0.6) -- 1.9

Abandonment of Property Management
Accounting System:
Compensation and Benefits. . . . . . . . 0.1 -- --
Operating, Administrative and Other. . . 5.0 -- --

Merger Related Stock Compensation. . . . . . (2.5) -- --

2001 Global Restructuring Program:
Compensation & Benefits. . . . . . . . . . (0.1) (1.3) 40.1
Operating, Administrative & Other. . . . . -- 0.1 13.7

2002 Global Restructuring Program:
Compensation & Benefits. . . . . . . . . . (2.1) 12.7 --
Operating, Administrative & Other. . . . . 4.6 0.7 --
----- ----- -----
Total Non-Recurring & Restructuring Charges. $ 4.4 14.9 77.2
===== ===== =====

2003 2002 2001
------ ------ ------
Net tax benefit for current year charges . . $ 2.2 5.0 21.3
Net tax benefit for prior year charges . . . 3.0 1.8 --
----- ----- -----
$ 5.2 6.8 21.3
===== ===== =====

See Note 6 to Notes to Consolidated Financial Statements for a more
detailed discussion of these non-recurring and restructuring items.

ADOPTION OF STAFF ACCOUNTING BULLETIN NO. 101, AS AMENDED BY STAFF
ACCOUNTING BULLETIN NO. 104, "REVENUE RECOGNITION IN FINANCIAL STATEMENTS"
("SAB 101")

Effective January 1, 2000, as a result of the implementation of Staff
Accounting Bulletin No. 101, as amended by Staff Accounting Bulletin No.
104, "Revenue Recognition in Financial Statements" ("SAB 101"), we recorded
a one-time, non-cash, after-tax cumulative change in accounting principle
of $14.2 million, net of taxes $8.7 million. This adjustment represented
revenues of $22.9 million that had been recognized prior to January 1, 2000
that would not have been recognized if the new accounting policy had been
in effect in the years prior to 2000. With the exception of $500,000 of
revenues related to the land investment business, a business we exited in
2001, these revenues were fully recognized by December 31, 2002 as the
underlying contingencies were satisfied. We recognized $400,000 and $5.8
million of these revenues in the twelve months ended December 31, 2002 and
2001, respectively, with the balance in the twelve months ended December
31, 2000. We have determined that the subsequent impairment of the
specific land business investment means that the $500,000 of revenues that
were included in this adjustment will not be collected, and therefore will
not be recorded as revenue. This item will have no impact on our earnings
or cash flow. SAB 101 is discussed in detail in Note 17 of Notes to
Consolidated Financial Statements.

ADOPTION OF FASB STATEMENT NO. 142, "GOODWILL AND OTHER INTANGIBLE ASSETS"
("SFAS 142")

We adopted the provisions of SFAS 142 effective January 1, 2002. As
a result of implementing SFAS 142, we recorded an after-tax credit to
earnings representing the cumulative change in accounting principle of
$846,000, which represented the negative goodwill balance at January 1,
2002. For the twelve months ended December 31, 2002, as compared to the
twelve months ended December 31, 2001, the net impact of SFAS 142 was to
cease the amortization of goodwill with indefinite lives. Amortization of
goodwill with indefinite lives was $9.6 million for the twelve months ended
December 31, 2001. SFAS 142 is discussed in detail in Note 15 of Notes to
Consolidated Financial Statements.

LASALLE INVESTMENT MANAGEMENT REVENUES

Our real estate money management business is in part compensated
through the receipt of incentive fees where investment performance exceeds
agreed benchmark levels. Depending upon performance, these fees can be
significant and will generally be recognized when agreed events or
milestones are reached. Equity earnings from unconsolidated ventures may
also vary substantially from period to period for a variety of reasons,
including as a result of; (i) impairment charges, (ii) realized gains on
asset dispositions, or (iii) incentive fees recorded as equity earnings.
The timing of recognition of these items may impact comparability between
quarters, in any one year, or compared to a prior year. The comparability
of these items can be seen in Note 7 to Notes to Consolidated Financial
Statements and is discussed further in Segment Operating Results included
herein.

FOREIGN CURRENCY

We operate in a variety of currencies in 34 countries, but report our
results in U.S. dollars. This means that our reported results may be
positively or negatively impacted by the volatility of currencies against
the U.S. dollar. This volatility makes it more difficult to perform period-
to-period comparisons of the reported U.S. dollar results of operations. As
an example, the euro, the pound sterling and the Australian dollar, each a
currency used in a significant portion of our operations, weakened
significantly against the U.S. dollar in 2001 but gradually strengthened
over the last nine months of 2002 and has remained strong in 2003. This
means that for those businesses located in jurisdictions that utilize these
currencies, the reported U.S. dollar revenues and expenses in 2003
demonstrate an apparent growth rate that is not consistent with the real
underlying growth rate in the local operations. In order to provide more
meaningful period-to-period comparisons of the reported results of
operations in our discussion and analysis of financial condition and
results of operations, we have provided information about the impact of
foreign currencies where we believe that it is necessary. In addition, we
set out below guidance as to the key currencies in which the Company does
business and their significance to reported revenues and operating results.
The operating results sourced in pound sterling and U.S. dollars understate
the profitability of the businesses in the United Kingdom and America
because they include the locally incurred expenses of our global offices in
London and Chicago, respectively, as well as the European regional office
in London. The revenues and operating income of the global investment
management business are allocated to their underlying currency, which means
that this analysis may not be consistent with the performance of the
geographic IOS segments. In particular, as incentive fees are earned by
this business, there may be significant shifts in the geographic mix of
revenues and operating income. The following table sets forth revenues and
operating income (loss) derived from our most significant currencies ($ in
millions, except for exchange rates).

Austra-
Pound lian US
Sterling Euro Dollar Dollar Other Total
-------- ------ ------- ------ ------ ------
Revenues
Q1, 2003 . . $ 37.7 37.2 13.7 70.0 29.3 187.9
Q2, 2003 . . $ 43.9 36.5 18.7 75.9 38.6 213.6
Q3, 2003 . . $ 50.7 36.7 19.6 84.0 27.1 218.1
Q4, 2003 . . $ 64.2 53.8 25.8 138.5 47.9 330.2
------ ------ ------ ------ ------ ------
$196.5 164.2 77.8 368.4 142.9 949.8
====== ====== ====== ====== ====== ======

Q1, 2002 . . $ 34.9 32.7 12.4 63.3 26.6 169.9
Q2, 2002 . . $ 47.1 32.2 16.5 70.2 33.8 199.8
Q3, 2002 . . $ 43.6 35.7 17.1 89.7 30.4 216.5
Q4, 2002 . . $ 60.4 46.3 17.4 108.5 43.8 276.4
------ ------ ------ ------ ------ ------
$186.0 146.9 63.4 331.7 134.6 862.6
====== ====== ====== ====== ====== ======

Austra-
Pound lian US
Sterling Euro Dollar Dollar Other Total
-------- ------ ------- ------ ------ ------

Operating Income
(Loss)
Q1, 2003 . . $ (2.6) 2.9 (1.4) (2.4) (3.4) (6.9)
Q2, 2003 . . $ (0.4) 0.1 (4.1) 1.9 5.3 2.8
Q3, 2003 . . $ 4.8 1.9 0.7 7.4 1.2 16.0
Q4, 2003 . . $ 7.1 3.9 2.4 31.1 5.8 50.3
------ ------ ------ ------ ------ ------
$ 8.9 8.8 (2.4) 38.0 8.9 62.2
====== ====== ====== ====== ====== ======

Q1, 2002 . . $ (2.5) 3.8 (2.5) (1.0) (1.9) (4.1)
Q2, 2002 . . $ 7.2 (0.2) (0.3) 2.9 2.7 12.3
Q3, 2002 . . $ 1.8 2.6 0.4 13.8 (0.8) 17.8
Q4, 2002 . . $ 9.0 1.3 5.7 10.5 2.2 28.7
------ ------ ------ ------ ------ ------
$ 15.5 7.5 3.3 26.2 2.2 54.7
====== ====== ====== ====== ====== ======

Average Exchange
Rates (U.S. dollar equivalent of one foreign currency unit)
Q1, 2003 . . 1.600 1.075 0.595 N/A N/A N/A
Q2, 2003 . . 1.624 1.140 0.644 N/A N/A N/A
Q3, 2003 . . 1.617 1.130 0.656 N/A N/A N/A
Q4, 2003 . . 1.718 1.202 0.718 N/A N/A N/A

Q1, 2002 . . 1.426 0.877 0.520 N/A N/A N/A
Q2, 2002 . . 1.464 0.924 0.553 N/A N/A N/A
Q3, 2002 . . 1.551 0.985 0.548 N/A N/A N/A
Q4, 2002 . . 1.576 1.004 0.559 N/A N/A N/A

NEW ACCOUNTING STANDARDS

DEFINED BENEFIT PENSION PLAN DISCLOSURES

In December 2003, FASB Statement No. 132 (revised), "Employers'
Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132-
R"), was issued. SFAS 132-R revises the employers' disclosure requirements
regarding defined benefit pension plans contained in the original FASB
Statement No. 132; it does not change the measurement or recognition of
those plans. SFAS 132-R also requires additional disclosures about the
assets, obligations, cash flows, and net periodic benefit cost of these
plans. SFAS 132-R is generally effective for fiscal years ending after
December 15, 2003 for U.S. based plans, and applies to non-U.S. based plans
for fiscal years ending after June 15, 2004. As our defined benefit
pension plans are non-U.S. based plans, the additional disclosure required
under SFAS 132-R will be required in our annual report for the year ended
December 31, 2004.

ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS

We adopted the provisions of FASB Statement No. 143, "Accounting for
Asset Retirement Obligations" ("SFAS 143"), as of January 1, 2003. SFAS 143
addresses financial accounting and reporting obligations associated with
the retirement of tangible long-lived assets and the associated retirement
costs. The standard applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition,
construction, development and/or normal use of the asset.

SFAS 143 requires that the fair value of the liability for an asset
retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The fair value of the
liability is added to the carrying amount of the associated asset and this
additional carrying amount is depreciated over the life of the asset. The
liability is accreted at the end of each period through charges to
operating expense. If the obligation is settled for other than the
carrying amount of the liability, we will recognize a gain or loss on
settlement. Operating leases for space we occupy in certain of our Asian
markets contain obligations that would require us, on termination of the
lease, to reinstate the space to its original condition. We have assessed
our liability under such obligations as required by the adoption of
SFAS 143. This has not had a material impact on our financial statements.

ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES

As of January 1, 2003, we adopted FASB Statement No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS
146 requires that a liability for costs associated with an exit or disposal
activity be recognized when the liability is incurred rather than when a
company commits to such an activity, and, SFAS 146 also establishes fair
value as the objective for initial measurement of the liability. SFAS 146
is effective for exit or disposal activities that are initiated after
December 31, 2002. The adoption has not had a material impact on our
financial statements.

For the twelve months ended December 31, 2003 we recorded a charge of
$4.6 million to the non-recurring operating, administrative and other
expense for additional lease costs of excess space. In accordance with
SFAS 146, any costs related to the early exit of leases or abandoned new
space have been recorded at the time we ceased use of/abandoned the leased
space.

ACCOUNTING AND DISCLOSURE BY GUARANTORS

We apply FASB Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"), which addresses the disclosure to be
made by a guarantor in its interim and annual financial statements about
its obligations under guarantees. The Company has not entered into, or
modified guarantees pursuant to the recognition provisions of FIN 45 that
have had a significant impact on the financial statements during the twelve
months ended December 31, 2003. Guarantees covered by the disclosure
provisions of FIN 45 are discussed in the "Liquidity and Capital Resources"
contained herein.

CONSOLIDATION OF VARIABLE INTEREST ENTITIES

In January 2003 the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46").
FIN 46 addressed the consolidation by business enterprises of variable
interest entities as defined. FIN 46 applied immediately to variable
interests in variable interest entities created after January 31, 2003. We
have not invested in any variable interest entities created after January
31, 2003. For public enterprises with a variable interest entity created
before February 1, 2003, the FASB modified the application date of FIN 46
to no later than the end of the interim or annual period ending after
December 15, 2003 as it prepared to issue additional guidance.

In December 2003, the FASB issued FASB Interpretation No. 46 (revised
December 2003), "Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51" ("FIN 46-R"), which addresses how a business
enterprise should evaluate whether they have a controlling financial
interest in an entity through means other than voting rights, and
accordingly should consolidate the entity. FIN 46-R replaces FIN 46. We
have not fully assessed the impact of FIN 46-R on our consolidated
financial statements, but do not anticipate its application to be material.

ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF
BOTH LIABILITIES AND EQUITY

In May 2003, the FASB issued Statement No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" ("SFAS 150"). SFAS 150 establishes standards for how an issuer
classifies and measures in its statement of financial position certain
financial instruments with characteristics of both liabilities and equity.
SFAS 150 requires issuers to classify as liabilities (or assets in some
circumstances) three classes of freestanding financial instruments that
embody obligations for the issuer; specifically, (i) a mandatorily
redeemable financial instrument, (ii) an obligation to repurchase the
issuer's equity, (iii) certain obligations to issue a variable number of
shares. SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003. The effective date
has been deferred indefinitely for certain other types of mandatorily
redeemable financial instruments. At this time we do not believe that we
have any financial instruments that are subject to the standards of SFAS
150.

MARKET AND OTHER RISK FACTORS

MARKET RISK

The principal market risks (namely, the risk of loss arising from
adverse changes in market rates and prices) to which we are exposed are:

. Interest rates on our multi-currency credit facility; and

. Foreign exchange risks

In the normal course of business, we manage these risks through a
variety of strategies, including the use of hedging transactions using
various derivative financial instruments such as foreign currency forward
contracts. We do not enter into derivative transactions for trading or
speculative purposes.

INTEREST RATES

We centrally manage our debt, considering investment opportunities
and risks, tax consequences and overall financing strategies. We are
primarily exposed to interest rate risk on the $225 million revolving
multi-currency credit facility due in 2006 that is available for working
capital, investments, capital expenditures and acquisitions. This facility
bears a variable rate of interest based on market rates. The interest rate
risk management objective is to limit the impact of interest rate changes
on earnings and cash flows and to lower the overall borrowing costs. To
achieve this objective, in the past we have entered into derivative
financial instruments such as interest rate swap agreements when
appropriate and may do so in the future. We entered into no such
agreements in the years ended December 31, 2003 and 2002, and we had no
such agreements outstanding at December 31, 2003.

The effective interest rate on our debt was 8.2% in 2003, compared to
7.3% in 2002. The increase in the effective interest rate is due to a
change in the mix of our average borrowings being more heavily weighted
towards the higher coupon Euro Notes as a function of the strong cash flow
of the company being used to reduce revolver borrowings which have lower
market interest rates.

A 50 basis point increase in the effective interest rate on the
revolving credit facility would have increased our net interest expense by
$135,000 in 2003 and $370,000 in 2002.

FOREIGN EXCHANGE

Our revenues outside of the United States totaled 61% of our total
revenues in 2003 and in 2002. Operating in international markets means
that we are exposed to movements in these foreign exchange rates, primarily
the British pound (21% of 2003 revenues and 22% of 2002 revenues) and the
euro (17% of 2003 and 2002 revenues). Changes in these foreign exchange
rates would have the largest impact on translating the results our
international operations into U.S. dollars.

The British pound expenses incurred as a result of both our worldwide
operational headquarters and our European region headquarters being located
in London act as a partial operational hedge against our translation
exposure to the British pound. A 10% change in the average exchange rate
for the British pound in 2003 and in 2002 would have impacted our pre-tax
net operating income by approximately $900,000 and $1.5 million,
respectively.

The interest on the euro 165 million of notes we issued during 2000
acts as a partial hedge against the translation exposure on our euro
denominated earnings. The net impact on our earnings before tax of a 10%
change in the average exchange rate for the euro in 2003 would have been
approximately $1 million as compared to $1.5 million in 2002.

We enter into forward foreign currency exchange contracts to manage
currency risks associated with intercompany loan balances. At December 31,
2003, we had forward exchange contracts in effect with a gross notional
value of $244.3 million ($205.4 million on a net basis) with a market and
carrying gain of $3.9 million.

SEASONALITY

Historically, our revenue, operating income and net earnings in the
first three calendar quarters are substantially lower than in the fourth
quarter. Other than for our Investment Management segment, this
seasonality is due to a calendar-year-end focus on the completion of real
estate transactions, which is consistent with the real estate industry
generally. Our Investment Management segment earns performance fees on
clients' returns on their real estate investments. Such performance fees
are generally earned when assets are sold, the timing of which is geared
towards the benefit of our clients. Non-variable operating expenses, which
are treated as expenses when they are incurred during the year, are
relatively constant on a quarterly basis.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002

We operate in a variety of currencies, but report our results in U.S.
dollars, which means that our reported results may be positively or
negatively impacted by the volatility of those currencies against the U.S.
dollar. This volatility means that, the reported U.S. dollar revenues and
expenses in 2003, as compared to 2002, demonstrate an apparent growth rate
that may not be consistent with the real underlying growth rate in the
local operations. In order to provide more meaningful period-to-period
comparisons of the reported results, we have included the below table which
details the movements in certain reported U.S. dollar lines of the
Consolidated Statement of Earnings ($ in millions) (nm = not meaningful).

Increase / % Change
(Decrease) in Local
2003 2002 in U.S. dollars Currency
------ ------ ---------------- --------
Total revenue. . . . . . $949.8 862.6 87.2 10.1% 2.5%
Compensation &
benefits . . . . . . 612.4 543.0 69.4 12.8% 5.2%
Operating, adminis-
trative & other. . . 234.0 212.9 21.1 9.9% 1.9%
Depreciation &
amortization . . . . 36.9 37.1 (0.2) (0.5%) (6.3%)
Non-recurring. . . . . 4.4 14.9 (10.5) nm nm
Total operating
expenses. . . . . . . . 887.7 807.9 79.8 9.9% 2.5%
------ ------ ------ ------ ------

Operating income . . . . $ 62.1 54.7 7.4 13.5% 2.7%
====== ====== ====== ====== ======

REVENUE

The 2.5% local currency increase in revenues in 2003 reflects strong
revenue performance in our Americas and Asia Pacific IOS businesses as
modest economic recoveries started to restore client activity, offset by
weakness in Europe IOS as the economic slowdown continued. See below for
additional discussion of our segment operating results.

OPERATING EXPENSES

The increase in U.S. dollar operating expenses in 2003 reflects the
general strengthening of our key currencies against the U.S. dollar.
Excluding the impact of movements in foreign currency exchange rates, the
increase primarily relates to compensation and benefits which is a result
of positive operational performance in certain markets, investments in
people in growth markets and to maintain market position in core markets,
and an increase in payroll/social taxes as governments (particularly in
Europe) seek to raise their revenues to lower budget deficits. The
improved revenue performance in Americas resulted in increased incentive
compensation in 2003 when compared to 2002. The increase also includes
salary and related payroll and social taxes as we implemented a strategic
growth plan in our North Asia business and supported new fund activities
and products in our Investment Management business through increased
staffing.

We have continued our successful efforts to control operating,
administrative and other costs, which were up only 1.9% in local currency
terms. The 1.9% increase in local currency terms also includes the impact
of increases in costs that are not entirely under our control, such as the
$3.0 million increase in insurance cost we have experienced in 2003, which
reflects the continuing market tightening of cost and availability.
Finally, operating, administrative and other expense in 2002 benefitted
from a credit of $2.0 million relating to the reversal of a specific bad
debt reserve originally established in 1995.

The non-recurring expense for 2003 includes a charge of $5.1 million
related to the abandonment of a property management accounting system that
was in the process of being implemented in Australia, and a charge of $4.4
million for excess leased space where we have decided to utilize our
existing space rather than relocating to new space as originally intended.
Partially offsetting these charges is the reversal of a reserve of $2.5
million for potential social tax liabilities originally established with
regard to compensation connected with the merger with Jones Lang Wootton.
In addition, the combination of new client wins and expanded assignments
for existing clients in the Americas IOS business has resulted in a
permanent reevaluation of planned headcount reductions such that we have
reversed certain reserves established in 2002 for the global restructuring
program. Non-recurring expense in 2002 included $12.7 million related to
the compensation and benefits expense of a reduction in force,
approximately $500,000 for the future lease cost of excess space and $3.0
million of impairment charges related to investments made by business
exited in 2001. See Note 6 to Notes to Consolidated Financial Statements
for a further discussion of non-recurring items.

OPERATING INCOME

The increase in operating income in 2003 is due to 2002 including
$14.9 million in non-recurring expense compared with $4.4 million in 2003.
Excluding this expense, operating income is slightly lower than when
compared to 2002.

INTEREST EXPENSE

Interest expense, net of interest income, increased $837,000 to $17.9
million in 2003 from $17.0 million in 2002. This increase is primarily the
result of the impact of the strengthening euro on the U.S. dollar value of
reported interest expense on the Euro Notes.

PROVISION FOR INCOME TAXES

The provision for income taxes was $8.3 million in 2003 as compared
to $11.0 million in 2002. The decrease in the tax provision is primarily
due to a decreased effective tax rate in 2003 as compared to 2002.

On an operational basis, excluding non-recurring and restructuring
charges which are separately tax effected, we achieved a 27.7% effective
tax rate in 2003 as compared to a rate of 34% in 2002. The decrease in our
effective tax rate is primarily due to effective tax planning to (i) reduce
the impact of losses in jurisdictions where we cannot recognize tax
benefits, (ii) reduce the incidence of double taxation of earnings and
other tax inefficiencies and (iii) planning steps to reduce the effective
rate of taxation on international earnings. The 2003 effective tax rate of
27.7% excludes a one-time tax benefit of $3.0 million, and the 2002
effective tax rate of 34% excludes a one-time tax benefit of $1.8 million.
In both situations these tax benefits related to certain costs incurred in
restructuring actions taken in 2001 that were not originally thought to be
deductible for tax purposes; however as a result of subsequent actions,
these costs are now considered deductible. Including these one-time tax
benefits, we achieved an effective tax rate of 18.6% in 2003 and 29.3% in
2002. See note 11 to Notes to Consolidated Financial Statements for a
further discussion of our effective tax rate.

NET INCOME

Net income before the extraordinary item and cumulative change in
accounting principle increased by $10.2 million to $36.1 million in 2003,
as compared to $25.9 million in 2002. Including the extraordinary gain on
the acquisition of minority interest (a net benefit of $341,000) and the
cumulative change in accounting principle related to the adoption of
SFAS 142 (a net benefit of $846,000), our net income for 2002 was $27.1
million.

SEGMENT OPERATING RESULTS

We manage our business along a combination of functional and
geographic lines. We report our operations as four business segments: (i)
Investment Management, which offers Real Estate Money Management services
on a global basis, and the three geographic regions of Investor and
Occupier Services ("IOS"): (ii) Americas, (iii) Europe and (iv) Asia
Pacific, each of which offers our full range of Real Estate Investor
Services, Real Estate Capital Markets and Real Estate Occupier Services.
The Investment Management segment provides Real Estate Money Management
services to institutional investors and high-net-worth individuals. The IOS
business consists primarily of tenant representation and agency leasing,
capital markets and valuation services (collectively "implementation
services") and property management, facilities management services, project
and development management services (collectively "management services").

We have not allocated non-recurring and restructuring charges to the
business segments for segment reporting purposes and therefore these costs
are not included in the discussions below.

INVESTOR AND OCCUPIER SERVICES

AMERICAS
Increase /
2003 2002 (Decrease)
------ ------ ----------------

Revenue. . . . . . . . . $313.5 290.9 22.6 7.8%
Operating expense. . . . 275.7 258.9 16.8 6.5%
Operating income . . . . 37.8 32.0 5.8 18.1%

The American market began to experience recovery in 2003. Results in
most business lines improved when compared to 2002, the exception being our
New York operations where economic conditions in the leasing market
impacted our results. Overall, we improved our market position in the New
York market and are well-positioned to benefit from any increased activity.

Highlighting the increase in revenues was our Project and Development
Services unit which expanded several multi-site engagements and also
increased the level of its privatization services, which provide public and
private transaction and advisory services to public institutions. A
significant contribution was also made by our Tenant Representation unit
which experienced increased transaction flow with strategic alliance
clients, as well as by the strong performance of our Hotels business.

The increase in operating expense in 2003 primarily relates to
incentive compensation and other business and revenue generation related
costs matching increased business activity. Also contributing to the
increase in expenses is an investment in headcount that has been made to
improve our position in the Canadian market. A focus on maintaining the
quality of our client base, together with aggressive management of our
accounts receivable, resulted in a reduction of bad debt expense of $1.1
million. The rising cost of health insurance prompted us to begin self-
insuring our health benefits in the Americas in 2002, which has allowed us
to stabilize this cost through 2003.

EUROPE
Increase / % Change
(Decrease) in Local
2003 2002 in U.S. dollars Currency
------ ------ ---------------- --------

Revenue. . . . . . . . . $351.1 317.8 33.3 10.5% (3.3%)
Operating expense. . . . 338.1 300.0 38.1 12.7% (1.1%)
Operating income . . . . 13.0 17.8 (4.8) (27.0%) (38.5%)

We began to first see the full impact of challenging economic
conditions on our revenues in Europe in the second half of 2002. These
economic conditions continued into 2003, although on a country by country
basis we have seen a mix of positives offsetting negatives. The core
European markets of Germany, France, Belgium and Holland have experienced
continued revenue declines throughout 2003. Partially offsetting these
declines have been continued positive revenue performances throughout 2003
in the growth markets of Italy, Spain, Portugal, Sweden and Central Europe.
The England market began to show signs of recovery with positive revenue
performance in the fourth quarter. In addition, the European Hotels
business has performed strongly, and achieved record revenue levels in
2003, helped by several large transactions. The most significant impact on
revenues has been the continuing decline of leasing revenues, which in
local currency terms were down 15% year-over-year. The Capital Markets
business, particularly cross border, has remained stable, supported by the
low interest rate environment and strong appetite for real estate as an
investment option.

At this stage in the economic cycle, we are protecting our market
position, particularly in leasing, such that there is limited capacity to
flex our cost structure, especially with regard to compensation cost.
These costs were flat in local currency terms year-over-year as
restructuring savings offset statutory salary increases as well as
increased social taxes. Operating and administrative costs were down in
local currency terms year-on-year, reflecting discipline and focus across
the business in controlling costs in a difficult economic environment.

ASIA PACIFIC
Increase / % Change
(Decrease) in Local
2003 2002 in U.S. dollars Currency
------ ------ ---------------- --------

Revenue. . . . . . . . . $172.7 145.4 27.3 18.8% 9.3%
Operating expense. . . . 175.4 145.6 29.8 20.5% 12.2%
Operating loss . . . . . (2.7) (0.2) (2.5) nm nm

Revenue performance in Asia Pacific was positive, but was held back
by economic conditions in certain markets and the impact of SARS on the
first nine months of the year. Showing signs of recovery, our Hong Kong
business experienced a strong finish to the year. Our North Asia business
continued a trend of positive performance, especially in the growth markets
of Japan, Korea and China. Our India business, benefitting from the growth
market of that country, recorded its first profitable year on revenues that
grew more than $2.8 million, a 120% increase over last year as we saw
global corporate clients invest in this market.

Because of the importance of Asia Pacific to our global corporate
clients we have invested in headcount related costs to maintain service
levels in key markets, particularly North Asia and India. This investment
will continue as we seek to capitalize on the potential of these growing
markets. We have also been required to invest to maintain our market
position in core markets such as Australia.

INVESTMENT MANAGEMENT
Increase / % Change
(Decrease) in Local
2003 2002 in U.S. dollars Currency
------ ------ ---------------- --------

Revenue. . . . . . . . . $113.3 109.0 4.3 3.9% (1.3%)
Operating expense. . . . 94.9 89.0 5.9 6.6% 0.7%
Operating income . . . . 18.4 20.0 (1.6) (8.0%) (10.3%)

The decrease in revenues for our Investment Management business in
local currency terms can be attributed to the timing of incentive fees, as
2002 included a large incentive fee related to the performance of an
investment portfolio in which we have a co-investment. There were no
similarly sized incentive fees in 2003. Partially offsetting the timing
difference was an increase in equity earnings as market conditions and the
increased demand for higher quality institutional real estate prompted us
to accelerate the pace of dispositions in order to respond to capital
market trends and lock in gains for ourselves and on behalf of our clients.

In addition, advisory fees increased 12% as we continued to perform against
our goal of improving the advisory fee base of this business. Revenue in
the American markets was in line with 2002. We continued with expansion
initiatives in Canada, which closed its first fund in 2003. Europe
continued to feel the impact of economic difficulties in continental Europe
which resulted in us recording an impairment charge of $4.1 million to
equity earnings, representing our equity share of an impairment charge
against individual assets held by funds in this region. Asia Pacific
continued to see growth in 2003 with the first separate account mandate in
this region and development of additional fund products that we expect to
crystallize in 2004.

The slight increase in operating expense in local currencies can be
attributed to an increase in operating, administrative and other expense
partially offset by a decrease in incentive compensation. Both movements
can be attributed to timing as 2002 included incentive compensation related
to the large incentive fee mentioned above and the benefit of a $2.0
million credit for the reduction of a bad debt reserve originally
established in 1995. As we continue to expand in the Asia Pacific and
Canadian markets, we will continue to invest the necessary resources to
deliver satisfactory results.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

RECLASSIFICATIONS

Beginning in December 2002, we reclassified as revenue our recovery
of indirect costs related to our management services business, as opposed
to being classified as a reduction of expenses in the income statement. The
amounts related to the recovery of indirect costs for the year ended
December 31, 2002 have been updated in the discussions below. The amounts
related to the recovery of indirect costs in our Asia Pacific region were
not available for the year ended December 31, 2001 as it was necessary to
reconfigure the reporting systems in this region to separate these costs.
For additional discussion of these reclassifications see Note 2 to Notes to
Consolidated Financial Statements.

CONSOLIDATED REVIEW

In order to provide more meaningful period-to-period comparisons of
the reported results we have included the below table which details the
movements in certain reported U.S. dollar lines of the Consolidated
Statement of Earnings ($ in millions):

Increase / % Change
(Decrease) in Local
2002 2001 in U.S. dollars Currency
------ ------ --------------- --------

Total revenue. . . . . $862.6 905.4 (42.8) (4.7%) (7.2%)
Compensation &
benefits . . . . . . 543.0 545.6 (2.6) (0.5%) (2.8%)
Operating,
administrative
& other. . . . . . . 212.9 222.2 (9.3) (4.2%) (6.3%)
Depreciation &
amortization . . . . 37.1 47.4 (10.3) (21.7%) (23.1%)
Non-recurring . . . . 14.9 77.2 (62.3) (80.7%) (81.4%)
Total operating
expenses . . . . . . 807.9 892.4 (84.5) (9.5%) (11.6%)
------ ------ ----- ------ ------
Operating
income . . . . . . . $ 54.7 13.0 41.7 320.8% 262.3%
====== ====== ===== ====== ======

REVENUE

Total revenue, after the elimination of intersegment revenue,
decreased $42.8 million, or 4.7%, to $862.6 million in 2002 from $905.4
million in 2001. Excluding the impact of movements in foreign currency
exchange rates, the 2002 revenue decline was 7.2%, when compared to 2001
results. This reflects the general strengthening of the euro, pound
sterling and Australian dollar against the U.S. dollar when compared to
2001. The reduction in our revenues year-over-year reflected the weak
global economy, but the impact was most significant in the American and
European IOS businesses. The broad based restructuring initiated in the
second half of 2001 was in anticipation of a decline in revenues as we had
not anticipated a turnaround in overall economic conditions until late
2002. However, the severity and persistence of revenue pressures was
greater than we expected.

OPERATING EXPENSES

Total operating expenses, after the elimination of intersegment
expense and excluding the effects of non-recurring charges, decreased $22.2
million, or 2.7% to $793.0 million in 2002 from $815.2 million in 2001. The
impact of the stronger euro, pound sterling and Australian dollar meant
that the effectiveness of our cost reduction initiatives were masked by an
increase in U.S. dollar reported expenses. Excluding the impact of
movements in foreign currency exchange rates, the cost reduction was 4.9%
for 2002. The reduction in expenses was largely the result of (i) the
restructuring actions taken in 2001 to bring ongoing operating expenses in
line with anticipated future business in light of the existing economic
conditions, (ii) continued focus on discretionary costs, and (iii) the
adoption of SFAS 142, which reduced amortization expense by $9.6 million
over 2001. Partially offsetting this was $3.9 million of expenses related
to our New York expansion initiated in late 2002.

Compensation and benefit expense decreased $2.6 million, or 0.5%, to
$543.0 million in 2002 from $545.6 million in 2001. The decrease in
compensation and benefit expense reflected the reduction in headcount as a
result of the restructuring actions taken in 2001. Excluding the impact of
movements in foreign currency exchange rates, compensation and benefit
expense decreased by 2.8%. Incentive compensation increased as a result of
improved performance in some business units as well as a rebuilding of
incentive compensation pools from the low levels in 2001.

Operating expenses, excluding compensation and benefits expense and
non-recurring charges, were down $19.6 million, or 7.3%, to $250.0 million
in 2002 from $269.6 million in 2001, largely due to cost containment
initiatives put in place in 2001. Areas which demonstrated significant
cost savings in 2002 were travel and entertainment, marketing, and
information technology, which benefitted from the renegotiation of our
contract with a third-party support provider. In addition, bad debt
expense was substantially lower, in part due to our ongoing focus on
working capital management, but also because in 2001 we incurred a $3.9
million charge for unrecoverable receivables from technology related
clients. The benefit resulting from adopting SFAS 142 (discussed in
Note 15 to Notes to Consolidated Financial Statements) was reduced
amortization expense of $9.6 million over 2001. The effectiveness of our
cost saving initiatives in 2002 were partially masked by the impact of the
strengthening of the euro, pound sterling and Australian dollar. Excluding
the impact of movements in foreign currency exchange rates, operating
administrative and other expenses decreased by 6.3%.

The non-recurring charges in 2001 of $77.2 million included the
write-down of investments in e-commerce enterprises, reserves against
potential liabilities associated with the bankruptcy of two insurance
providers, severance and asset impairment costs associated with the global
restructuring program in place at 2001, and included costs associated with
exiting certain non-strategic business lines and the realignment of our
Asia Pacific business along client and business lines. Actual costs
incurred related to our 2001 broad based realignment varied from our
original estimates for a variety of reasons, including the identification
of additional facts and circumstances, the complexity of international
labor law and developments in the underlying business, resulting in the
unforeseen reallocation of resources and better or worse settlement
discussions. These events have resulted in the recording of a credit to
non-recurring compensation and benefits expense in 2002 of $1.3 million and
an additional expense of $98,000 to non-recurring operating, administrative
and other expense. In addition, in 2002 we incurred additional impairment
expense and equity losses of $3.0 million related to investments made by
businesses exited during the 2001 restructuring. The non-recurring charges
in 2002 of $14.9 million include $12.7 million of severance costs
associated with the most recent global restructuring program and
approximately $500,000 for the lease costs of excess space as a result of
this restructuring. See Note 6 to Notes to Consolidated Financial
Statements for a more detailed discussion of these non-recurring and
restructuring items.

OPERATING INCOME

We reported operating income, excluding non-recurring charges, of
$69.6 million in 2002, a decrease of $20.6 million, or 22.8%, from $90.2
million in 2001. The change year-over-year in operating income before non-
recurring and restructuring charges was the result of continued revenue
pressures due to the slowdown in the global economy, partially offset by
reduced expenses as a result of lower compensation costs due to the broad
based restructuring in 2001, a strong focus on discretionary costs and the
impact of the implementation of SFAS 142 on amortization expense.

Including non-recurring and restructuring charges, operating income
increased $41.7 million, to $54.7 million in 2002 from $13.0 million in
2001. See Note 6 to Notes to Consolidated Financial Statements for a more
detailed discussion of these non-recurring and restructuring items.

INTEREST EXPENSE

Interest expense, net of interest income, decreased $3.2 million, or
15.8%, to $17.0 million in 2002 from $20.2 million in 2001. The decrease in
interest expense was the result of lower average revolver borrowings at
declining interest rates partially offset by the impact of the
strengthening euro on the reported U.S. dollar value of the interest
expense on the Euro Notes.

PROVISION FOR INCOME TAXES

The provision for income taxes was $11.0 million in 2002, as compared
to $8.0 million in 2001. The increase in provision was primarily due to
increased earnings before tax in 2002 compared to 2001.

On an operational basis, excluding non-recurring and restructuring
charges, we achieved a 34% effective tax in 2002 compared to 42% in 2001.
The decrease in our effective tax rate was due to the impact of tax
planning undertaken in 2002, particularly planning to reduce the impact of
losses in jurisdictions where we cannot recognize tax benefits and planning
to reduce the incidence of double taxation of earnings and other tax
inefficiencies. The reduction in the effective tax rate also reflects the
benefits of the reduction in non-deductible goodwill amortization under
SFAS 142 and a greater proportion of earnings in countries with lower
corporate tax rates in 2002 compared to 2001. The effective tax rate of 34%
excludes a one-time tax benefit of $1.8 million related to certain costs
incurred in restructuring actions taken in 2001. These costs were not
originally thought to be deductible for tax purposes; however, as a result
of actions undertaken in 2002, these costs are now deductible. Including
this one-time item, we achieved a 29% effective tax rate. See Note 11 to
Notes to Consolidated Financial Statements for further discussion of our
effective tax rate.

NET INCOME/(LOSS)

Net income before the extraordinary item and cumulative change in
accounting principle, increased $41.3 million, to $25.9 million in 2002, as
compared to a net loss of $15.4 million in 2001. Including the
extraordinary gain on the acquisition of minority interest (a net benefit
of $341,000), and the cumulative change in accounting principle related to
the adoption of SFAS 142 (a net benefit of $846,000), our net income for
2002 was $27.1 million as compared to a net loss of $15.4 million in 2001.

SEGMENT OPERATING RESULTS

We have not allocated non-recurring and restructuring charges to the
business segments for segment reporting purposes and therefore these costs
are not included in the discussions below.

INVESTOR AND OCCUPIER SERVICES

AMERICAS

2002 2001 Increase/(Decrease)
------ ------ -------------------
Revenue. . . . . . . . . . . $290.9 327.9 (37.0) (11.3%)
Operating expenses . . . . . 258.9 301.6 (42.7) (14.2%)
Operating income . . . . . . 32.0 26.3 5.7 21.7%

Revenue for the Americas region decreased $37.0 million, or 11.3%, to
$290.9 million in 2002, from $327.9 million in 2001. The pressure on
revenues continued a trend that began in the middle of 2001. The most
significant revenue declines during 2002, as compared to 2001, were
experienced in our transaction business as clients continued to delay or
defer decision making. We also found that our revenue per transaction
reduced as clients maintained operational flexibility by entering into
leases that were either for less space, or shorter time frames, both
factors that impacted the amount of our fees. The Project and Development,
Tenant Representation and the leasing part of our Leasing and Management
units were most severely impacted. We also saw declines in our South
American business as political uncertainty and economic difficulty
adversely impacted revenues.

Operating expenses for the Americas region decreased $42.7 million,
or 14.2%, to $258.9 million in 2002 from $301.6 million in 2001. The
reduction in expense year-over-year was due to lower base compensation
expense as a result of the restructuring actions taken in 2001, partially
offset by increased incentive compensation, reflecting the improved
financial and operating performance. There was also a continued focus on
controlling discretionary costs. Areas which have seen significant cost
savings in 2002 were travel and entertainment, information technology,
which benefitted from the renegotiation of our contract with a third-party
support provider, and bad debt expense, where 2001 included a write-off of
$3.9 million related to unrecoverable receivables from technology related
clients. The benefit resulting from adopting SFAS 142 was reduced
amortization expense of $4.5 million over 2001.

EUROPE

Increase / % Change
(Decrease) in Local
2002 2001 in U.S. dollars Currency
------ ------ --------------- --------
Revenue. . . . . . . . $317.8 344.8 (27.0) (7.8%) (12.6%)
Operating expenses . . 300.0 302.3 (2.3) (0.8%) (5.5%)
Operating income . . . 17.8 42.5 (24.7) (58.1%) (61.6%)

Revenue for the Europe region decreased $27.0 million, or 7.8%, to
$317.8 million in 2002 from $344.8 million in 2001. Excluding the impact
of movements in foreign currency exchange rates, primarily the
strengthening of the euro and pound sterling against the U.S. dollar,
revenue for the Europe region decreased 12.6% when compared to 2001. The
most significant declines in 2002, as compared to 2001, occurred in the
leasing business in England, together with overall declines in our business
in Germany and France, reflecting the difficult economic conditions they
were experiencing.

Operating expenses for the region decreased $2.3 million, or 0.8%, to
$300.0 million in 2002 from $302.3 million in 2001. Excluding the impact
of movements in foreign currency exchange rates, primarily the
strengthening of the euro and pound sterling against the U.S. dollar,
expenses declined 5.5% when compared to 2001. The reduction in expense
year-over-year was due to lower base compensation expense as a result of
the restructuring actions taken in 2001, together with reduced incentive
compensation, reflecting the decline in financial performance. Also
contributing to the reduction in expenses year-over-year was a continued
focus on controlling discretionary costs. The benefit resulting from
adopting SFAS 142 was reduced amortization expense of $1.6 million over
2001.

ASIA PACIFIC

Increase / % Change
(Decrease) in Local
2002 2001 in U.S. dollars Currency
------ ------ --------------- --------
Revenue. . . . . . . . $145.4 129.6 15.8 12.2% 9.4%
Operating expenses . . 145.6 130.0 15.6 12.0% 9.9%
Operating loss . . . . (0.2) (0.4) 0.2 50.0% nm

Revenue for the Asia Pacific region increased $15.8 million, or
12.2%, to $145.4 million in 2002 from $129.6 million in 2001. Excluding
the impact of movements in foreign currency exchange rates, primarily due
to the strengthening of the Australian dollar against the U.S. dollar,
revenue for the Asia Pacific region increased 9.4%, when compared to 2001.
As discussed in Note 2 to Notes to Consolidated Financial Statements,
beginning in December 2002, we reclassified as revenue our recovery of
indirect costs related to our management services business, as opposed to
being classified as a reduction of expenses in the income statement. These
amounts related to our Asia Pacific region were not available for 2001 as
it was necessary to reconfigure the reporting systems in this region to
separate these costs. The amount reclassified in 2002 for our Asia Pacific
region amounted to $18.8 million. Excluding this reclassification in 2002,
revenues decreased $3.0 million, or 2.3%. The most significant declines in
2002, as compared to 2001, occurred in Singapore, Hong Kong and Australia.
Partially offsetting the decline of revenues in these markets are the
markets of North Asia, which continue to show strong revenue growth year-
over-year, primarily in the Investment Sales, Property Management and
Tenant Representation units.

Operating expenses for the region increased $15.6 million, or 12.0%,
to $145.6 million in 2002 from $130.0 million in 2001. Excluding the
impact of movements in foreign currency exchange rates, primarily due to
the strengthening of the Australian dollar against the U.S. dollar,
operating expenses for the Asia Pacific region increased 9.9%, when
compared to 2001. As discussed above, the amount reclassified in 2002
related to the recovery of indirect costs for our Asia Pacific region
amounted to $18.8 million. Excluding this reclassification in 2002,
operating expenses decreased $3.2 million, or 2.4%. A continued focus on
discretionary costs helped in the expense reduction. Also, contributing to
the reduction in expense was the benefit resulting from adopting SFAS 142,
which resulted in reduced amortization expense of $2.0 million over 2001.

INVESTMENT MANAGEMENT

Increase / % Change
(Decrease) in Local
2002 2001 in U.S. dollars Currency
------ ------ --------------- --------

Revenue. . . . . . . . $109.0 104.3 4.7 4.5% 3.1%
Operating expenses . . 89.0 82.6 6.4 7.7% 6.5%
Operating income . . . 20.0 21.7 (1.7) (7.8%) (9.6%)

Investment Management revenue increased $4.7 million, or 4.5%, to
$109.0 million in 2002 from $104.3 million in 2001. Excluding the impact of
movements in foreign currency exchange rates, revenue for Investment
Management increased 3.1% when compared to 2001. The most significant
increase in 2002 occurred in Advisory Fees, with an increase of $7.3
million, or 9.6%, over 2001. The increase in Advisory Fees in 2002 was in
part due to the recognition of $8.7 million related to the performance of
an investment portfolio in which we have a co-investment. Included in
revenues in 2001 were incentive fees and equity earnings of $14.4 million
generated from the disposition of a hotel investment. Expansion into the
Asia Pacific region positively impacted revenue with the Asia Recovery Fund
in operation for the full year as compared to seven months in 2001.

Operating expenses increased $6.4 million, or 7.7%, to $89.0 million
in 2002 from $82.6 million in 2001. Excluding the impact of movements in
foreign currency exchange rates, operating expenses for Investment
Management increased 6.5%, when compared to 2001. Base compensation and
benefit expense increased in 2002 as staffing increased to support new fund
activity, and there was also an increase in incentive compensation
reflecting both improved financial and operating performance. Partially
offsetting this increase was a reduction in other operating expense as
result of focusing on discretionary cost control. Also, a $2.0 million
reduction in bad debt reserves related to the partial reversal of a
reserve, originally established in 1995 for a receivable due from Diverse
Real Estate Holdings Limited Partnership ("Diverse"), favorably impacted
operating expenses for the year as the underlying collateral was
significantly enhanced in 2002. As discussed in Note 14 to Notes to
Consolidated Financial Statements, the Chairman of our Board of Directors
holds a 19.8% limited partnership interest in Diverse. The benefit
resulting from adopting SFAS 142 was reduced amortization expense of $1.5
million over 2001.

CONSOLIDATED CASH FLOWS

CASH FLOWS FROM OPERATING ACTIVITIES

During 2003, cash flows provided by operating activities totaled
$110.0 million compared to $68.4 million in 2002. The cash flows from
operating earnings can be further divided into cash generated from
operations of $100.0 million (compared to $83.4 million in 2002) and cash
generated from balance sheet movements, primarily working capital, of $10.0
million (compared to $15.0 million used in 2002). The increase in cash
flows generated from operations reflected improved business performance in
2003, together with the fact that 2002 included significant non-recurring
and restructuring charges associated with the realignment of our business.
The increase in cash flows from changes in working capital of $25.0 million
is primarily because of an increase in the level of accrued compensation
recorded at December 31, 2003 driven by the timing of payroll as well as
increased incentive compensation.

During 2002, cash flows provided by operating activities totaled
$68.4 million compared to $54.1 million in 2001. The cash flows from
operating earnings can be further divided into cash generated from
operations of $83.4 million (compared to $73.9 million in 2001) and cash
used in balance sheet movements, primarily working capital, of $15.0
million (compared to $19.8 million in 2001). The increase in cash flows
generated from operations reflected improved business performance in 2002
over 2001, together with the fact that 2001 included significant non-
recurring and restructuring charges associated with the realignment of our
business. The reduction in cash flows from changes in working capital of
$4.8 million can be attributed to a slowdown in the improvement in accounts
receivable collection as we 1) approached the optimal level of accounts
receivable and 2) saw difficult economic conditions resulting in clients
seeking to extend payment periods. Offsetting this was a lower level of
incentive compensation accrued at December 31, 2001 and paid in 2002, as
compared to the amounts accrued at December 31, 2000 and paid in 2001.

CASH FLOWS USED IN INVESTING ACTIVITIES

We used $15.3 million in investing activities in 2003, which was a
reduction in cash used of $11.0 million from the $26.3 million used in
2002. This reduction is primarily due to a decrease in investments in real
estate ventures as market conditions in 2003, along with the increased
demand for higher quality institutional real estate, prompted us to
accelerate the pace of dispositions in order to respond to capital market
trends and lock in gains on behalf of ourselves and our clients. We have
also maintained our disciplined focus on capital expenditures in 2003.

We used $26.3 million in investing activities in 2002, which was a
reduction in cash used of $6.2 million from the $32.5 million used in 2001.
This reduction was a combination of reduced investment in fixed assets of
$19.0 million, partially offset by increasing co-investments, where we had
an outflow of $9.2 million to our investments in real estate ventures in
2002 versus a net inflow of $8.7 million in 2001.

CASH FLOWS USED IN FINANCING ACTIVITIES

In 2003, 2002 and 2001, $45.3 million, $38.8 million and $30.0
million, respectively, was used in financing activities as debt was paid-
down and we repurchased shares of our common stock.

LIQUIDITY AND CAPITAL RESOURCES

Historically, we have financed our operations, acquisitions and co-
investment activities with internally generated funds, our common stock and
borrowings under our credit facilities. In the second quarter of 2003 we
renegotiated our unsecured revolving credit facility agreement, reducing
the facility from $275 million to $225 million and extending the term from
2004 to 2006. This replaced the previous $275 million revolving credit
facility agreement and will continue to be utilized for working capital
needs, investments and acquisitions. Under the terms of the revolving
credit facility, we have the authorization to borrow up to an additional
$60.0 million under local facilities. In addition, the facility size may be
increased by up to $100 million if we redeem our 9% Senior Euro Notes (the
"Euro Notes"). We have outstanding euro 165 million in aggregate principal
amounts of Euro Notes, all of which matures on June 15, 2007. Beginning
June 15, 2004, the Euro Notes can be redeemed, at our option, at the
following redemption prices: during the twelve-month period commencing June
15, 2004 at 104.50% of principal; during the twelve-month period commencing
June 15, 2005 at 102.25% of principal; and commencing June 15, 2006 and
thereafter at 100.00% of principal. If the market conditions prove
favorable, we intend to call the Euro Notes in June 2004 using the
revolving credit facility or other sources to refinance this debt. The Euro
Notes carry a 9% interest rate while our credit facility is priced at LIBOR
plus 187 basis points. If we were to call the Euro Notes in June 2004, we
would incur approximately $11.5 million (dependent upon prevailing exchange
rates) of expense related to the acceleration of debt issuance cost
amortization and the premiums paid to redeem the Euro Notes.

As of December 31, 2003, we did not have any borrowings outstanding
under the revolving credit facility. We had borrowings of euro 165 million
($207.8 million) outstanding under the Euro Notes and short-term borrowings
(including capital lease obligations) of $3.6 million. The short-term
borrowings are primarily borrowings by subsidiaries on various interest-
bearing overdraft facilities. As of December 31, 2003, $3.2 million of the
total short-term borrowings were attributable to local overdraft
facilities. The increase in the reported U.S. dollar book value of the Euro
Notes of $34.7 million in 2003 was solely as a result of the strengthening
euro. No additional Euro Notes have been issued. As a result of the strong
cash generation of our business, we had $63.1 million of cash at
December 31, 2003 as compared with $13.7 million at December 31, 2002.

Jones Lang LaSalle and certain of our subsidiaries guarantee the
revolving credit facility and the Euro Notes (the "Facilities"). In
addition, we guarantee the local overdraft facilities of certain
subsidiaries. Third-party lenders request these guarantees to ensure
payment by the Company in the event that one of our subsidiaries fails to
repay its borrowing on an overdraft facility. The guarantees typically
have one-year or two-year maturities. We apply FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"), to
recognize and measure the provisions of guarantees. The guarantees of the
revolving credit facility, Euro Notes and local overdraft facilities do not
meet the recognition provisions, but do meet the disclosure requirements of
FIN 45. We have local overdraft facilities totalling $44.2 million, of
which $3.2 million was outstanding as of December 31, 2003. We have
provided guarantees of $30.3 million related to the local overdraft
facilities, as well as guarantees related to the $225 million revolving
credit facility and the euro 165 million Euro Notes, which in total
represent the maximum future payments that Jones Lang LaSalle could be
required to make under the guarantees provided for subsidiaries' third-
party debt.

With respect to the revolving credit facility, we must maintain
consolidated net worth of at least $318 million and a leverage ratio not
exceeding 3.0 to 1. We must also maintain a minimum interest coverage ratio
of 2.5 to 1 and a minimum fixed charge coverage ratio of 1.1 to 1. As part
of the renegotiation of the revolving credit facility, the ratios for the
leverage and minimum interest coverage were revised to provide more
operating flexibility under these covenants. Our covenants exclude the
impact of certain of the non-cash charges related to the abandonment of a
property management system in Australia and certain of the charges taken in
2002 related to the Land Investment Group. We are in compliance with all
covenants at December 31, 2003. Additionally, we are restricted from,
among other things, incurring certain levels of indebtedness to lenders
outside of the Facilities and disposing of a significant portion of our
assets. Lender approval is required for certain levels of co-investment.
The revolving credit facility bears variable rates of interest based on
market rates. We are authorized to use interest rate swaps to convert a
portion of the floating rate indebtedness to a fixed rate, however, none
were used during 2003 or 2002 and none were outstanding as of December 31,
2003. The effective interest rate on the Facilities was 8.2% in 2003 versus
7.3% in 2002.

We believe that the revolving credit facility, together with the Euro
Notes, local borrowing facilities and cash flow generated from operations
will provide adequate liquidity and financial flexibility to meet our needs
to fund working capital, capital expenditures, co-investment activity and
share repurchases.

We expect to continue to pursue co-investment opportunities with our
real estate money management clients in the Americas, Europe and Asia
Pacific. Co-investment remains very important to the continued growth of
Investment Management. As of December 31, 2003, we had total investments
and loans of $71.3 million in approximately 20 separate property or fund
co-investments, with additional capital commitments of $151.1 million for
future fundings of co-investments. The net co-investment funding for 2004
is anticipated to be between $30 and $40 million (planned co-investment
less return of capital from liquidated co-investments). With respect to
certain co-investment indebtedness, we also had repayment guarantees
outstanding at December 31, 2003 of $5.0 million. The $151.1 million
capital commitment is a commitment to LaSalle Investment Limited
Partnership, referred to as LaSalle Investment Company ("LIC"). We expect
that LIC will draw down on our commitment over the next five to seven years

as it enters into new commitments. LIC is a series of four parallel
limited partnerships and is intended to be our co-investment vehicle for
substantially all new co-investments. We have an effective 47.85%
ownership interest in LIC. Primarily institutional investors, including a
significant shareholder in Jones Lang LaSalle, hold the remaining 52.15%
interest in LIC. In addition, our Chairman and Chief Executive Officer and
another Director of Jones Lang LaSalle are investors in LIC on equivalent
terms to other investors. Our investment in LIC is accounted for under the
equity method of accounting in the accompanying Consolidated Financial
Statements. As discussed more fully in Note 8 to Notes to Consolidated
Financial Statements, at December 31, 2003, LIC has unfunded capital
commitments of $68.2 million, of which our 47.85% share is $32.6 million,
for future fundings of co-investments.

In the third quarter of 2003, LIC entered into a euro 35 million
($44.1 million) revolving credit facility (the "LIC facility") principally
for its working capital needs. The LIC facility contains a credit rating
trigger (related to the credit rating of one of LIC's investors who is
unaffiliated with Jones Lang LaSalle) and a material adverse condition
clause. If either the credit rating trigger or the material adverse
condition clause becomes triggered, the LIC Facility would be in default
and would need to be repaid. This would require us to fund our pro-rata
share of the then outstanding balance on the LIC Facility, to which our
liability is limited. The maximum exposure to Jones Lang LaSalle, assuming
that the LIC Facility were fully drawn, would be euro 16.7 million ($21.0
million). As of December 31, 2003 there were no outstanding borrowings on
this facility. Additionally, our Board of Directors has recently endorsed
the use of our capital in particular situations to control or bridge
finance existing real estate assets or portfolios to seed future investment
products. The purpose of this is to accelerate capital raising and assets
under management.

On October 30, 2002 we announced that our Board of Directors had
approved a share repurchase program. Under the program, we were authorized
to repurchase up to one million shares in the open market and in privately
negotiated transactions from time to time, depending upon market prices and
other conditions. In the fourth quarter of 2003 we repurchased 400,000
shares at an average price of $20.37 per share. In the fourth quarter of
2002 we repurchased 300,000 shares at an average price of $15.56 per share.

These 700,000 repurchased shares are held by a subsidiary of Jones Lang
LaSalle.

The 2002 share repurchase program replaced a program that was in
place in 2001 authorizing purchases of up to $10.0 million. On March 8,
2001, we repurchased and cancelled 473,962 shares of our own common stock
at a price of $14.65 per share, totaling $6.9 million. There were no
further purchases in 2001.

On February 27, 2004, we announced the approval by our Board of
Directors to purchase 1.5 million shares under a share repurchase program.
The shares will be purchased in the open market and in privately negotiated
transactions. The repurchase of shares is primarily intended to offset
dilution resulting from both stock and stock option grants made under the
firm's existing stock plans. This program replaces our previously announced
repurchase programs.

Capital expenditures for 2003 were $20.5 million, essentially in line
with 2002, reflecting our continued focus on limiting discretionary capital
spending. Capital expenditures are anticipated to be between $25 and $30
million for 2004, primarily for ongoing improvements to computer hardware
and information systems.

We have obligations and commitments to make future payments under
contracts in the normal course of business. These include:

.. Future minimum lease payments, as follows, due in each of the next
five years ended December 31 and thereafter ($ in thousands):

Operating Capital
Leases Leases
--------- --------
2004 . . . . . . . . . $ 46,268 449
2005 . . . . . . . . . 41,298 423
2006 . . . . . . . . . 35,915 223
2007 . . . . . . . . . 25,931 52
2008 . . . . . . . . . 19,490 33
Thereafter . . . . . . 9,344 30
-------- --------
$178,246 1,210
======== ========

As of December 31, 2003, we have reserves related to excess lease
space of $7.2 million, which were identified as part of our
restructuring in 2001 and 2002. The total of minimum rentals to be
received in the future under non-cancelable operating subleases as of
December 31, 2003 was $6.2 million.

.. Interest and principal payments on outstanding borrowings against
our $225 million revolving credit facility fluctuate based on
our level of borrowing needs. There is no set repayment schedule
with respect to the revolving credit facility, however this facility
expires in June 2006. The fixed 9% Euro Notes have an
outstanding principle balance of euro 165 million ($207.8
million as of December 31, 2003), and are due in 2007. Interest
payments are due on June 15th and December 15th of each year.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information regarding market risk is included in Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations
under the caption "Market and Other Risk Factors" and is incorporated by
reference herein.

DISCLOSURE OF LIMITATIONS

As the information presented above includes only those exposures that
exist as of December 31, 2003, it does not consider those exposures or
positions which could arise after that date. The information represented
herein has limited predictive value. As a result, the ultimate realized
gain or loss with respect to interest rate and foreign currency
fluctuations will depend on the exposures that arise during the period, the
hedging strategies at the time and interest and foreign currency rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----

JONES LANG LASALLE INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS

Management's Statement of Responsibility for
Financial Information. . . . . . . . . . . . . . . . . . . . . . 60

Report of KPMG LLP, Independent Auditors' Report . . . . . . . . . 61

Consolidated Balance Sheets as of
December 31, 2003 and 2002 . . . . . . . . . . . . . . . . . . . 62

Consolidated Statements of Earnings
For the Years Ended December 31, 2003, 2002 and 2001 . . . . . . 64

Consolidated Statements of Stockholders'
Equity For the Years Ended December 31,
2003, 2002 and 2001. . . . . . . . . . . . . . . . . . . . . . . 66

Consolidated Statements of Cash Flows
For the Years Ended December 31, 2003, 2002 and 2001 . . . . . . 70

Notes to Consolidated Financial Statements . . . . . . . . . . . . 72

Quarterly Results of Operations (Unaudited). . . . . . . . . . . . 135

SCHEDULES SUPPORTING THE CONSOLIDATED FINANCIAL STATEMENTS:

II - Valuation and Qualifying Accounts . . . . . . . . . . . . . . 140

All other schedules have been omitted since the required information
is presented in the financial statements and related notes or is not
applicable.

MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL INFORMATION

The management of Jones Lang LaSalle Incorporated and its
subsidiaries (Jones Lang LaSalle) has the responsibility for preparing the
accompanying consolidated financial statements and for their integrity and
objectivity. The statements were prepared in accordance with accounting
principles generally accepted in the United States of America. The
financial statements include amounts that are based on management's best
estimates and judgments. Management also prepared the other information in
the December 31, 2003 Annual Report filed on Form 10-K and is responsible
for its accuracy and consistency with the financial statements.

Jones Lang LaSalle's financial statements have been audited by KPMG
LLP, independent auditors ratified by the shareholders. As part of its
audit of Jones Lang LaSalle's financial statements, KPMG LLP considered
Jones Lang LaSalle's internal control structure in determining the nature,
timing and extent of audit tests to be applied. The opinion of the
independent auditors, based upon their audits of the consolidated financial
statements, is contained in this Form 10-K.

Jones Lang LaSalle has established and maintains a system of internal
controls and disclosure controls and procedures to safeguard assets against
loss or unauthorized use, to ensure the proper authorization and accounting
for all transactions and to ensure that the information required in
periodic reports is identified and reported on a timely basis. These
systems include appropriate reviews by Jones Lang LaSalle's Internal Audit
Group and management as well as written policies and procedures that are
communicated to employees with significant roles in the financial reporting
process and updated as necessary. The Internal Audit Group is assisted by
PricewaterhouseCoopers.

The Board of Directors, through its Audit Committee, is responsible
for ensuring that both management and the independent auditors fulfill
their respective responsibilities with regard to the financial statements.
The Audit Committee, composed entirely of independent directors, meets
periodically with both management and the independent auditors to assure
that each is carrying out its responsibilities. The independent auditors
and Jones Lang LaSalle's Internal Audit Group have full and free access to
the Audit Committee and meet with it, with and without management present,
to discuss matters including auditing, financial reporting and internal
controls and disclosure controls and procedures.

Management also recognizes its responsibility for fostering a strong
ethical climate so that Jones Lang LaSalle's affairs are conducted
according to high standards of conduct. This responsibility is
characterized and reflected in Jones Lang LaSalle's Code of Business
Ethics, which is publicized throughout Jones Lang LaSalle and on its public
website. The Code of Business Ethics addresses, among other things,
avoidance of potential conflicts of interest, protecting company assets,
compliance with domestic and foreign laws, including those relating to
financial disclosure and reporting violations or possible violations.

STUART L. SCOTT LAURALEE E. MARTIN
Chief Executive Officer, Executive Vice President
President and and Chief Financial Officer
Chairman of the Board
of Directors

NICHOLAS J. WILLMOTT
Executive Vice President and
Global Controller

INDEPENDENT AUDITORS' REPORT

The Stockholders and Board of Directors of
Jones Lang LaSalle Incorporated:

We have audited the accompanying consolidated financial statements of Jones
Lang LaSalle Incorporated and subsidiaries as listed in the accompanying
index. In connection with our audits of the consolidated financial
statements, we have also audited the financial statement schedule as listed
in the accompanying index. These consolidated financial statements and
financial statement schedule are the responsibility of management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Jones
Lang LaSalle Incorporated and subsidiaries as of December 31, 2003 and
2002, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States of
America. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the
information set forth therein.

As discussed in Note 15 to the financial statements, Jones Lang LaSalle
Incorporated and subsidiaries changed their method of accounting for
goodwill and intangible assets in 2002.

/s/KPMG LLP

Chicago, Illinois
February 27, 2004

JONES LANG LASALLE INCORPORATED

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2003 AND 2002
($ in thousands, except share data)

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
($ in thousands, except share data)

JONES LANG LASALLE INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
($ in thousands, except share data)

JONES LANG LASALLE INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
($ in thousands)

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except where otherwise noted)

(1) ORGANIZATION

Jones Lang LaSalle Incorporated ("Jones Lang LaSalle", which may be
referred to as we, us, our, the Company or the Firm) was incorporated in
1997. Its operations presently include the businesses previously known as
LaSalle Partners (founded in 1968) and Jones Lang Wootton (founded in
1783). We are the global leader in real estate services and money
management. We serve our clients' real estate needs locally, regionally
and globally from offices in over 100 markets in 34 countries on five
continents, with approximately 17,300 employees, including approximately
9,200 directly reimbursable property maintenance employees. Our services
include: outsourcing; space acquisition and disposition (tenant
representation); facilities and property management; project and
development management services; consulting; agency leasing, buying and
selling properties; corporate finance; capital markets; hotel advisory; and
valuations. We also provide real estate money management on a global basis
for both public and private assets through LaSalle Investment Management.
Our services are enhanced by our integrated global business model, industry
leading research capabilities, account management focus and operational
excellence.

We have grown by expanding both our client base and the range of our
services and products, as well as through a series of strategic
acquisitions and a merger. Our extensive global platform and in-depth
knowledge of local real estate markets enable us to serve as a single
source provider of solutions for our clients' full range of real estate
needs. We solidified this network of services around the globe through the
merger of the businesses of the Jones Lang Wootton companies ("JLW") with
those of LaSalle Partners Incorporated ("LaSalle Partners") effective March
11, 1999. In connection with this merger, the name of the company was
changed from LaSalle Partners Incorporated to Jones Lang LaSalle.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

Our financial statements include the accounts of Jones Lang LaSalle
and its majority-owned-and-controlled subsidiaries. All material
intercompany balances and transactions have been eliminated in
consolidation. Investments in unconsolidated affiliates over which we
exercise significant influence, but not control, are accounted for by the
equity method. Under this method we maintain an investment account, which
is increased by contributions made and our share of net income of the
unconsolidated affiliates, and decreased by distributions received and our
share of net losses of the unconsolidated affiliates. Our share of each
unconsolidated affiliate's net income or loss, including gains and losses
from capital transactions, is reflected in our statement of earnings as
"equity in earnings from unconsolidated ventures." Investments in
unconsolidated affiliates over which we are not able to exercise
significant influence are accounted for under the cost method. Under the
cost method our investment account is increased by contributions made and
decreased by distributions representing return of capital. Distributions of
income are reflected in our statement of earnings in "equity in earnings
from unconsolidated ventures."

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

REVENUE RECOGNITION

We recognize advisory and management fees in the period in which we
perform the service. Transaction commissions are recognized as income when
we provide the service unless future contingencies exist. If future
contingencies exist, we defer recognition of this revenue until the
respective contingencies are satisfied. Development management fees are
generally recognized as billed, which we believe approximates the
percentage of completion method of accounting. Incentive fees are
generally tied to some form of contractual milestone and are recorded in
accordance with the specific terms of the underlying compensation
agreement. The Securities and Exchange Commission's Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"), as amended by SAB 104, provides guidance on the application of
generally accepted accounting principles to selected revenue recognition
issues. We believe that our revenue recognition policy is appropriate and
in accordance with accounting principles generally accepted in the United
States of America and SAB No. 101, as amended by SAB 104. We implemented
SAB No. 101 in 2000 as discussed more fully in Note 17. Pursuant to
contractual arrangements, accounts receivable includes unbilled amounts of
$60.5 million and $56.9 million at December 31, 2003 and 2002,
respectively.

In certain of our businesses, primarily those involving management
services, we are reimbursed by our clients for expenses that are incurred
on their behalf. The treatment of reimbursable expenses for financial
reporting purposes is based upon the fee structure of the underlying
contracts. A contract that provides a fixed fee/billing, fully inclusive
of all personnel or other recoverable expenses that we incur, and not
separately scheduled as such, is reported on a gross basis. This means that
our reported revenues include the full billing to our client and our
reported expenses include all costs associated with the client. When the
fee structure is comprised of at least two distinct elements, namely the
fixed management fee and a separate component which allows for scheduled
reimbursable personnel or other expenses to be billed directly to the
client, we will account for the contract on a net basis. This means we
include the fixed management fee in reported revenues and we net the
reimbursement against the expenses. This characterization is based on the
following factors which define us as an agent rather than a principal: (i)
the property owner generally has authority over hiring practices and the
approval of payroll prior to payment by Jones Lang LaSalle; (ii) Jones Lang
LaSalle is the primary obligor with respect to the property personnel, but
bears little or no credit risk under the terms of the management contract;
(iii) reimbursement to Jones Lang LaSalle is generally completed
simultaneously with payment of payroll or soon thereafter; and (iv) Jones
Lang LaSalle generally earns no margin in the arrangement, obtaining
reimbursement only for actual cost incurred. The majority of our service
contracts utilize the latter structure and are accounted for on a net
basis. We have always presented the above reimbursable contract costs on a
net basis in accordance with accounting principles generally accepted in
the United States of America. Such costs aggregated approximately $385
million and $360 million in 2003 and 2002, respectively. This treatment
has no impact on operating income (loss), net income (loss) or cash flows.
Information prior to 2002 is not available given that it was necessary to
reconfigure our reporting systems in 2002 to collect this information as
our global systems did not separate these costs.

ACCOUNTS RECEIVABLE

We estimate the allowance necessary to provide for uncollectible
accounts receivable. The estimate includes specific accounts for which
payment has become unlikely. This estimate is also based on historical
experience combined with a careful review of current developments and with
a strong focus on credit quality. A detailed discussion of the calculation

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

can be found in the Summary of Critical Accounting Policies and Estimates
section of Management's Discussion and Analysis of Financial Condition and
Results of Operations.

IMPAIRMENT OF LONG-LIVED ASSETS

We apply Statement No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144") to recognize and measure
impairment of long-lived assets. SFAS 144 establishes accounting and
reporting standards for the impairment or disposal of long-lived assets by
requiring that those long-lived assets to be held and used be measured at
the lower of carrying costs or their fair value, and by requiring that
those long-lived assets to be held for sale to be measured at the lower of
carrying costs or their fair value less costs to sell, whether reported in
continuing operations or in discontinued operations. We adopted SFAS 144 on
January 1, 2002. The effect of implementing SFAS 144 did not have a
material impact on our consolidated financial statements.

We review long-lived assets, including investments in real estate
ventures, intangibles and property and equipment for impairment on an
annual basis, or whenever events or circumstances indicate the carrying
value of an asset group may not be recoverable. The review of
recoverability is based on an estimate of the future undiscounted cash
flows expected to be generated by the asset group. If impairment exists
due to the inability to recover the carrying value of an asset group, we
record an impairment loss to the extent that the carrying value exceeds the
estimated fair value.

We invest in certain real estate ventures that own and operate
commercial real estate. These investments include non-controlling ownership
interests generally ranging from less than 1% to 47.85% of the respective
ventures. We generally account for these interests under the equity method
of accounting in the accompanying Consolidated Financial Statements due to
the nature of the non-controlling ownership. We apply the provisions of
SFAS 144 when evaluating these investments for impairment, including an
impairment evaluation of the individual assets held by investment funds.
We have recorded impairment charges in equity earnings of $4.1 million in
2003, representing our equity share of the impairment charge against
individual assets held by certain funds. There were no similar charges to
equity earnings in 2002 or 2001. Impairment charges of $3.0 million and
$3.5 million in 2002 and 2001, respectively, related to the exiting of our
Land Investment and Development groups were recorded to non-recurring
expense. For a further discussion of these non-recurring charges see
Note 6.

During 2001, we reviewed our e-commerce investments on an investment-
by-investment basis, evaluating actual business performance against
original expectations, projected future performance and associated cash
flows, and capital needs and availability. As a result of this evaluation
we determined that our investments in e-commerce were impaired and fully
wrote down these investments by the end of 2001 as part of our non-
recurring charges. It is currently our policy to expense any additional
investments that are made into these ventures in the period they are made
due to the fact that recovery of such sums is uncertain. These charges are
recorded as ordinary recurring charges. We expensed a total of $820,000 and
$287,000 of such investments in 2003 and 2002, respectively.

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

INCOME TAXES

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

DERIVATIVES AND HEDGING ACTIVITIES

We apply FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), as amended by FASB
Statement No. 138, "Accounting For Certain Derivative Instruments and
Certain Hedging Activities", when accounting for derivatives and hedging
activities.

As a firm, we do not enter into derivative financial instruments for
trading or speculative purposes. However, in the normal course of business
we do use derivative financial instruments in the form of forward foreign
currency exchange contracts to manage foreign currency risk. At
December 31, 2003, we had forward exchange contracts in effect with a gross
notional value of $244.3 million ($205.4 million on a net basis) and a
market and carrying gain of $3.9 million.

In the past we have used interest rate swap agreements to limit the
impact of changes in interest rates on earnings and cash flows. We did not
use any interest rate swap agreements in 2003 or in 2002, and there were no
such agreements outstanding as of December 31, 2003.

We require that hedging derivative instruments be effective in
reducing the exposure that they are designated to hedge. This effectiveness
is essential to qualify for hedge accounting treatment. Any derivative
instrument used for risk management that does not meet the hedging criteria
is marked-to-market each period with changes in unrealized gains or losses
recognized currently in earnings.

We hedge any foreign currency exchange risk resulting from
intercompany loans through the use of foreign currency forward contracts.
SFAS 133 requires that unrealized gains and losses on these derivatives be
recognized currently in earnings. The gain or loss on the re-measurement of
the foreign currency transactions being hedged is also recognized in
earnings. The net impact on our earnings of the unrealized gain on foreign
currency contracts, offset by the loss resulting from re-measurement of
foreign currency transactions, for 2002 and 2003 was not significant.

In connection with a previous investment in an unconsolidated real
estate venture, we were granted certain residual "Common Share Purchase
Rights" that give us the ability to purchase shares in a publicly traded
real estate investment trust at a fixed price. These rights, which extend
through April of 2008, are a non-hedging derivative instrument and should
have been recorded at fair value as part of the adoption of SFAS 133
effective January 1, 2001, with subsequent changes in fair value reflected
in equity earnings. The initial accounting for these common share purchase
rights through June 30, 2003 was not in accordance with the rules of
SFAS 133 due to an inadvertent error as a result of the complexity of this

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

unique derivative. We determine fair value through the use of the Black
Scholes option pricing model. The fair value of these rights at January 1,
2001 was $954,000 and the fair value has ranged from $200,000 to $1.4
million in the periods since that time due to stock market fluctuation. At
December 31, 2003, the fair value of these rights was $1.4 million which we
included in the investments in unconsolidated real estate ventures on the
Consolidated Balance Sheet. We recorded a pre-tax gain of $1.3 million in
equity earnings in the third quarter of 2003, of which approximately
$800,000 represented the impact of correcting this error. We do not believe
that the correction of this error is material to the 2001, 2002 or 2003
consolidated financial statements or in any quarter of these years.
Additionally, we do not believe that the correction of this error is
material to consolidated earnings trends. We do not own any other
instruments of this nature.

COMMITMENTS AND CONTINGENCIES

We are subject to various claims and contingencies related to
lawsuits, taxes and environmental matters as well as commitments under
contractual obligations. Many of these claims are covered under our
current insurance programs, subject to deductibles. We recognize the
liability associated with commitments and contingencies when a loss is
probable and estimable. Our contractual obligations generally relate to
the provision of services by us in the normal course of our business.

ACCOUNTING FOR BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE
ASSETS

We have historically grown through a series of acquisitions and one
substantial merger. As a result of this activity, and consistent with the
services nature of the businesses we acquired, the largest assets on our
balance sheet are intangibles resulting from business acquisitions and the
JLW merger. Historically we have amortized these intangibles over their
estimated useful lives (generally eight to forty years). Beginning
January 1, 2002, pursuant to the issuance of FASB Statement No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"), we have ceased the
amortization of intangibles with indefinite useful lives, which have a net
book value of $334.2 million at December 31, 2003. We will continue to
amortize intangibles with definite useful lives, which primarily represent
the value placed on management contracts that are acquired as part of our
acquisition of a company.

In connection with the transitional goodwill impairment evaluation
required by SFAS 142, we performed an assessment of whether there was an
indication that goodwill was impaired as of the date of adoption. SFAS 142
also requires that a goodwill impairment evaluation be done at least
annually, or whenever events or circumstances indicate the carrying value
of goodwill may not be recoverable. To accomplish this evaluation, we
determined the carrying value of each reporting unit by assigning the
assets and liabilities, including the existing goodwill and intangible
assets, to those reporting units as of the date of adoption. For purposes
of this exercise, we defined reporting units based on how the Chief
Operating Decision Makers (defined as our Global Executive Committee, which
is comprised of our Global Chief Executive Officer, Global Chief Financial
Officer and the Chief Executive Officers of each of our reporting segments)
for each segment look at their segments when determining strategic business
decisions. The following reporting units were determined: Investment
Management, Americas IOS, Australia IOS, Asia IOS, and by country groups in
Europe IOS. We have determined the fair value of each reporting unit on the
basis of a discounted cash flow methodology and compared it to the
reporting unit's carrying amount. The result of the 2002 and 2003
evaluations was that the fair value of each reporting unit exceeded its
carrying amount, and therefore we did not recognize an impairment loss in
either year.

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires us
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of the
revenues and expenses during the reporting periods. Actual results could
differ from those estimates. For further discussion of accounting
estimates please refer to the Summary of Critical Accounting Policies and
Estimates section of Management's Discussion and Analysis of Financial
Condition and Results of Operations.

CASH HELD FOR OTHERS

We control certain cash and cash equivalents as agents for our
investment and property management clients. Such amounts are not included
in our consolidated financial statements.

STATEMENT OF CASH FLOWS

Cash and cash equivalents include demand deposits and investments in
United States Treasury instruments (generally held as available for sale)
with maturities of three months or less. The combined carrying value of
such investments of $42.0 million and $5.3 million at December 31, 2003 and
2002, respectively, approximates their market value. The increased cash
and cash equivalent level at December 31, 2003 is a result of the revolving
credit facility having been fully paid down in 2003.

The effects of foreign currency translation on cash balances are
reflected in cash flows from operating activities on the Consolidated
Statement of Cash Flows.

INVESTMENTS IN REAL ESTATE VENTURES AND OTHER CORPORATIONS

We have non-controlling ownership interests in various real estate
ventures with interests generally ranging from less than 1% to 47.85%,
which are generally accounted for using the equity method of accounting.
These investments are discussed further in Note 8.

We have made investments in certain high technology and e-commerce
related private corporations whose operations are connected to the real
estate industry. These investments are for less than 20% of the voting
stock of the corporations and we are not able to exercise significant
influence over the operating and financial policies of these corporations.
Such investments are accounted for under the cost method. In 2001, we
determined that these investments were impaired and recorded $18.0 million
of non-recurring expense. These impairments are discussed further in
Note 6.

DEBT ISSUANCE COSTS

Costs incurred in connection with the issuance of debt are
capitalized and amortized over the periods to which the underlying debt is
outstanding. Amortization expense related to debt issuance costs, included
as interest expense, was $1.5 million, $1.3 million and $1.2 million in
2003, 2002 and 2001, respectively. The amortization expense related to
debt expense recorded in 2003 includes the acceleration of approximately
$150,000 of capitalized debt issuance costs as a result of the early
renewal and reduction of our credit facility.

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

FAIR VALUE OF FINANCIAL INSTRUMENTS

Our financial instruments include cash and cash equivalents,
receivables, accounts payable, notes payable and foreign currency exchange
contracts. The estimated fair value of cash and cash equivalents,
receivables and payables approximates their carrying amounts due to the
short maturity of these instruments. The estimated fair value of our
revolving credit facility and short-term borrowings approximates their
carrying value due to their variable interest rate terms. The fair value of
the Senior Euro Notes was euro 175.3 million, or $220.8 million which was
the mid-market value as of December 31, 2003. The fair values of forward
foreign exchange contracts are estimated to be $3.9 million as of
December 31, 2003, determined by valuing the net position of the contracts
using the applicable spot rates and forward rates as of the reporting date.

FOREIGN CURRENCY TRANSLATION

The financial statements of our subsidiaries located outside the
United States, except those subsidiaries located in highly inflationary
economies, are measured using the local currency as the functional
currency. The assets and liabilities of these subsidiaries are translated
at the rates of exchange at the balance sheet date with the resulting
translation adjustments included in the balance sheet as a separate
component of stockholders' equity (accumulated other comprehensive income
(loss)) and in the statement of earnings (other comprehensive income
foreign currency translation adjustments). Income and expenses are
translated at the average monthly rates of exchange. Gains and losses from
foreign currency transactions are included in net earnings. For
subsidiaries operating in highly inflationary economies, the associated
gains and losses from balance sheet translation adjustments are included in
net earnings.

EARNINGS PER SHARE

The difference between basic weighted average shares outstanding and
diluted weighted average shares outstanding is the dilutive impact of
common stock equivalents. Common stock equivalents consist primarily of
shares to be issued under employee stock compensation programs and
outstanding stock options whose exercise price was less than the average
market price of our stock during these periods. For the year ended
December 31, 2003 we did not include in the weighted average shares
outstanding the 700,000 shares that have been repurchased, and which are
held by one of our subsidiaries. For the year ended December 31, 2002 we
did not include in the weighted average shares outstanding the 300,000
shares that have been repurchased, and which are held by, one of our
subsidiaries. Also, as a result of the net loss incurred in 2001, diluted
weighted average shares outstanding do not give effect to common stock
equivalents as to do so would be anti-dilutive. The following table
details the calculation of diluted average shares outstanding ($ in
thousands, except share data) for each of the three years ended
December 31, 2003.

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

2003 2002 2001
---------- ---------- ----------

Net income (loss). . . . . . . . . $ 36,065 27,110 (15,411)
Basic weighted average shares
outstanding. . . . . . . . . . . 30,951,563 30,486,842 30,016,122
---------- ---------- ----------
Basic earnings (loss)
per common share . . . . . . . . $ 1.17 0.89 (0.51)
========== ========== ==========

Diluted net income (loss). . . . . $ 36,065 27,110 (15,411)

Basic weighted average shares
outstanding. . . . . . . . . . . 30,951,563 30,486,842 30,016,122
Dilutive impact of common
stock equivalents:
Outstanding stock options. . . . 230,001 354,125 --
Unvested stock compensa-
tion programs. . . . . . . . . 1,044,742 1,013,430 --
---------- ---------- ----------
Dilutive weighted average
shares outstanding . . . . . . . 32,226,306 31,854,397 30,016,122
---------- ---------- ----------
Dilutive earnings (loss)
per common share . . . . . . . . $ 1.12 0.85 (0.51)
========== ========== ==========

DEPRECIATION

Depreciation and amortization is calculated for financial reporting
purposes primarily using the straight-line method based on the estimated
useful lives of our assets. The following table shows the gross value of
each asset category at December 31, 2003 and 2002, respectively, as well as
the standard depreciable life for each asset category ($ in thousands):

December 31, December 31, Depreciable
Category 2003 2002 Life
- -------- ------------ ------------ -----------

Furniture, fixtures
and equipment. . . . $ 39.5 $ 36.2 5 to 10 years
Computer equipment
and software . . . . 119.7 114.9 2 to 7 years
Leasehold
Improvements . . . . 43.2 36.5 1 to 10 years
Automobiles. . . . . . 8.8 9.5 4 to 5 years

STOCK-BASED COMPENSATION

We grant stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of
grant. We follow Accounting Principles Board (APB) Opinion 25, "Accounting
for Stock Issued to Employees," in accounting for stock-based compensation,
and accordingly, recognize no compensation expense for stock option grants,
but provide pro forma disclosures required by FASB Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), as amended by FASB
Statement No. 148, "Accounting for Stock-Based Compensation Transition and
Disclosure, an amendment of FASB Statement No. 123."

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

We have also established stock compensation programs for certain of
our employees pursuant to which they are awarded Jones Lang LaSalle common
stock if they are employed at the end of the vesting period. These stock
compensation programs meet the definition of fixed awards as defined in
SFAS 123, as amended, and therefore, we recognize compensation expense,
based on the market value of awards on the grant date, over the vesting
period.

See Note 13 for additional information on stock-based compensation.

RECLASSIFICATIONS

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

In 2001, Strategic Consulting ("SCON"), a globally allocated
department, recorded its revenue as a reduction to expense. Beginning in
2002, we began recording this item as part of revenue. The SCON revenue for
2001 has been reclassified for comparability.

Beginning in December 2002, pursuant to the FASB's Emerging Issues
Task Force ("EITF") No. 01-14, "Income Statement Characterization of
Reimbursements Received for "Out-of-Pocket' Expenses Incurred", we have
reclassified reimbursements received for out-of-pocket expenses to revenues
in the income statement, as opposed to being shown as a reduction of
expenses. These out-of-pocket expenses amounted to $5.4 million for the
year ended December 31, 2003.

Beginning in December 2002, we have reclassified as revenue our
recovery of indirect costs related to our management services business, as
opposed to being classified as a reduction of expenses in the income
statement. This recovery of indirect costs for the year ended December 31,
2003 totaled $37.8 million. The amounts related to the recovery of these
indirect costs in our Asia Pacific region were not available for the year
ended December 31, 2001 given that it was necessary to reconfigure the
reporting systems in this region to separate these costs.

The following table lists total revenue and expenses as originally
reported in the annual reports for each of the years ended December 31,
2002 and 2001, and lists the reclassifications as discussed above, as well
as the reclassified amounts ($ in thousands):
2002 2001
-------- --------
Total revenue:
As originally reported. . . . . . . . $840,429 881,676

Reclassifications:
Strategic consulting. . . . . . . . . N/A 10,421
Out-of-pocket expenses. . . . . . . . 1,350 4,023
Indirect costs. . . . . . . . . . . . 20,792 9,329
-------- --------
As reclassified . . . . . . . . . . . . 862,571 905,449

Total operating expenses:
As originally reported. . . . . . . . 785,734 868,717

Reclassifications:
Strategic consulting. . . . . . . . . N/A 10,421
Out-of-pocket expenses. . . . . . . . 1,350 4,023
Indirect costs. . . . . . . . . . . . 20,792 9,329
-------- --------
As reclassified . . . . . . . . . . . . 807,876 892,490
-------- --------
Operating income. . . . . . . . . . . . 54,695 12,959
======== ========

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NEW ACCOUNTING STANDARDS

DEFINED BENEFIT PENSION PLAN DISCLOSURES

In December 2003, FASB Statement No. 132 (revised), "Employers'
Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132-
R"), was issued. SFAS 132-R revises the employers' disclosure requirements
regarding defined benefit pension plans contained in the original FASB
Statement No. 132; it does not change the measurement or recognition of
those plans. SFAS 132-R also requires additional disclosures about the
assets, obligations, cash flows, and net periodic benefit cost of these
plans. SFAS 132-R is generally effective for fiscal years ending after
December 15, 2003 for U.S. based plans, and applies to non-U.S. based plans
for fiscal years ending after June 15, 2004. As our defined benefit
pension plans are non-U.S. based plans, the additional disclosure required
under SFAS 132-R will be required in our annual report for the year ended
December 31, 2004.

ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS

We adopted the provisions of FASB Statement No. 143, "Accounting for
Asset Retirement Obligations" ("SFAS 143"), as of January 1, 2003. SFAS 143
addresses financial accounting and reporting obligations associated with
the retirement of tangible long-lived assets and the associated retirement
costs. The standard applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition,
construction, development and/or normal use of the asset.

SFAS 143 requires that the fair value of the liability for an asset
retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The fair value of the
liability is added to the carrying amount of the associated asset and this
additional carrying amount is depreciated over the life of the asset. The
liability is accreted at the end of each period through charges to
operating expense. If the obligation is settled for other than the
carrying amount of the liability, we will recognize a gain or loss on
settlement. Operating leases for space we occupy in certain of our Asian
markets contain obligations that would require us, on termination of the
lease, to reinstate the space to its original condition. We have assessed
our liability under such obligations as required by the adoption of
SFAS 143. This has not had a material impact on our financial statements.

ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES

As of January 1, 2003, we adopted FASB Statement No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS
146 requires that a liability for costs associated with an exit or disposal
activity be recognized when the liability is incurred rather than when a
company commits to such an activity, and SFAS 146 also establishes fair
value as the objective for initial measurement of the liability. SFAS 146
is effective for exit or disposal activities that are initiated after
December 31, 2002. The adoption has not had a material impact on our
financial statements.

For the twelve months ended December 31, 2003 we recorded a charge of
$4.6 million to the non-recurring operating, administrative and other
expense for additional lease costs of excess space. In accordance with
SFAS 146, any costs related to the early exit of leases or abandoned new
space have been recorded at the time we ceased use of/abandoned the leased
space.

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

ACCOUNTING AND DISCLOSURE BY GUARANTORS

We apply FASB Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"), which addresses the disclosure to be
made by a guarantor in its interim and annual financial statements about
its obligations under guarantees. The Company has not entered into, or
modified guarantees pursuant to the recognition provisions of FIN 45 that
have had a significant impact on the financial statements during the twelve
months ended December 31, 2003. Guarantees covered by the disclosure
provisions of FIN 45 are discussed in the "Liquidity and Capital Resources"
contained herein.

CONSOLIDATION OF VARIABLE INTEREST ENTITIES

In January 2003 the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46").
FIN 46 addressed the consolidation by business enterprises of variable
interest entities as defined. FIN 46 applied immediately to variable
interests in variable interest entities created after January 31, 2003. We
have not invested in any variable interest entities created after January
31, 2003. For public enterprises with a variable interest entity created
before February 1, 2003, the FASB modified the application date of FIN 46
to no later than the end of the interim or annual period ending after
December 15, 2003 as it prepared to issue additional guidance.

In December 2003, the FASB issued FASB Interpretation No. 46 (revised
December 2003), "Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51" ("FIN 46-R"), which addresses how a business
enterprise should evaluate whether they have a controlling financial
interest in an entity through means other than voting rights, and
accordingly should consolidate the entity. FIN 46-R replaces FIN 46. We
have not fully assessed the impact of FIN 46-R on our consolidated
financial statements, but do not anticipate its application to be material.

ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF
BOTH LIABILITIES AND EQUITY

In May 2003, the FASB issued Statement No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" ("SFAS 150"). SFAS 150 establishes standards for how an issuer
classifies and measures in its statement of financial position certain
financial instruments with characteristics of both liabilities and equity.
SFAS 150 requires issuers to classify as liabilities (or assets in some
circumstances) three classes of freestanding financial instruments that
embody obligations for the issuer; specifically, (i) a mandatorily
redeemable financial instrument, (ii) an obligation to repurchase the
issuer's equity, (iii) certain obligations to issue a variable number of
shares. SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003. The effective date
has been deferred indefinitely for certain other types of mandatorily
redeemable financial instruments. At this time we do not believe that we
have any financial instruments that are subject to the standards of SFAS
150.

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(3) ACQUISITION

JONES LANG LASALLE ASSET MANAGEMENT SERVICES ACQUISITION

In December 2002, Jones Lang LaSalle acquired the 45% minority
interest in the joint venture company Jones Lang LaSalle Asset Management
Services, which, since 2000 has exclusively provided Asset Management
services for all Skandia Life properties in Sweden. The purchase price of
the minority interest was approximately $1 million, a discount to the fair
value of the net assets acquired. As a result, we have recorded an after-
tax gain of $341,000 as an extraordinary item in 2002.

(4) DISPOSITION

Effective December 31, 1996, we sold our Construction Management
business and certain related assets to a former member of management for a
$9.1 million note. The note, which is secured by the current and future
assets of the business, is due December 31, 2006 and bears interest at
rates of 6.8% to 10.0%, with interest payments due annually. Annual
principal repayments began in January 1998. The outstanding principal
balance of this loan as of December 31, 2003 is $4.8 million. The payments
due under the terms of this note are current.

Under the terms of the Asset Purchase Agreement, Jones Lang LaSalle
has the option to repurchase, at the then current market value, up to 49.9%
of the ownership in the Construction Management business on the earlier of
the December 31, 2006 or the prepayment of the note receivable. The choice
to exercise the repurchase option belongs solely to Jones Lang LaSalle.

(5) SHARE REPURCHASE

On October 30, 2002 we announced that our Board of Directors had
approved a share repurchase program. Under the program, we were authorized
to repurchase up to one million shares in the open market and in privately
negotiated transactions from time to time, depending upon market prices and
other conditions. In the fourth quarter of 2003 we repurchased 400,000
shares at an average price of $20.37 per share. In the fourth quarter of
2002 we repurchased 300,000 shares at an average price of $15.56 per share.

These 700,000 repurchased shares are held by a subsidiary of Jones Lang
LaSalle.

The 2002 share repurchase program replaces a program that was in
place in 2001 authorizing purchases of up to $10.0 million. On March 8,
2001, we repurchased and cancelled 473,962 shares of our own common stock
at a price of $14.65 per share, totaling $6.9 million. There were no
further purchases in 2001.

On February 27, 2004, we announced the approval by our Board of
Directors to purchase 1.5 million shares under a share repurchase program.
The shares will be purchased in the open market and in privately negotiated
transactions. The repurchase of shares is primarily intended to offset
dilution resulting from both stock and stock option grants made under the
firm's existing stock plans. This program replaces our previously announced
repurchase programs.

(6) NON-RECURRING AND RESTRUCTURING CHARGES

For the years ended December 31, 2003, 2002 and 2001, non-recurring
and restructuring charges totaled $4.4 million, $14.9 million and $77.2
million, respectively. These charges and associated tax benefits are made
up of the following ($ in millions):

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

2003 2002 2001
------ ------ ------
Non-Recurring & Restructuring Charges
- -------------------------------------
Impairment of E-commerce Investments . . . . $ -- (0.3) 18.0

Land Investment & Development Group
Impairment Charges . . . . . . . . . . . . -- 3.0 3.5

Insolvent Insurance Providers. . . . . . . . (0.6) -- 1.9

Abandonment of Property Management
Accounting System:
Compensation and Benefits. . . . . . . . 0.1 -- --
Operating, Administrative and Other. . . 5.0 -- --

Merger Related Stock Compensation. . . . . . (2.5) -- --

2001 Global Restructuring Program:
Compensation & Benefits. . . . . . . . . . (0.1) (1.3) 40.1
Operating, Administrative & Other. . . . . -- 0.1 13.7

2002 Global Restructuring Program:
Compensation & Benefits. . . . . . . . . . (2.1) 12.7 --
Operating, Administrative & Other. . . . . 4.6 0.7 --
----- ----- -----
Total Non-Recurring & Restructuring Charges. $ 4.4 14.9 77.2
===== ===== =====

Net tax benefit for current year charges . . $ 2.2 5.0 21.3
Net tax benefit for prior year charges . . . 3.0 1.8 --
----- ----- -----
$ 5.2 6.8 21.3
===== ===== =====

E-COMMERCE INVESTMENT IMPAIRMENT

In 2001, we reviewed our e-commerce investments on an investment-by-
investment basis, evaluating actual business performance against original
expectations, projected future cash flows, and capital needs and
availability. By the end of 2001, we had written down all of our
investments in e-commerce ventures. It is currently our policy to expense
any additional investments that are made into these ventures in the period
they are made due to the fact that recovery of such sums is uncertain. Any
such charges are recorded as ordinary recurring charges. In 2003 and 2002,
we expensed $820,000 and $287,000, respectively, of such investments.
Also, in 2002, $276,000 related to an e-commerce venture written-off in
2001 was recovered and recorded as a credit to non-recurring expense.

LAND INVESTMENT AND DEVELOPMENT GROUP IMPAIRMENT

We closed the non-strategic residential land investment business in
the Americas region of the Investment Management segment in 2001. Included
in non-recurring expense in 2001 was an impairment provision of $3.5
million against the carrying value of certain residential land co-
investments made by this group. We had determined that we would not fund
these investments beyond our contractual commitments and would seek to
manage an exit from this portfolio. In 2002 we recorded additional
impairment charges of $2.8 million to fully write-down an additional two of
these co-investments as a result of adverse performance expectation
developments in 2002. This charge was included in non-recurring expense.
We continue to monitor this portfolio and have not recorded

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

additional impairment charges in 2003. In the third quarter of 2003 we sold
one of the remaining assets in the Land Investment portfolio for no gain or
loss. Any future impairment charges or gains or losses on disposal
relating to the Land Investment Group will be included in non-recurring
charges. Included in investments in real estate ventures as of December 31,
2003 is the book value of the three remaining Land Investment Group
investments of $2.0 million. We have provided guarantees associated with
this investment portfolio of $750,000, which we currently do not expect to
be required to fund. We currently expect to liquidate the Land Investment
Group investments by the end of 2006.

Additionally, we disposed of our Americas Development Group in 2001,
retaining an interest in certain investments originated by this group with
the intention of liquidating them by the end of 2003. In 2002 we recorded
a gain of $675,000 as a result of the disposal of three of these
investments, an impairment charge of $472,000 relating to two properties
that were subsequently sold and equity losses of $404,000. The net expense
of $201,000 was recorded in non-recurring expense in 2002. We continue to
monitor this investment and have not recorded an impairment charge in 2003.

Any future impairment charges or gains or losses on disposal relating to
the Development Group will be included in non-recurring expenses. Included
in investment in real estate ventures as of December 31, 2003 is the book
value of the one remaining investment project of $50,000. We currently
expect to liquidate this investment by the middle of 2004.

INSOLVENT INSURANCE PROVIDERS

In 2001 we recorded $1.9 million against our exposure to insolvent
insurance providers, of which $1.6 million related to approximately 30
claims that were covered by an insolvent Australian insurance provider, HIH
Insurance Limited ("HIH"). As of December 31, 2003, we have settled
approximately 25 of these claims. However, we have been notified of
additional claims subsequent to the insolvency of HIH and approximately 22
claims remain outstanding with a reserve of approximately $0.6 million. As
a result of favorable developments related to the loss reserves, we
recorded a credit of $0.6 million to the non-recurring operating,
administrative and other expense in the second quarter of 2003. We believe
the remaining reserve is adequate to cover the remaining claims and
expenses to be paid as a result of the HIH insolvency. We expect to have
fully utilized this reserve by the end of 2006.

ABANDONMENT OF PROPERTY MANAGEMENT ACCOUNTING SYSTEM

In the second quarter of 2003, we completed a feasibility analysis of
a property management accounting system that was in the process of being
implemented in Australia. As a result of the review, we concluded that the
potential benefits from successfully correcting deficiencies in the system
that would allow it to be implemented throughout Australia were not
justified by the costs that would have to be incurred to do so. As a result
of this decision, we recorded a charge of $5.1 million to non-recurring
expense in 2003. The charge of $5.1 million includes $113,000 for severance
costs of personnel who worked exclusively on the system and $218,000 for
professional fees associated with pursuing litigation against the
consulting firm that was responsible for the design and implementation of
this system. We anticipate incurring additional expenses as the litigation
progresses. We implemented a transition plan to an existing alternative
system and have used this system from July 1, 2003.

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

MERGER RELATED STOCK COMPENSATION

On March 11, 1999, LaSalle Partners merged its business with that of
JLW and changed its name to Jones Lang LaSalle. In connection with this
merger we issued shares of our common stock as consideration. Restrictions
on certain of those shares were removed at December 31, 2000 (See our 2002
Annual Report on Form 10-K for a detailed discussion of this merger).
Included as part of our non-recurring stock compensation expense for the
year ended December 31, 2000, we provided for potential social tax
exposures relating to the issuance of these shares. As a result of a
current re-evaluation of these potential exposures and changing
circumstances, we have determined that this reserve is no longer required,
and we have reversed the remaining $2.5 million of this provision in 2003.

BUSINESS RESTRUCTURING

Business restructuring charges include severance and professional
fees associated with the realignment of our business. In 2001, the Asia
Pacific business underwent a realignment from a traditional geographic
structure to one that is managed according to business lines. In addition,
in the second half of 2001 we implemented a broad based restructuring of
our global business that reduced headcount by approximately nine percent.
The total charge for the full year of 2001 for estimated severance and
related costs was $43.9 million. Included in the $43.9 million was $40.0
million of severance costs and approximately $3.0 million of professional
fees. The balance of $900,000 included relocation and other severance
related expenses. Of the estimated $43.9 million (adjusted down to $42.6
million for reasons stated below), $41.1 million had been paid at December
31, 2003, with a further $1.5 million to be paid over the next several
years as required by labor laws.

In December 2002, we reduced our workforce by four percent to meet
expected global economic conditions. As such, we recorded $12.7 million in
non-recurring compensation and benefits expense related to severance and
certain professional fees, and $632,000 in non-recurring operating,
administrative and other expense in 2002, primarily related to the lease
cost of excess space. Of the estimated $12.7 million (adjusted down to
$10.5 million in 2003 for reasons stated below), $8.7 million had been paid
at December 31, 2003, with the remaining $1.8 million to be paid by the end
of 2004.

The actual cost incurred related to these business restructurings
have varied by individual from our original estimates for a variety of
reasons, including the identification of additional facts and
circumstances, the complexity of international labor law, developments in
the underlying business, resulting in the unforeseen reallocation of
resources and better or worse than expected settlement discussions.
Specifically, the combination of new client wins and expanded assignments
for existing clients in America has resulted in a permanent reevaluation of
planned headcount reductions. As a result of the above, we have credited
$2.2 million back to the non-recurring compensation and benefit line in
2003.

In 2003 we charged $4.6 million to non-recurring operating,
administrative and other expenses related to excess lease space as a result
of the 2002 restructuring. The most significant of these charges relates
to a $4.4 million expense for excess lease space. The 2002 restructuring
had considered this potential duplicate lease space, but because of
uncertainty about future actions, we did not establish a reserve for this
space in 2002. Early in 2003 we signed a lease modification that delayed
the timeframe in which we would have been required to occupy the new space
to allow us to fully evaluate our options. In the fourth quarter of 2003 we

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

decided to remain in our existing space rather than relocate to the new
space. As a result of the abandonment of new space, we recorded a $4.4
million charge to non-recurring operating, administrative and other expense
in 2003.

The following table displays the net charges incurred by segment for
the years ended December 31, 2003, 2002 and 2001 ($ in millions):

2003 2002 2001
------ ------ ------

Non-Recurring & Restructuring Charges
- -------------------------------------

Investor and Occupier Services:
Americas . . . . . . . . . . . . . . . . . $(1.9) 4.8 34.9
Europe . . . . . . . . . . . . . . . . . . 3.5 6.7 22.6
Asia Pacific . . . . . . . . . . . . . . . 5.0 0.3 12.6

Investment Management. . . . . . . . . . . . 0.3 2.6 5.0
Corporate. . . . . . . . . . . . . . . . . . (2.5) 0.5 2.1
----- ----- -----
Total Non-Recurring and Restructuring
Charges. . . . . . . . . . . . . . . . . . $ 4.4 14.9 77.2
===== ===== =====

(7) BUSINESS SEGMENTS

We manage our business along a combination of functional and
geographic lines. We report our operations as four business segments: (i)
Investment Management, which offers Real Estate Money Management services
on a global basis, and the three geographic regions of Investor and
Occupier Services ("IOS"): (ii) Americas, (iii) Europe and (iv) Asia
Pacific, each of which offers our full range of Real Estate Investor
Services, Real Estate Capital Markets and Real Estate Occupier Services.
The Investment Management segment provides Real Estate Money Management
services to institutional investors and high-net-worth individuals. The IOS
business consists primarily of tenant representation and agency leasing,
capital markets and valuation services (collectively "implementation
services") and property management, facilities management services, project
and development management services (collectively "management services").

Total revenue by industry segment includes revenue derived from
services provided to other segments. Operating income represents total
revenue less direct and indirect allocable expenses. We allocate all
expenses, other than interest and income taxes, as nearly all expenses
incurred benefit one or more of the segments. Allocated expenses primarily
consist of corporate global overhead, including certain globally managed
stock programs. These corporate global overhead expenses are allocated to
the business segments based on the relative revenue of each segment.

Our measure of segment operating results excludes non-recurring and
restructuring charges. See Note 6 for a detailed discussion of these non-
recurring and restructuring charges. We have determined that it is not
meaningful to investors to allocate these non-recurring and restructuring
charges to our segments. In addition, the Chief Operating Decision Maker
of Jones Lang LaSalle measures the segment results without these charges
allocated. We define the Chief Operating Decision Maker collectively as
our Global Executive Committee, which is comprised of our Global Chief
Executive Officer, Global Chief Financial Officer and the Chief Executive
Officers of each of our reporting segments.

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

We have reclassified certain prior year amounts to conform with the
current presentation. These reclassifications are discussed in Note 2.

Summarized financial information by business segment for 2003, 2002
and 2001 are as follows ($ in thousands):

2003 2002 2001
-------- -------- --------
INVESTOR AND OCCUPIER SERVICES -
AMERICAS
Revenue:
Implementation services. . . . $137,254 135,013 158,775
Management services. . . . . . 170,448 151,306 165,940
Equity earnings (losses) . . . -- (10) 366
Other services . . . . . . . . 5,056 4,119 1,665
Intersegment revenue . . . . . 760 476 1,191
-------- -------- --------
313,518 290,904 327,937
Operating expenses:
Compensation, operating and
administrative expenses. . . 257,824 240,141 277,473
Depreciation and
amortization . . . . . . . . 17,851 18,761 24,138
-------- -------- --------
Operating income . . . . $ 37,843 32,002 26,326
======== ======== ========

EUROPE
Revenue:
Implementation services. . . . $252,109 228,155 252,608
Management services. . . . . . 89,147 82,492 88,700
Other services . . . . . . . . 9,876 7,123 3,532
-------- -------- --------
351,132 317,770 344,840
Operating expenses:
Compensation, operating and
administrative expenses. . . 326,946 289,594 289,664
Depreciation and
amortization . . . . . . . . 11,168 10,421 12,652
-------- -------- --------
Operating income . . . . $ 13,018 17,755 42,524
======== ======== ========

ASIA PACIFIC
Revenue:
Implementation services. . . . $ 95,998 77,329 79,731
Management services. . . . . . 74,894 66,411 47,945
Other services . . . . . . . . 1,762 1,624 1,878
-------- -------- --------
172,654 145,364 129,554
Operating expenses:
Compensation, operating and
administrative expenses. . . 168,661 138,922 122,959
Depreciation and
amortization . . . . . . . . 6,734 6,673 6,951
-------- -------- --------
Operating loss . . . . . $ (2,741) (231) (356)
======== ======== ========

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

2003 2002 2001
-------- -------- --------

INVESTMENT MANAGEMENT
Revenue:
Implementation and
other services . . . . . . . $ 7,416 5,249 2,557
Advisory fees. . . . . . . . . 93,194 83,448 76,075
Incentive fees . . . . . . . . 4,740 17,721 17,483
Equity earnings. . . . . . . . 7,951 2,591 8,194
-------- -------- --------
113,301 109,009 104,309
Operating expenses:
Compensation, operating and
administrative expenses. . . 93,683 87,699 78,933
Depreciation and
amortization . . . . . . . . 1,191 1,270 3,679
-------- -------- --------
Operating income . . . . $ 18,427 20,040 21,697
======== ======== ========

Total segment revenue. . . . . . . $950,605 863,047 906,640
Intersegment revenue
eliminations . . . . . . . . . . (760) (476) (1,191)
-------- -------- --------
Total revenue. . . . . . 949,845 862,571 905,449
-------- -------- --------
Total segment operating
expenses . . . . . . . . . . . . 884,058 793,481 816,449
Intersegment operating
expense eliminations . . . . . . (760) (476) (1,191)
-------- -------- --------
Total operating expenses
before non-recurring and
restructuring charges . 883,298 793,005 815,258
-------- -------- --------
Non-recurring and
restructuring charges . 4,361 14,871 77,232
-------- -------- --------
Operating income . . . . $ 62,186 54,695 12,959
======== ======== ========

Identifiable assets by segment are those assets that are used by or
are a result of each segment's business. Corporate assets are principally
cash and cash equivalents, office furniture and computer hardware and
software.

The following table reconciles segment identifiable assets to
consolidated assets, investments in real estate ventures to consolidated
investments in real estate ventures and fixed asset expenditures to
consolidated fixed asset expenditures.

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The following table sets forth the revenues and assets from our most
significant currencies ($ in thousands). The euro revenues and assets
include our businesses in France, Germany, Italy, Ireland, Spain, Portugal,
Holland, Belgium and Luxemburg.
Total Total
Revenue Assets
-------- --------
United States Dollar . . . . . . $368,369 474,068
United Kingdom Pound . . . . . . 196,476 178,913
Euro . . . . . . . . . . . . . . 164,250 104,429
Australian Dollar. . . . . . . . 77,841 77,161
Other currencies . . . . . . . . 142,909 108,369
-------- --------
$949,845 942,940
======== ========

We face restrictions in certain countries which limit or prevent the
transfer of funds to other countries or the exchange of the local currency
to other currencies.

(8) INVESTMENTS IN REAL ESTATE VENTURES

We invest in certain real estate ventures that own and operate
commercial real estate. These investments include non-controlling ownership
interests generally ranging from less than 1% to 47.85% of the respective
ventures. We generally account for these interests under the equity method
of accounting in the accompanying Consolidated Financial Statements. As
such, we recognize our share of the underlying profits and losses of the
ventures as revenue in the accompanying Consolidated Statements of
Earnings. We are generally entitled to operating distributions in
accordance with our respective ownership interests. Substantially all
venture interests are held by corporate subsidiaries of Jones Lang LaSalle.

Accordingly, our exposure to liabilities and losses of these ventures is
limited to our existing capital contributions and remaining capital
commitments. To the extent that our investment basis may differ from our
share of the equity of an unconsolidated investment, such difference would
be amortized over the depreciable lives of the investee's investment
assets.

We apply the provisions of FASB Statement No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), when
evaluating these investments for impairment, including impairment
evaluations of the individual assets held by investment funds. We have
recorded impairment charges to equity earnings of $4.1 million in 2003,
representing our equity share of the impairment charge against individual
assets held by funds. There were no similar charges to equity earnings in
2002 or 2001. Impairment charges of $3.0 million and $3.5 million for 2002
and 2001, respectively, related to the exiting of our Land Investment and
Development groups were recorded to non-recurring expense. For a further
discussion of these non-recurring charges see Note 6.

Effective January 1, 2001, we established LaSalle Investment Company
("LIC"), formerly referred to as LaSalle Investment Limited Partnership, a
series of four parallel limited partnerships, as our investment vehicle for
substantially all new co-investments. Our original capital commitment to
LIC was euro 150 million. Through December 31, 2003, we have funded euro
30 million. As of December 31, 2003, we have the remaining unfunded
commitment of euro 120 million ($151 million). We anticipate that LIC will
require this capital over the next five to seven years. At December 31,
2003, LIC has unfunded capital commitments of $68.2 million, of which our
47.85% share is $32.6 million. We have an effective ownership interest in
LIC of 47.85%, the remaining 52.15% interest is held primarily by
institutional investors, including a significant shareholder in Jones Lang

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

LaSalle. In addition, our Chairman and Chief Executive Officer, and
another Director of Jones Lang LaSalle are investors in LIC on equivalent
terms to other investors. The investment in LIC is accounted for under the
equity method of accounting in the accompanying Consolidated Financial
Statements. Additionally, our Board of directors has recently endorsed the
use of our capital in particular situations to control or bridge finance
existing real estate assets or portfolios to seed future investment
products. The purpose of this is to accelerate capital raising and assets
under management.

LIC has, and will continue to, invest in certain real estate ventures
that own and operate commercial real estate. LIC generally invests via
limited partnerships and intends to own 20% or less of the respective
ventures. At December 31, 2003, LIC has unfunded capital commitments of
$68.2 million, of which our 47.85% share is $32.6 million, for future
fundings of co-investments.

In the third quarter of 2003, LIC entered into a euro 35 million
($44.1 million) revolving credit facility (the "LIC facility") principally
for its working capital needs. The LIC facility contains a credit rating
trigger (related to the credit rating of one of LIC's investors who is
unaffiliated with Jones Lang LaSalle) and a material adverse condition
clause. If either the credit rating trigger or the material adverse
condition clause becomes triggered, the LIC Facility would be in default
and would need to be repaid. This would require us to fund our pro-rata
share of the then outstanding balance on the LIC Facility, to which our
liability is limited. The maximum exposure to Jones Lang LaSalle, assuming
that the LIC Facility were fully drawn, would be euro 16.7 million ($21.0
million). As of December 31, 2003 there were no outstanding borrowings on
this facility. LIC's exposure to liabilities and losses of the ventures is
limited to its existing capital contributions and remaining capital
commitments.

The following table summarizes the financial statements of LIC ($ in
thousands):
2003 2002 2001
---------- ---------- ----------
Balance Sheet
Investments in real estate . . . .$ 64,344 54,050 6,721
---------- ---------- ----------
Total Assets . . . . . . . . . . . .$ 68,829 64,542 9,368
========== ========== ==========

Other borrowings . . . . . . . . . .$ -- -- --
Mortgage indebtedness. . . . . . . . -- -- --
---------- ---------- ----------
Total Liabilities. . . . . . . . . .$ 3,589 2,909 2,570
========== ========== ==========
Total Equity . . . . . . . . . . . .$ 65,240 61,633 6,798
========== ========== ==========
Statement of Operations
Revenues . . . . . . . . . . . . .$ 4,288 721 131
Net Loss . . . . . . . . . . . . .$ (420) (168) (129)
========== ========== ==========

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The following table summarizes the combined financial information for
the unconsolidated ventures (including those that are held via LIC),
accounted for under the equity method of accounting ($ in thousands):

2003 2002 2001
---------- --------- ---------
Balance Sheet:
Investments in real estate . . .$3,773,418 3,180,682 2,432,609
Total assets . . . . . . . . . .$4,079,530 3,413,917 2,628,599
========== ========= =========
Other borrowings . . . . . . . .$ 323,566 273,130 163,582
Mortgage indebtedness. . . . . .$1,855,824 1,546,680 837,243
Total liabilities. . . . . . . .$2,395,883 1,977,677 1,166,436
========== ========= =========
Total equity . . . . . . . . . .$1,683,647 1,436,240 1,462,163
========== ========= =========

Statements of Operations:
Revenues . . . . . . . . . . . .$ 459,722 336,047 370,395
Net earnings . . . . . . . . . .$ 37,332 67,955 109,201
========== ========= =========

The following table shows our interests in these unconsolidated
ventures ($ in thousands):
2003 2002 2001
---------- --------- ---------

Loans to real estate ventures. . . .$ 11,493 9,175 7,629
Equity investments in real
estate ventures. . . . . . . . . .$ 59,842 65,819 56,899
Total investments in real
estate ventures. . . . . . . . . .$ 71,335 74,994 64,528
========== ========= =========
Equity in earnings from
real estate ventures
recorded by Jones Lang
LaSalle. . . . . . . . . . . . . .$ 7,951 2,581 8,560
========== ========= =========

As of December 31, 2003, we had total investments and loans of $71.3
million in approximately 20 separate property or fund co-investments. The
loans to real estate ventures bear interest rates of 7.25% to 8.0% and are
to be repaid by 2008. The Company provides guarantees to third-party
financial institutions that would require us to fund monies in the event
that the underlying co-investment loans default. As of December 31, 2003 we
have repayment guarantees outstanding of $5.0 million.

LaSalle Hotel Properties ("LHO"), a real estate investment trust,
completed its initial public offering in April 1998. We provided advisory,
acquisition and administrative services to LHO for which we received a base
advisory fee calculated as a percentage of net operating income, as well as
performance fees based on growth in funds from operations on a per share
basis. Such performance fees were paid in the form of LHO common stock or
units, at our option. LHO was formed with 10 hotels, in which we had a
nominal co-investment and investment advisory agreement with nine of these
hotels. We contributed our ownership interests in the hotels as well as the

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

related performance fees to LHO for an effective ownership interest of
approximately 6.4%, which included certain residual "Common Share Purchase
Rights" that give us the ability to purchase shares in LHO at a fixed
price. Effective January 1, 2001, the service agreement with LHO was
terminated and LHO became a self-managed real estate investment trust. As a
result of the terminated service agreement, we changed our method of
accounting for LHO to the cost method. On February 1, 2001, we sold our
investment in LHO and recognized a gain of $2.7 million. We continue to
hold the "Common Share Purchase Rights", which extend through April of
2008. These rights are derivative financial instruments, and as such, we
reflect their fair value in our financial statements--See Note 2 for a
detailed discussion of the accounting treatment of these rights. The fair
value of these rights at December 31, 2003 was $1.4 million, which we
included in the investments in unconsolidated real estate ventures on the
Consolidated Balance Sheet.

(9) DEBT

We have the ability to borrow on our $225 million unsecured revolving
credit facility, with authorization to borrow up to an additional $60
million under local facilities. We also have outstanding our euro 165
million aggregate principal amount of 9.0% Senior Notes, due in 2007 (the
"Euro Notes").

On July 26, 2000, we closed our offering of the Euro Notes. The net
proceeds of $148.6 million were used to pay-down other borrowings. The
Euro Notes were issued by Jones Lang LaSalle Finance B.V. ("JLL Finance"),
a wholly owned subsidiary of Jones Lang LaSalle.

On June 26, 2003, we renegotiated our unsecured revolving credit
facility agreement reducing the facility from $275 million to $225 million
and extended the term to 2006 from its previous due date in 2004. There
currently are eleven participating banks to our revolving credit facility.

As of December 31, 2003, there were no borrowings outstanding under
our $225 million revolving credit facility, borrowings of euro 165 million
($207.8 million) outstanding under the Euro Notes, and short-term
borrowings (including capital lease obligations) of $3.6 million. $3.2
million of the short-term borrowings are local borrowings by subsidiaries
on various interest-bearing overdraft facilities. The increase in the
reported U.S. dollar book value of the Euro Notes of $34.7 million in 2003
was solely as a result of the strengthening euro. No additional Euro Notes
have been issued. Beginning June 15, 2004, the Euro Notes can be redeemed,
at our option, at the following redemption prices: during the twelve-month
period commencing June 15, 2004 at 104.50% of principal; during the twelve-
month period commencing June 15, 2005 at 102.25% of principal; during the
twelve-month period commencing June 15, 2006 at 100.00% of principal. If
the market conditions prove favorable, we intend to call the Euro Notes in
June 2004 using the revolving credit facility or other sources. If we were
to call the Euro Notes in June 2004, we would incur approximately $11.5
million (dependent upon prevailing exchange rates) of expense related to
the acceleration debt issuance cost amortization and the premiums paid to
redeem the Euro Notes.

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Jones Lang LaSalle and certain of our subsidiaries guarantee the
revolving credit facility and the Euro Notes (the "Facilities"), as well as
the local overdraft facilities of certain subsidiaries. Third-party
lenders request these guarantees to ensure payment by the Company in the
event that one of our subsidiaries fails to repay its borrowings. We apply
FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others" ("FIN 45"), to recognize and measure the provisions of
guarantees. The guarantees of the revolving credit facility, Euro Notes and
local overdraft facilities do not meet the recognition provisions, but do
meet the disclosure requirements of FIN 45. We have local overdraft
facilities totaling $44.2 million, of which $3.2 million was outstanding as
of December 31, 2003. We have provided guarantees of $30.3 million related
to the local overdraft facilities, as well as guarantees related to the
$225 million revolving credit facility and the euro 165 million Euro Notes,
which in total represent the maximum future payments that Jones Lang
LaSalle could be required make under the guarantees provided for
subsidiaries' third-party debt.

With respect to the revolving credit facility, we must maintain
consolidated net worth of at least $318 million and a leverage ratio not
exceeding 3.0 to 1. We must also maintain a minimum interest coverage ratio
of 2.5 to 1 and a minimum fixed charge coverage ratio of 1.1 to 1. As part
of the renegotiation of the revolving credit facility, the ratios for the
leverage and minimum interest coverage were revised to provide more
operating flexibility under these covenants. Our covenants exclude the
impact of certain of the non-cash charges related to the abandonment of a
property management system in Australia and certain of the charges taken in
2002 related to the Land Investment Group. We are in compliance with all
covenants at December 31, 2003. Additionally, we are restricted from, among
other things, incurring certain levels of indebtedness to lenders outside
of the Facilities and disposing of a significant portion of our assets.
Lender approval is required for certain levels of co-investment. The
revolving credit facility bears variable rates of interest based on market
rates. We are authorized to use interest rate swaps to convert a portion of
the floating rate indebtedness to a fixed rate, however, none were used
during 2003 or 2002 and none were outstanding as of December 31, 2003. The
effective interest rate on the Facilities was 8.2% in 2003 versus 7.3% in
2002.

(10) LEASES

We lease office space in various buildings for our own use. The
terms of these non-cancelable operating leases provide for us to pay base
rent and a share of increases in operating expenses and real estate taxes
in excess of defined amounts. We also lease equipment under both operating
and capital lease arrangements.

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Minimum future lease payments (e.g., base rent for leases of office
space) due in each of the next five years ending December 31 and thereafter
are as follows ($ in thousands):
Operating Capital
Leases Leases
--------- -------
2004 . . . . . . . . . . $ 46,268 449
2005 . . . . . . . . . . 41,298 423
2006 . . . . . . . . . . 35,915 223
2007 . . . . . . . . . . 25,931 52
2008 . . . . . . . . . . 19,490 33
Thereafter . . . . . . . 9,344 30
-------- -------
$178,246 1,210
========
Less: Amount repre-
senting interest . . . (81)
-------
Present value of
minimum lease
payments . . . . . . . $ 1,129
=======

As of December 31, 2003, we have reserves related to excess lease
space of $7.2 million, which were identified as part of our restructuring
charges. The total of minimum rentals to be received in the future under
noncancelable operating subleases as of December 31, 2003 was $6.2 million.

Assets recorded under capital leases in our Consolidated Balance
Sheet at December 31, 2003 and 2002 are as follows ($ in thousands):

2003 2002
-------- --------
Furniture, fixtures and equipment $ 1,892 1,421
Computer equipment and software 1,426 1,172
Automobiles 1,052 1,289
-------- --------
4,370 3,882
Less accumulated depreciation
and amortization (3,262) (2,083)
-------- --------
Net assets under capital leases $ 1,108 1,799
======== =========

Rent expense was $56.5 million, $50.4 million and $45.5 million
during 2003, 2002 and 2001, respectively. Rent expense excludes charges
associated with excess leases space taken as part of restructuring
expenses.

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(11) INCOME TAXES

For the years ended December 31, 2003, 2002 and 2001, our provision
for income taxes consisted of the following ($ in thousands):

Year Ended December 31,
----------------------------------------
2003 2002 2001
-------- -------- --------

U.S. Federal:
Current. . . . . . . . $ 3,427 $ 8 $ --
Deferred tax . . . . . (3,505) 1,981 (2,216)
-------- -------- --------
(78) 1,989 (2,216)
-------- -------- --------

State and Local:
Current. . . . . . . . 490 -- 1,063
Deferred tax . . . . . (202) 378 (1,921)
-------- -------- --------
288 378 (858)
-------- -------- --------

Foreign:
Current. . . . . . . . 14,650 17,220 13,920
Deferred tax . . . . . (6,600) (8,550) (2,860)
-------- -------- --------
8,050 8,670 11,060
-------- -------- --------

Total. . . . . . . . . . $ 8,260 $ 11,037 $ 7,986
======== ======== ========

In 2003 and 2002 our current tax liabilities were reduced by $4.6
million and $4.5 million, respectively, due to the utilization of prior
years' net operating loss carryovers.

Income tax expense for 2003, 2002 and 2001 differed from the amounts
computed by applying the U.S. federal income tax rate of 35% to earnings
before provision for income taxes (income of $44.3 million for the year
ended December 31, 2003, income of $37.7 million for the year ended
December 31, 2002 and a loss of $7.2 million for the year ended
December 31, 2001) as a result of the following ($ in thousands):

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

2003 2002 2001
---------------- ---------------- ----------------

Computed "expected"
tax expense
(benefit) . . . . . .$15,514 35.0% $13,185 35.0% $(2,519) 35.0%
Increase (reduction)
in income taxes
resulting from:
State and local
income taxes,
net of federal
income tax benefit. 187 0.4% 246 0.7% (588) 8.2%
Amortization of
goodwill and
other intangibles . (1,556) (3.5%) (1,417) (3.8%) 1,195 (16.6%)
Nondeductible
expenses. . . . . . 1,890 4.2% 1,999 5.3% 3,041 (42.3%)
Foreign earnings
taxed at varying
rates . . . . . . . (4,805) (10.8%) (3,534) (9.4%) (901) 12.5%
Valuation
allowances. . . . . 1,281 2.9% 411 1.1% 6,943 (96.5%)
Other, net . . . . . (1,251) (2.8%) 1,947 5.2% 815 (11.2%)
Additional tax
benefit on 2001
restructuring
reserve actions. . (3,000) (6.8%) (1,800) (4.8%) -- --
------- ------ ------- ------- ------- -------

$ 8,260 18.6% $11,037 29.3% $ 7,986 (110.9%)
======= ====== ======= ======= ======= =======

For the years ended December 31, 2003, 2002 and 2001, our income
(loss) before taxes from domestic and international sources are as follows
($ in thousands):
Year Ended December 31,
--------------------------------
2003 2002 2001
-------- -------- --------
Domestic . . . . . . . . . . . . $ 9,768 5,311 (17,635)
International. . . . . . . . . . 34,557 32,360 10,438
-------- -------- --------
Total. . . . . . . . . . . $ 44,325 37,671 (7,197)
======== ======== ========

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities are presented below ($ in thousands):
December 31,
--------------------------------
2003 2002 2001
-------- -------- --------
Deferred tax assets:
Accrued expenses . . . . . . . . . $ 20,817 $ 18,754 $ 16,447
Revenue deferred per SAB 101 . . . -- -- 7,740
U.S. Federal and state loss
carryforwards . . . . . . . . . . 19,367 13,917 10,426
Allowances for uncollectible
accounts. . . . . . . . . . . . . 902 747 1,683
Foreign tax credit carryforwards . -- 761 4,410
Foreign loss carryforwards . . . . 25,345 17,053 8,762
Property and equipment . . . . . . 2,994 4,383 3,172
Investments in real estate
ventures and other
investments. . . . . . . . . . . 12,752 12,596 9,542
Other. . . . . . . . . . . . . . . 2,207 1,835 249
-------- -------- --------
84,384 70,046 62,431
Less valuation allowances. . . . . (9,002) (12,223) (12,065)
-------- -------- --------
$ 75,382 $ 57,823 $ 50,366
======== ======== ========
Deferred tax liabilities:
Prepaid pension asset. . . . . . . $ 2,285 $ 2,311 $ 4,061
Intangible assets. . . . . . . . . 10,687 7,137 6,660
Income deferred for tax purposes . 1,873 2,117 2,400
Other. . . . . . . . . . . . . . . 2,572 203 1,130
-------- -------- --------
$ 17,417 $ 11,768 $ 14,251
======== ======== ========

A deferred U.S. tax liability has not been provided on the unremitted
earnings of foreign subsidiaries because it is our intent to permanently
reinvest such earnings outside of the United States. If repatriation of
all such earnings were to occur, and if we were unable to utilize foreign
tax credits due to the limitations of U.S. tax law, we estimate our maximum
resulting U.S. tax liability would be $40.5 million, net of the benefits of
utilization of U.S. Federal and state carryovers.

As of December 31, 2003, we had available U.S. Federal net operating
loss carryforwards of $38 million which begin to expire after 2019, capital
loss carryovers of $4 million which expire after 2008, U.S. state net
operating loss carryforwards of $79 million which expire after 2004 through
2022, and foreign net operating loss carryforwards of $74 million which
begin to expire after 2004.

As of December 31, 2003, we believe that it is more likely than not
that the net deferred tax asset of $58 million will be realized based upon
our estimates of future income and the consideration of net operating
losses, earnings trends and tax planning strategies. Valuation allowances
have been provided with regard to the tax benefit of certain foreign net
operating loss carryforwards and U.S. capital loss carryforwards, for which
we have concluded that recognition is not yet appropriate under Statement
No. 109, "Accounting for Income Taxes." In 2003, we reduced valuation
reserves by $0.2 million on net operating losses in one jurisdiction due to
changes in circumstances which caused us to change our judgement on the
current and future utilization of those losses, and we increased valuation
reserves by $1.4 million for other jurisdictions based upon circumstances

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

which caused us to establish or to continue to provide valuation reserves
on current year losses in addition to those provided in prior years. We
also reversed a valuation reserve previously established on an e-commerce
investment write-down of $3.0 million.

As of December 31, 2003, our current receivable for income tax was
$3.0 million.

(12) RETIREMENT PLANS

DEFINED CONTRIBUTION PLANS

We have a qualified profit sharing plan for our eligible U.S.
employees that incorporates United States Internal Revenue Code Section
401(k) for our eligible U.S. employees. Contributions under the qualified
profit sharing plan are made via a combination of employer match and an
annual contribution on behalf of eligible employees. Included in the
accompanying Consolidated Statements of Earnings for the years ended
December 31, 2003, 2002 and 2001 are employer contributions of $2.3
million, $1.5 million and $1.7 million, respectively. Related trust assets
of the Plan are managed by trustees and are excluded from the accompanying
Consolidated Financial Statements.

We maintain several defined contribution retirement plans for our
eligible non-U.S. employees. Our contributions to these plans were
approximately $7.2 million, $1.9 million and $2.4 million for the years
ended December 31, 2003, 2002 and 2001, respectively. The increase in
contributions in 2003 is due to the curtailment of the UK defined benefit
pension plan and the implementation of a defined contribution plan.

DEFINED BENEFIT PLANS

We maintain contributory defined benefit pension plans in the UK,
Ireland and Holland to provide retirement benefits to eligible employees.
It is our policy to fund the minimum annual contributions required by
applicable regulations.

Net periodic pension cost consisted of the following ($ in
thousands):
2003 2002 2001
-------- -------- --------
Employer service cost
- benefits earned
during the year . . . . . . . . $ 2,254 $ 8,533 $ 7,300
Interest cost on projected
benefit obligation. . . . . . . 6,230 5,649 5,575
Expected return on plan assets. . (6,797) (7,309) (8,572)
Net amortization/deferrals. . . . 167 50 --
Recognized actual loss. . . . . . 389 -- --
-------- -------- --------
Net periodic pension cost . . . . $ 2,243 $ 6,923 $ 4,303
======== ======== ========

The reduction in net periodic pension cost in 2003 was as a result of
the curtailment of the UK defined benefit plan, which was replaced with the
implementation of a defined contribution plan, effective January 1, 2003.

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The change in benefit obligation and plan assets and reconciliation
of funded status as of December 31, 2003, 2002 and 2001 are as follows ($
in thousands):
2003 2002 2001
-------- -------- --------
Change in benefit obligation:
Projected benefit obligation
at beginning of year. . . . . $114,835 $ 88,598 $ 93,854
Service cost. . . . . . . . . . 2,254 8,533 7,300
Interest cost . . . . . . . . . 6,230 5,649 5,575
Plan participants' contribu-
tions . . . . . . . . . . . . 225 232 167
Plan amendments . . . . . . . . -- -- 379
Benefits paid . . . . . . . . . (6,374) (3,589) (3,711)
Actuarial loss (gain) . . . . . (7,235) 4,569 (12,293)
Changes in foreign exchange
rates . . . . . . . . . . . . 13,350 10,843 (2,673)
Other . . . . . . . . . . . . . (316) -- --
-------- -------- --------
Projected benefit obliga-
tion at end of year . . . . $122,969 $114,835 $ 88,598
======== ======== ========

Change in plan assets:
Fair value of plan assets
at beginning of year. . . . . $ 93,777 $ 95,522 $119,763
Actual return on plan assets. . 20,329 (8,939) (17,726)
Plan contributions. . . . . . . 3,350 1,284 714
Benefits paid . . . . . . . . . (6,374) (3,589) (3,711)
Changes in foreign exchange
rates . . . . . . . . . . . . 12,827 9,648 (3,518)
Other . . . . . . . . . . . . . (459) (149) --
-------- -------- --------
Fair value of plan assets
at end of year. . . . . . . $123,450 $ 93,777 $ 95,522
======== ======== ========

Reconciliation of funded status:
Funded status . . . . . . . . . $ 481 $(21,058) $ 6,924
Unrecognized actuarial loss . . 10,105 29,454 6,483
Unrecognized prior service
cost. . . . . . . . . . . . . 462 414 377
-------- -------- --------
Net amount recognized . . . . $ 11,048 $ 8,810 $ 13,784
======== ======== ========

The amounts recognized in the accompanying Consolidated Balance Sheet
as of December 31, 2003, 2002 and 2001 are as follows ($ in thousands):

2003 2002 2001
-------- -------- --------
Prepaid pension asset . . . . . . $ 11,920 $ 9,646 $ 14,384
Accrued pension liability . . . . (872) (836) (600)
-------- -------- --------
Net amount recognized . . . . . . $ 11,048 $ 8,810 $ 13,784
======== ======== ========

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

On January 1, 2003 we curtailed the United Kingdom defined benefit
plan and implemented a defined contribution plan. No gain or loss was
required to be recognized as a result of the curtailment. The table below
shows the impact of the curtailment on the accumulated benefit obligation,
the projected benefit obligation and the fair value of the plan assets ($
in millions):
At At
December 31, January 1,
2002 2003
------------ ----------

Projected benefit obligation. . . . . . $ 104.2 $ 92.7
------- -------

Accumulated benefit obligation. . . . . $ 82.2 $ 90.1
Fair value of plan assets . . . . . . . $ 85.3 $ 85.3
Surplus/(Shortfall) of plan assets
to accumulated benefit obligation . . $ 3.1 $ (4.8)

As part of the curtailment we were statutorily required to provide a
minimum level of future benefit increase, which caused our accumulated
benefit obligation to increase by $7.9 million at January 1, 2003, as
compared to December 31, 2002. After the curtailment the accumulated
benefit obligation exceeded the fair value of plan assets, which meant
that, in Q1, 2003, we were required under accounting principles generally
accepted in the United States of America to record a minimum pension
liability through other comprehensive income in stockholders equity. At
December 31, 2003, as a result of the return on plan assets and our pound
sterling 1 million ($1.8 million) contribution to the plan, the fair value
of our UK pension plan assets are greater than our accumulated benefit
obligation under the plan. As required, we removed our minimum pension
liability. Under local laws and regulations we were not currently required
to fund the plan. However, given our current intent to ensure that the plan
remains funded to a reasonable level, we contributed pound sterling 1
million ($1.8 million) to the plan in the fourth quarter of 2003.

In the third quarter of 2003 we identified that the accumulated
benefit obligation of the Ireland defined benefit plan exceeded the fair
value of the plan assets by $0.7 million. As a result of this, in the
third quarter of 2003 we recorded a minimum pension liability consisting of
$0.7 million of excess accumulated benefit obligation, plus the value of
the prepaid pension asset of $1.6 million, net of an intangible asset of
$400,000 established to record the unrecognized prior service cost. The
adjustment to reflect the required minimum pension liability of $1.9
million, net of associated tax benefit of $290,000, was recorded through
other comprehensive income in the third quarter of 2003. At December 31,
2003, the fair value of this plan's assets were greater than the
accumulated benefit obligation, therefore, no minimum pension liability was
required and all amounts recorded were reversed in the fourth quarter.

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The range of assumptions used in developing the projected benefit
obligation as of December 31 were as follows:

2003 2002 2001
-------------- -------------- --------------
Discount rate used
in determining
present values . . . 5.25% to 5.90% 5.50% to 6.00% 5.80% to 6.25%

Annual increase in
future compensation
levels . . . . . . . 2.00% to 4.10% 2.00% to 3.80% 2.00% to 4.00%

Expected long-term
rate of return on
assets . . . . . . . 5.25% to 7.20% 5.50% to 7.50% 5.80% to 7.50%

Plan assets consist of a diversified portfolio of fixed-income
investments and equity securities.

(13) STOCK OPTION AND STOCK COMPENSATION PLANS

STOCK AWARD AND INCENTIVE PLAN

In 1997, we adopted the 1997 Stock Award and Incentive Plan ("SAIP")
that provides for the granting of options to purchase a specified number of
shares of common stock and other stock awards to eligible participants of
Jones Lang LaSalle. In 2002, the SAIP was amended and restated and merged
with the Stock Compensation Program ("SCP"). Under the plan, the total
number of shares of common stock available to be issued is 9,110,000. The
options are generally granted at the market value of common stock at the
date of grant. The options vest at such times and conditions as the
Compensation Committee of our Board of Directors determines and sets forth
in the award agreement. Such options granted in 2003, 2002 and 2001 vest
over a period of zero to five years. At December 31, 2003, 2002 and 2001,
there were 1.5 million, 2.4 million and 3.9 million shares, respectively,
available for grant under the SAIP.

The per share weighted-average fair value of options granted during
2003, 2002 and 2001 was $7.85, $11.61 and $7.54 on the date of grant using
the Black Scholes option-pricing model with the following weighted-average
assumptions:
2003 2002 2001
-------------- ------------- -------------
Expected dividend yield. . 0.00% 0.00% 0.00%
Risk-free interest rate. . 3.56% 3.51% 5.61%
Expected life. . . . . . . 6 to 9 years 6 to 9 years 6 to 9 years
Expected volatility. . . . 42.85% 45.31% 46.72%
Contractual terms. . . . . 7 to 10 years 7 to 10 years 7 to 10 years

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

We account for our stock option and stock compensation plans under
the provisions of, FASB Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), as amended by FASB Statement No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure"
("SFAS 148"). These provisions allow entities to continue to apply the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") using the intrinsic-value-based
method, and provide pro forma net income and net income per share
disclosures as if the fair-value-based method, defined in SFAS 123, as
amended, had been applied. We have elected to apply the provisions of
APB 25 in accounting for stock options and other stock awards. Therefore,
pursuant to APB 25, no compensation expense has been recognized with
respect to options granted at the market value of our common stock on the
date of grant. As a result of a change in compensation strategy, other
than as an inducement to certain new employees and annual awards to non-
employee members of our Board of Directors, we do not generally utilize
stock option grants as part of our employee compensation program. This
reduction in use of options as part of our compensation strategy is
reflected below with the reduction in options granted. We have recognized
other stock awards, which we granted at prices below the market value of
our common stock on the date of grant, as compensation expense over the
vesting period of those awards pursuant to APB 25. The following table
provides net income (loss), and pro forma net income (loss) per common
shares as if the fair-value-based method had been applied to all awards ($
in thousands, except share data):

2003 2002 2001
-------- -------- --------

Net income (loss), as reported . . . . $ 36,065 27,110 (15,411)

Add: Stock-based employee
compensation expense included
in reported net income, net of
related tax effects. . . . . . . . . 10,696 7,478 4,634

Deduct: Total stock-based
employee compensation expense
determined under fair-value-
based method for all awards,
net of related tax effects . . . . . (12,473) (9,424) (8,576)
-------- -------- --------

Pro forma net income (loss). . . . . . $ 34,288 25,164 (19,353)
======== ======== ========

Net earnings (loss) per share:
Basic--as reported . . . . . . . . . $ 1.17 0.89 (0.51)
======== ======== ========
Basic--pro forma . . . . . . . . . . $ 1.11 0.83 (0.64)
======== ======== ========

Diluted--as reported . . . . . . . . $ 1.12 0.85 (0.51)
======== ======== ========
Diluted--pro forma . . . . . . . . . $ 1.06 0.79 (0.64)
======== ======== ========

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Stock option activity is as follows (shares in thousands):

2003 2002 2001
------------------ ----------------- ------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- --------- ------- --------- ------- ---------
Outstanding at
beginning of
year. . . . . 3,282.5 $20.98 3,327.9 $20.68 2,961.7 $22.46
Granted. . . . 83.2 18.14 593.2 22.16 603.9 13.12
Exercised. . . (201.2) 12.56 (151.0) 13.23 (6.0) 12.25
Forfeited. . . (128.2) 27.30 (487.6) 22.75 (231.7) 23.97
------- ------- -------
Outstanding at
end of year . 3,036.3 $21.20 3,282.5 $20.98 3,327.9 $20.68
======= ======= =======

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

OTHER STOCK COMPENSATION PROGRAMS

In November of 2001, we established the Jones Lang LaSalle Savings
Related Share Option (UK) Plan ("SAYE") for employees of our UK based
operations. Our Compensation Committee approved the reservation of 500,000
shares for the SAYE on May 14, 2001. Under the SAYE plan, employees have a
one time opportunity to enter into a tax efficient savings program linked
to the option to purchase our stock. The employees' contributions for
stock purchases will be enhanced by Jones Lang LaSalle through an
additional contribution of 15%. Both employee and employer contributions
vest over a period of three to five years. The SAYE plan resulted in the
issuance of 219,954 options in 2002 at an exercise price of $13.63. Our
contribution of $528,000 will be recorded as compensation expense over the
vesting period which began January 1, 2002.

We award restricted stock units of our common stock to certain of our
employees and members of our Board of Directors. These shares are drawn
from the SAIP. The related compensation cost is amortized to expense over
the vesting period. These shares generally vest 50% at 40 months from the
date of grant and 50% at 64 months from the date of grant. The following
table sets forth the details of our restricted stock grants (in millions,
except Shares Issued/Outstanding and Weighted Average Market Value):

As of December 31, 2003
------------------------------------ Net Amortization for
Weighted Deferred Years Ending
Shares Average Compen- December 31,
Grant Issued/ Market sation ---------------------
Year Outstanding Value Expense 2003 2002 2001
- ----- ----------- ------- -------- ----- ----- -----

2000 313,125 $ 12.31 $ 3.9 (0.2) (0.7) (1.2)

2002 436,499 $ 19.15 $ 8.4 (2.5) (1.7) --

2003 430,347 $ 14.08 $ 6.1 (1.6) -- --
---------- ----- ----- -----
1,179,971 (4.3) (2.4) (1.2)
========== ===== ===== =====

In 1999, we established a stock ownership program for certain of our
employees pursuant to which they were paid a portion of their annual bonus
in the form of restricted stock units of our common stock. We enhanced the
number of shares by 20% with respect to the 1999 plan year, and by 25% with
respect to plan years beginning in 2000. These restricted shares vest 50%
at 18 months from the date of grant (January of the year following that for
which the bonus was earned) and 50% vest at 30 months from the date of
grant. The related compensation cost is amortized over the service period.
The service period consists of the twelve months of the year to which the
payment of restricted stock relates, plus the periods over which the shares
vest. In 2002, we expanded the population of employees who qualified for
this program as part of our goal of broadening employee stock ownership.
The following table sets forth the details of our stock ownership program
(in millions, except Shares Issued/Outstanding and Weighted Average Market
Value):

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

As of December 31, 2003
------------------------------------ Net Amortization for
Weighted Deferred Years Ending
Shares Average Compen- December 31,
Grant Issued/ Market sation ----------------------
Year Outstanding Value Expense 2003 2002 2001
- ----- ----------- ------- -------- ------ ----- -----
1999 500,000 $ 11.31 $ 5.8 -- (0.4) (1.7)

2000 700,000 $ 13.50 $ 8.2 (0.8) (2.4) (3.3)

2001 300,000 $ 17.80 $ 5.8 (1.6) (2.1) (1.8)

2002 700,000 $ 15.89 $ 10.6 (3.4) (3.8) --

2003 700,000 $ 20.89 $ 14.4 (4.8) -- --
---------- ------ ----- -----

2,900,000 $(10.6) (8.7) (6.8)
========== ====== ===== =====

In 1997 and 1998, we maintained the SCP for eligible employees.
Under this program, employee contributions for bonuses for stock purchases
were enhanced by us through an additional contribution of 15%. Employee
contributions vested immediately while our contributions were subject to
various vesting periods. The related compensation cost is amortized to
expense over the vesting period. 207,022 total shares were paid into this
program. Total compensation expense recognized under the program during
2001 was $172,802. As of December 31, 2001, all compensation expense
related to these shares has been recognized, therefore, there is no such
expense after December 31, 2001. As of December 31, 2003, 199,239 shares
have been distributed under this program with the remaining to be
distributed in the future. This program was suspended in 1999, therefore
no further contributions will be made. As referenced above under the Stock
Award and Incentive Plan, the SCP was merged into the SAIP in 2002.

In 1998, we adopted an Employee Stock Purchase Plan ("ESPP") for
eligible U.S. based employees. Under this plan, employee contributions for
stock purchases will be enhanced by us through an additional contribution
of 15%. Employee contributions and our contributions vest immediately. As
of December 31, 2003, 949,164 shares have been purchased under this plan.
During 2003 and 2002, 192,474 shares and 147,351 shares, respectively,
having weighted-average grant-date market values of $13.47 and $14.12,
respectively, were purchased under the program. No compensation expense is
recorded with respect to this program.

(14) TRANSACTIONS WITH AFFILIATES

As part of our co-investment strategy we have equity interests in
real estate ventures, some of which have certain of our officers as
trustees or board of director members, and from which we earn advisory and
management fees. Included in the accompanying Consolidated Financial
Statements are revenues of $32.5 million, $53.9 million and $44.9 million
for 2003, 2002 and 2001, respectively, as well as receivables of $6.5
million, $12.3 million and $5.5 million at December 31, 2003, 2002 and
2001, respectively, related to these equity interests.

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

We also earn fees and commissions for services rendered to affiliates
of Dai-ichi Life Property Holdings, Inc. and Gothaer Lebensversicherung
A.G., two significant shareholders. Included in the accompanying
Consolidated Financial Statements are revenues from such affiliates of $1.7
million, $4.9 million and $9.0 million for 2003, 2002 and 2001,
respectively, as well as receivables for reimbursable expenses and revenues
as of December 31, 2003, 2002 and 2001 of $0.1 million, $0.2 million and
$0.5 million, respectively.

Darryl Hartley-Leonard, Sir Derek Higgs and Jackson P. Tai, who are
members of our Board of Directors, are also directors and/or officers of
clients of ours in the ordinary course of business, namely PGI, Inc.,
British Land Company PLC, and DBS Bank, respectively. Included in the
accompanying Consolidated Financial Statements are aggregate revenues from
such clients of $2.4 million, $2.8 million and $1.8 million for 2003, 2002
and 2001, respectively, as well as receivables of $0.5 million, $1.0
million and $0.2 million at December 31, 2003, 2002 and 2001, respectively.

Mr. Stuart L. Scott, as well as an entity affiliated with Mr. Scott,
are limited partners of Diverse Real Estate Holdings Limited Partnership
("Diverse"). Diverse has an ownership interest in and operates investment
assets, primarily as the managing general partner of real estate
development ventures. Prior to January 1, 1992, Jones Lang LaSalle earned
fees for providing development advisory services to Diverse as well as fees
for the provision of administrative services. Effective January 1, 1992,
Jones Lang LaSalle discontinued charging fees to Diverse for these
services. In 1992, Diverse began the process of discontinuing its
operations and disposing of its assets. Given a projected shortfall in
assets, Jones Lang LaSalle established reserves against its receivable from
Diverse in the period 1992 to 1997. At the beginning of 2002, the net
receivable due from Diverse in connection with such fees and interest
thereon was $0.7 million. The underlying collateral security for this
receivable was significantly enhanced in 2002. As such, $2.0 million of
bad debt reserves were reversed in 2002. At December 31, 2003, the net
receivable due from Diverse was $1.5 million. Mr. Scott directly holds an
approximately 13.4% partnership interest in Diverse. In addition, the
Stuart Scott Trust, a trust affiliated with Mr. Scott, has a 6.4%
partnership interest in Diverse.

During 2003, each of Mr. Scott and another senior officer of the
Company personally acquired, on the same terms and conditions offered to
other investors, preferred stock convertible into less than 1% of the
common stock on a fully-diluted basis issued by SiteStuff, Inc.
("SiteStuff"). SiteStuff serves clients in the real estate industry by
helping them reduce procurement through discounted volume purchasing and
through streamlined processes for purchasing maintenance, repair and
operating products and services. Jones Lang LaSalle currently holds
approximately 20% of the equity issued by SiteStuff on a fully-diluted
basis and has a representative on the SiteStuff board of directors. Jones
Lang LaSalle also acquires services from SiteStuff in the ordinary course
of business for itself and on behalf of clients. As part of the approval
they obtained from our Board of Directors to make their personal
investments, Mr. Scott and our other officer agreed that, while they remain
our employees, they would give Jones Lang LaSalle their proxy for any
SiteStuff matters for which they were eligible to vote as equity holders.

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The outstanding balance of loans to employees at December 31, 2003 is
shown in the following table ($ in millions). (1)
2003
----
Loans related to Co-Investments (2)(3). . . . . . . . . $1.2
Travel, relocation and other miscellaneous advances . . 2.5
----
$3.7
====

(1) The Company has not extended or maintained credit, arranged for
the extension of credit, or renewed the extension of credit, in
the form of a personal loan to or for any Director or executive
officer of the Company since the enactment of the Sarbanes-Oxley
Act of 2002.

(2) These loans have been made to allow employees the ability to
participate in investment fund opportunities. With the exception
of approximately $150,000 of these co-investment related loans,
all loans are nonrecourse loans.

(3) Included in loans related to co-investments is a loan, with
a December 31, 2003 balance of $34,000 to Lynn C. Thurber, who
is an executive officer of the Company, that was entered into
prior to, and has not been materially modified since, the date
of enactment of the Sarbanes-Oxley Act of 2002.

(15) ACCOUNTING FOR BUSINESS COMBINATIONS, GOODWILL AND
OTHER INTANGIBLE ASSETS

Effective July 2001, we adopted Statement No. 141, "Business
Combinations" ("SFAS 141"). SFAS 141 requires that the purchase method of
accounting be used for all business combinations completed after June 30,
2001. SFAS 141 also specifies that intangible assets acquired in a purchase
method business combination must meet certain criteria to be recognized and
reported apart from goodwill.

Effective January 1, 2002, we adopted Statement No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142"). SFAS 142 requires that goodwill
and intangible assets with indefinite useful lives no longer be amortized,
but instead they must be tested for impairment at least annually in
accordance with the provisions of SFAS 142. SFAS 142 also requires that
intangible assets with definite useful lives be amortized over their
respective estimated useful lives to their estimated residual values and
reviewed for impairment.

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

In connection with the transitional goodwill impairment evaluation,
SFAS 142 required us to perform an assessment of whether there was an
indication that goodwill was impaired as of the date of adoption. SFAS 142
also requires that a goodwill impairment evaluation be done at least
annually or whenever events or circumstances indicate the carrying value of
goodwill may not be recoverable. To accomplish this evaluation, we
determined the carrying value of each reporting unit by assigning the
assets and liabilities, including the existing goodwill and intangible
assets, to those reporting units as of the date of adoption. For purposes
of this exercise, we defined reporting units based on how the Chief
Operating Decision Makers for each segment looked at their segment when
determining strategic business decisions. The following reporting units
were determined: Investment Management, Americas IOS, Australia IOS, Asia
IOS, and by country groups in Europe IOS. We have determined the fair
value of each reporting unit on the basis of a discounted cash flow
methodology and compared it to the reporting unit's carrying amount. The
result of the 2002 evaluation was that the fair value of each reporting
unit exceeded its carrying amount, and therefore we did not recognize an
impairment loss. We completed the 2003 evaluation in the third quarter of
2003 and concluded that the fair value of each reporting unit exceeded its
carrying amount and therefore we did not recognize an impairment loss.

We have $347.7 million of unamortized intangibles and goodwill as of
December 31, 2003, that are subject to the provisions of SFAS 142. A
significant portion of these unamortized intangibles and goodwill are
denominated in currencies other than U.S. dollars, which means that a
portion of the movements in the reported book value of these balances are
attributable to movements in currency exchange rates. See the tables below
for further details on the foreign exchange impact on intangible and
goodwill balances. Goodwill with an indefinite useful life in the amount of

$334.2 million represents intangibles which have ceased to be amortized
beginning January 1, 2002. Amortization of goodwill with indefinite lives
was $9.6 million for the twelve months ended December 31, 2001. As a
result of adopting SFAS 142, on January 1, 2002 we credited $846,000 to the
income statement, as the cumulative effect of a change in accounting
principle, which represented our negative goodwill balance at January 1,
2002. The gross carrying amount of this negative goodwill (which related to
the Americas IOS reporting segment) at January 1, 2002 was $1.4 million
with accumulated amortization of $565,000. The remaining $13.5 million of
identifiable intangibles (principally representing management contracts
acquired) will be amortized over their remaining definite useful lives.
Other than the prospective non-amortization of goodwill, which results in a
non-cash improvement in our operating results, the adoption of SFAS 142 did
not have a material effect on our revenue, operating results or liquidity.

In accordance with SFAS 142, the effect of this accounting change is
applied prospectively. Supplemental comparative disclosure as if the change
had been retroactively applied to the prior periods is as follows ($ in
thousands, except share data):

2003 2002 2001
-------- -------- --------

Reported net income (loss) . . . . . $ 36,065 27,110 (15,411)
Add back: Cumulative effect
of change in accounting
principal. . . . . . . . . . . . . -- (846) --
Add back: Amortization of
Goodwill with indefinite
useful lives, net of tax . . . . . -- -- 5,574
-------- -------- --------
Adjusted net income (loss) . . . . . $ 36,065 26,264 (9,837)
======== ======== ========

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

2003 2002 2001
-------- -------- --------

Basic earnings (loss)
per common share . . . . . . . . . $ 1.17 0.89 (0.51)
Add back: Cumulative effect
of change in accounting
principle. . . . . . . . . . . . . -- (0.03) --
Add back: Amortization of
Goodwill with indefinite
useful lives, net of tax . . . . . -- -- 0.19
-------- -------- --------
Adjusted basic earnings (loss)
per common share . . . . . . . . . $ 1.17 0.86 (0.32)
======== ======== ========

Diluted earnings (loss)
per common share . . . . . . . . . $ 1.12 0.85 (0.51)
Add back: Cumulative effect
of change in accounting
principle. . . . . . . . . . . . . -- (0.03) --
Add back: Amortization of
Goodwill with indefinite
useful lives, net of tax . . . . . -- -- 0.19
-------- -------- --------
Adjusted diluted earnings (loss)
per common share . . . . . . . . . $ 1.12 0.82 (0.32)
======== ======== ========

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The following table sets forth, by reporting segment, the movements in the gross carrying amount and
accumulated amortization of our goodwill with indefinite useful lives ($ in thousands):

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The following table sets forth, by reporting segment, the movements in the gross carrying amount and
accumulated amortization of our intangibles with definite useful lives ($ in thousands):

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The following table sets forth the estimated future amortization
expense of our intangibles with definite useful lives:

ESTIMATED ANNUAL AMORTIZATION EXPENSE
-------------------------------------
For year ended December 31, 2004 $5.2 million
For year ended December 31, 2005 $4.7 million
For year ended December 31, 2006 $3.2 million
For year ended December 31, 2007 None

(16) COMMITMENTS AND CONTINGENCIES

As of December 31, 2003, Jones Lang LaSalle and certain of our
subsidiaries had $5.0 million of co-investment indebtedness guarantees
outstanding to third-party lenders. As discussed in Note 8, we apply
Interpretation No. 45 to recognize and measure the provisions of these
guarantees. The $5.0 million of guarantees represents the maximum future
payments that Jones Lang LaSalle could be required to make under such
guarantees. These guarantees relate to collateralized borrowings by
project-level entities, and certain of the guarantees have terms extending
out until 2011. Repayment could be requested by the third-party lenders in
the event that one of the project level entities fail to repay its
borrowing. We do not expect to incur any material losses under these
guarantees.

We are a defendant in various litigation matters arising in the
ordinary course of business, some of which involve claims for damages that
are substantial in amount. Many of these litigation matters are covered by
insurance, although they may nevertheless be subject to large deductibles
or retentions and the amounts being claimed may exceed the available
insurance. Although the ultimate liability for these matters cannot be
determined, based upon information currently available, we believe the
ultimate resolution of such claims and litigation will not have a material
adverse effect on our financial position, results of operations or
liquidity.

On November 8, 2002, Bank One N.A. ("Bank One") filed suit against
the Company and certain of its subsidiaries in the Circuit Court of Cook
County, Illinois with regard to services provided in 1999 and 2000 pursuant
to three different agreements relating to facility management, project
development and broker services. The suit generally alleges negligence,
breach of contract and breach of fiduciary duty on the part of Jones Lang
LaSalle and sought to recover a total of $40 million in compensatory
damages and $80 million in punitive damages. On December 16, 2002, the
Company filed a counterclaim for breach of contract seeking payment of
approximately $1.2 million for fees due for services provided under the
agreements. On December 16, 2003, the court granted the Company's motion
to strike the complaint because after completion of significant discovery,
Bank One has been unable to substantiate its allegations that it suffered
damages of $40 million as it had previously claimed. Bank One was
authorized to file an amended complaint that seeks to recover compensatory
damages in an unspecified amount, plus an unspecified amount of punitive
damages. The amended complaint also includes allegations of fraudulent
misrepresentation, fraudulent concealment and conversion. The Company
continues to aggressively defend the suit. While there can be no
assurance, the Company continues to believe that the complaint is without
merit and, as such, will not have a material adverse impact on our
financial position, results of operations, or liquidity. As of the date of
this report, we are in the process of discovery and no trial date has been
set. As such, although we still have not seen or heard anything that leads
us to believe that the suit has merit, the outcome of Bank One's suit
cannot be predicted with any certainty and management is unable to estimate
an amount or range of potential loss that could result if an improbable
unfavorable outcome did occur.

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

In the third quarter of 2001 we established a reserve of $1.6 million
to cover our exposures resulting from the insolvency of HIH Insurance Ltd.
("HIH"), one of our former insurance providers. HIH provided public
liability coverage to the Australian operations of JLW for the years from
1994 to 1997, which coverage would typically provide protection against,
among other things, personal injury claims arising out of accidents
occurring at properties for which we had property management
responsibilities. As discussed in Note 6, we reduced the reserve by $0.6
million in the second quarter of 2003. As of December 31, 2003, $0.6
million of the reserve established remains to cover claims which would have
been covered by the insurance provided by HIH. Although there can be no
assurance, we believe this reserve is adequate to cover any remaining
claims and expenses resulting from the HIH insolvency. Due to the nature
of the claims covered by this insurance, it is possible that future claims
may be made.

(17) IMPLEMENTATION OF SAB 101

During December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), which provides guidance on various revenue
recognition matters. Historically, we and certain other real estate
service companies had recorded the full amount of lease commissions as
revenue upon the completion of leasing services and the closing of the
transaction, when invoicing for a portion of the commission was to be
delayed until actual tenant occupancy. This policy was based upon the fact
that we had fulfilled all of our contractual obligations and the likelihood
of the tenant defaulting under the lease was extremely remote. Under
SAB 101, such lease commission revenue should be deferred until the parties
to the lease contract have fulfilled their respective obligations. In 2000
we adopted the provisions of SAB 101, retroactively applying them as of
January 1, 2000.

As a result, revenue recognition is now deferred until all parties to
the lease contract have fulfilled their respective lease obligations if the
fee income is dependent upon those contingencies being removed. This
change in accounting policy does not impact the timing or amount of cash
flow, or the amount of earnings that we will ultimately recognize.

Effective January 1, 2000, we recorded a one-time, non-cash, after-
tax cumulative effect of a change in accounting principle of $14.2 million,
net of taxes of $8.7 million. This adjustment represents revenues of $22.9
million that had been recognized prior to January 1, 2000 that would not
have been recognized if the new accounting policy had been in effect prior
to 2000. With the exception of $500,000 of revenues related to the land
investment business, a business we exited in 2001, these revenues were
fully recognized by December 31, 2002 as the underlying contingencies were
satisfied. We recognized $400,000 and $5.8 million of these revenues in
the twelve months ended December 31, 2002 and 2001, respectively, with the
balance in the twelve months ended December 31, 2000. We have determined
that the subsequent impairment of the specific land business investment
means that the $500,000 of revenues that were included in this adjustment
will not be collected, and therefore will not be recorded as revenue. This
will have no impact on our earnings or cash flow.

During 2003, SAB 101 was amended with the issuance of SAB 104. This
amendment did not impact previously recorded amounts.

JONES LANG LASALLE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(18) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

On July 26, 2000, Jones Lang LaSalle Finance B.V. ("JLL Finance"), a
wholly-owned subsidiary of Jones Lang LaSalle, issued 9% Senior Euro Notes
with an aggregate principal amount of euro 165 million, due 2007 (the "Euro
Notes"). The payment obligations under the Euro Notes are fully and
unconditionally guaranteed by Jones Lang LaSalle Incorporated and certain
of its wholly-owned subsidiaries: Jones Lang LaSalle America's Inc.;
LaSalle Investment Management, Inc.; Jones Lang LaSalle International,
Inc.; Jones Lang LaSalle Co-Investment, Inc.; and Jones Lang LaSalle Ltd.
(the "Guarantor Subsidiaries"). All of Jones Lang LaSalle Incorporated's
remaining subsidiaries (the "Non-Guarantor Subsidiaries") are owned by the
Guarantor Subsidiaries. The following supplemental Condensed Consolidating
Balance Sheets as of December 31, 2003 and December 31, 2002, Condensed
Consolidating Statement of Earnings and Condensed Consolidating Statement
of Cash Flows for the years ended December 31, 2003, 2002 and 2001 present
financial information for (i) Jones Lang LaSalle Incorporated (carrying any
investment in subsidiaries under the equity method), (ii) Jones Lang
LaSalle Finance B.V. (the issuer of the Euro Notes), (iii) on a combined
basis the Guarantor Subsidiaries (carrying any investment in Non-Guarantor
Subsidiaries under the equity method) and (iv) on a combined basis the Non-
Guarantor Subsidiaries (carrying its investments in JLL Finance under the
equity method). Separate financial statements of the Guarantor
Subsidiaries are not presented because the guarantors are jointly,
severally, and unconditionally liable under the guarantees, and Jones Lang
LaSalle Incorporated believes that separate financial statements and other
disclosures regarding the Guarantor Subsidiaries are not material to
investors. In general, historically, Jones Lang LaSalle Incorporated has
entered into third-party borrowings, financing its subsidiaries via
intercompany accounts that are then converted into equity on a periodic
basis. Certain Guarantor and Non-Guarantor Subsidiaries also enter into
third-party borrowings on a limited basis. All intercompany activity has
been included as subsidiary activity in investing activities in the
Condensed Consolidating Statements of Cash Flows. Cash is managed on a
consolidated basis and there is a right of offset between bank accounts in
the different groupings of legal entities in the condensed consolidating
financial information. Therefore, in certain cases, negative cash balances
have not been reallocated to payables as they legally offset positive cash
balances elsewhere in Jones Lang LaSalle Incorporated. In certain cases,
taxes have been calculated on the basis of a group position that includes
both Guarantor and Non-Guarantor Subsidiaries. In such cases, the taxes
have been allocated to individual legal entities on the basis of that legal
entity's pre-tax income.

CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2003
($ in thousands)

CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2002
($ in thousands)

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the year ended December 31, 2003
($ in thousands)

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the year ended December 31, 2002
($ in thousands)

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the year ended December 31, 2001
($ in thousands)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Twelve Months Ended December 31, 2003
($ in thousands)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Twelve Months Ended December 31, 2002
($ in thousands)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Twelve Months Ended December 31, 2001
($ in thousands)

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following table sets forth certain unaudited consolidated
statements of earnings data for each of our last eight quarters. In our
opinion, this information has been presented on the same basis as the
audited consolidated financial statements appearing elsewhere in this
report, and includes all adjustments, consisting only of normal recurring
adjustments and accruals, that we consider necessary for a fair
presentation. The unaudited consolidated quarterly information should be
read in conjunction with our Consolidated Financial Statements and the
notes thereto as well as the "Summary of Critical Accounting Policies and
Estimates" section within "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The operating results for
any quarter are not necessarily indicative of the results for any future
period.

We would note the following points regarding how we prepare and
present our financial statements on a periodic basis.

PERIODIC ACCOUNTING FOR INCENTIVE COMPENSATION - An important part of
our overall compensation package is incentive compensation, which is
typically paid out to employees in the first quarter of the year after it
is earned. In our interim financial statements we accrue for incentive
compensation based on the percentage of revenue and compensation costs
recorded to date relative to forecasted revenue and compensation costs for
the full year as substantially all incentive compensation pools are based
upon revenues and profits. The impact of this incentive compensation
accrual methodology is that we accrue very little incentive compensation in
the first six months of the year, with the majority of our incentive
compensation accrued in the second half of the year, particularly in the
fourth quarter. We adjust the incentive compensation accrual in those
unusual cases where earned incentive compensation has been paid to
employees. In addition, we exclude from the standard accrual methodology
incentive compensation pools that are not subject to the normal performance
criteria. These pools are accrued for on a straight-line basis. As
discussed in Note 13 to Notes to Consolidated Financial Statements, certain
senior employees receive a portion of their incentive compensation in the
form of restricted stock units of our common stock. We recognize this
compensation over the vesting period of these restricted stock units, which
has the effect of deferring a portion of current year incentive
compensation to later years. Previously we accounted for the current year
impact of this program in the fourth quarter (namely, the enhancement, the
deferral and the related amortization) because of the uncertainty around
the terms and conditions of the stock ownership program and because the
majority of our incentive compensation is accrued in the fourth quarter.
Due to the maturity of the program and the commitment to its terms and
conditions by the Company and the Compensation Committee of the Board of
Directors, we began accounting for the earned portion of this compensation
program on a quarterly basis, starting in the third quarter of 2003. We
recognize the benefit of the stock ownership program in a manner consistent
with the accrual of the underlying incentive compensation expense. As such,
we recorded a credit of $2.1 million to the income statement in the third
quarter, reflecting the earned portion of the stock ownership program for
the first nine months of 2003.

COMMON SHARE PURCHASE RIGHTS

In connection with a previous investment in an unconsolidated real
estate venture, we were granted certain residual "Common Share Purchase
Rights" that give us the ability to purchase shares in a publicly traded
real estate investment trust at a fixed price. These rights, which extend
through April of 2008, are a non-hedging derivative instrument and should
have been recorded at fair value as part of the adoption of SFAS 133
effective January 1, 2001, with subsequent changes in fair value reflected
in equity earnings. The initial accounting for these common share purchase
rights through June 30, 2003 was not in accordance with the rules of
SFAS 133 due to an inadvertent error as a result of the complexity of this
unique derivative. We determine fair value through the use of the Black
Scholes option pricing model. The fair value of these rights at January 1,
2001 was $954,000 and the fair value has ranged from $200,000 to $1.4
million in the periods since that time due to stock market fluctuation. At
December 31, 2003, the fair value of these rights was $1.4 million which we
included in the investments in unconsolidated real estate ventures on the
Consolidated Balance Sheet. We recorded a pre-tax gain of $1.3 million in
equity earnings in the third quarter of 2003, of which approximately
$800,000 represented the impact of correcting this error. We do not believe
that the correction of this error is material to the 2001, 2002 or 2003
consolidated financial statements or in any quarter of these years.
Additionally, we do not believe that the correction of this error is
material to consolidated earnings trends. We do not own any other
instruments of this nature.

INCOME TAXES - We provide for the effects of income taxes on interim
financial statements based on our estimate of the effective tax rate for
the full year. We assess our effective tax rate on a quarterly basis and
reflect the benefit from tax planning actions when we believe it is
probable they will be successful, which usually requires that certain
actions have been initiated. We account for the cumulative catch-up impact
of any change in estimated effective tax rate in the quarter that a change
is made.

The effective tax rate we applied to recurring operations for 2003
and 2002 was as follows:

2003 2002
---- ----

Three months ended March 31,. . . . . . 34% 40%
Six months ended June 30, . . . . . . . 34% 40%
Nine months ended September 30, . . . . 32% 36%
Twelve months ended December 31,. . . . 28% 34%

SEASONALITY - Historically, our revenue, operating income and net
earnings in the first three calendar quarters are substantially lower than
in the fourth quarter. Other than for the Investment Management segment,
this seasonality is due to a calendar-year-end focus on the completion of
real estate transactions, which is consistent with the real estate industry
generally. Our Investment Management segment earns performance fees on
clients' returns on their real estate investments. Such performance fees
are generally earned when assets are sold, the timing of which is geared
towards the benefit of our clients. Non-variable operating expenses, which
are treated as expenses when they are incurred during the year, are
relatively constant on a quarterly basis.

JONES LANG LASALLE INCORPORATED
QUARTERLY INFORMATION
(UNAUDITED)

JONES LANG LASALLE INCORPORATED

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

($ in thousands)

Balance at Balance
Beginning Costs and Deductions at End
Description of Period Expenses (A) of Period
- ----------- ---------- ---------- ---------- ---------

2003
Accounts Receivable
Reserves . . . . . . . $ 4,992 1,579 1,781 $ 4,790

2002
Accounts Receivable
Reserves (B) . . . . . $ 5,887 262 1,157 $ 4,992

2001
Accounts Receivable
Reserves . . . . . . . $ 8,843 8,257 11,213 $ 5,887

(A) Includes primarily write-offs of uncollectible accounts.

(B) Costs and expenses for 2002 are net of the $2.0 million reversal of
bad debt reserves relating to Diverse.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Jones Lang LaSalle carried out an evaluation, under the supervision
and with the participation of the Company's management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to
Rule 13a-15 under the Exchange Act of 1934 as of the end of the year. Based
upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information required to be
included in the our periodic SEC filings relating to Jones Lang LaSalle
(including its consolidated subsidiaries).

There was no change in internal control over financial reporting that
occurred in the fourth quarter of 2003 that has materially affected or is
reasonably likely to materially affect Jones Lang LaSalle's internal
controls over financial reporting.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated by reference to
the material in Jones Lang LaSalle's Proxy Statement for the 2004 Annual
Meeting of Shareholders (the "Proxy Statement") under the captions
"Election of Directors," "Management" and "Section 16(a) Beneficial
Ownership Reporting Compliance" and in Item 1 of this Annual Report on
Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to
the material in the Proxy Statement under the caption "Executive
Compensation."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to
the material in the Proxy Statement under the caption "Security Ownership."

The following table provides information as of December 31, 2003 with
respect to Jones Lang LaSalle's common shares issuable under our equity
compensation plans (in thousands, except exercise price):

Number of
Securities
Remaining
Available for
Number of Weighted- Future Issuance
Securities Average Under Equity
to be Issued Exercise Compensation
Upon Exercise Price of Plans
of Outstanding Outstanding (Excluding
Options, Options, Securities
Warrants and Warrants and Reflected in
Plan Category Rights Rights Column (A))
- ------------- -------------- ------------- ---------------
(A) (B) (C)
Equity compensa-
tion plans
approved by
security holders
SAIP (1) 5,481 $ 19.50 1,515

ESPP (2) -- -- 50
------- ------
Subtotal 5,481 1,565
------- ------
Equity compensa-
tion plans not
approved by
security holders
SAYE (3) 220 $13.63 280
------- ------
Subtotal 220 280
------- ------
Total 5,701 1,845
======= ======

Notes:

(1) In 1997, we adopted the 1997 Stock Award and Incentive Plan ("SAIP")
that provides for the granting of options to purchase a specified
number shares of common stock and other stock awards to eligible
participants of Jones Lang LaSalle.

(2) In 1998, we adopted an Employee Stock Purchase Plan ("ESPP") for
eligible U.S. based employees. Under this plan, employee
contributions for stock purchases will be enhanced through an
additional contribution of 15%.

(3) In November of 2001, we established the Jones Lang LaSalle Savings
Related Share Option (UK) Plan ("SAYE") for employees of our UK based
operations. Under the SAYE plan, employees have a one-time
opportunity to enter into a tax efficient savings plan linked to the
option to purchase stock. The Company enhances employee contributions
by 15%.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to
the material appearing in the Proxy Statement under the caption "Certain
Relationships and Related Transactions."

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is incorporated by reference to
the material appearing in the Proxy Statement under the caption Independent
Auditors, Audit and Non-Audit Fees.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

1. Financial Statements

See Index to Consolidated Financial Statements in Item 8
of this report.

2. Financial Statement Schedule:

See Index to Consolidated Financial Statements in Item 8
of this report.

3. Exhibits

A list of exhibits is set forth in the Exhibit Index
which immediately precedes the exhibits and is
incorporated by reference herein.

(b) Reports on Form 8-K:

On January 8, 2004, Jones Lang LaSalle filed a Report on
Form 8-K incorporating a press release announcing that the
Board of Directors accepted the resignation of Christopher A.
Peacock as President and Chief Executive Officer.

On February 5, 2004, Jones Lang LaSalle filed a Report on
Form 8-K incorporating a press release announcing earnings for
the quarter and year ended December 31, 2003.

On February 10, 2004, Jones Lang LaSalle filed a Report
on Form 8-K incorporating the February 2004 Investor Relations
Presentation.

On February 19, 2004, Jones Lang LaSalle filed a Report
on Form 8-K incorporating the February 2004 Investor Relations
Presentation.

On February 27, 2004, Jones Lang LaSalle filed a Report
on Form 8-K incorporating a press release announcing a share
repurchase program approved by its Board of Directors.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this filing and elsewhere (such as in reports,
other filings with the Securities and Exchange Commission, press releases,
presentations and communications by Jones Lang LaSalle or its management
and written and oral statements) may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause Jones Lang LaSalle's actual
results, performance, achievements, plans and objectives to be materially
different from any future results, performance, achievements, plans and
objectives expressed or implied by such forward-looking statements. Such
factors are discussed in (i) this Report in Item 1. Business, Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Item 7A. Quantitative and Qualitative Disclosures About Market
Risk, and elsewhere and (ii) in other reports filed with the Securities and
Exchange Commission. Jones Lang LaSalle expressly disclaims any obligation
or undertaking to update or revise any forward-looking statements to
reflect any changes in events or circumstances or in its expectations or
results.

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each of Jones Lang LaSalle
Incorporated, a Maryland corporation, and the undersigned Directors and
officers of Jones Lang LaSalle Incorporated, hereby constitutes and
appoints Stuart L. Scott, Lauralee E. Martin and Nicholas J. Willmott its,
his or her true and lawful attorneys-in-fact and agents, for it, him or her
and in its, his or her name, place and stead, in any and all capacities,
with full power to act alone, to sign any and all amendments to this
report, and to file each such amendment to this report, with all exhibits
thereto, and any and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and
perform any and all acts and things requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as it, he or
she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or any of them, may lawfully do or cause
to be done by virtue hereof.

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Chicago, State of Illinois, on the 12th day of March, 2004.

JONES LANG LASALLE INCORPORATED

/s/ Lauralee E. Martin
----------------------------------
By: Lauralee E. Martin
Executive Vice President and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 12th day of March, 2004.

SIGNATURE TITLE
- --------- -----

/s/ Stuart L. Scott
- ------------------------------ Chief Executive Officer, President and
Stuart L. Scott Chairman of the Board of Directors
and Director
(Principal Executive Officer)

/s/ Lauralee E. Martin
- ------------------------------ Executive Vice President and
Lauralee E. Martin Chief Financial Officer
(Principal Financial Officer)

/s/ Henri-Claude de Bettignies
- ------------------------------ Director
Henri-Claude de Bettignies

SIGNATURE TITLE
- --------- -----

/s/ Darryl Hartley-Leonard
- ------------------------------ Director
Darryl Hartley-Leonard

/s/ Sir Derek Higgs
- ------------------------------ Director
Sir Derek Higgs

/s/ Sheila A. Penrose
- ------------------------------ Director
Sheila A. Penrose

/s/ Peter C. Roberts
- ------------------------------ Executive Vice President and
Peter C. Roberts Chief Executive Officer,
Jones Lang LaSalle Americas,
and Director

/s/ Jackson P. Tai
- ------------------------------ Director
Jackson P. Tai

/s/ Thomas C. Theobald
- ------------------------------ Director
Thomas C. Theobald

/s/ Nicholas J. Willmott
- ------------------------------ Executive Vice President and
Nicholas J. Willmott Global Controller
(Principal Accounting Officer)

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

3.1 Charter of Jones Lang LaSalle Incorporated (Incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-4 (File No. 333-48074-01))

3.2 Amended and Restated Bylaws of the Registrant (Incorporated by
reference to Exhibit 3(u) to the Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2002)

3.3 Articles of Association of Jones Lang LaSalle Finance B.V.
(English Translation of Dutch Original) (Incorporated by
reference to the Company's Registration Statement on Form S-4
(File No. 333-48074-01))

3.4 Charter of Jones Lang LaSalle Americas, Inc. (Incorporated by
reference to Exhibit 3.4 to the Company's Registration
Statement on Form S-4 (File No. 333-48074-01))

3.5 Bylaws of Jones Lang LaSalle Americas, Inc. (Incorporated by
reference to Exhibit 3.5 to the Company's Registration
Statement on Form S-4 (File No. 333-48074-01))

3.6 Charter of LaSalle Investment Management, Inc. (Incorporated by
reference to Exhibit 3.6 to the Company's Registration
Statement on Form S-4 (File No. 333-48074-01))

3.7 Bylaws of LaSalle Investment Management, Inc. (Incorporated by
reference to Exhibit 3.7 to the Company's Registration
Statement on Form S-4 (File No. 333-48074-01))

3.8 Certificate of Incorporation of Jones Lang LaSalle
International, Inc. (Incorporated by reference to Exhibit 3.8
to the Company's Registration Statement on Form S-4 (File No.
333-48074-01))

3.9 Bylaws of Jones Lang LaSalle International, Inc. (Incorporated
by reference to Exhibit 3.9 to the Company's Registration
Statement on Form S-4 (File No. 333-48074-01))

3.10 Charter of Jones Lang LaSalle Co-Investment, Inc. (Incorporated
by reference to Exhibit 3.10 to the Company's Registration
Statement on Form S-4 (File No. 333-48074-01))

3.11 Bylaws of Jones Lang LaSalle Co--Investment, Inc. (Incorporated
by reference to Exhibit 3.11 to the Company's Registration
Statement on Form S-4 (File No. 333-48074-01))

3.12 Articles of Incorporation of LaSalle Hotel Advisors, Inc.
(Incorporated by reference to Exhibit 3.12 to the Company's
Registration Statement on Form S-4 (File No. 333-48074-01))

3.13 Bylaws of LaSalle Hotel Advisors, Inc. (Incorporated by
reference to Exhibit 3.13 to the Company's Registration
Statement on Form S-4 (File No. 333-48074-01))

3.14 Memorandum of Association of Jones Lang LaSalle Limited
(Incorporated by reference to Exhibit 3.14 to the Company's
Registration Statement on Form S-4 (File No. 333-48074-01))

3.15 Articles of Association of Jones Lang LaSalle Limited
(Incorporated by reference to Exhibit 3.15 to the Company's
Registration Statement on Form S-4 (File No. 333-48074-01))

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

4.1 Form of certificate representing shares of Jones Lang LaSalle
Incorporated common stock (Incorporated by reference to Exhibit
4.1 to the Quarterly Report on Form 10-Q for the quarter ended
March 31, 2001)

4.2 Indenture, dated July 26, 2000, among Jones Lang LaSalle
Finance B.V., Jones Lang LaSalle Incorporated, as parent
Guarantor, Jones Lang LaSalle Americas, Inc., LaSalle
Investment Management, Inc., Jones Lang LaSalle International,
Inc., Jones Lang LaSalle Co-Investment, Inc., LaSalle Hotel
Advisors, Inc. and Jones Lang LaSalle Limited, as Guarantors,
and The Bank of New York, as trustee (Incorporated by reference
to Exhibit 4.1 to the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2000)

4.3 Form of Note (included in Exhibit 4.2)

4.4 Registration Rights Agreement, dated July 19, 2000, among Jones
Lang LaSalle Finance B.V., Jones Lang LaSalle Incorporated,
Jones Lang LaSalle Americas, Inc., LaSalle Investment
Management, Inc., Jones Lang LaSalle International, Inc., Jones
Lang LaSalle Co-Investment, Inc., LaSalle Hotel Advisors, Inc.,
Jones Lang LaSalle Limited, Morgan Stanley & Co. International
Limited, Bank of America International Limited, BMO Nesbitt
Burns Corp., and Chase Manhattan International Limited
(Incorporated by reference to Exhibit 4.1 to the Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
2000)

10.1 Multicurrency Credit Agreement, dated as of June 26, 2003
(Incorporated by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q for the quarter ended June 30, 2003)

10.2 Asset Purchase Agreement, dated as of December 31, 1996, by and
among LaSalle Construction Limited Partnership, LaSalle
Partners Limited Partnership, Clune Construction Company, L.P.
and Michael T. Clune (Incorporated by reference to Exhibit
10.10 to the Company's Registration Statement No. 333-25741)

10.3 Amended and Restated Stock Award and Incentive Plan
(Incorporated by reference to Exhibit 10.4 to the Annual Report
on Form 10-K for the year ended December 31, 2002)

10.4 Employee Stock Purchase Plan (Incorporated by reference to
Exhibit 99.1 to the Company's Registration Statement No. 333
42193)

10.5 First Amendment to the Employee Stock Purchase Plan
(Incorporated by reference to Exhibit 10.2 to the Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998)

10.6 Second Amendment to the Employee Stock Purchase Plan
(Incorporated by reference to Exhibit 10.3 to the Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998)

10.7 Third Amendment to the Employee Stock Purchase Plan
(Incorporated by reference to Exhibit 10.2 to the Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
2000)

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

10.8 Description of Management Incentive Plan (Incorporated by
reference to Exhibit 10.8 to the Annual Report on Form 10-K for
the year ended December 31, 1997)

10.9 Registration Rights Agreement, dated as of April 22, 1997, by
and among the Registrant, DEL-LPL Limited Partnership, DEL
LPAML Limited Partnership, DSA-LSPL, Inc., DSA-LSAM, Inc. and
Galbreath Holdings, LLC (Incorporated by reference to Exhibit
10.14 to the Company's Registration Statement No. 333-25741)

10.10 Form of Indemnification Agreement with Executive Officers and
Directors (Incorporated by Reference to Exhibit 10.14 to the
Annual Report on Form 10-K for the year ended December 31,
1998)

10.11 Severance Pay Plan (Incorporated by reference to Exhibit 10.20
to the Annual Report on Form 10-K for the year ended December
31, 2001)

10.12 Senior Executive Services Agreement with Christopher A. Peacock
(Incorporated by reference to Exhibit 10.16 to the Annual
report on Form 10-K for the fiscal year ended December 31,
1999)

10.13 Senior Executive Service Agreement with Robert Orr
(Incorporated by reference to Exhibit 10.17 to the Annual
Report on Form 10-K for the fiscal year ended December 31,
1999)

10.14 Jones Lang LaSalle Savings Related Share Option (UK) Plan
adopted October 24, 2001 (Incorporated by reference to Exhibit
10.25 to the Annual Report on Form 10-K for the year ended
December 31, 2001)

10.15 Jones Lang LaSalle Incorporated Co-Investment Long Term
Incentive Plan (Incorporated by reference to Exhibit 10.16 to
the Annual Report on Form 10-K for the year ended December 31,
2002)

10.16 LaSalle Investment Management Long Term Incentive Plan
(Incorporated by reference to Exhibit 10.2 to the Quarterly
Report on Form 10-Q for the quarterly period ended September
30, 2002)

10.17 Jones Lang LaSalle Incorporated Deferred Compensation Plan
effective January 1, 2004 (Incorporated by reference to Exhibit
4.1 to the Registration Statement on Form S-8 (File No. 333
110366))

12.1 Computation of Ratio of Earnings to Fixed Charges

21.1 List of Subsidiaries

23.1 Independent Auditors' Consent

24.1 Power of Attorney (Set forth on page preceding signature page
of this report)

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002

31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002

32.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002