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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

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

	For the Fiscal Year Ended December 31, 2003
	OR

	o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the Transition Period from                                                                      to

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act:

     Indicate by check mark whether the Registrants (1) have 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 Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes þ      No o

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

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes þ      No o

     As of June 30, 2003, the aggregate market value of the Registrants’ voting and non-voting common equity (for purposes of this Joint Annual Report only, includes all shares other than those held by the Registrants’ Directors, Trustees and executive officers) was $5,725,446,237.

     As of February 26, 2004, the Corporation had outstanding 204,151,110 Corporation Shares and the Trust had outstanding 204,151,110 Class B Shares and 100 Class A shares of beneficial interest, par value $0.01 per share (“Class A Shares”).

     For information concerning ownership of shares, see the Proxy Statement for the Corporation’s Annual Meeting of Stockholders that is currently scheduled for May 7, 2004 (the “Proxy Statement”), which is incorporated by reference under various Items of this Joint Annual Report.

Document Incorporated by Reference:

TABLE OF CONTENTS

      This Joint Annual Report is filed by Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (the “Corporation”), and its subsidiary, Starwood Hotels & Resorts, a Maryland real estate investment trust (the “Trust”). Unless the context otherwise requires, all references to the Corporation include those entities owned or controlled by the Corporation, including SLC Operating Limited Partnership, a Delaware limited partnership (the “Operating Partnership”), but excluding the Trust; all references to the Trust include the Trust and those entities owned or controlled by the Trust, including SLT Realty Limited Partnership, a Delaware limited partnership (the “Realty Partnership”); and all references to “Starwood” or the “Company” refer to the Corporation, the Trust and their respective subsidiaries, collectively. The shares of common stock, par value $0.01 per share, of the Corporation (“Corporation Shares”) and the Class B shares of beneficial interest, par value $0.01 per share, of the Trust (“Class B Shares”) are attached and trade together and may be held or transferred only in units consisting of one Corporation Share and one Class B Share (a “Share”). Prior to the reorganization of Starwood (the “Reorganization”) on January 6, 1999, the common shares of beneficial interest, par value $0.01 per share, of the Trust were traded together with the Corporation Shares as “Paired Shares,” just as the Class B Shares and the Corporation Shares are currently traded as Shares. Unless otherwise stated herein, all information with respect to Shares refers to Shares on and since January 6, 1999 and to Paired Shares for periods before January 6, 1999.

PART I

Forward-Looking Statements

      This Joint Annual Report contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in several places in this Joint Annual Report, including, without limitation, the section of Item 1. Business, captioned “Business Strategy” and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Such forward-looking statements may include statements regarding the intent, belief or current expectations of Starwood, its Directors or Trustees or its officers with respect to the matters discussed in this Joint Annual Report. All forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements including, without limitation, the risks and uncertainties set forth below. The Company undertakes no obligation to publicly update or revise any forward-looking statements to reflect current or future events or circumstances.

Where you can find more information

      We file annual, quarterly and special reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the Internet at the SEC’s web site at http://www.sec.gov. Our SEC filings are also available on our website at http://www.starwood.com/corporate/investor  relations.html as soon as reasonably practicable after they are filed with or furnished to the SEC. You may also read and copy any document we file with the SEC at its public reference rooms in Washington, D.C., New York, NY and Chicago, IL. Please call the SEC at (800) SEC-0330 for further information on the public reference rooms. Our filings with the SEC are also available at the New York Stock Exchange. For more information on obtaining copies of our public filings at the New York Stock Exchange, you should call (212) 656-5060. You may also obtain a copy of our filings free of charge by calling Allison Reid, Vice President, Investor Relations at (914) 640-8514.

Risks Relating to Hotel, Resort and Vacation Ownership Operations

      We Are Subject to All the Operating Risks Common to the Hotel and Vacation Ownership Industries. Operating risks common to the hotel and vacation ownership industries include:

	•	changes in general economic conditions, including the timing and robustness of a recovery from the current global economic downturn;
	•	impact of war and terrorist activity;

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	•	domestic and international political and geopolitical conditions;
	•	travelers’ fears of exposures to contagious diseases;
	•	decreases in the demand for transient rooms and related lodging services, including a reduction in business travel as a result of general economic conditions;
	•	the impact of internet intermediaries on pricing and our increasing reliance on technology;
	•	cyclical over-building in the hotel and vacation ownership industries;
	•	restrictive changes in zoning and similar land use laws and regulations or in health, safety and environmental laws, rules and regulations and other governmental and regulatory action;
	•	changes in travel patterns;
	•	changes in operating costs including, but not limited to, energy, labor costs (including the impact of unionization), workers’ compensation and health-care related costs, insurance and unanticipated costs such as acts of nature and their consequences;
	•	disputes with owners of properties, franchisees and homeowner associations which may result in litigation;
	•	the availability of capital to allow us and potential hotel owners and franchisees to fund construction, renovations and investments;
	•	foreign exchange fluctuations;
	•	the financial condition of third-party property owners and franchisees; and
	•	the financial condition of the airline industry and the impact on air travel.

      We are also impacted by our relationships with owners and franchisees. Our hotel management contracts are typically long-term arrangements, but most allow the hotel owner to replace us if certain financial or performance criteria are not met. Our ability to meet these financial and performance criteria is subject to, among other things, the risks described in this section. Additionally, our operating results would be adversely affected if we could not maintain existing management, franchise or representation agreements or obtain new agreements on as favorable terms as the existing agreements.

      General Economic Conditions May Negatively Impact Our Results. Moderate or severe economic downturns or adverse conditions may negatively affect our operations. These conditions may be widespread or isolated to one or more geographic regions. Our worldwide results during the first nine months of the year, primarily in North America, were negatively impacted by the low industry-wide lodging demand as a result of the current global economic conditions. A tightening of the labor markets in one or more geographic regions may result in fewer and/or less qualified applicants for job openings in our facilities. Higher wages, related labor costs and the increasing cost trends in the insurance markets may negatively impact our results as wages, related labor costs and insurance premiums increase.

      We Must Compete for Customers. The hotel and vacation ownership industries are highly competitive. Our properties compete for customers with other hotel and resort properties, and, with respect to our vacation ownership resorts, with owners reselling their vacation ownership interests (“VOIs”). Some of our competitors may have substantially greater marketing and financial resources than we do, and they may improve their facilities, reduce their prices or expand or improve their marketing programs in ways that adversely affect our operating results.

      We Must Compete for Management and Franchise Agreements. We compete with other hotel companies for management and franchise agreements. As a result, the terms of such agreements may not be as favorable as our current agreements. In connection with entering into management or franchise agreements, we may be required to make investments in or guarantee the obligations of third parties or guarantee minimum income to third parties.

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      The Hotel Industry Is Seasonal in Nature. The hotel industry is seasonal in nature; however, the periods during which we experience higher revenue vary from property to property and depend principally upon location. Our revenue historically has been lower in the first quarter than in the second, third or fourth quarters.

      Internet Reservation Channels May Negatively Impact our Bookings. Some of our hotel rooms are booked through internet travel intermediaries such as Travelocity.com®, Expedia.com® and Priceline.com®. As the percentage of internet bookings increases, these intermediaries may be able to obtain higher commissions, reduced room rates or other significant contract concessions from us. Moreover, some of these internet travel intermediaries are attempting to commoditize hotel rooms, by increasing the importance of price and general indicators of quality (such as “three-star downtown hotel”) at the expense of brand identification. These agencies hope that consumers will eventually develop brand loyalties to their reservations system rather than to our lodging brands. Although we expect to derive most of our business from traditional channels, if the amount of sales made through internet intermediaries increases significantly, our business and profitability may be significantly harmed.

      We Place Significant Reliance on Technology. The hospitality industry continues to demand the use of sophisticated technology and systems including technology utilized for property management, procurement, reservation systems, operation of our customer loyalty program, distribution and guest amenities. These technologies can be expected to require refinements and there is the risk that advanced new technologies will be introduced. There can be no assurance that as various systems and technologies become outdated or new technology is required we will be able to replace or introduce them as quickly as our competition or within budgeted costs for such technology. Further, there can be no assurance that we will achieve the benefits that may have been anticipated from any new technology or system.

      The Hotel and Vacation Ownership Businesses Are Capital Intensive. For our owned, managed and franchised properties to remain attractive and competitive, the property owners and we have to spend money periodically to keep the properties well maintained, modernized and refurbished. This creates an ongoing need for cash and, to the extent the property owners and we cannot fund expenditures from cash generated by operations, funds must be borrowed or otherwise obtained. In addition, to continue growing our vacation ownership business, we need to spend money to develop new units. Accordingly, our financial results may be sensitive to the cost and availability of funds.

      Real Estate Investments Are Subject to Numerous Risks. We are subject to the risks that generally relate to investments in real property because we own and lease hotels and resorts. The investment returns available from equity investments in real estate depend in large part on the amount of income earned and capital appreciation generated by the related properties, and the expenses incurred. In addition, a variety of other factors affect income from properties and real estate values, including governmental regulations, real estate, insurance, zoning, tax and eminent domain laws, interest rate levels and the availability of financing. For example, new or existing real estate zoning or tax laws can make it more expensive and/or time-consuming to develop real property or expand, modify or renovate hotels. When interest rates increase, the cost of acquiring, developing, expanding or renovating real property increases and real property values may decrease as the number of potential buyers decreases. Similarly, as financing becomes less available, it becomes more difficult both to acquire and to sell real property. Finally, under eminent domain laws, governments can take real property. Sometimes this taking is for less compensation than the owner believes the property is worth. Any of these factors could have a material adverse impact on our results of operations or financial condition. In addition, equity real estate investments are difficult to sell quickly and we may not be able to adjust our portfolio of owned properties quickly in response to economic or other conditions. If our properties do not generate revenue sufficient to meet operating expenses, including debt service and capital expenditures, our income will be adversely affected.

      Hotel and Resort Development Is Subject to Timing, Budgeting and Other Risks. We intend to develop hotel and resort properties, including VOIs and residential components of hotel properties, as suitable

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	•	construction delays or cost overruns that may increase project costs;
	•	receipt of zoning, occupancy and other required governmental permits and authorizations;
	•	development costs incurred for projects that are not pursued to completion;
	•	so-called acts of God such as earthquakes, hurricanes, floods or fires that could adversely impact a project;
	•	defects in design or construction that may result in additional costs to remedy or require all or a portion of a property to be closed during the period required to rectify the situation;
	•	ability to raise capital; and
	•	governmental restrictions on the nature or size of a project or timing of completion.

      We cannot assure you that any development project will be completed on time or within budget.

      Environmental Regulations. Environmental laws, ordinances and regulations of various federal, state, local and foreign governments regulate our properties and could make us liable for the costs of removing or cleaning up hazardous or toxic substances on, under, or in property we currently own or operate or that we previously owned or operated. These laws could impose liability without regard to whether we knew of, or were responsible for, the presence of hazardous or toxic substances. The presence of hazardous or toxic substances, or the failure to properly clean up such substances when present, could jeopardize our ability to develop, use, sell or rent the real property or to borrow using the real property as collateral. If we arrange for the disposal or treatment of hazardous or toxic wastes, we could be liable for the costs of removing or cleaning up wastes at the disposal or treatment facility, even if we never owned or operated that facility. Other laws, ordinances and regulations could require us to manage, abate or remove lead or asbestos containing materials. Similarly, the operation and closure of storage tanks are often regulated by federal, state, local and foreign laws. Certain laws, ordinances and regulations, particularly those governing the management or preservation of wetlands, coastal zones and threatened or endangered species, could limit our ability to develop, use, sell or rent our real property.

      International Operations Are Subject to Special Political and Monetary Risks. We have significant international operations which as of December 31, 2003 included 176 owned, managed or franchised properties in Europe, Africa and the Middle East (including 29 properties with majority ownership); 43 owned, managed or franchised properties in Latin America (including 12 properties with majority ownership); and 92 owned, managed or franchised properties in the Asia Pacific region (including 4 properties with majority ownership). International operations generally are subject to various political, geopolitical, and other risks that are not present in U.S. operations. These risks include the risk of war, terrorism, civil unrest, expropriation and nationalization. In addition, some international jurisdictions restrict the repatriation of non-U.S. earnings. Various international jurisdictions also have laws limiting the ability of non-U.S. entities to pay dividends and remit earnings to affiliated companies unless specified conditions have been met. In addition, sales in international jurisdictions typically are made in local currencies, which subject us to risks associated with currency fluctuations. Currency devaluations and unfavorable changes in international monetary and tax policies could have a material adverse effect on our profitability and financing plans, as could other changes in the international regulatory climate and international economic conditions. Other than Italy, where our risks are heightened due to the 13 properties we own, our international properties are geographically diversified and are not concentrated in any particular region.

Debt Financing

      As a result of our debt obligations, we are subject to: (i) the risk that cash flow from operations will be insufficient to meet required payments of principal and interest; and (ii) interest rate risk. Although we anticipate that we will be able to repay or refinance our existing indebtedness and any other indebtedness when

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Risks Relating to So-Called Acts of God, Terrorist Activity and War

      Our financial and operating performance may be adversely affected by so-called acts of God, such as natural disasters, in locations where we own and/or operate significant properties and areas of the world from which we draw a large number of customers. Similarly, wars (including the potential for war), terrorist activity (including threats of terrorist activity), political unrest and other forms of civil strife and geopolitical uncertainty have caused in the past, and may cause in the future, our results to differ materially from anticipated results.

Some Potential Losses are Not Covered by Insurance

      We carry comprehensive insurance coverage for general liability, property, business interruption and other risks with respect to our owned and leased properties and we make available insurance programs for owners of properties we manage and franchise. These policies offer coverage features and insured limits that we believe are customary for similar type properties. Generally, our “all-risk” property policies provide that coverage is available on a per occurrence basis and that, for each occurrence, there is a limit as well as various sub-limits on the amount of insurance proceeds we can receive. In addition, there may be overall limits under the policies. Sub-limits exist for certain types of claims such as service interruption, abatement, expediting costs or landscaping replacement, and the dollar amounts of these sub-limits are significantly lower than the dollar amounts of the overall coverage limit. Our property policies also provide that for the coverages of critical earthquake (California and Mexico) and flood, all of the claims from each of our properties resulting from a particular insurable event must be combined together for purposes of evaluating whether the annual aggregate limits and sub-limits contained in our policies have been exceeded and any such claims will also be combined with the claims of owners of managed hotels that participate in our insurance program for the same purpose. Therefore, if insurable events occur that affect more than one of our owned hotels and/or managed hotels owned by third parties that participate in our insurance program, the claims from each affected hotel will be added together to determine whether the annual aggregate limit or sub-limits, depending on the type of claim, have been reached and if the limits or sub-limits are exceeded each affected hotel will only receive a proportional share of the amount of insurance proceeds provided for under the policy. In addition, under those circumstances, claims by third party owners will reduce the coverage available for our owned and leased properties.

      In addition, there are also other risks such as war, certain forms of terrorism such as nuclear, biological or chemical terrorism, acts of God such as hurricanes and earthquakes and some environmental hazards that may be deemed to fall completely outside the general coverage limits of our policies or may be uninsurable or may be too expensive to justify insuring against.

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      We may also encounter challenges with an insurance provider regarding whether it will pay a particular claim that we believe to be covered under our policy. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in a hotel or resort, as well as the anticipated future revenue from the hotel or resort. In that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property.

Acquisitions

      We intend to make acquisitions that complement our business. There can be no assurance, however, that we will be able to identify acquisition candidates or complete acquisitions on commercially reasonable terms or at all. On December 30, 2003, we announced our share ($200 million) of the acquisition with Lehman Brothers Holdings Inc. (“Lehman Brothers”) of all of the outstanding senior debt of Le Meridien and our exclusive agreement with Lehman Brothers through March 5, 2004 to negotiate the recapitalization of Le Meridien, which may be extended through early April 2004. There can be no assurance that a recapitalization of Le Meridien involving Starwood will take place and if it does what the terms will be.

      If the Le Meridien transaction or additional acquisitions are made, there can be no assurance that any anticipated benefits will actually be realized. Similarly, there can be no assurance that we will be able to obtain additional financing for acquisitions, or that the ability to obtain such financing will not be restricted by the terms of our debt agreements.

Investing Through Partnerships or Joint Ventures Decreases Our Ability to Manage Risk

      In addition to acquiring or developing hotels and resorts directly, we have from time to time invested, and expect to continue to invest, as a co-venturer. Joint venturers often have shared control over the operation of the joint venture assets. Therefore, joint venture investments may involve risks such as the possibility that the co-venturer in an investment might become bankrupt or not have the financial resources to meet its obligations, or have economic or business interests or goals that are inconsistent with our business interests or goals, or be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives. Consequently, actions by a co-venturer might subject hotels and resorts owned by the joint venture to additional risk. Although we generally seek to maintain sufficient control of any joint venture, we may be unable to take action without the approval of our joint venture partners. Alternatively, our joint venture partners could take actions binding on the joint venture without our consent. Additionally, should a joint venture partner become bankrupt, we could become liable for our partner’s share of joint venture liabilities.

Dispositions

      We periodically review our business to identify properties or other assets that we believe either are non-core, no longer complement our business, are in markets which may not benefit us as much as other markets during an economic recovery or could be sold at significant premiums. We are focused on restructuring and enhancing real estate returns and monetizing investments and from time to time, attempt to sell these identified properties and assets. There can be no assurance, however, that we will be able to complete dispositions on commercially reasonable terms or at all.

Our Vacation Ownership Business Is Subject to Extensive Regulation and Risk of Default

      We market and sell VOIs, which typically entitle the buyer to ownership of a fully-furnished resort unit for a one-week period on either an annual or an alternate-year basis. We also acquire, develop and operate vacation ownership resorts, and provide financing to purchasers of VOIs. These activities are all subject to extensive regulation by the federal government and the states in which vacation ownership resorts are located and in which VOIs are marketed and sold including regulation of our telemarketing activities under state and federal “Do Not Call” laws. In addition, the laws of most states in which we sell VOIs grant the purchaser the right to rescind the purchase contract at any time within a statutory rescission period. Although we believe that we are in material compliance with all applicable federal, state, local and foreign laws and regulations to which vacation ownership marketing, sales and operations are currently subject, changes in these requirements

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      We bear the risk of defaults under purchaser mortgages on VOIs. If a VOI purchaser defaults on the mortgage during the early part of the loan amortization period, we will not have recovered the marketing, selling (other than commissions in certain events), and general and administrative costs associated with such VOI, and such costs will be incurred again in connection with the resale of the repossessed VOI. Accordingly, there is no assurance that the sales price will be fully or partially recovered from a defaulting purchaser or, in the event of such defaults, that our allowance for losses will be adequate.

      In 2004, we expect to begin selling fractional ownership interests (which are like VOIs but entitle the buyer to a longer vacation period, generally three or more weeks, on an annual or alternate year basis) based on favorable customer response to a fully-refundable reservation program launched in 2003. The sale and financing of fractional ownership interests are subject to regulation and default risks similar to those described above for VOIs.

Certain Interests

      Barry S. Sternlicht is the Chairman and Chief Executive Officer of the Corporation and the Trust. Mr. Sternlicht also serves as the President and Chief Executive Officer of, and may be deemed to control, Starwood Capital Group, L.L.C. (“Starwood Capital”), a real estate investment firm. Starwood Capital and the Company have entered into a non-compete agreement whereby Starwood Capital may not purchase a hotel property in the United States without the consent of the Company. See Item 13. Certain Relationships and Related Transactions. Although Starwood Capital is not subject to a non-compete agreement with the Company for hotel properties outside of the United States, as a matter of practice, all opportunities to purchase such properties are also first presented to the Company in accordance with the Company’s Corporate Opportunity Policy. In each case, the Governance Committee of the Board of Directors (or other committee of independent directors) will make a decision as to whether or not the Company will pursue the opportunity. In addition, from time to time, the Company has entered into transactions in which Mr. Sternlicht has an interest. See Item 13. Certain Relationships and Related Transactions. To the extent any executive officer or director of the Company has an interest in businesses that seek to do business with the Company, any agreements with those businesses are subject to Governance Committee (or other committee of independent directors) approval pursuant to the Company’s Corporate Opportunity Policy.

Ability to Manage Growth

      Our future success and our ability to manage future growth depend in large part upon the efforts of our senior management and our ability to attract and retain key officers and other highly qualified personnel. Competition for such personnel is intense. There can be no assurance that we will continue to be successful in attracting and retaining qualified personnel. Accordingly, there can be no assurance that our senior management will be able to successfully execute and implement our growth and operating strategies.

Tax Risks

      Failure of the Trust to Qualify as a REIT Would Increase Our Tax Liability. Qualifying as a real estate investment trust (a “REIT”) requires compliance with highly technical and complex tax provisions that courts and administrative agencies have interpreted only to a limited degree. Due to the complexities of our ownership, structure and operations, the Trust is more likely than are other REITs to face interpretative issues for which there are no clear answers. Also, facts and circumstances that we do not control may affect the Trust’s ability to qualify as a REIT. The Trust believes that since the taxable year ended December 31, 1995, it has qualified as a REIT under the Internal Revenue Code of 1986, as amended. The Trust intends to continue to operate so it qualifies as a REIT. However, the Trust cannot assure you that it will continue to qualify as a REIT. If the Trust fails to qualify as a REIT for any prior tax year, the Trust would be liable to pay a significant amount of taxes for those years. Similarly, if the Trust fails to qualify as a REIT in the future, our liability for taxes would increase.

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      Additional Legislation Could Eliminate or Reduce Certain Benefits of Our Structure. On January 6, 1999, we consummated the Reorganization pursuant to an Agreement and Plan of Restructuring dated as of September 16, 1998, as amended, among the Corporation, ST Acquisition Trust, a wholly owned subsidiary of the Corporation, and the Trust. Pursuant to the Reorganization, the Trust became a subsidiary of the Corporation, which, through a wholly-owned subsidiary, holds all the outstanding Class A shares of beneficial interest, par value $0.01 per share, of the Trust. The Reorganization was proposed in response to the Internal Revenue Service Restructuring and Reform Act of 1998 (“H.R. 2676”), which made it difficult for us to acquire and operate additional hotels while still maintaining our former status as a “grandfathered paired share real estate investment trust.” While we believe that the Reorganization was the best alternative in light of H.R. 2676 and that our current structure does not raise the same concerns that led Congress to enact such legislation, no assurance can be given that additional legislation, regulations or administrative interpretations will not be adopted that would eliminate or reduce certain benefits of the Reorganization and could have a material adverse effect on our results of operations, financial condition and prospects.

      As part of the Jobs and Growth Tax Relief Reconciliation Act of 2003, the tax rates on corporate dividends to shareholders were decreased to 15 and 5 percent, depending on the shareholders’ individual tax brackets. However, dividends paid by a REIT are generally not eligible for the reduced dividend tax rate. REIT dividends largely represent rents and other income that are passed through to shareholders as dividends deductible to the REIT, rather than corporate earnings subject to the corporate income tax.

      We undertake global tax planning in the normal course of business. These activities may be subject to review by tax authorities. As a result of the review process, uncertainties exist and it is possible that some matters could be resolved adversely to us.

      Evolving government regulation could impose taxes or other burdens on our business. We rely upon generally available interpretations of tax laws and regulations in the countries and locales in which we operate. We cannot be sure that these interpretations are accurate or that the responsible taxing authority is in agreement with our views. The imposition of additional taxes could cause us to have to pay taxes that we currently do not collect or pay or increase the costs of our services or increase our costs of operations.

      Our current business practice with our internet reservation channels is that the intermediary collects hotel occupancy tax from its customer based on the price that the intermediary paid us for the hotel room. We then remit these taxes to the various tax authorities. Several jurisdictions have stated that they may take the position that the tax is also applicable to the intermediaries’ gross profit on these hotel transactions. If jurisdictions take this position, they should seek the additional tax payments from the intermediary; however, it is possible that they may seek to collect the additional tax payment from us and we would not be able to collect these taxes from the customers. To the extent that any tax authority succeeds in asserting that the hotel occupancy tax applies to the gross profit on these transactions, we believe that any additional tax would be the responsibility of the intermediary. However, it is possible that we might have additional tax exposure. In such event, such actions could have a material adverse effect on our business, results of operations and financial condition.

Risks Relating to Ownership of Our Shares

      No Person or Group May Own More Than 8% of Our Shares. Our governing documents provide (subject to certain exceptions) that no one person or group may own or be deemed to own more than 8% of our outstanding stock or Shares of beneficial interest, whether measured by vote, value or number of Shares. There is an exception for shareholders who owned more than 8% as of February 1, 1995, who may not own or be deemed to own more than the lesser of 9.9% or the percentage of Shares they held on that date, provided, that if the percentage of Shares beneficially owned by such a holder decreases after February 1, 1995, such a holder may not own or be deemed to own more than the greater of 8% or the percentage owned after giving effect to the decrease. We may waive this limitation if we are satisfied that such ownership will not jeopardize the Trust’s status as a REIT. In addition, if Shares which would cause the Trust to be beneficially owned by fewer than 100 persons are issued or transferred to any person, such issuance or transfer shall be null and void. This ownership limit may have the effect of precluding a change in control of us by a third party without the

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      At Least Two Annual Meetings Must Be Held Before a Majority of Our Board of Directors Can Be Changed. Our Board of Directors is divided into three classes. Each class is elected for a three-year term. At each annual meeting of shareholders, approximately one-third of the members of the Board of Directors are elected for a three-year term and the other directors remain in office until their three-year terms expire. Furthermore, our governing documents provide that no director may be removed without cause. Any removal for cause requires the affirmative vote of the holders of at least two-thirds of all the votes entitled to be cast for the election of directors.

      Thus, control of the Board of Directors cannot be changed in one year without removing the directors for cause as described above. Consequently, at least two annual meetings must be held before a majority of the members of the Board of Directors can be changed. Our charter provides that the charter cannot be amended without the approval of the holders of at least a majority of the outstanding Shares entitled to vote thereon.

      Our Board of Directors May Issue Preferred Stock and Establish the Preferences and Rights of Such Preferred Stock. Our charter provides that the total number of shares of stock of all classes which the Corporation has authority to issue is 1,350,000,000, initially consisting of one billion shares of common stock, 50 million shares of excess common stock, 200 million shares of preferred stock and 100 million shares of excess preferred stock. Our Board of Directors has the authority, without a vote of shareholders, to establish the preferences and rights of any preferred or other class or series of shares to be issued and to issue such shares. The issuance of preferred shares or other shares having special preferences or rights could delay or prevent a change in control even if a change in control would be in the interests of our shareholders. Since our Board of Directors has the power to establish the preferences and rights of additional classes or series of shares without a shareholder vote, our Board of Directors may give the holders of any class or series preferences, powers and rights, including voting rights, senior to the rights of holders of our shares.

      Certain Provisions of Our Charter May Require the Approval of Two-Thirds of Our Shares and Only Our Directors May Amend Our Bylaws. Our charter contains provisions relating to restrictions on transferability of the Corporation Shares, which may be amended only by the affirmative vote of our shareholders holding two-thirds of the votes entitled to be cast on the matter. As permitted under the Maryland General Corporation Law, our Bylaws provide that directors have the exclusive right to amend our Bylaws.

      Our Shareholder Rights Plan Would Cause Substantial Dilution to Any Shareholder That Attempts to Acquire Us on Terms Not Approved by Our Board of Directors. We adopted a shareholder rights plan which provides, among other things, that when specified events occur, our shareholders will be entitled to purchase from us a newly created series of junior preferred stock, subject to the ownership limit described above. The preferred stock purchase rights are triggered by the earlier to occur of (i) ten days after the date of a public announcement that a person or group acting in concert has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of our outstanding Corporation Shares or (ii) ten business days after the commencement of or announcement of an intention to make a tender offer or exchange offer, the consummation of which would result in the acquiring person becoming the beneficial owner of 15% or more of our outstanding Corporation Shares. The preferred stock purchase rights would cause substantial dilution to a person or group that attempts to acquire us on terms not approved by our Board of Directors.

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General

      Starwood is one of the world’s largest hotel and leisure companies. Starwood’s status as one of the leading hotel and leisure companies resulted from the 1998 acquisitions of Westin Hotels & Resorts Worldwide, Inc. and certain of its affiliates (“Westin”) (the “Westin Merger”) and ITT Corporation (the “ITT Merger”), renamed Sheraton Holding Corporation (“Sheraton Holding”) and the 1999 acquisition of Vistana Inc. (renamed Starwood Vacation Ownership, Inc. or “SVO”). The Company conducts its hotel and leisure business both directly and through its subsidiaries. The Company’s brand names include St. Regis®, The Luxury Collection®, Sheraton®, Westin®, W® and Four Points® by Sheraton. Through these brands, Starwood is well represented in most major markets around the world. The Company’s operations are grouped into two business segments, hotels and vacation ownership operations.

      The Company’s revenue and earnings are derived primarily from hotel operations, which include the operation of the Company’s owned hotels; management and other fees earned from hotels the Company manages pursuant to management contracts; and the receipt of franchise and other fees.

      The Company’s hotel business emphasizes the global operation of hotels and resorts primarily in the luxury and upscale segment of the lodging industry. Starwood seeks to acquire interests in, or management or franchise rights with respect to properties in this segment. At December 31, 2003, the Company’s hotel portfolio included owned, leased, managed and franchised hotels totaling 738 hotels with approximately 229,000 rooms in 82 countries, and is comprised of 140 hotels that Starwood owns or leases or in which Starwood has a majority equity interest, 286 hotels managed by Starwood on behalf of third-party owners (including entities in which Starwood has a minority equity interest) and 312 hotels for which Starwood receives franchise fees.

      The Company’s revenues and earnings are also derived from the development, ownership and operation of vacation ownership resorts, marketing and selling VOIs in the resorts and providing financing to customers who purchase such interests. At December 31, 2003, the Company had 18 vacation ownership resorts in the United States and the Bahamas.

      The Trust was organized in 1969, and the Corporation was incorporated in 1980, both under the laws of Maryland. Sheraton Hotels & Resorts and Westin Hotels & Resorts, Starwood’s largest brands, have been serving guests for more than 60 years. Starwood Vacation Ownership (and its predecessor, Vistana, Inc.) has been selling VOIs for more than 20 years.

      The Company’s principal executive offices are located at 1111 Westchester Avenue, White Plains, New York 10604, and its telephone number is (914) 640-8100.

      For a discussion of the Company’s revenues, profits, assets and geographical segments, see the notes to financial statements of this Joint Annual Report. For additional information concerning the Company’s business, see Item 2. Properties, of this Joint Annual Report.

Competitive Strengths

      Management believes that the following factors contribute to the Company’s position as a leader in the lodging and vacation ownership industry and provide a foundation for the Company’s business strategy:

      Brand Strength. Starwood has assumed a leadership position in markets worldwide based on its superior global distribution, coupled with strong brands and brand recognition. Starwood’s upscale and luxury brands continue to capture market share from competitors by aggressively cultivating new customers while maintaining loyalty among the world’s most active travelers. The strength of the Company’s brands is evidenced, in part, by the superior ratings received from the Company’s hotel guests and from industry publications. In 2003 Starwood had more than 40 of its top hotels on the Condé Nast Traveler’s 2003 Readers Choice Awards List, including nine hotels on their “Top 100 Best Hotels in the World.” For the second year in a row Starwood was named the “World’s Leading Hotel Group” at the World Travel Awards and was again designated as the “World’s Best Global Hotel Company” by Global Finance magazine.

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      Frequent Guest Program. The Company’s loyalty program, Starwood Preferred Guest® (“SPG”) has over 19 million members and since its inception in 1999, has been awarded the Hotel Program of the Year three times by consumers via the prestigious Freddie Awards. SPG has also received awards for Best Customer Service, Best Web Site, Best Elite-Level Program, Best Award Redemption and Best Newsletter. SPG, which was the first loyalty program in the hotel industry with a policy of no blackout dates and no capacity controls, enables members to redeem stays when they want and where they want. SPG yields repeat guest business due to rewarding frequent stays and purchasers of VOIs with points towards free hotel stays and other rewards, or airline miles with any of the participating 32 airline programs.

      Significant Presence in Top Markets. The Company’s luxury and upscale hotel and resort assets are well positioned throughout the world. These assets are primarily located in major cities and resort areas that management believes have historically demonstrated a strong breadth, depth and growing demand for luxury and upscale hotels and resorts, in which the supply of sites suitable for hotel development has been limited and in which development of such sites is relatively expensive.

      Premier and Distinctive Properties. Starwood controls a distinguished and diversified group of hotel properties throughout the world, including the St. Regis in New York, New York; The Phoenician in Scottsdale, Arizona; the Hotel Gritti Palace in Venice, Italy; the St. Regis in Beijing, China; and the Westin Palace in Madrid, Spain. These are among the leading hotels in the industry and are at the forefront of providing the highest quality and service. Starwood’s properties are consistently recognized as the best of the best by readers of Condé Nast Traveler, who are among the world’s most sophisticated and discerning group of travelers. The November 2003 edition of the Condé Nast Traveler Magazine named nine Starwood properties in the top 100 “Best in the World”, with the Westin Turnberry in Scotland ranked as the top European Resort. In addition, the Condé Nast Traveler Magazine January 2004 issue included 55 Starwood properties among its prestigious Gold List and Gold List Reserve, more than any other hotel company.

      Scale. As one of the largest hotel and leisure companies focusing on the luxury and upscale full-service lodging market, Starwood has the scale to support its core marketing and reservation functions. The Company also believes that its scale will contribute to lowering its cost of operations through purchasing economies areas such as insurance, energy, telecommunications, technology, employee benefits, food and beverage, furniture, fixtures and equipment and operating supplies.

      Diversification of Cash Flow and Assets. Management believes that the diversity of the Company’s brands, market segments served, revenue sources and geographic locations provides a broad base from which to enhance revenue and profits and to strengthen the Company’s global brands. This diversity limits the Company’s exposure to any particular lodging or vacation ownership asset, brand or geographic region.

      While Starwood focuses on the luxury and upscale portion of the full-service lodging and vacation ownership markets, the Company’s brands cater to a diverse group of sub-markets within this market. For example, the St. Regis hotels cater to high-end hotel and resort clientele while Four Points by Sheraton hotels deliver extensive amenities and services at more affordable rates.

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      Starwood derives its cash flow from multiple sources within its hotel and vacation ownership segments, including owned hotels activity and management and franchise fees, and is geographically diverse with operations around the world. The following tables reflect the Company’s hotel and vacation ownership properties by type of revenue source and geographical presence by major geographic area as of December 31, 2003:

(a)	Includes wholly owned, majority owned and leased hotels.

Business Segment and Geographical Information

      Incorporated by reference in Note 22. Business Segment and Geographical Information, in the notes to financial statements set forth in Part II, Item 8. Financial Statements and Supplementary Data.

Business Strategy

      The Company’s primary business objective is to maximize earnings and cash flow by increasing the profitability of the Company’s existing portfolio; selectively acquiring interests in additional assets; increasing the number of the Company’s hotel management contracts and franchise agreements; acquiring and developing vacation ownership resorts and selling VOIs; and maximizing the value of its owned real estate properties, including selectively disposing of non-core hotels and “trophy” assets that may be sold at significant premiums. The Company plans to meet these objectives by leveraging its global assets, broad customer base and other resources and by taking advantage of the Company’s scale to reduce costs. The uncertainty relating to the timing and strength of recoveries in the North American and European economies, combined with current political and economic environments in South America, the Middle East and other parts of the world and their consequent impact on travel in their respective regions and the rest of the world, make financial planning and implementation of our strategy more challenging.

      Growth Opportunities. Management has identified several growth opportunities with a goal of enhancing the Company’s operating performance and profitability, including:

	•	Continuing to expand the Company’s role as a third-party manager of hotels and resorts. This allows Starwood to expand the presence of its lodging brands and gain additional cash flow generally with modest capital commitment;
	•	Franchising the Sheraton, Westin, Four Points by Sheraton and Luxury Collection brands to selected third-party operators and licensing the Westin, W and St. Regis brand names to selected third parties in connection with luxury residential condominiums, thereby expanding the Company’s

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		market presence, enhancing the exposure of its hotel brands and providing additional income through franchise and license fees;
	•	Expanding the Company’s internet presence and sales capabilities to increase revenue and improve customer service;
	•	Continuing to grow the Company’s frequent guest program, thereby increasing occupancy rates while providing the Company’s customers with benefits based upon loyalty to the Company’s hotels and vacation ownership resorts;
	•	Enhancing the Company’s marketing efforts by integrating the Company’s proprietary customer databases, so as to sell additional products and services to existing customers, improve occupancy rates and create additional marketing opportunities;
	•	Optimizing the Company’s use of its real estate assets to improve ancillary revenue, such as condominium sales and restaurant, beverage and parking revenue from the Company’s hotels and resorts;
	•	Continuing to build the “W” hotel brand to appeal to upscale business travelers and other customers seeking full-service hotels in major markets by, among other things, placing Bliss Spa®, which the Company acquired in January 2004, in “W” hotels and expanding the W brand to resorts in non-urban areas;
	•	Innovations such as the Heavenly Bed® and Heavenly Bath®, the Sheraton Sweet SleeperSM Bed and the Sheraton Service PromiseSM;
	•	Renovating, upgrading and expanding the Company’s branded hotels to further its strategy of strengthening brand identity;
	•	Developing additional vacation ownership resorts and leveraging our hotel real estate assets where possible through VOI construction and residential or condominium sales;
	•	Leveraging the Bliss product line and distribution channels; and
	•	Increasing operating efficiencies through increased use of technology.

      Starwood intends to explore opportunities to expand and diversify the Company’s hotel portfolio through minority investments and selective acquisitions of properties domestically and internationally that meet some or all of the following criteria:

	•	Luxury and upscale hotels and resorts in major metropolitan areas and business centers;
	•	Major tourist hotels, destination resorts or conference centers that have favorable demographic trends and are located in markets with significant barriers to entry or with major room demand generators such as office or retail complexes, airports, tourist attractions or universities;
	•	Undervalued hotels whose performance can be increased by re-branding to one of the Company’s hotel brands, the introduction of better and more efficient management techniques and practices and/or the injection of capital for renovating, expanding or repositioning the property;
	•	Hotels or brands which would enable the Company to provide a wider range of amenities and services to customers; and
	•	Portfolios of hotels or hotel companies that exhibit some or all of the criteria listed above, where the purchase of several hotels in one transaction enables Starwood to obtain favorable pricing or obtain attractive assets that would otherwise not be available or realize cost reductions on operating the hotels by incorporating them into the Starwood system.

      Starwood may also selectively choose to develop and construct desirable hotels and resorts to help the Company meet its strategic goals, such as the ongoing development of the St. Regis Museum Tower Hotel in San Francisco, California which is expected to have approximately 269 rooms and 102 condominiums.

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      Furthermore, the Company has developed plans for flexible new-build Sheraton and Westin prototypes, with the intent of expanding these brands into tertiary markets.

Competition

      The hotel industry is highly competitive. Competition is generally based on quality and consistency of room, restaurant and meeting facilities and services, attractiveness of locations, availability of a global distribution system, price, the ability to earn and redeem loyalty program points and other factors. Management believes that Starwood competes favorably in these areas. Starwood’s properties compete with other hotels and resorts, including facilities owned by local interests and facilities owned by national and international chains, in their geographic markets. The principal competitors of Starwood include other hotel operating companies, ownership companies (including hotel REITs) and national and international hotel brands.

      Starwood encounters strong competition as a hotel, resort and vacation ownership operator and developer. While some of the Company’s competitors are private management firms, several are large national and international chains that own and operate their own hotels, as well as manage hotels for third-party owners and develop and sell VOIs, under a variety of brands that compete directly with the Company’s brands. In addition, hotel management contracts are typically long-term arrangements, but most allow the hotel owner to replace the management firm if certain financial or performance criteria are not met.

Environmental Matters

      Starwood is subject to certain requirements and potential liabilities under various federal, state and local environmental laws, ordinances and regulations (“Environmental Laws”). For example, a current or previous owner or operator of real property may become liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. The presence of hazardous or toxic substances may adversely affect the owner’s ability to sell or rent such real property or to borrow using such real property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic wastes may be liable for the costs of removal or remediation of such wastes at the treatment, storage or disposal facility, regardless of whether such facility is owned or operated by such person. Starwood uses certain substances and generates certain wastes that may be deemed hazardous or toxic under applicable Environmental Laws, and Starwood from time to time has incurred, and in the future may incur, costs related to cleaning up contamination resulting from historic uses of certain of the Company’s current or former properties or the Company’s treatment, storage or disposal of wastes at facilities owned by others. Other Environmental Laws require abatement or removal of certain asbestos-containing materials (“ACMs”) (limited quantities of which are present in various building materials such as spray-on insulation, floor coverings, ceiling coverings, tiles, decorative treatments and piping located at certain of the Company’s hotels) in the event of damage or demolition, or certain renovations or remodeling. These laws also govern emissions of and exposure to asbestos fibers in the air. Environmental Laws also regulate polychlorinated biphenyls (“PCBs”), which may be present in electrical equipment. A number of the Company’s hotels have underground storage tanks (“USTs”) and equipment containing chlorofluorocarbons (“CFCs”); the operation and subsequent removal or upgrading of certain USTs and the use of equipment containing CFCs also are regulated by Environmental Laws. In connection with the Company’s ownership, operation and management of its properties, Starwood could be held liable for costs of remedial or other action with respect to PCBs, USTs or CFCs.

      Environmental Laws are not the only source of environmental liability. Under the common law, owners and operators of real property may face liability for personal injury or property damage because of various environmental conditions such as alleged exposure to hazardous or toxic substances (including, but not limited to, ACMs, PCBs and CFCs), poor indoor air quality, radon or poor drinking water quality.

      Although Starwood has incurred and expects to incur remediation and various environmental-related costs during the ordinary course of operations, management anticipates that such costs will not have a material adverse effect on the operations or financial condition of the Company.

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Seasonality and Diversification

      The hotel industry is seasonal in nature; however, the periods during which the Company’s properties experience higher revenue activities vary from property to property and depend principally upon location. Other than 2001, which was dramatically impacted by the September 11, 2001 terrorist attacks in New York, Washington, D.C. and Pennsylvania (the “September 11 Attacks”) and their aftermath, the Company’s revenues and operating income historically have been lower in the first quarter than in the second, third or fourth quarters.

Comparability of Owned Hotel Results

      Starwood continually updates and renovates its owned, leased and consolidated joint venture hotels. While undergoing renovation, these hotels are generally not operating at full capacity and, as such, these renovations can negatively impact Starwood’s revenues and operating income.

Employees

      At December 31, 2003, Starwood employed approximately 110,000 employees at its corporate offices, owned and managed hotels and vacation ownership resorts, of whom approximately 54% were employed in the United States. At December 31, 2003, approximately 32% of the U.S.-based employees were covered by various collective bargaining agreements providing, generally, for basic pay rates, working hours, other conditions of employment and orderly settlement of labor disputes. Generally, labor relations have been maintained in a normal and satisfactory manner, and management believes that the Company’s employee relations are good.

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Item 2.     Properties.

      Starwood is one of the largest hotel and leisure companies in the world, with operations in 82 countries. Starwood considers its hotels and resorts, including vacation ownership resorts (together “Resorts”), generally to be premier establishments with respect to desirability of location, size, facilities, physical condition, quality and variety of services offered in the markets in which they are located. Although obsolescence arising from age and condition of facilities can adversely affect the Company’s Resorts, Starwood and third-party owners of managed and franchised Resorts expend substantial funds to renovate and maintain their facilities in order to remain competitive. For further information, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources in this Joint Annual Report.

      The Company’s hotel business included 738 owned, managed or franchised hotels with approximately 229,000 rooms and its vacation ownership business included 18 vacation ownership resorts at December 31, 2003, predominantly under six brands. All brands represent full-service properties that range in amenities from luxury hotels and resorts to more moderately priced hotels. As a result of the Bliss acquisition, the Company also leases three stand alone Bliss Spas, two in New York, New York and one in London, England.

      The following table reflects the Company’s hotel and vacation ownership properties, by brand:

      St. Regis Hotels & Resorts (luxury full-service hotels and resorts) deliver the most discreet, personalized and anticipatory level of service to high-end leisure and business travelers. St. Regis hotels typically have individual design characteristics to accentuate each individual location and city. Most St. Regis hotels have spacious, luxurious rooms and suites with highly designed, residential surroundings and include a 4- or 5-Star restaurant on premises. The Company is in the process of developing several condominium and fractional residential properties as part of existing, or to be built, St. Regis hotels. Some of these properties include the St. Regis Museum Tower Hotel in San Francisco, California, scheduled to open in mid 2005, the Residence Club in Aspen, Colorado, scheduled to open during the summer of 2005 and Temenos, Anguilla, a St. Regis Retreat, which is scheduled to debut in 2006.

      The Luxury Collection (luxury full-service hotels and resorts) is a group of unique hotels and resorts offering exceptional service to an elite clientele (some of which may also be branded a St. Regis, Sheraton or Westin). The Luxury Collection includes some of the world’s most renowned and legendary hotels generally well known by the individual hotel name. These hotels are distinguished by magnificent decor, spectacular settings and impeccable service.

      Sheraton Hotels & Resorts (upscale full-service hotels and resorts) is the Company’s largest brand serving the needs of upscale business and leisure travelers worldwide. Sheraton hotels and resorts offer the entire spectrum of comfort, from full-service hotels in major cities to luxurious resorts. These hotels and resorts typically feature a wide variety of on-site business services and a full range of amenities including rooms that feature generous work spaces, allowing business travelers to stay productive on the road.

      Westin Hotels & Resorts (luxury and upscale full-service hotels and resorts) are first-class, signature hotels that typically make up an integral part of a city or region in which the hotels are located. Westin hotels and resorts are characterized by a commitment to uncompromised elegance, service and guest experience. The

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      W Hotels (stylish boutique full-service urban hotels and resorts) was inaugurated in December 1998 with the opening of the W New York. W hotels provide a unique hotel alternative to business travelers, combining the personality, style and distinctive flavor of an intimate hotel with the functionality, reliability and attentive service of a major business and leisure hotel. W hotels feature modern, sophisticated design with custom-made furnishings and accessories, fully wired rooms with the most advanced technology in the industry, and unique, high-quality signature restaurants and bars. The Company is in the process of developing several condominium residences as part of the W hotels, including the W Dallas Victory Hotel and Residences which is expected to open in late 2005 and the W Ft. Lauderdale Hotel and Residences, which is scheduled to open in December 2006.

      Four Points by Sheraton (moderately priced full-service hotels) deliver extensive amenities and services such as room service, dry cleaning, fitness centers, meeting facilities and business centers to frequent business travelers at reasonable prices. These hotels provide a comfortable, well-appointed room, which typically includes a two-line telephone, a large desk for working or in-room dining, comfortable seating and full-service restaurants.

Hotel Business

      Owned, Leased and Consolidated Joint Venture Hotels. The following table summarizes revenue per available room (“REVPAR”)⁽¹⁾, average daily rates (“ADR”) and average occupancy rates on a year-to-year basis for the Company’s 140 owned, leased and consolidated joint venture hotels (excluding 25 hotels sold or closed during 2002 and 2003) (“Same-Store Owned Hotels”) for the years ended December 31, 2003 and 2002:

(1)	REVPAR is calculated by dividing room revenue which is derived from rooms and suites rented or leased, by total room nights available for a given period. REVPAR may not be comparable to similarly titled measures such as revenues.

     During the years ended December 31, 2003 and 2002, the Company invested approximately $259 million and $262 million, respectively, for capital improvements at owned hotels and capital expenditures on technology development. During 2003 and 2002, these capital expenditures included continued development of the St. Regis Museum Tower in San Francisco, California and renovations of the Phoenician in Scottsdale, Arizona, the Westin Excelsior in Rome, Italy, the Westin Galleria and Oaks in Houston, Texas and the Sheraton New York Hotel and Towers in New York, New York.

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      Managed and Franchised Hotels. Hotel and resort properties in the United States are often owned by entities that do not manage hotels or own a brand name. Hotel owners typically enter into management contracts with hotel management companies to operate their hotels. When a management company does not offer a brand affiliation, the hotel owner often chooses to pay separate franchise fees to secure the benefits of brand marketing, centralized reservations and other centralized administrative functions, particularly in the sales and marketing area. Management believes that companies, such as Starwood, that offer both hotel management services and well-established worldwide brand names appeal to hotel owners by providing the full range of management and marketing services.

      Managed Hotels. Starwood manages hotels worldwide, usually under a long-term agreement with the hotel owner (including entities in which Starwood has a minority equity interest). The Company’s responsibilities under hotel management contracts typically include hiring, training and supervising the managers and employees that operate these facilities. For additional fees, Starwood provides reservation services and coordinates national advertising and certain marketing and promotional services. Starwood prepares and implements annual budgets for the hotels it manages and is responsible for allocating property-owner funds for periodic maintenance and repair of buildings and furnishings. In addition to the Company’s owned and leased hotels, at December 31, 2003, Starwood managed 286 hotels with approximately 98,000 rooms worldwide.

      Management contracts typically provide for base fees tied to gross revenue and incentive fees tied to profits as well as fees for other services, including centralized reservations, sales and marketing, public relations and national and international media advertising. In the Company’s experience, owners seek hotel managers that can provide attractively priced base, incentive, marketing and franchise fees combined with demonstrated sales and marketing expertise and operations-focused management designed to enhance profitability. Some of the Company’s management contracts permit the hotel owner to terminate the agreement when the hotel is sold or otherwise transferred to a third party, as well as if Starwood fails to meet established performance criteria. In addition, many hotel owners seek equity, debt or other investments from Starwood to help finance hotel renovations or conversions to a Starwood brand so as to align the interests of the owner and the Company. The Company’s ability or willingness to make such investments may determine, in part, whether Starwood will be offered, will accept, or will retain a particular management contract. During 2003, the Company signed management agreements for 27 hotels with approximately 10,000 rooms.

      Brand Franchising and Licensing. Starwood franchises its Sheraton, Westin, Four Points by Sheraton and Luxury Collection brand names and generally derives licensing and other fees from franchisees based on a fixed percentage of the franchised hotel’s room revenue, as well as fees for other services, including centralized reservations, sales and marketing, public relations and national and international media advertising. In addition, a franchisee may also purchase hotel supplies, including brand-specific products, from certain Starwood-approved vendors. Starwood approves certain plans for, and the location of, franchised hotels and reviews their design. At December 31, 2003, there were 312 franchised properties with approximately 81,000 rooms operating under the Sheraton, Westin, Four Points by Sheraton and Luxury Collection brands. During 2003, the Company signed franchise agreements with 21 hotels with approximately 4,000 rooms.

      Starwood also entered into management contracts with several owners in 2003 for mixed use hotel projects which include a residential component. To facilitate the sale of the residential units, Starwood entered into licensing agreements for the use of its W, Westin and St. Regis brands to allow the owners to offer branded condominiums to prospective purchasers. In consideration, Starwood will receive a licensing fee equal to a percentage of the gross sales revenue of the units sold. The licensing arrangement terminates upon sell-out of the units or upon termination of the management contract.

Vacation Ownership Business

      The Company develops, owns and operates vacation ownership resorts, markets and sells the VOIs in the resorts and, in many cases, provides financing to customers who purchase such ownership interests. Owners of VOIs can trade their interval for intervals at other Starwood vacation ownership resorts, for intervals at certain vacation ownership resorts not otherwise sponsored by Starwood through an exchange company, or for hotel

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      At December 31, 2003, the Company had 18 vacation ownership resorts in its portfolio with six actively selling VOIs, four under construction, two expected to start construction shortly and six that had sold all existing inventory. During 2003, the Company held the grand opening of the Westin Ka’anapali Ocean Resort and Villas in Maui, Hawaii. The first phase of the resort (103 units) was sold out prior to opening. Also during 2003, the Company announced a brand extension and fractional product with the St. Regis Aspen Residence Club (25 units). During 2003 and 2002, the Company invested approximately $140 million and $96 million, respectively, for capital expenditures, including VOI construction at Westin Ka’anapali, Westin Mission Hills Resort Villas in Rancho Mirage, California, and Westin Kierland in Scottsdale, Arizona and the acquisition in 2002 of 18.5 acres for a new Westin vacation ownership development in Princeville, Hawaii.

Item 3.     Legal Proceedings.

      Incorporated by reference to the description of legal proceedings in Note 21. Commitments and Contingencies, in the notes to financial statements set forth in Part II, Item 8. Financial Statements and Supplementary Data.

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

      Not applicable.

Executive Officers of the Registrants

      See Part III, Item 10. of this Joint Annual Report for information regarding the executive officers of the Registrants, which information is incorporated herein by reference.

PART II

Item 5.     Market for Registrants’ Common Equity and Related Stockholder Matters.

Market Information

      The Shares are traded on the New York Stock Exchange (the “NYSE”) under the symbol “HOT.” The Class A Shares are all indirectly held by the Corporation and have never been traded.

      The following table sets forth, for the fiscal periods indicated, the high and low sale prices per Share on the NYSE Composite Tape.

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Holders

      As of February 26, 2004, there were approximately 20,000 holders of record of Shares and one holder of record of the Class A Shares.

Distributions Made/ Declared

      The following table sets forth the frequency and amount of distributions made by the Trust to holders of Shares for the years ended December 31, 2003 and 2002:

(a)	The Trust declared distributions in the fourth quarter of 2003 and 2002 to shareholders of record on December 31, 2003 and 2002, respectively. The distributions were paid in January 2004 and 2003, respectively.

     The Corporation has not paid any cash dividends since its organization and does not anticipate that it will pay any dividends in the foreseeable future.

      As a consequence of the Reorganization, holders of Class B Shares are entitled, subject to certain conditions, to receive a non-cumulative annual distribution, which was set at an initial rate of $0.60 per Share for 1999, to the extent the distribution is authorized by the Board of Trustees of the Trust. The distribution was increased to an annual rate of $0.80 in 2001. In the beginning of 2002, the Company shifted from paying a quarterly distribution to paying an annual distribution (and intends to continue its distributions on an annual basis for 2004). For 2002 and 2003, the Trust paid a distribution of $0.84 per Share. Unless distributions for the then current distribution period have been paid on the Class B Shares, the Trust is not permitted to pay a distribution on the Class A Shares (except in certain circumstances). At this time, the Company anticipates that the 2004 distributions will be held constant at $0.84 per Share. The final determination of the amount of the distribution will be subject to economic and financial conditions, as well as approval by the Board of Trustees of the Trust.

Conversion of Securities; Sale of Unregistered Securities

      During 2003, no shares of Class B Exchangeable Preferred Shares (“Class B EPS”) were exchanged for shares of Class A Exchangeable Preferred Shares (“Class A EPS”). Approximately 13,000 shares of Class A EPS were exchanged for an equal number of Shares during 2003. Through December 31, 2003, in accordance with the terms of the Class B EPS, which allow the shareholders to put these units back to the Company for cash at $38.50 for a one-year period beginning on the fifth anniversary of the Westin acquisition (ending January 3, 2004), approximately 528,000 shares were put back to the Company for approximately $20 million. Approximately 408,000 additional Class B EPS were redeemed for $16 million from January 1, 2004 through January 3, 2004. Subsequent to January 3, 2004, if Class B EPS are put to the Company, the Company has the option to settle in cash at $38.50 per share or Class A EPS at $38.50 per share. On January 2, 2003, Mr. Sternlicht redeemed 240,391 of these Class B EPS for $38.50 per share.

      During 2003, the Company exchanged approximately 13,000 limited partnership units of the Realty Partnership and the Operating Partnership held by third parties for Shares on a one-for-one basis.

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      During 2003, the Company issued the following Shares upon cashless exercises of stock options:

      The options were issued in connection with the Company’s acquisition of an interest in a business owned by the option holders and were not subject to registration pursuant to Section 4(2) under the Securities Act of 1933, as amended, on the basis that the transaction did not involve a public offering. The Shares issued to the option holders were not registered shares but could be sold in compliance with Rule 144 of the Securities Act.

Item 6.     Selected Financial Data.

      The following financial and operating data should be read in conjunction with the information set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements of the Company and related notes thereto appearing elsewhere in this Joint Annual Report and incorporated herein by reference.

(a)	Excluding other revenues from managed and franchised properties.
(b)	This balance reflects the payment made in January 2002 for the dividends declared for the fourth quarter of 2001. As the Trust now declares dividends annually, the 2002 annual dividend payment, which was made in January 2003, is reflected in the 2003 column.

      Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) discusses the Company’s consolidated financial statements, which have been prepared in accordance with

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      Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions and conditions.

CRITICAL ACCOUNTING POLICIES

      The Company believes the following to be its critical accounting policies:

      Revenue Recognition. The Company’s revenues are primarily derived from the following sources: (1) hotel and resort revenues at the Company’s owned, leased and consolidated joint venture properties; (2) management and franchise fees; (3) vacation ownership revenues; and (4) other revenues which are ancillary to the Company’s operations. Generally, revenues are recognized when the services have been rendered. The following is a description of the composition of revenues for the Company:

	•	Owned, Leased and Consolidated Joint Ventures — Represents revenue primarily derived from hotel operations, including the rental of rooms and food and beverage sales from owned leased or consolidated joint venture hotels and resorts. Revenue is recognized when rooms are occupied and services have been rendered. These revenues are impacted by global economic conditions affecting the travel and hospitality industry as well as relative market share of the local competitive set of hotels. REVPAR is a leading indicator of revenue trends at owned, leased and consolidated joint venture hotels.
	•	Management and Franchise Fees — Represents fees earned on hotels managed worldwide, usually under long-term contracts, and franchise fees received in connection with the franchise of the Company’s Sheraton, Westin, Four Points by Sheraton and Luxury Collection brand names. Management fees are comprised of a base fee, which is generally based on a percentage of gross revenues, and an incentive fee, which is generally based on the property’s profitability. For any time during the year, incentive fees are recognized for the fees due and earned as if the contract was terminated at that date, exclusive of any termination fees due or payable. Therefore, during periods prior to year-end, the incentive fees recorded may not be indicative of the eventual incentive fees that will be recognized at year-end as conditions and incentive hurdle calculations may not be final. Franchise fees are generally based on a percentage of hotel room revenues. As with hotel revenues discussed above, these revenue sources are affected by conditions impacting the travel and hospitality industry as well as competition from other hotel management and franchise companies.
	•	Vacation Ownership — The Company recognizes revenue from VOI sales and financings. Such revenues are impacted by the state of the global economies and, in particular, the U.S. economy, as well as interest rate and other economic conditions affecting the lending market. The Company determines the portion of revenues to recognize for sales accounted for under the percentage of completion method based on judgments and estimates including total project costs to complete. Additionally, the Company records reserves against these revenues based on expected default levels. Changes in costs could lead to adjustments to the percentage of completion status of a project, which may result in differences in the timing and amount of revenues recognized from the projects. The Company anticipates developing future high end VOI projects adjacent to or as part of its luxury

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		resorts, resulting in cross-selling opportunities and an audience of higher-end purchasers, yielding both higher revenues and reduced risks associated with financing these VOI sales.

      Frequent Guest Program. SPG is the Company’s frequent guest incentive marketing program. SPG members earn points based on spending at the Company’s properties, as incentives to first time buyers of VOIs and, to a lesser degree, through participation in affiliated partners’ programs. Points can be redeemed at most Company owned, leased, managed and franchised properties. The cost of operating the program, including the estimated cost of award redemption, is charged to properties based on members’ qualifying expenditures. Revenue is recognized by participating hotels and resorts when points are redeemed for hotel stays.

      The Company, through the services of third-party actuarial analysts, determines the fair value of the future redemption obligation based on statistical formulas which project the timing of future point redemption based on historical experience, including an estimate of the “breakage” for points that will never be redeemed, and an estimate of the points that will eventually be redeemed. Actual expenditures for SPG may differ from the actuarially determined liability. The total actuarially determined liability as of December 31, 2003 and 2002 is $201 million and $175 million, respectively. A 10% reduction in the “breakage” of points would result in an increase of $31 million to the liability at December 31, 2003.

      Long Lived Asset Valuations. The Company continually evaluates the carrying value of its long-lived assets for impairment by comparing the expected undiscounted future cash flows of the assets to the net book value of the assets. If the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value is charged to current earnings. Fair value is based upon discounted cash flows of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals and, if appropriate, current estimated net sales proceeds from pending offers. The Company evaluates the carrying value of its long-lived assets based on its plans, at the time, for such assets and such qualitative factors as future development in the surrounding area, status of expected local competition and projected incremental income from renovations. Changes to the Company’s plans, including a decision to dispose of or change the intended use of an asset, can have a material impact on the carrying value of the asset.

      Legal Contingencies. The Company is subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty. SFAS No. 5, “Accounting for Contingencies,” requires that an estimated loss from a loss contingency should be accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. The Company evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss and changes in these factors could materially impact the Company’s financial position or its results of operations.

      Income Taxes. The Company provides for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.

RESULTS OF OPERATIONS

      The following discussion presents an analysis of results of our operations for the years ended December 31, 2003, 2002 and 2001.

      The Company’s operating results for a substantial part of 2003 were significantly impacted by the weakened worldwide economic environment, the war in Iraq and its aftermath, and the Severe Acute Respiratory Syndrome (“SARS”) epidemic, all of which resulted in a dramatic slowdown in business and international travel. In the latter part of the year, transient travel in North America, where the Company has its largest concentration of owned hotels, began to increase, more than offsetting continued weaknesses in group travel.

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      The Company derives the majority of its revenues and operating income from its owned, leased and consolidated joint venture hotels and, as discussed above, a significant portion of these results are driven by these hotels in North America. Total operating income generated from the Company’s hotels in North America for the years ending December 31, 2003 and 2002 was $233 million and $239 million, respectively (total operating income for the Company was $427 million and $551 million for 2003 and 2002, respectively). The following represents the geographical breakdown of the Company’s operating income in North America by metropolitan area for the years ended December 31, 2003 and 2002:

      A leading indicator for the performance of the Company’s owned, leased and consolidated joint venture hotels is REVPAR, which we consider to be a meaningful indicator of our performance, as it measures the period-over-period growth in rooms revenue for comparable properties. This is particularly the case in the United States where there is no impact on this measure from foreign exchange rates. REVPAR at our owned hotels in North America has declined in the past two years due to the global economic downturn discussed above.

Year Ended December 31, 2003 Compared with Year Ended December 31, 2002

Continuing Operations

      Revenues. Total revenues, including other revenues from managed and franchised properties, were $4.630 billion, remaining virtually flat compared to 2002 levels. Revenues from the Company’s owned, leased and consolidated joint venture hotels decreased 3.3% to $3.085 billion for the year ended December 31, 2003 when compared to $3.190 billion in the corresponding period of 2002, partially offset by a 12.3% increase in other hotel and leisure revenues to $694 million for the year ended December 31, 2003 when compared to $618 million in the corresponding period of 2002.

      The decrease in revenues from owned, leased and consolidated joint venture hotels is due primarily to the absence of revenues generated by 16 non-strategic domestic hotels and four hotels in Costa Smeralda, Italy, which were mostly sold in the first half of 2003, and offset by increased revenues from the Company’s Same-Store Owned Hotels (140 hotels for 2003 and 2002, excluding 25 hotels sold or closed during these periods). Revenues from the 20 sold hotels during 2003 were $110 million, a decrease of $140 million as compared to $250 million in the same period of 2002. Revenues from the Company’s Same-Store Owned Hotels increased 2.0% to $2.967 billion for the year ended December 31, 2003 when compared to $2.909 billion in the same period of 2002 due primarily to an increase in REVPAR. REVPAR at the Company’s Same-Store Owned Hotels increased 1.3% to $98.34 for the year ended December 31, 2003 when compared to the corresponding

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      The increase in other hotel and leisure revenues, for the year ended December 31, 2003 when compared to the same period in 2002, primarily resulted from the increase in VOI sales of 30.7% to $361 million in 2003 compared to $276 million in 2002. Contract sales of VOI inventory increased 23.2% in the year ended December 31, 2003 when compared to the same period in 2002, primarily as a result of sales at the Westin Ka’anapali Ocean Resort Villas in Maui, Hawaii, which sold out the first phase prior to the opening, as well as strong demand reflected in our resorts in Scottsdale and Orlando in the latter part of the year. Management and franchise fees revenue also increased as compared to the prior year. These increases were partially offset by reduced interest income and increased insurance claims at the Company’s captive insurance company.

      Other revenues and expenses from managed and franchised properties increased to $851 million in 2003 when compared to $780 million in 2002, primarily due to the addition of hotels to the Company’s portfolio of managed and franchised hotels. These revenues represent reimbursements of costs incurred on behalf of managed hotel properties and franchisees. These costs relate primarily to payroll costs at managed properties where the Company is the employer. Since the reimbursements are made based upon the costs incurred with no added margin, these revenues and corresponding expenses have no effect on the Company’s operating income and net income.

      Operating Income. Total Company operating income (which includes $9 million of restructuring and other special credits in 2003 and $7 million of restructuring and other special credits and $30 million of foreign exchange gains related to the devaluation of the Argentine Peso in 2002) was $427 million for the year ended December 31, 2003 compared to $551 million in the same period of 2002. Excluding depreciation and amortization of $429 million and $488 million for the years ended December 31, 2003 and 2002, respectively, operating income decreased 17.6% or $183 million to $856 million for the year ended December 31, 2003 when compared to $1.039 million in the same period in 2002, primarily due to the decline in operating income at the Company’s owned, leased and consolidated joint venture hotels as a result of the weakened global economies, the war in Iraq and its aftermath and the SARS epidemic and the absence of the revenues and corresponding operating income from the sold properties discussed above. Operating income at the Company’s owned, leased and consolidated joint venture hotels was $445 million for the year ended December 31, 2003 compared to $589 million in the same period of 2002. These hotels were also negatively impacted by increased energy, workers compensation insurance and other health benefits related costs and reduced cancellation and telecommunication fees in 2003 when compared to 2002. In addition, total Company operating income in 2003 was adversely impacted by the nonrecurring Argentina foreign exchange gains in 2002 of $30 million.

      Operating income for the vacation ownership segment was $89 million in the year ended December 31, 2003 compared to $69 million in 2002. Excluding depreciation and amortization of $10 million in both years ended December 31, 2003 and 2002, operating income increased to $99 million for the period ended December 31, 2003 as compared to $79 million in the prior year primarily due to the increased sales from the vacation ownership projects discussed above.

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      Restructuring and Other Special Credits, Net. During 2003, the Company received $12 million in a favorable settlement of a litigation matter. This credit was offset by an increase of $13 million in a reserve for legal defense costs associated with a separate litigation matter. Additionally, the Company reversed a $9 million liability that was originally established in 1997 for the ITT Excess Pension Plan and is no longer required as the Company finalized the settlement of its remaining obligations associated with the plan and reversed $1 million related to the collection of receivables previously deemed impaired. During the year ended December 31, 2002, the Company reversed $7 million of previously recorded restructuring and other special charges primarily related to adjustments to the severance liability established in connection with the cost containment efforts after the September 11 Attacks, sales of its investments in certain e-business ventures previously deemed impaired and the collection of receivables which were previously deemed uncollectible.

      Depreciation and Amortization. Depreciation expense decreased to $410 million in the year ended December 31, 2003 compared to $473 million in the corresponding period of 2002. Additional depreciation resulting from capital expenditures at the Company’s owned, leased and consolidated joint venture hotels was more than offset by the reduced depreciation expense from fully depreciated furniture, fixtures and equipment, as the Company reached the five year anniversary of the merger with ITT Corporation in February 2003 and the 16 non-core domestic hotels, and the four Costa Smeralda hotels which were initially classified as held for sale and depreciation suspended effective March 31, 2003. Amortization expense increased to $19 million in the year ended December 31, 2003 compared to $15 million in the corresponding period of 2002 due to the additional amortization of intangible assets associated with costs incurred in connection with new management contracts.

      Gain on Sale of VOI Notes Receivable. Gains from the sale of VOI receivables of $15 million and $16 million in 2003 and 2002, respectively, are primarily due to the sale of $181 million and $133 million of vacation ownership receivables during the years ended December 31, 2003 and 2002, respectively. Included in the $181 million of VOI receivable sales in 2003 are $89 million of VOI receivables which were repurchased from existing securitizations.

      Net Interest Expense. Interest expense for the years ended December 31, 2003 and 2002, which is net of interest income of $5 million and $2 million, respectively, and discontinued operations allocations of $7 million and $15 million for 2003 and 2002, respectively, decreased to $282 million from $323 million, due primarily to the pay down of debt with $1.1 billion of proceeds from the hotel sales discussed previously, $30 million of early debt extinguishment charges recorded in the second quarter of 2002, lower interest rates in 2003 compared to 2002 and the impact of certain financing transactions, including the issuance of debt in April 2002 and May 2003. The Company’s weighted average interest rate was 5.46% at December 31, 2003 versus 5.64% at December 31, 2002.

      Gain (loss) on Asset Dispositions and Impairments, Net. Loss on asset dispositions and impairment for the year ended December 31, 2003 primarily represents the impairment charges recorded due to the classification of a portfolio of 18 domestic non-core hotels as held for sale, 16 of which were sold in 2003, offset in part by the $9 million gain on sale of undeveloped land in Sardinia, Italy in the second quarter of 2003. During 2002, the Company sold its investment in Interval International, for a gain of $6 million. This gain is offset in part by a net loss of $3 on the disposition of two hotels.

      Income Tax Expense. The income tax benefit of $113 million on the pre-tax loss of $11 million for 2003 is primarily the result of tax exempt Trust income and the favorable settlement of various tax matters. The 2002 income tax provision of $2 million on pre-tax income of $255 million is primarily the result of tax exempt Trust income and net tax benefits primarily related to approximately $39 million of various adjustments to federal and state tax liabilities resulting from the successful settlement of tax matters dating back to 1993. The Company’s effective income tax rate is determined by the level and composition of pretax income subject to varying foreign, state and local taxes and other items. The tax rate for the year ended December 31, 2003 is significantly lower than the prior year due to the combination of lower pretax income and the distribution of $0.84 per Share.

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Discontinued Operations

      For the years ended 2003 and 2002, loss from discontinued operations represents the results of the Hotel Principe di Savoia in Milan, Italy (“Principe”), net of $7 million and $15 million, of allocated interest expense, respectively. The Company sold the Principe with no continuing involvement on June 30, 2003. The gain on dispositions for 2003 consists of $194 million (pre-tax) of gains recorded in connection with the sale of the Principe and the reversal of a $52 million (pre-tax) accrual relating to the Company’s gaming businesses disposed of in 1999 and 2000 which are no longer required as the related contingencies have been resolved.

      During 2002, the Company recorded an after tax gain of $109 million from discontinued operations primarily related to the issuance of new Internal Revenue Service (“IRS”) regulations in early 2002, which allowed the Company to recognize a $79 million tax benefit from a tax loss on the 1999 sale of the former gaming business. The tax loss was previously disallowed under the old regulations. In addition, the Company recorded a $25 million gain resulting from an adjustment to the Company’s tax basis in ITT World Directories, a subsidiary which was disposed of in early 1998 through a tax deferred reorganization. The increase in the tax basis has the effect of reducing the deferred tax charge recorded on the disposition in 1998. This gain also included the reversal of $5 million (after tax) of liabilities set up in conjunction with the sale of the former gaming business that are no longer required as the related contingencies have been resolved.

Year Ended December 31, 2002 Compared with Year Ended December 31, 2001

Continuing Operations

      The Company’s operating results for the year ended December 31, 2002 were significantly impacted by the weakened worldwide economic environment, which resulted in a dramatic slowdown in business and transient travel. The decrease in business transient demand, when compared to the same period of 2001, had an adverse impact on the Company’s majority owned hotels, many of which are located in major urban markets.

      Revenues. Total revenues, including other revenues from managed and franchised properties, were $4.588 billion, a 1.0% decrease from 2001 levels. Revenues from the Company’s owned, leased and consolidated joint venture hotels decreased 3.4% to $3.190 billion for the year ended December 31, 2002 when compared to $3.301 billion in the corresponding period of 2001, partially offset by a 4.4% increase in other hotel and leisure revenues to $618 million for the year ended December 31, 2002 when compared to $592 million in the corresponding period of 2001.

      The decrease in revenues from owned, leased and consolidated joint venture hotels is due primarily to decreased revenues at the Company’s Same-Store Owned Hotels offset in part by revenues generated by the W Times Square, which opened in late December 2001, the Westin Dublin, which opened in September 2001, the W Lakeshore Drive in Chicago, Illinois which reopened in October 2001 after a significant renovation and repositioning, and the Sheraton Centre Toronto in Toronto, Canada of which the Company acquired the remaining 50% not previously owned in April 2001. Revenues at the Company’s Same-Store Owned Hotels decreased 6.1% to $2.971 billion for the year ended December 31, 2002 when compared to the same period of 2001 due primarily to a decrease in REVPAR. REVPAR at the Company’s Same-Store Owned Hotels decreased 6.0% to $94.76 for the year ended December 31, 2002 when compared to the corresponding 2001 period. The decrease in REVPAR at these Same-Store Owned Hotels was attributed to a decrease in occupancy to 63.5% in the year ended December 31, 2002 when compared to 65.1% in the same period of 2001 and a decrease in ADR at these Same-Store Owned Hotels. ADR decreased 3.6% to $149.32 for the year ended December 31, 2002 compared to $154.86 for the corresponding 2001 period. REVPAR at Same-Store Owned Hotels in North America decreased 6.0% for the year ended December 31, 2002 when compared to the same period of 2001. As discussed above, the decrease in REVPAR and revenues from owned, leased and consolidated joint venture hotels in North America was primarily due to the decline in business transient demand as a result of the weakened global economies. REVPAR at the Company’s international Same-Store Owned Hotels, which decreased by 6.0% for the year ended December 31, 2002 when compared to the same period of 2001, was also impacted by weakened global economies, the unfavorable effect of foreign currency translation and adverse political and economic conditions. REVPAR for Same-Store Owned Hotels in Europe

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      The increase in other hotel and leisure revenues, for the year ended December 31, 2002 when compared to the same period in 2001, resulted from the increase in VOI sales of 14.0% to $276 million in 2002 compared to $242 million in 2001. Contract sales of VOI inventory increased 16.8% in the year ended December 31, 2002 when compared to the same period in 2001, primarily as a result of sales at the Westin Mission Hills Resort Villas in Rancho Mirage, California and the Westin Ka’anapali Ocean Resort Villas in Maui, Hawaii. These increases were partially offset by lower management fees, primarily due to reduced incentive management fees as a result of the previously discussed weakened global economies.

      Other revenues and expenses from managed and franchised properties increased to $780 million in 2002 when compared to $740 million in 2001, primarily due to the addition of hotels to the Company’s portfolio of managed and franchised properties. These revenues represent reimbursements of costs incurred on behalf of managed hotel properties and franchisees. These costs relate primarily to payroll costs at managed properties where the Company is the employer. Since the reimbursements are made based upon the costs incurred with no added margin, these revenues and corresponding expenses have no effect on the Company’s operating income and net income.

      Operating Income. Total Company operating income (which includes $7 million of restructuring and other special credits and $30 million of foreign exchange gains related to the devaluation of the Argentine Peso in 2002 and $50 million of restructuring and other special charges and $24 million of foreign exchange gains related to the initial remeasurement of the Argentine Peso in 2001) was $551 for the years ended December 31, 2002 compared to $576 million in 2001. Excluding depreciation and amortization of $488 million and $518 million for the years ended December 31, 2002 and 2001, respectively, operating income decreased 5.0% or $55 million to $1,039 million for the years ended December 31, 2002 when compared to $1,094 million in the same period in 2001, primarily due to the decline in operating income at the Company’s owned, leased and consolidated joint venture hotels as a result of the weakened global economies in the aftermath of the September 11 Attacks. Operating income at the Company’s owned, leased and consolidated joint venture hotels was $589 million in the years ended December 31, 2002 compared to $663 million in the same period of 2001. These hotels were also negatively impacted by increased energy, workers compensation insurance and other health benefit related costs and reduced cancellation and telecommunication fees in 2002 when compared to 2001.

      Operating income for the vacation ownership segment was $69 million in the years ended December 31, 2002 compared to $39 million in 2001. Excluding depreciation and amortization of $10 million and $15 million in the years ended December 31, 2002 and 2001, respectively, operating income increased to $79 million for the years ended December 31, 2002 as compared to $54 million in the prior year primarily due to the increased sales at the vacation ownership projects previously discussed.

      Restructuring and Other Special Charges (Credits). During the year ended December 31, 2002, the Company reversed $7 million of previously recorded restructuring and other special charges primarily related to adjustments to the severance liability established in connection with the cost containment efforts after the September 11 Attacks, sales of its investments in certain e-business ventures previously deemed impaired and the collection of receivables which were previously deemed uncollectible.

      Due to the September 11 Attacks and the weakening of the U.S. economy, in the third and fourth quarters of 2001, the Company implemented a cost reduction plan and conducted a comprehensive review of the carrying value of certain assets for potential impairment, resulting in 2001 restructuring charges of $15 million and noncash other special charges aggregating approximately $36 million. The restructuring charges were primarily for severance costs incurred as part of the cost reduction plan. The other special charges consisted primarily of employee retention costs associated with the accelerated vesting of 50% of restricted stock awards granted in February 2001 (approximately $11 million); bad debt expense associated with receivables no longer deemed collectible (approximately $17 million); impairments of certain investments and other assets (approximately $5 million); and abandoned pursuit projects (approximately $3 million).

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      In addition, in early 2001, the Company wrote down its investments in various e-business ventures by approximately $19 million based on the market conditions for the technology sector at the time and management’s assessment that the impairment of these investments was other-than-temporary. This special charge was offset by the reversal of a $20 million restructuring charge taken in 1998 relating to a note receivable, which previously had been written down due to non-performance.

      Depreciation and Amortization. Depreciation expense increased to $473 million in the year ended December 31, 2002 compared to $430 million in the corresponding period of 2001. The increase was due to additional depreciation resulting from capital expenditures at the Company’s owned, leased and consolidated joint venture hotels including the opening of the W Times Square in December 2001 and the Westin Dublin in September 2001, as well as costs to reposition the W Lakeshore and the W Midland hotels in Chicago and capital expenditures on technology development. Amortization expense decreased to $15 million in the year ended December 31, 2002 compared to $88 million in the corresponding period of 2001. The decrease in the amortization expense was primarily attributable to the implementation of SFAS No. 142, “Goodwill and Other Intangible Assets,” which resulted in a $75 million pretax reduction in amortization expense.

      Gain on Sale of VOI Notes Receivable. Gains from the sale of VOI receivables of $16 million and $12 million in 2002 and 2001, respectively, are primarily due to the sale of $133 million and $226 million of vacation ownership receivables during the years ended December 31, 2002 and 2001, respectively. Included in the $226 million of VOI receivable sales in 2001 are $145 million of VOI receivables which were repurchased from existing securitizations.

      Net Interest Expense. Interest expense for the years ended December 31, 2002 and 2001, which is net of interest income of $2 million and $11 million, and discontinued operations allocations of $15 million and $13 million for 2002 and 2001, respectively, decreased to $323 million from $354 million. Excluding $30 million and $9 million related to the early extinguishment of debt for 2002 and 2001, respectively, and an $11 million reversal of accrued interest on tax liabilities that have now been settled in 2002, net interest expense decreased $41 million from the comparable period of the prior year. This decrease was due primarily to lower interest rates compared to 2001 lower debt balances and the impact of certain financing transactions during the past two years. The Company’s weighted average interest rate was 5.64% at December 31, 2002 versus 5.10% at December 31, 2001.

      Gain (loss) on Asset Dispositions and Impairments, Net. During 2002, the Company sold its investment in Interval International, for a gain of $6 million. This gain is offset primarily by a net loss of $3 million on the disposition of two hotels. In 2001, due to the September 11 Attacks and the weakening of the U.S. economy, the Company conducted a comprehensive review of the carrying value of certain assets for potential impairment. As a result, the Company recorded a net charge relating primarily to the impairment of certain investments totaling $57 million.

      Income Tax Expense. The effective income tax rate for the year ended December 31, 2002 decreased to 0.7% compared to 21.7% in the corresponding period in 2001. The 2002 rate includes benefits related to approximately $39 million of various adjustments to federal and state tax liabilities resulting from the successful settlement of tax matters dating back to 1993. The Company’s effective income tax rate is determined by the level and composition of pretax income subject to varying foreign, state and local taxes and other items. The tax rate for the year ended December 31, 2002 is significantly lower than the prior year due to the combination of lower pretax income, the distribution of $0.84 per share and the cessation of amortization of goodwill (as discussed above), which was not deductible for tax purposes.

      For the year’s ended 2002 and 2001, loss from discontinued operations represents the results of the Principe, net of $15 million and $13 million, of allocated interest expense, respectively. In June 2003, the Company sold the Principe with no continuing involvement.

      During 2002, the Company recorded an after tax gain of $109 million from discontinued operations primarily related to the issuance of new Internal Revenue Service (“IRS”) regulations in early 2002, which

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LIQUIDITY AND CAPITAL RESOURCES

Cash From Operating Activities

      Cash flow from operating activities is the principal source of cash used to fund the Company’s operating expenses, interest payments on debt, maintenance capital expenditures and distribution payments by the Trust. The Company anticipates that cash flow provided by operating activities will be sufficient to service these cash requirements. In 2002, the Company shifted from a quarterly distribution to an annual distribution, and declared a distribution of $0.84 per Share to shareholders of record on December 31, 2002 and 2003. The Company paid the 2002 distribution in January 2003 and the 2003 distribution in January 2004. The Company believes that existing borrowing availability together with capacity from additional borrowings and cash from operations will be adequate to meet all funding requirements for the Company’s operating expenses, interest payments on debt, maintenance capital expenditures and distribution payments by the Trust for the foreseeable future.

Cash Used for Investing Activities

      Contractual Obligations. On December 30, 2003, the Company and Lehman Brothers announced the acquisition of all of the outstanding senior debt (approximately $1.3 billion), at a discount, of Le Meridien. The Company funded its $200 million share of the acquisition through a high yield junior participation in the debt. As part of this funding, Lehman Brothers and the Company have entered into an exclusive agreement through March 5, 2004 to negotiate the recapitalization of Le Meridien which may be extended through early April 2004. A recapitalization transaction could require a significant cash outlay by the Company.

      In limited cases, the Company has made loans to owners of or partners in hotel or resort ventures for which the Company has a management or franchise agreement. Loans outstanding under this program totaled $163 million at December 31, 2003. The Company evaluates these loans for impairment, and at December 31, 2003, believes these loans are collectible. Unfunded loan commitments aggregating $70 million were outstanding at December 31, 2003, of which $42 million are expected to be funded in 2004 and $52 million are expected to be funded in total. These loans typically are secured by pledges of project ownership interests and/or mortgages on the projects. The Company also has $75 million of equity and other potential contributions associated with managed or joint venture properties, $24 million of which is expected to be funded in 2004.

      The Company participates in programs with unaffiliated lenders in which the Company may partially guarantee loans made to facilitate third-party ownership of hotels that the Company manages or franchises. As of December 31, 2003, the Company was a guarantor for loans which could reach a maximum of $144 million relating to three projects: the St. Regis in Monarch Beach, California, which opened in mid-2001; the Westin Kierland Resort and Spa in Scottsdale, Arizona, which opened in November 2002; and the Westin in Charlotte, North Carolina, which opened in April 2003. In connection with the loan guarantee for the Westin Charlotte, the Company also entered into a guarantee to fund working capital shortfalls for this resort through 2005. No significant fundings are anticipated under this working capital guarantee. The Company does not anticipate any funding under the remaining loan guarantees in 2004, as all projects are well capitalized. Furthermore, since each of these properties was funded with significant equity and subordinated debt financing, if the Company’s loan guarantees were to be called, the Company could take an equity position in these properties at values significantly below construction costs.

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      Surety bonds issued on behalf of the Company as of December 31, 2003 totaled $46 million, the majority of which were required by state or local governments relating to our vacation ownership operations and by our insurers to secure large deductible insurance programs.

      To secure management contracts, the Company may provide performance guarantees to third-party owners. Most of these performance guarantees allow the owner to terminate the contract if the Company elects not to fund shortfalls if certain performance levels are not met. In limited cases, the Company is obliged to fund shortfalls in performance levels. As of December 31, 2003, the Company had seven management contracts with performance guarantees with possible cash outlays of up to $74 million, $50 million of which, if required, would be funded over a period of 25 years and would be largely offset by management fees received under these contracts. Many of the performance tests are multi-year tests, are tied to the results of a competitive set of hotels, and have exclusions for force majeure and acts of war and terrorism. The Company does not anticipate any significant funding under the performance guarantees in 2004. In addition, the Company has agreed to guarantee certain performance levels at a managed property that has authorized VOI sales and marketing. The exact amount and nature of the guaranty is currently under dispute. However, the Company does not believe that any payments under this guaranty will be significant. Lastly, the Company does not anticipate losing a significant number of management or franchise contracts in 2004.

      The Company had the following contractual obligations outstanding as of December 31, 2003 (in millions):

(1)	Balance excludes $326 million of convertible debt maturities classified as long-term as the Company has the ability and intent to draw on its revolving credit facility for such fundings, if required.
(2)	Included in these balances are commitments that may be satisfied by the Company’s managed and franchised properties.

     The Company had the following commercial commitments outstanding as of December 31, 2003 (in millions):

      In the fourth quarter of 2003, Starwood commenced a tender offer to acquire any and all of the outstanding limited partnership units of Westin Hotels Limited Partnership, the entity that indirectly owns the Westin Michigan Avenue Hotel in Chicago, Illinois. The tender offer expired on February 20, 2004 and 33,873 units were tendered to Starwood and accepted for payment, representing approximately 25% of the outstanding units for a total cash purchase price of approximately $25 million. The purchase price was funded from available cash.

      In January 2004, Starwood acquired a 95% interest in Blissworld LLC which operates three stand alone spas (two in New York, New York and one in London, England) and a beauty products business with

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      The Company intends to finance the acquisition of additional hotel properties (including equity investments), hotel renovations, VOI construction, capital improvements, technology spend and other core business acquisitions and investments and provide for general corporate purposes through its credit facilities described below, through the net proceeds from dispositions, through the assumption of debt and through the issuance of additional equity or debt securities.

      The Company periodically reviews its business with a view to identifying properties or other assets that the Company believe either are non-core, no longer complement the business, are in markets which may not benefit the Company as much as other markets during an economic recovery or could be sold at significant premiums. The Company is focused on restructuring and enhancing real estate returns and monetizing investments. During 2003, the Company realized $1.1 billion of cash proceeds from the sale of the Principe, the Sardinia Assets, and 16 non-core domestic hotels.

      There can be no assurance, however, that the Company will be able to complete future dispositions on commercially reasonable terms or at all.

Cash Used for Financing Activities

      Following is a summary of the Company’s debt portfolio (including capital leases) as of December 31, 2003:

(a)	Excludes approximately $410 million of the Company’s share of unconsolidated joint venture debt, all of which was non-recourse, except as noted earlier.
(b)	Average maturity reflects the maturity date of the revolving credit facility which would be used to refinance the amount put to the Company.
(c)	At December 31, 2003, LIBOR was 1.12%

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(d)	At December 31, 2003, CBA was 2.72%
(e)	Included approximately $20 million and $37 million at December 31, 2003 of fair value adjustments related to the fixed-to-floating interest rate swaps for the Sheraton Holding Public Debt and the Senior Notes, respectively.

     Fiscal 2003 Developments. In May 2003, the Company sold an aggregate of $360 million 3.5% coupon convertible senior notes due 2023. The notes are convertible, subject to certain conditions, into 7.2 million Shares based on a conversion price of $50.00 per Share. Gross proceeds received were used to repay a portion of the Company’s Senior Credit Facility defined below and for other operational purposes. Holders may first present their notes to the Company for repurchase in May 2006.

      During the second quarter of 2003, the Company amended its Senior Credit Facility. The amendment adjusted the leverage coverage ratio for the second quarter of 2003 and for the next eight quarters (through June 30, 2005). In addition, the Company modified its current covenant on encumbered EBITDA (as defined) and added a restriction on the level of cash dividends. The Company currently expects to be in compliance with the amended covenants for the remainder of the Senior Credit Facility term.

      Fiscal 2002 Developments. In October 2002, the Company refinanced its previous senior credit facility with a new four-year $1.3 billion senior credit facility. The new facility is comprised of a $1.0 billion revolving facility and a $300 million term loan, each maturing in 2006, with a one-year extension option, and an initial interest rate of LIBOR + 1.625% (the “Senior Credit Facility”). The proceeds from the new Senior Credit Facility were used to pay off all amounts owed under the Company’s previous senior credit facility, which was due to mature in February 2003. The Company incurred approximately $1 million in charges in connection with this early extinguishment of debt.

      In September 2002, the Company terminated certain Fair Value Swaps, resulting in a $78 million cash payment to the Company. These proceeds were used to pay down the previous revolving credit facility and will result in a decrease to interest expense on the hedged debt through its maturity in 2007. In order to retain its fixed versus floating rate debt position, the Company immediately entered into five new Fair Value Swaps on the same underlying debt as the terminated swaps.

      In April 2002, the Company sold $1.5 billion of senior notes in two tranches — $700 million principal amount of 7 3/8% senior notes due 2007 and $800 million principal amount of 7 7/8% senior notes due 2012. The Company used the proceeds to repay all of its senior secured notes facility and a portion of its previous senior credit facility. In connection with the repayment of debt, the Company incurred charges of approximately $29 million including approximately $23 million for the early termination of interest rate swap agreements associated with repaid debt, and $6 million for the write-off of deferred financing costs and termination fees associated with the early extinguishment of debt.

      Fiscal 2001 Developments. In December 2001, the Company entered into an 18-month 450 million Euro loan. The loan had an interest rate of Euribor plus 195 basis points. The proceeds of the Euro loan were drawn down in two tranches; the first 270 million Euros was drawn down in December 2001 and used to repay the previously outstanding 270 million Euro facility and the remaining 180 million Euros was drawn down in January 2002 and the proceeds were used to pay down a portion of the Company’s previous senior credit facility. A portion of the proceeds from the sale of the Principe and the Sardinia Assets were used to repay this facility in its entirety in June 2003, as required by the terms of the debt agreement.

      In May 2001, the Company sold an aggregate face amount of $816 million zero coupon convertible senior notes due 2021. The two series of notes had an initial blended yield to maturity of 2.35%. The notes are convertible, subject to certain conditions, into an aggregate 9,657,000 Shares. The Company received gross proceeds from these sales of approximately $500 million, which were used to repay a portion of its senior secured notes facility that bore interest at LIBOR plus 275 basis points. The Company incurred approximately $9 million of charges in connection with this early debt extinguishment. In May 2002, the Company repurchased all of the outstanding Series A Convertible Senior Notes for $202 million in cash. Holders of Series B Convertible Senior Notes may first put these notes to the Company in May 2004 for a purchase price of approximately $330 million. The Company has classified this debt maturity as long-term as it has the intent and ability to draw on its revolving credit facility for such funding, if required.

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      Other. In addition to the put rights under the Series B Convertible Senior Notes, the Company has approximately $233 million of its outstanding debt maturing in 2004. Based upon the current level of operations, management believes that the Company’s cash flow from operations, together with available borrowings under the Revolving Credit Facility (approximately $856 million at December 31, 2003), available borrowings from international revolving lines of credit (approximately $44 million at December 31, 2003), and capacity for additional borrowings will be adequate to meet anticipated requirements for scheduled maturities, dividends, working capital, capital expenditures, marketing and advertising program expenditures, other discretionary investments, interest and scheduled principal payments for the foreseeable future. However, Starwood has a substantial amount of indebtedness and had a working capital deficiency of $399 million at December 31, 2003. There can be no assurance that the Company will be able to refinance its indebtedness as it becomes due and, if refinanced, on favorable terms, nor can there be assurance that the Company’s business will continue to generate cash flow at or above historical levels or that currently anticipated results will be achieved.

      The Company maintains non-U.S.-dollar-denominated debt, which provides a hedge of the Company’s international net assets and operations but also exposes its debt balance to fluctuations in foreign currency exchange rates. During the years ended December 31, 2003 and 2002, the effect of changes in foreign currency exchange rates was a net increase in debt of approximately $54 million and $135 million, respectively. The Company’s debt balance is also affected by changes in interest rates as a result of the Company’s Fair Value Swaps. The fair market value of the Fair Value Swaps is recorded as an asset or liability and as the Fair Value Swaps are deemed to be effective, an adjustment is recorded against the corresponding debt. At December 31, 2003, the Company’s debt included an increase of approximately $57 million related to the unamortized premium on terminated Fair Value Swaps and the fair market value of current Fair Value Swap assets. At December 31, 2002 the Company’s debt included an increase of approximately $75 million related to fair value swap liabilities.

      If Starwood is unable to generate sufficient cash flow from operations in the future to service the Company’s debt, the Company may be required to sell additional assets, reduce capital expenditures, refinance all or a portion of its existing debt or obtain additional financing. The Company’s ability to make scheduled principal payments, to pay interest on or to refinance the Company’s indebtedness depends on its future performance and financial results, which, to a certain extent, are subject to general conditions in or affecting the hotel and vacation ownership industries and to general economic, political, financial, competitive, legislative and regulatory factors beyond the Company’s control, including the severity and duration of the current economic downturn.

      On May 6, 2003, Standard & Poor’s announced its decision to downgrade the Company’s Credit Rating to BB+ (non-investment grade with a stable outlook) from BBB- (investment grade rating on Credit Watch with negative implications). The downgrading of the Company’s credit rating may result in higher borrowing costs on future financings. On January 7, 2004, Moody’s Investor Services and Standard & Poor’s placed the Company’s Ba1 (non-investment grade) and BB+ corporate credit ratings on review/watch for a possible downgrade. The review/watch was prompted by the Company’s announcement that it had invested $200 million in Le Meridien’s senior debt and would be in discussions to negotiate the potential recapitalization of Le Meridien.

      At December 31, 2003, approximately 800,000 shares of Class B EPS and Exchangeable Units were outstanding, aggregating $31 million (valued at $38.50 per share). Approximately 408,000 additional Class B EPS were redeemed for $16 million from January 1, 2004 through January 3, 2004. Subsequent to January 3, 2004, if Class B EPS are put to the Company, the Company may settle the put in cash at $38.50 per share or Class A EPS at $38.50 per share.

      In 2002, the Company shifted from a quarterly distribution to an annual distribution. A distribution of $0.84 per Share, was paid in January 2004 and January 2003 to shareholders of record as of December 31, 2003 and 2002, respectively.

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Stock Sales and Repurchases

      At December 31, 2003, Starwood had outstanding approximately 202 million Shares, 1 million partnership units and 1 million Class A EPS and Class B EPS. Through December 31, 2003, in accordance with the terms of the Class B EPS, which allow the shareholders to put these units back to the Company at $38.50 per share for a one-year period beginning on the fifth anniversary of the Westin acquisition (ending January 3, 2004), approximately 528,000 units of Class B EPS and Exchangeable Units were put back to the Company for approximately $20 million. Mr. Sternlicht held, individually and through various family trusts, an aggregate of 240,391 Class B EPS and limited partnership units of the Realty Partnership and Operating Partnership convertible to Class B EPS on a one-to-one basis. On January 2, 2003, Mr. Sternlicht put all of these Class B EPS for $38.50 per share.

      In 1998, the Corporation’s Board of Directors approved the repurchase of up to $1 billion of Shares under a Share repurchase program (the “Share Repurchase Program”). On April 2, 2001, the Corporation’s Board of Directors authorized the repurchase of up to an additional $500 million of Shares under the Share Repurchase Program. Pursuant to the Share Repurchase Program, Starwood repurchased 3.2 million Shares in the open market for an aggregate cost of $96 million during 2001. No shares were repurchased during 2002. The Company repurchased the following Shares during 2003:

      During 2003, approximately 13,000 shares of Class A EPS were exchanged for an equal number of Shares. Also during 2003, the Company exchanged approximately 13,000 limited partnership units of the Realty Partnership and the Operating Partnership held by third parties for Shares on a one-for-one basis.

Off-Balance Sheet Arrangements

      The nature of the Company’s off-balance sheet arrangements include beneficial interest in securitizations of $50 million, third-party loan guarantees of $144 million, letters of credit of $129 million, unconditional purchase obligations of $89 million and surety bonds of $46 million. These items are more fully discussed earlier in this section and in the Notes to Consolidated Financial Statements, Item 8 of Part II of this report.

      In limited instances, the Company seeks to reduce earnings and cash flow volatility associated with changes in interest rates and foreign currency exchange rates by entering into financial arrangements intended to provide a hedge against a portion of the risks associated with such volatility. The Company continues to have exposure to such risks to the extent they are not hedged.

      Interest rate swap agreements are the primary instruments used to manage interest rate risk. At December 31, 2003, the Company had five outstanding long-term interest rate swap agreements under which the Company pays variable interest rates and receives fixed interest rates. At December 31, 2003, the Company had no interest rate swap agreements under which the Company pays a fixed rate and receives a

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      The Company uses foreign currency hedging instruments to manage exposure to foreign currency exchange rate fluctuations. The gains or losses on the hedging instruments are largely offset by gains or losses on the underlying asset or liability, and consequently, a sudden significant change in foreign currency exchange rates would not have a material impact on future net income or cash flows of the hedged item. The Company monitors its foreign currency exposure on a monthly basis to maximize the overall effectiveness of its foreign currency hedge positions. Changes in the fair value of hedging instruments are classified in the same manner as changes in the underlying assets or liabilities due to fluctuations in foreign currency exchange rates. At December 31, 2003, the notional amount of the Company’s open foreign exchange hedging contracts protecting the value of the Company’s foreign currency denominated assets and liabilities was approximately $544 million. A hypothetical 10% change in the spot currency exchange rates would result in an increase or decrease of approximately $59 million in the fair value of the hedges at December 31, 2003, which would be offset by an opposite effect on the related underlying net asset or liability.

      The Company enters into a derivative financial arrangement to the extent it meets the objectives described above, and the Company does not engage in such transactions for trading or speculative purposes.

      See Note 19. Derivative Financial Instruments in the notes to financial statements filed as part of this Joint Annual Report and incorporated herein by reference for further description of derivative financial instruments.

      The financial statements and supplementary data required by this Item are included in Item 15 of this Joint Annual Report and are incorporated herein by reference.

      Not applicable

      The Company’s management conducted an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of December 31, 2003. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in alerting them in a timely manner to material information required to be included in the Company’s SEC reports. There has been no change in the Company’s internal control over

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PART III

      The Board of Directors of the Corporation and the Board of Trustees of the Trust are currently comprised of 10 members, each of whom is elected for a three-year term. The following table sets forth, for each of the members of the Board of Directors and the Board of Trustees as of the date of this Joint Annual Report, the class to which such Director or Trustee has been elected and certain other information regarding such Director or Trustee.