Irvine Apartment Communities/IAC Form 10-K405

10-K405 1 a79994e10-k405.htm FORM 10-K405 FISCAL YEAR ENDED DECEMBER 31, 2001 Irvine Apartment Communities/IAC Form 10-K405

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2001

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from to .


Commission File Number:		0-22569 (Irvine Apartment Communities, L.P.)
		1-13721 (IAC Capital Trust)

IRVINE APARTMENT COMMUNITIES, L.P.
IAC CAPITAL TRUST

(Exact Name of Registrants as Specified in Its Charter)


Delaware		33-0587829
Delaware		91-6457946

(State of Incorporation)		(I.R.S. Employer Identification Number)

550 Newport Center Drive, Suite 300, Newport Beach, California 92660

(Address of principal executive offices)

Registrants’ telephone number, including area code: (949) 720-5500

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


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

Series A Preferred Securities (IAC Capital Trust)		New York Stock Exchange, Inc.

Number of securities outstanding as of December 31, 2001: 6,000,000

Securities registered pursuant to Section 12(g) of the Act:
Title of each class:
Units of General Partnership Interest
(Irvine Apartment Communities, L.P.)
Number of units outstanding as of December 31, 2001: 20,175,893

Indicate by check mark whether the registrants have (1) 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 time as required), and (2) has been subject to such filing requirements for the past 90 days:


Irvine Apartment Communities, L.P.	Yes [X]	No [ ]
IAC Capital Trust	Yes [X]	No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants’ 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. [ X ]

Irvine Apartment Communities LLC, the sole general partner of Irvine Apartment Communities, L.P., owns all of the outstanding units of general partnership interest of Irvine Apartment Communities, L.P. An affiliate of Irvine Apartment Communities LLC owns all of the outstanding common limited partnership units of Irvine Apartment Communities, L.P.

TABLE OF CONTENTS


PART I
	Item 1. Business
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission Of Matters To A Vote Of Security Holders
PART II
	Item 5. Market For Registrants’ Common Equity And Related Stockholder Matters
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
	Item 10. Directors and Executive Officers of the Registrants
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management
	Item 13. Certain Relationships and Related Transactions
PART IV
	Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
EXHIBIT 10.8.2

IRVINE APARTMENT COMMUNITIES, L.P.
IAC CAPITAL TRUST

TABLE OF CONTENTS

Item Page

PART I

  1.        Business
3

  2.        Properties
13

  3.        Legal Proceedings
15

  4.        Submission of Matters to a Vote of Security Holders
15

PART II

  5.        Market for Registrants’ Common Equity and Related Stockholder Matters
16

  6.        Selected Financial Data
17

  7.        Management’s Discussion and Analysis of Financial Condition and Results of Operations
18

  7A.    Quantitative and Qualitative Disclosures About Market Risk
24

  8.        Financial Statements and Supplementary Data
24

  9.        Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
24

PART III

10.        Directors and Executive Officers of the Registrants
25

11.        Executive Compensation
26

12.        Security Ownership of Certain Beneficial Owners and Management
26

13.        Certain Relationships and Related Transactions
27

PART IV

14.        Exhibits, Financial Statement Schedules, and Reports on Form 8-K
29

      Signatures
33

PART I

Item 1. Business

Organization and General Business Description

Irvine Apartment Communities, L.P. (the “Partnership”), a Delaware limited partnership, was formed on November 15, 1993. In connection with an initial public offering of common shares on December 8, 1993, Irvine Apartment Communities, Inc. (“IAC, Inc.”) obtained a general partnership interest in and became the sole managing general partner of the Partnership. On June 7, 1999, IAC, Inc. was merged with and into TIC Acquisition LLC (the “Acquiror”), a Delaware limited liability company indirectly wholly owned by The Irvine Company (the “Merger”), with the Acquiror remaining as the surviving entity and renamed Irvine Apartment Communities LLC (“IACLLC”). As a result of the Merger and a related transaction in which The Irvine Company acquired an additional 74,523 common limited partnership units, The Irvine Company beneficially owns and controls all of the outstanding common partnership units in the Partnership and IACLLC has become the sole general partner of the Partnership. At December 31, 2001, IACLLC had a 44.6% general partnership interest and The Irvine Company had a 55.4% common limited partnership interest in the Partnership.

The Partnership owns, operates and develops apartment communities in Orange County, California and, since 1997, other locations in California. The Partnership has created market positions in Northern California, San Diego County and Santa Monica which possess rental demographic and economic growth prospects similar to those on the Irvine Ranch. As of June 30, 2001, the Partnership owned 65 apartment communities (collectively, the “Properties”). In July 2001, due to the similarity of property operations and product type and the proximity of property locations, the following apartment communities were combined for reporting purposes: Bayport, Bayview and Baywood are now considered one apartment community; Santa Rosa and Santa Rosa II are now considered one apartment community; and One Park Place and Villa Siena are now considered one apartment community. Therefore, as of December 31, 2001, the Partnership owned 61 apartment communities representing 18,800 operating apartment units and 681 units under construction or development.

IAC Capital Trust (the “Trust”), a Delaware business trust, was formed on October 31, 1997. The Trust is a limited purpose financing vehicle established by the Partnership. The Trust exists for the sole purpose of issuing its preferred securities and investing the proceeds thereof in preferred limited partner units of the Partnership. In January 1998, the Trust issued 6.0 million of 8 1/4% Series A Preferred Securities resulting in gross proceeds of $150 million.

In March 1998, the Partnership and Western National Property Management (“WNPM”) announced the formation of a strategic alliance that assumed all property management responsibilities for the Partnership’s Southern California portfolio. Subsequently, the property management responsibilities of the new entity, Irvine Apartment Management Company (“IAMC”), were expanded to include the Partnership’s entire portfolio. The Partnership believes that this strategic alliance creates greater efficiencies and enhances service to customers. On March 30, 2001, The Irvine Company purchased WNPM’s 25% interest in IAMC. At December 31, 2001, IAMC is owned 75% by the Partnership and 25% by The Irvine Company.

The address of the Partnership is 550 Newport Center Drive, Suite 300, Newport Beach, California 92660. Its telephone number is (949) 720-5500.

Financial Information About Industry Segments

The Partnership operates in one business segment, that of owning, operating and developing apartment communities in California. See the consolidated financial statements and notes thereto included in Item 8 of this Annual Report on Form 10-K for financial information about the industry segment.

Description of Business

As of December 31, 2001, the Partnership owned and operated 58 stabilized properties containing 17,713 units (the “Stabilized Communities”). In addition, the Partnership owned three apartment communities with 1,087 operating apartment units and 681 units under construction or development (the “Communities Under Development”), for a total of 19,481 units. Therefore, as of December 31, 2001, the Partnership owned 61 apartment communities representing 18,800 operating apartment units and 681 units under construction or development.

The majority of the Partnership’s apartment communities are located on the Irvine Ranch. The Irvine Ranch is located in central Orange County, California, between San Diego and Los Angeles. The western boundary of the Irvine Ranch borders approximately six miles of the Pacific Ocean. Today, the portion of the Irvine Ranch which is still owned by The Irvine Company covers approximately 90 square miles and includes more than 50,000 undeveloped acres. The developed portion of the Irvine Ranch, which includes significant parts of the cities of Irvine, Newport Beach and Tustin, is part of an urban master-planned community. The Irvine Ranch has been developed over the past 40 years in accordance with an original master plan (the “Master Plan”) which, over time, has been refined to accord with locally approved general plans. The Irvine Ranch is one of the major commercial, retail and residential centers in Southern California.

In 1997, the Partnership commenced operations in Northern California’s Silicon Valley and the northern coastal markets of San Diego County. In 1998, the Partnership purchased a property in Los Angeles County. As of December 31, 2001, the Partnership had units in operation or under development at eight properties located off the Irvine Ranch. The Partnership has created these new market positions in California which possess rental demographics and economic growth prospects similar to those on the Irvine Ranch. See “Business Strategy - Off-Ranch Properties.”

For the year ended December 31, 2001, the average physical occupancy (number of units occupied divided by the total number of units) of the Stabilized Communities was 95.0% and the average monthly rent per unit was $1,457. The Communities Under Development are expected to include a total of 1,768 apartment units and are expected to have an aggregate estimated cost of approximately $461 million. As of December 31, 2001, 1,087 units were completed with 767 units occupied and generating rental revenue in Communities Under Development.

The information set forth in this Annual Report on Form 10-K relating to the estimated costs of apartment communities that are in development are forward-looking statements. Actual results will depend on numerous factors, many of which are beyond the control of the Partnership. These include the extent and timing of economic growth in the Partnership’s rental markets; future trends in the pricing of construction materials and labor; product design changes; entitlement decisions by local government authorities; weather patterns; changes in interest rate levels; other changes in capital markets; and unanticipated regulatory delays. No assurance can be given that the estimates will not vary substantially from actual results.

Business Strategy

Operating Strategies

• Provide an exceptional living environment for residents. The Properties are located in selected markets of California with historically strong economies and highly educated, relatively affluent renters. The Properties are conceived, designed, constructed, maintained and operated to appeal to this renter base. Property sites are often chosen based on their proximity to employment centers, schools, retail centers and recreational facilities, and are usually situated amid parks, hiking trails and other open space. Community amenities often include swimming pools and spas, fitness centers, business centers with self-service computer and telecommunications services, and other, property-specific recreation facilities. On-site staff are highly skilled to deliver a high standard of customer service to all residents, with compensation based, in part, on the annual achievement of specific customer service goals.

• Enhance efficiency of operations. The Partnership had historically subcontracted on-site staffing, personnel management and accounting functions to three independent property management firms. In March 1998, the Partnership and WNPM entered into a strategic alliance that, in April 1998, assumed all property management responsibilities for the Partnership’s Southern California portfolio and, in January 1999, assumed responsibility for the Partnership’s entire portfolio. By centralizing all property management functions into one entity, the strategic alliance provides greater efficiencies, reduces property management fees and property management costs, improves training of on-site employees and enhances service to customers. Through December 31, 1999, WNPM was the managing member of IAMC and was responsible for its day to day operations, but the Partnership, through its control of a majority of the board of directors of IAMC, had significant control over IAMC including approval of business plans and budgets, compensation, and the employment of the executive officers of IAMC. On January 1, 2000, the partnership agreement for IAMC was amended and restated whereby the Partnership purchased a 24% partnership interest in IAMC from WNPM, resulting in the Partnership owning a 75% partnership interest in IAMC and WNPM owning a 25% interest in IAMC. On March 30, 2001, The

Irvine Company purchased WNPM’s 25% interest in IAMC. At December 31, 2001, IAMC is owned 75% by the Partnership and 25% by The Irvine Company.

• Capitalize on strong brand identity within Orange County to enhance marketing efforts and extend that identity to the Partnership’s other markets in California. The Partnership designs and implements marketing programs within its targeted markets to capitalize on its brand name awareness among renters in Orange County, and to broaden that recognition to potential renters in all locations where it operates. Management believes that a strong brand identity, and associated characteristics of quality and standards of service, provides the Properties with a competitive advantage in the attraction and retention of new residents. The Partnership’s marketing programs share common visual and textual themes that reinforce brand identity. These programs include a website with pages highlighting each property, a magazine guide that is updated and distributed quarterly, and single-source 800 telephone number to provide information on the Properties. In addition, targeted advertising campaigns promote the Partnership’s portfolio and its attractive quality of lifestyle characteristics.

Development Strategies

• Complete development of the Communities Under Development to complement and expand the Partnership’s existing rental market base. The broad employment and renter base on the Irvine Ranch allows development of a variety of apartment property types and amenity levels, including projects designed for the family, luxury and senior markets, and the area’s large population of young professionals. The Partnership’s development program through market segmentation, has identified target markets and, supported by consumer research and focus group studies, market segmentation decisions have been made at the earliest planning stages, when new residential villages for the Irvine Ranch were conceived and the villages’ largest and most important amenities were selected. Location of schools, recreational facilities, retail centers, open space and views were all important considerations. Individual development decisions — including site location, product design, amenities and marketing programs — have also been geared to appeal to the needs and desires of the target rental market.

• Utilize experienced management to create high-quality, well-built properties designed to sustain their value. The Partnership brings considerable management expertise to all aspects of the development, construction and leasing process. Senior management is actively involved in new project development from the inception of a new apartment community and is responsible for target market identification; design of site plans, building plans, and floor plans; project and unit amenity selection; and site-specific governmental approvals. The Partnership engages experienced independent general contractors to act as intermediaries with subcontractors and to manage on-site activities under the close supervision of the Partnership’s internal construction group. The Partnership builds properties using high-quality construction materials and techniques, and believes that this higher initial investment in quality enhances long-term value creation by sustaining high community rental income levels and reducing long-term expense levels.

“Off-Ranch” Properties

While the Partnership’s principal focus has been on the development of apartment communities on the Irvine Ranch, in 1997 the Partnership commenced an “off-Ranch” expansion program. The Partnership’s strategic growth plan was designed to create meaningful market positions off the Irvine Ranch in some of California’s most promising growth centers by developing or acquiring apartment communities in areas that possess rental demographics and economic growth prospects similar to those on the Irvine Ranch.

The Partnership’s “off-Ranch” expansion program was centered in Northern California’s Silicon Valley and the northern coastal markets of San Diego County. In 1997, the Partnership acquired a 923-unit apartment community (The Villas of Renaissance) located in the La Jolla region of Northern San Diego County. In 1998, the Partnership completed construction of a 342-unit apartment community (The Hamptons at Cupertino) in the Silicon Valley and began development and construction on three additional apartment communities (with a total of approximately 660 units) in the Silicon Valley and two additional apartment communities (with a total of approximately 570 units) in Northern San Diego County. Also in 1998, the Partnership purchased a 120-unit, high-rise apartment building under renovation located in Santa Monica (1221 Ocean Avenue).

During 1999, a 336-unit apartment community in Northern San Diego County (Arcadia at Stonecrest) was completed and achieved stabilization. During 2000, a 155-unit apartment community in Northern California (The

Villas at Bair Island Marina) was completed and achieved stabilization. In addition, the renovations at 1221 Ocean Avenue were completed and the apartment building was 80% occupied as of December 31, 2001. During 2001, a 232-unit apartment community in San Diego County (La Jolla Palms) was completed and achieved stabilization. Also during 2001, a 300-unit apartment community in Northern California (Cherry Orchard Apartments) was completed and achieved stabilization. The remaining off-Ranch project, a 206-unit apartment community in Northern California (Franklin Street), was under development at December 31, 2001. The Partnership has no plans to expand its off-Ranch portfolio beyond these eight properties.

Irvine Ranch Master Plan

The Irvine Company is a real estate investment and community development firm engaged in the long-term development of the Irvine Ranch. The urbanization of the Irvine Ranch began in the 1960s with the adoption of the pioneering comprehensive Master Plan for future community development which originally constituted a large map of the Irvine Ranch and a series of supporting maps detailing land uses. Subsequently, The Irvine Company worked closely with the various local jurisdictions which govern the Irvine Ranch to adopt general plans for the future development of their jurisdictions. The Irvine Company’s overall Master Plan was refined to accord with the approved general plans and the residential, commercial, industrial, environmental and aesthetic balance desired by each jurisdiction. As a result, today the Irvine Ranch Master Plan is a compilation of the various interlocking general plans described above. The Irvine Company continuously engages in planning activities and the Master Plan refinement process is ongoing. The Irvine Company works closely with local government representatives, community residents and other civic and environmental groups to obtain the necessary local support and entitlements for its developments. The goal of the Master Plan was and remains to create innovative urban and suburban environments through the well-planned, coordinated development of residential communities and employment centers (which include major business and retail centers, and research and development and industrial parks) as well as civic, cultural, recreational, educational and other supportive facilities, all with an emphasis on improving the quality of life and achieving long-term balanced regional economic growth.

The success of the Irvine Ranch as a master-planned development is, in large part, attributable to the early creation of a broad employment base. The Irvine Company has emphasized the promotion of job creation on the Irvine Ranch and has been involved in creating four major employment centers on the Irvine Ranch, each easily accessible by apartment residents and the surrounding area. The Irvine Company has been the sole developer of the Irvine Spectrum, a 5,000-acre research, technology and employment center which houses more than 2,500 companies and approximately 55,000 employees and includes 26 million square feet of retail, manufacturing, research and development and office space. The Irvine Business Complex, which surrounds the John Wayne airport, houses over 50,000 employees and includes more than 24 million square feet of office and other commercial space and over 14 million square feet of industrial space. Newport Center contains over 2.5 million square feet of general purpose office space, a 1.3 million square-foot regional mall (Fashion Island), a tennis club and two country clubs. In addition, The Irvine Company donated land to the University of California at Irvine, a 1,470-acre campus which currently has approximately 21,900 students and 15,000 employees. The proximity of the Irvine Ranch Properties to these employment centers makes them attractive residential locations.

Market Segmentation and the Village Concept

The Irvine Company’s land use planning emphasizes market segmentation in order to ensure adequate and appropriate allocation of land uses which support sustained growth for the long term. Through careful planning, design and marketing, The Irvine Company also promotes compatibility and synergy among properties of the same type in order to maximize the likelihood of success of new projects, to preserve and build value for existing projects and to build sustainable long-term market value for homeowners, local merchants and employers. In accordance with the Master Plan, The Irvine Company has created fourteen villages which are used as micro-planning areas in an effort to facilitate the desired segmentation of products.

Each village throughout the Irvine Ranch has a distinctive, thematic identity which characterizes the primary features and attributes of the village and helps to distinguish the target market for the Partnership’s product. For example, Tustin Ranch, in the City of Tustin, is a family-oriented village featuring an 18-hole championship golf course, athletic fields, jogging, hiking and equestrian trails. Along the ocean is the village of Newport Coast, an upscale community featuring ocean views and million-dollar custom built homes. The Village of Westpark, in Irvine, caters to young professionals with growing families and offers the highly renowned public school system and recreational facilities of the City of Irvine.

Within each village, the Partnership’s target market is further defined. The primary factor which determines the appropriate target for the product is location. For example, the professional product type is targeted towards busy executives and professionals of all ages and is typically located near major business centers and in close proximity to entertainment, retail and dining establishments as well as major transportation corridors. The university product type, on the other hand, is located within walking distance of a college or university, student-oriented retail centers, and public transportation.

Finally, the Partnership specifically designs its products to appeal to a target market. The Partnership’s luxury product is typically in a unique or upscale location with ocean and golf course views and provides resort-like amenities. The family product offers spacious children’s play areas and tot lots, on-site or nearby park access, individual garages, in-unit washers and dryers and may include a multi-purpose room with an activities coordinator offering activities for youngsters.

Financing Strategies

The Partnership intends to obtain additional debt financing to fund the capital requirements of its remaining development projects. See “Capital Expenditures — Capital Investments in New Development.” Construction costs not yet funded for these development projects total approximately $114 million. The Partnership anticipates utilizing fixed rate mortgage financing to fund these construction costs, consistent with the Partnership’s strategy of maintaining a fairly low tolerance to interest rate fluctuation risk. However, based on financial market conditions at the time such financing is secured, the Partnership may utilize other debt and/or interest rate structures if it deems it prudent to do so.

On August 1, 2001, the Partnership completed a $69.2 million offering of tax-exempt mortgage bonds. The offering included $19.2 million of new tax-exempt mortgage bonds (the “2001 Bonds”) for the construction of a 104-unit apartment building (the “Project”) at the Partnership’s Villa Siena property. Additionally, the offering included the refinancing of the Partnership’s existing $32 million tax-exempt mortgage bonds and $18 million tax-exempt mortgage bonds (the “Refinanced Bonds” and collectively with the 2001 Bonds, the “Bonds”). The 2001 Bonds bear interest at a weekly-remarketed tax-exempt rate and are due August 2034. Proceeds from the Refinanced Bonds were used to repay the Partnership’s existing tax-exempt mortgage bonds. This transaction is more fully discussed in Note 3 of the Notes to Consolidated Financial Statements.

Competition

The Properties are located in developed areas. There are numerous other rental apartment properties within and around the market area of each property. The number of competitive rental properties in and outside of the area could have a material effect on the Partnership’s ability to rent apartments and increase rents.

Employees

Neither the Partnership nor the Trust has any employees. The Partnership is managed by IACLLC. The business and policy making functions of the Partnership are carried out by the directors, officers and employees of IACLLC. As of February 22, 2002, IACLLC had 56 employees. None of IACLLC’s employees are subject to a collective bargaining agreement and IACLLC has experienced no labor-related work stoppages. IACLLC considers its relations with its personnel to be good.

Cyclicality

The Partnership’s business, and the residential housing industry in general, are cyclical. The Partnership’s operations and markets are affected by local and regional factors such as local economies, demographic demand for housing, population growth, property taxes, energy costs, and by national factors such as short and long-term interest rates, federal mortgage financing programs, federal income tax provisions and general economic trends. During 2001, the Partnership’s’ Stabilized Communities experienced only slight seasonal variation in occupancy.

Environmental Matters

Under various federal, state and local laws, ordinances and regulations, an owner of real property may be held liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in the property. These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of the hazardous or toxic substances. The costs of any required remediation or removal of such substances may be substantial. In addition, the owner’s liability as to any property is generally not limited under such laws, ordinances and regulations and could exceed the value of the property and/or the aggregate assets of the owner. The presence of such substances, or the failure to remediate such substances properly, may also adversely affect the owner’s ability to sell or rent the property or to borrow using the property as collateral. Under such laws, ordinances and regulations, an owner or any entity who arranges for the disposal of hazardous or toxic substances, such as asbestos, at a disposal facility may also be liable for the costs of any required remediation or removal of the hazardous or toxic substances at the facility, whether or not the facility is owned or operated by such owner or entity. In connection with the ownership of the Properties or the disposal of hazardous or toxic substances, the Partnership may be liable for such costs.

The groundwater underlying portions of the City of Irvine generally contains elevated levels of certain inorganic compounds. In addition, two United States Marine Corps air bases where soil and groundwater contamination have been discovered are located adjacent to the Irvine Ranch. Although the Partnership believes, based on a site assessment report prepared for the U.S. Marine Corps, that contamination at one of these bases is localized, there can be no assurances that it has not migrated onto any of the Irvine Ranch Properties. The other base is listed on the National Priorities List and activities from this base have resulted in groundwater contamination in the vicinity of this base. The Partnership has knowledge, based on information provided by the Orange County Water District, that contamination from this base has migrated into the groundwater underlying one of the Irvine Ranch Properties (containing 60 units). The Partnership believes that most of the contaminated groundwater is located at a substantial depth under the land surface. The Orange County Water District and the Irvine Ranch Water District, together with the Department of Defense, are currently conducting and will continue to conduct remediation activities at this base and in the area, including under the Partnership’s property, to stabilize and ultimately remediate the contamination in the area, including the Partnership’s property. Based on current information, the Partnership believes that it will not incur any remediation costs in connection with the groundwater contamination.

Other federal, state and local laws may impose liability for release of asbestos containing materials (ACMs) into the air or require the removal of damaged ACMs in the event of remodeling or renovation. There are ACMs at 11 of the Properties, primarily in floor coverings and acoustical ceiling materials. The Partnership believes that the ACMs at these properties are generally in good condition. Comprehensive operations and maintenance plans have been implemented for properties where ACMs are present. In addition, property custodial and maintenance workers are trained to deal effectively with the maintenance of existing ACMs. The Partnership believes it is in compliance in all material respects with all federal, state, and local laws relating to ACMs and that there are no regulatory requirements that currently require the removal of these ACMs; however, if the Partnership were required to remove all ACMs present in its properties over a short time frame, the cost of such removal would have a material adverse effect on its financial condition and results of operations. The Partnership also believes that ACMs are not present in the remaining Properties. The Irvine Ranch Water District, a municipal corporation, owns and maintains underground cement water pipes which contain asbestos and which are serving a number of the Properties. Since these pipes are owned and maintained by the Irvine Ranch Water District, the Partnership believes that any potential environmental liabilities associated with these pipes will be incurred by the Irvine Ranch Water District.

All of the Partnership’s Properties fall under the jurisdiction of the Federal Clean Water Act. Under the Federal Clean Water Act, owners of construction sites are required to help prevent contaminates from entering into run-off systems that eventually enter sensitive waterways. Recently, jurisdictions in Orange County, California have interpreted the Federal Clean Water Act more stringently and are closely monitoring construction sites according to the stricter interpretation. Any construction site that is not in compliance with the requirements of the Federal Clean Water Act is at risk of being fined and/or of suspension of construction activity at the site. There are also similar requirements under the Federal Clean Water Act for operating properties. The Partnership believes that it is in compliance in all material respects with the stricter requirements. The Partnership will incur additional costs in order to remain in compliance with the Federal Clean Water Act; however, it does not believe such costs will be material.

The Partnership has not been notified by any governmental authority of any material noncompliance, liability, or other claim in connection with any of the Properties. In addition, environmental assessments (which involve physical

inspections without soil or groundwater analyses and generally without radon testing) were obtained on all Properties in 1993 or later except for two which were obtained prior to 1993. The Partnership is not aware of any environmental liability relating to the Properties that it believes would have a material adverse effect on its business, assets or results of operations. Nevertheless, it is possible that the environmental assessments did not reveal all environmental liabilities with respect to the Properties, that environmental liabilities have developed with respect to the Properties since the environmental assessments were prepared or that there are material environmental liabilities of which the Partnership is unaware with respect to the Properties. Moreover, no assurance can be given that future laws, ordinances or regulations will not impose material environmental liabilities or that the current environmental condition of the Properties will not be affected by residents and occupants of the Properties or by the uses or condition of properties in the vicinity of the Properties, such as leaking underground storage tanks, or by third parties unrelated to the Partnership.

Regulation

Apartment community properties are subject to various laws, ordinances and regulations, including regulations relating to recreational facilities such as swimming pools, activity centers and other common areas. The Partnership believes that each property has all material permits and approvals to operate its business. Rent control laws currently are not applicable to any of the Properties except 1221 Ocean Avenue. However, there can be no assurance that rent control requirements will not be initiated on additional communities in the future.

The Properties must comply with Title II of the Americans with Disabilities Act (the “ADA”) to the extent that such properties are “public accommodations” and/or “commercial facilities” as defined by the ADA. Compliance with the ADA requires removal of structural barriers to handicapped access in certain public areas of the Properties where such removal is “readily achievable.” The ADA does not, however, consider residential properties, such as apartment communities, to be public accommodations or commercial facilities, except to the extent portions of such facilities, such as a leasing office, are open to the public. The Partnership believes that the Properties comply in all material respects with all present requirements under the ADA and applicable state laws. Noncompliance with the ADA could result in imposition of fines or an award of damages to private litigants.

The Fair Housing Act (the “FHA”) requires, as part of the Fair Housing Amendments Act of 1988, apartment communities first occupied after March 13, 1990 to be accessible to the handicapped. Noncompliance with the FHA could result in the imposition of fines or an award of damages to private litigants. The Partnership believes that the Properties that are subject to the FHA are in compliance with such law.

Approximately 2,965 units in portions of 34 of the Partnership’s Stabilized Communities are currently subject to resident income limitations which generally restrict rental of the affected units to low or moderate income residents and which, in most instances, also limit the amount of rent that may be charged for a particular unit. A brief summary of the basis and effect of these resident income and other limitations follows:

The development of 23 of the Stabilized Communities was financed with the proceeds of tax-exempt multifamily housing revenue bonds issued by various local municipalities. These bonds were refunded in May 1995 and consolidated under one issuer, California Statewide Communities Development Authority. Regulatory agreements applicable to such financings (a) require that a specified percentage of the units be set aside for residents whose incomes do not exceed a specified percentage of the area median income and (b) in most instances, limit the rent which can be charged to a percentage of the maximum qualifying resident income level for the affected unit. These bonds were refinanced in June 1998 by the same issuer. Most of the income restrictions on the new bonds will terminate upon the maturity date of the new bonds.

Additionally, in October 1998, the Partnership purchased a 216-unit apartment community (One Park Place; now part of the Partnership’s Villa Siena property) for $28 million of which $18 million was the assumption of tax-exempt multifamily housing revenue bonds. In September 1999, the Partnership issued an additional $32 million of tax-exempt multifamily housing revenue bonds to finance the construction of two apartment buildings consisting of 201 units at its Villa Siena property. In August 2001, the Partnership completed a $69.2 million offering of tax-exempt mortgage bonds, which included $19.2 million of new tax-exempt mortgage bonds for the construction of a 104-unit apartment building at the Partnership’s Villa Siena property and the refinancing of the Partnership’s existing $32 million tax-exempt mortgage bonds and $18 million tax-exempt mortgage bonds.

In addition to the rental restrictions imposed by the bond regulatory agreements, many of the 23 stabilized properties and six additional properties are also subject to resident income and rent limitations by virtue of

development and other agreements entered into with local municipalities and private and quasi-public interest groups. These restrictions are similar in scope and substance but differ as to expiration dates from the other restrictions discussed above.

Five of the Stabilized Communities were developed with the assistance of U.S. Department of Housing and Urban Development (“HUD”) administered programs which provided mortgage insurance to the project lender. Certain regulatory and other agreements with HUD applicable to such financings (a) impose resident income restrictions similar to those imposed by the bond financing agreements, and (b) generally require the Partnership to operate the Properties in accordance with HUD’s standards. As of December 31, 2001, only one of the properties (The Parklands) had debt associated with such financings. A regulatory agreement additionally (a) limits the distribution of income from this property to 10% of the HUD imputed equity in this property and (b) requires that any income in excess of such 10% limit be deposited into a residual receipts account. Amounts paid into such residual receipts account have historically been used for capital improvements to the property, subject to HUD’s consent. At the expiration of the applicable regulatory or other agreement, any amount remaining in such residual receipts account belongs to HUD.

Under Section 8 of the United States Housing Act of 1937, HUD currently provides rental assistance payments to each of these five HUD properties pursuant to certain Housing Assistance Payments (“HAP”) contracts. Under the HAP contracts, so long as the units are rented to residents whose income levels do not exceed specified HUD guidelines, each qualifying resident is required to pay only 30% of their adjusted monthly income as rent and HUD pays the difference between the 30% payment and the unit’s market rents as established by HUD. The above-mentioned restrictions and limitations will continue for the remainder of each HAP contract term. Each HAP contract has an initial term of 20 years with four 5-year renewal options exercisable at the owner’s option. At December 31, 2001, the average remaining term of the HAP contracts was approximately 1 year.

Each of the resident and income restricted units within the Partnership’s portfolio has been subject to one or more of the foregoing restrictions either since their initial occupancy or as a result of subsequent agreements with the applicable governmental authority or other private or quasi-public interest groups. Accordingly, the effect of these restrictions on rental income from the Properties has been reflected in the historical financial results of the Partnership.

The Partnership believes that it is in material compliance with all of the foregoing requirements. The failure of the Partnership to comply with the terms of any of the foregoing could adversely affect the Partnership’s operations.

Factors Relating to Real Estate Operations and Development

General: Real property investments are subject to varying degrees of risk. 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 as well as the expenses incurred. If the Properties do not generate revenue sufficient to meet operating expenses, including debt service and capital expenditures, the Partnership’s income and ability to service its debt and other obligations and to make distributions to its partners/preferred security holders will be adversely affected. In addition, the Properties consist primarily of rental apartment communities geographically concentrated in Orange County. Income from and the performance of the Irvine Ranch Properties may therefore be adversely affected by the general economic climate in Orange County, including unemployment rates and local conditions such as the supply of and demand for apartments in the area, the attractiveness of the Irvine Ranch Properties to residents, zoning or other regulatory restrictions, competition from other available apartments and alternative forms of housing, the affordability of single family homes, the ability of the Partnership to provide adequate maintenance and insurance and the potential of increased operating costs (including real estate taxes). Certain significant expenditures associated with an investment in real estate (such as mortgage and other debt payments, real estate taxes and maintenance costs) generally are not reduced when circumstances cause a reduction in revenue from the investment. In addition, income from properties and real estate values are also affected by a variety of other factors, such as governmental regulations and applicable laws (including real estate, zoning and tax laws), interest rate levels and the availability of financing. The Irvine Ranch Properties in the aggregate historically have generated positive cash flow from operations; however, no assurance can be given that such will be the case in the future.

The Partnership’s “off-Ranch” development program was centered in Northern California’s Silicon Valley and the northern coastal markets of San Diego County. In 1997, the Partnership acquired a 923-unit apartment community (The Villas of Renaissance) located in the La Jolla region of Northern San Diego County. In 1998, the

Partnership completed construction of a 342-unit apartment community (The Hamptons at Cupertino) in the Silicon Valley and began development and construction on three additional apartment communities (with a total of approximately 660 units) in the Silicon Valley and two additional apartment communities (with a total of approximately 570 units) in Northern San Diego County. Also in 1998, the Partnership purchased a 120-unit, high-rise apartment building under renovation located in Santa Monica (1221 Ocean Avenue). During 1999, a 336-unit apartment community in Northern San Diego County (Arcadia at Stonecrest) was completed and achieved stabilization. During 2000, a 155-unit apartment community in Northern California (The Villas at Bair Island Marina) was completed and achieved stabilization. In addition, the renovations at 1221 Ocean Avenue were completed and the apartment building was 80% occupied as of December 31, 2001. During 2001, a 232-unit apartment community in San Diego County (La Jolla Palms) was completed and achieved stabilization. Also during 2001, a 300-unit apartment community in Northern California (Cherry Orchard Apartments) was completed and achieved stabilization. The remaining off-Ranch project, a 206-unit apartment community in Northern California (Franklin Street), was under development at December 31, 2001. The Partnership has no plans to expand its off-Ranch portfolio beyond these eight properties. The development, construction and operation of rental apartment communities in such new markets may present risks different than or in addition to the risks discussed above related to the Irvine Ranch Properties which are located entirely in Orange County. For jurisdictions off the Irvine Ranch, local jurisdiction approvals with respect to entitlements may impose requirements and conditions different from those applicable to the Irvine Ranch. No assurance can be given that any of the “off-Ranch” apartment communities will be successful.

Equity real estate investments, such as the investments made by the Partnership in the Properties, are relatively illiquid. Such illiquidity limits the ability of the Partnership to vary its portfolio in response to changes in economic or other conditions.

The Properties are subject to all operating risks common to apartment ownership in general. Such risks include: the Partnership’s ability to rent units at the Properties, including the 1,768 units in the Communities Under Development; competition from other apartment communities; excessive building of comparable properties which might adversely affect apartment occupancy or rental rates; increases in operating costs due to inflation and other factors which may not necessarily be offset by increased rents; increased affordable housing requirements that might adversely affect rental rates; inability or unwillingness of residents to pay rent increases; and future enactment of rent control laws or other laws regulating apartment housing, including present and possible future laws relating to access by disabled persons. If operating expenses increase, the local rental market may limit the extent to which rents may be increased to meet increased expenses without decreasing occupancy rates. If any of the above occurred, the Partnership’s ability to meet its debt service and other obligations and to make distributions with respect to its partners/preferred security holders could be adversely affected.

Real Estate Development: A primary focus of the Partnership is the development of the Communities Under Development. The real estate development business involves significant risks in addition to those involved in the ownership and operation of established apartment communities, including the risks that specific project approvals may take more time and resources to obtain than expected, that construction may not be completed on schedule or budget and that the properties may not achieve anticipated rent or occupancy levels. In addition, if long-term debt is not available on acceptable terms to finance such development, cash available for debt service and other obligations might be adversely affected.

Insurance: The Partnership carries commercial general liability, fire, extended coverage and rental loss insurance covering all of the Properties, with policy specifications and insured limits which the Partnership believes are adequate and appropriate under the circumstances. In addition, The Irvine Company has a limited earthquake insurance policy covering all of its properties, including the Properties of the Partnership. There are, however, certain types of losses that are not generally insured because they are either uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of insured limits occur, the Partnership could lose its capital invested in the property, as well as the anticipated future revenues from the property, and, in the case of debt which is recourse to the Partnership, would remain obligated for any mortgage debt or other financial obligations related to the property. Any such loss would adversely affect the Partnership. The Partnership believes that the Properties are adequately insured. In addition, in light of the California earthquake risk, California building codes since the early 1970’s have established construction standards for all newly built and renovated buildings, including apartment buildings. A major code change was adopted in 1984, implementing the most strict construction standards as of such time. Forty-one of the existing 58 Stabilized Communities (representing approximately 74% of the units in the Stabilized Communities) have been completed and occupied since January 1, 1985, and the Partnership believes that all of the Stabilized Communities were constructed in full compliance with the applicable standards existing at the

time of construction. In 1999, there was another major code change and more rigorous construction standards were adopted. The Partnership is currently constructing the Communities Under Development in full compliance with these stricter standards. While earthquakes have occurred from time to time in California, the Partnership has not experienced any material losses as a result of earthquakes. No assurance can be given that this will be the case in the future.

Item 2. Properties

The Partnership owns 58 Stabilized Communities containing 17,713 apartment units and has three Communities Under Development. Below is 2001 operating information for the Stabilized Communities:

2001 Average Monthly Rental Rates

Year Average Unit Size
2001 Average

Property Completed Number of Units (Square Feet) Per Unit Per Square Foot Physical Occupancy

Properties Stabilized Before 2001

Irvine, CA (38 Properties)

Amherst Court
1991 162 724 1,312 1.81 97.0 %

Berkeley Court
1986 152 877 1,379 1.57 98.5 %

Brittany at Oak Creek
1999 393 907 1,472 1.62 95.3 %

Cedar Creek
1985 176 811 1,186 1.46 95.7 %

Columbia Court
1984 58 852 1,277 1.50 98.7 %

Cornell Court
1984 109 894 1,475 1.65 95.6 %

Cross Creek
1985 136 935 1,293 1.38 97.2 %

Dartmouth Court
1986 294 896 1,355 1.51 97.0 %

Deerfield
1975/83 192/96 847 1,189 1.40 97.0 %

Harvard Court
1986 112 826 1,322 1.60 96.6 %

Northwood Park
1985 168 944 1,195 1.27 95.7 %

Northwood Place
1986 604 954 1,207 1.27 95.8 %

Orchard Park
1982 60 971 1,009 1.04 99.9 %

Park West
1970/71/72 256/276/348 1,004 1,311 1.31 92.0 %

Parkwood
1974 296 886 1,248 1.41 95.7 %

Rancho San Joaquin
1976 368 896 1,334 1.49 94.6 %

San Carlo
1989 354 1,074 1,507 1.40 95.1 %

San Leon
1987 248 951 1,302 1.37 94.3 %

San Marco
1988 426 923 1,251 1.36 94.1 %

San Marino
1986 200 927 1,293 1.39 95.3 %

San Mateo
1990 283 720 1,201 1.67 95.7 %

San Paulo
1993 382 1,001 1,170 1.17 95.1 %

San Remo
1986/88 136/112 966 1,260 1.30 95.2 %

Santa Clara
1996 378 967 1,480 1.53 94.3 %

Santa Maria
1997 227 1,125 1,713 1.52 93.5 %

Santa Rosa
1996/98 368/207 1,017 1,246 1.23 92.8 %

Sonoma at Oak Creek
1999 196 1,160 1,733 1.49 95.9 %

Stanford Court
1985 320 799 1,300 1.63 96.5 %

The Parklands
1983 121 794 1,135 1.43 99.6 %

Turtle Rock Canyon
1991 217 1,024 1,578 1.54 94.5 %

Turtle Rock Vista
1976/77 112/140 1,155 1,605 1.39 93.8 %

Villa Coronado
1996 513 929 1,488 1.60 94.7 %

Windwood Glen
1985 196 878 1,263 1.44 95.5 %

Windwood Knoll
1983 248 903 1,136 1.26 96.6 %

Woodbridge Oaks
1983 120 976 1,072 1.10 99.6 %

Woodbridge Pines
1976 220 872 1,249 1.43 95.0 %

Woodbridge Villas
1982 258 871 1,148 1.32 95.7 %

Woodbridge Willows
1984 200 894 1,235 1.38 95.9 %

Subtotal
10,438 938 1,323 1.41 95.1 %

Newport Beach, CA (7 Properties)

Baypointe
1997 300 1,037 1,705 1.64 95.4 %

Mariner Square
1969 114 1,104 1,451 1.31 95.3 %

Newport North
1986 570 947 1,345 1.42 95.1 %

Newport Ridge (Newport Coast)
1996 512 957 1,670 1.75 94.0 %

Promontory Point
1974 520 1,053 2,165 2.06 92.4 %

The Bays
1971/73/84 104/64/320/68 1,044 1,442 1.38 94.0 %

The Colony at Fashion Island
1998 245 1,326 2,680 2.02 92.8 %

Subtotal
2,817 1,037 1,733 1.67 94.1 %

Tustin, CA (7 Properties)

Rancho Alisal
1988/91 344/12 967 1,300 1.34 94.6 %

Rancho Maderas
1989 266 939 1,302 1.39 95.2 %

Rancho Mariposa
1992 238 856 1,263 1.48 94.1 %

Rancho Monterey
1996 436 932 1,458 1.56 95.0 %

Rancho Santa Fe
1998 316 1,120 1,743 1.56 94.3 %

Rancho Tierra
1989 252 1,031 1,385 1.34 94.7 %

Sierra Vista
1992 306 852 1,340 1.57 93.5 %

Subtotal
2,170 958 1,408 1.47 94.5 %

Subtotal (52 Properties)
15,425 959 1,410 1.47 94.8 %

Off-Ranch (4 Properties)

Arcadia at Stonecrest (San Diego)
1999 336 951 1,450 1.52 95.8 %

The Hamptons at Cupertino (Cupertino)
1998 342 951 2,265 2.38 96.2 %

The Villas at Bair Island Marina (Redwood City)
2000 155 1,091 2,958 2.71 94.5 %

Villas of Renaissance (La Jolla)
1992 923 957 1,479 1.55 94.8 %

Subtotal
1,756 967 1,757 1.82 95.2 %

Properties Stabilized Before 2001 (56 Properties)
17,181 960 1,445 1.51 94.9 %

Properties Stabilized During 2001¹

Cherry Orchard Apartments (Sunnyvale)
2001 300 984 1,990 2.02 97.2 %

La Jolla Palms (La Jolla)
2001 232 905 1,667 1.84 94.9 %

Subtotal
532 950 1,849 1.95 96.2 %

Total Portfolio (58 Properties)
17,713 960 1,457 $ 1.43 95.0 %

¹ Represents amounts from initial stabilization date.

The Properties are located within the following jurisdictions in California:

Communities

Stabilized Communities Under Development Total

Number of Number Number of Number Number of Percent of

Location Properties Of Units Properties of Units Properties Total

Orange County

Irvine
38 10,438 1 1,442 39 64 %

Newport Beach
6 2,305 6 10 %

Tustin
7 2,170 7 11 %

Newport Coast
1 512 1 2 %

San Francisco Bay Area

Cupertino
1 342 1 2 %

Redwood City
1 155 1 206 2 3 %

Sunnyvale
1 300 1 2 %

Northern San Diego County

La Jolla
2 1,155 2 3 %

San Diego
1 336 1 2 %

Los Angeles County

Santa Monica
1 120 1 1 %

Totals
58 17,713 3 1,768 61 100 %

The unit mix of the Properties is as follows:

Stabilized Communities

Communities Under Development Total Number of Percent of

Unit Type Number of Units Number of Units Units Total Units

Studio/Junior
547 128 675 3 %

One Bedroom
4,561 647 5,208 27 %

Two Bedroom
10,935 934 11,869 61 %

Three Bedrooms or More
1,670 59 1,729 9 %

Total
17,713 1,768 19,481 100 %

The consolidated real estate and accumulated depreciation schedule of the Partnership is included on pages F-17 through F-19 of this Annual Report on Form 10-K.

The Partnership believes that the Properties are well maintained and have no material deferred maintenance requirements or current need for major renovations. The average age of the Stabilized Communities is approximately 13 years. The oldest of the Stabilized Communities was completed in 1969, and 41 of the 58 Stabilized Communities, totaling 13,045 units or approximately 74% of the Stabilized Communities, have been completed since January 1, 1985. The number of units per property ranges from 58 units to 923 units, with an average of approximately 305 units.

The Partnership seeks to assure that the Properties remain attractive dwellings for apartment residents and are in desired locations for prospective apartment residents. Maintenance, custodial and groundskeeping personnel perform regular maintenance and upkeep on the Properties to preserve and enhance physical and aesthetic attributes. The physical appearance of and apartment residents’ satisfaction with the Properties and with the performance of the local property managers is monitored and evaluated on an on-going basis by the Partnership’s senior management.

All of the Stabilized Communities provide, and the Communities Under Development will provide, residents with numerous amenities and include extensive landscaping. Approximately 88% of the 58 Stabilized Communities contain swimming pools, spas, air conditioning and covered parking. Additional amenities may include a fitness center, business center, conference room, recreational room and children play areas. Each apartment unit includes a patio, deck or balcony. Many apartment units offer one or more of certain additional features, such as fireplaces, enclosed garages, refrigerators, washers and dryers, and microwave ovens. Additionally, all properties completed after 1994 include an alarm system, offer high-speed Internet access and are located within a gated community. The Communities Under Development contain most of these amenities.

Item 3. Legal Proceedings

Neither the Partnership nor the Trust or the Properties is currently subject to any material litigation.

Item 4. Submission Of Matters To A Vote Of Security Holders

None.

PART II

Item 5. Market For Registrants’ Common Equity And Related Stockholder Matters

Irvine Apartment Communities, L.P.

There is no established public trading market for the Partnership’s common partnership interests. As of February 22, 2002, there were two holders of common partnership interests.

The Partnership made aggregate distributions of $124,500,000 during 2001 on its common partnership interests.

There were no issuances of common partnership interests in the Partnership during the fourth quarter of 2001.

IAC Capital Trust

There were no issuances of securities of the Trust during the fourth quarter of 2001.

Item 6. Selected Financial Data

The following table sets forth selected financial data and other operating information of the Partnership and the Trust. The selected financial data in the table are derived from the consolidated financial statements of the Partnership and the Trust. The data should be read in conjunction with the consolidated financial statements, related notes, and other financial information included herein.


	Years Ended December 31,

*(in thousands, except percentages, per unit and property information)*	2001			2000			1999			1998			1997

IRVINE APARTMENT COMMUNITIES, L.P.
Selected Operating Information
Total revenues	$	316,879		$	294,095		$	253,415		$	220,837		$	186,945
Income before extraordinary item and redeemable preferred interests	$	82,033		$	84,504		$	85,651		$	73,549		$	58,583
Net income	$	67,470		$	67,754		$	68,901		$	18,781		$	58,583
Cash distributions per unit	$	2.75		$	2.75		$	1.10		$	1.52		$	1.48
Total apartment units (at end of period)		18,800			17,941			17,362			16,439			15,136

Selected Stabilized Property Information ¹
Total properties (at end of period) ²		58			56			54			51			49
Average physical occupancy ³		95.0	%		95.9	%		94.8	%		94.1	%		94.5	%
Average monthly rent per unit ⁴	$	1,457		$	1,373		$	1,283		$	1,213		$	1,116

Selected Balance Sheet Information at December 31,
Total assets	$	2,134,357		$	2,178,585		$	2,026,524		$	1,374,624		$	1,163,677
Total long-term debt	$	1,082,015		$	1,070,892		$	864,602		$	751,818		$	704,063
Redeemable preferred interests	$	144,275		$	192,926		$	192,849		$	192,789
Partners’ capital	$	801,022		$	856,220		$	912,921		$	381,679		$	421,227

IAC CAPITAL TRUST
Selected Operating Information
Income from investment in subsidiary	$	12,375		$	12,375		$	12,375		$	11,722
Net income	$	—		$	—		$	—		$	—

Selected Balance Sheet Information at December 31,
Total assets	$	150,005		$	150,005		$	150,005		$	150,005
Redeemable preferred interest	$	150,000		$	150,000		$	150,000		$	150,000
Equity	$	5		$	5		$	5		$	5

¹ A property is typically considered stabilized at the earlier of one year after completion of construction or when it achieves 95% occupancy.

² In July 2001, due to the similarity of property operations and product type and the proximity of property locations, the following apartment communities were combined for reporting purposes: Bayport, Bayview and Baywood are now considered one apartment community; Santa Rosa and Santa Rosa II are now considered one apartment community; and One Park Place and Villa Siena are now considered one apartment community. Certain prior period information has been restated to conform with this current presentation.

³ Average physical occupancy is calculated by dividing the total occupied units in the stabilized properties on a weekly basis by the total units in the stabilized properties on a weekly basis.

⁴ Average monthly rent per unit is calculated by dividing average rental revenue per unit by average economic occupancy.

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

The following discussion should be read in conjunction with the Selected Financial Data, the Consolidated Financial Statements of the Partnership and the Trust and the Notes thereto.

Results of Operations

The Partnership’s income before redeemable preferred interests was $82.0 million in 2001, down from $84.5 million in 2000, and $85.7 million in 1999. Although the Partnership’s net operating income (rental and other income less property expenses and real estate taxes) increased from $201.4 million in 2000 to $213.4 million in 2001, the Partnership’s overall financial results declined in 2001 from 2000 due to the increase in interest expense related to the additional mortgage financings in 2000 and the tax-exempt mortgage bond financing obtained in 2001. The decrease was also due to the increase in depreciation and amortization expense due to the addition of newly delivered rental units. The decrease was offset, in part, by contributions of newly delivered rental units from its development program and properties that stabilized during 2000 and 2001, as well as an increase in rental rates within its stabilized portfolio during 2001. The Partnership’s financial results declined in 2000 from 1999 due to the increase in interest expense related to the additional mortgage financings and tax-exempt mortgage bond financings obtained in 2000 and 1999, combined with a decrease in capitalized interest due to the decrease in the average qualifying asset balance for projects under development. The decrease was also due to the increase in depreciation and amortization expense due to additional depreciation related to the step-up in basis recorded in conjunction with the Merger and the addition of newly delivered rental units. The decrease was offset, in part, by contributions of newly delivered rental units from its development program and properties that stabilized during 1999 and 2000, as well as an increase in rental rates and physical occupancy within its stabilized portfolio during 2000 and a decrease in general and administrative expenses.

Revenue and Expense Data


		Years Ended December 31,

*(dollars in thousands)*		2001		2000		1999

Number of stabilized communities			58		56		54
Number of operating units at end of period			18,800		17,941		17,362
Consolidated Information:
	Operating revenues	$	314,109	$	289,734	$	251,001
	Property expenses	$	77,427	$	67,052	$	54,218
	Real estate taxes	$	23,325	$	21,253	$	19,544

In July 2001, due to the similarity of property operations and product type and the proximity of property locations, the following apartment communities were combined for reporting purposes: Bayport, Bayview and Baywood are now considered one apartment community; Santa Rosa and Santa Rosa II are now considered one apartment community; and One Park Place and Villa Siena are now considered one apartment community. Certain prior period information has been restated to conform with this current presentation.

Operating revenues (rental and other income) increased by 8.4% to $314.1 million in 2001, up from $289.7 million in 2000. Operating revenue in 2000 had increased by 15.4% from $251.0 million in 1999. Operating revenue rose in 2001 because of higher rental rates and a larger average number of rental units in service, primarily as a result of new development. Operating revenue rose in 2000 because of higher rental rates, higher physical occupancy and a larger average number of rental units in service, primarily as a result of new development.

Property expenses increased by 15.5% to $77.4 million in 2001 from $67.1 million in 2000, which had increased from $54.2 million in 1999. The 2001 increase reflects incremental expenses from newly delivered rental units and communities stabilized during 2001 and 2000. The 2000 increase reflects incremental expenses from newly delivered rental units and communities stabilized during 2000 and 1999. To improve operating efficiency and reduce operating costs, the Partnership formed IAMC to manage the Partnership’s properties in April 1998. Accordingly, the personnel and office costs of IAMC are included in property expenses.

Real estate taxes totaled $23.3 million in 2001, $21.3 million in 2000 and $19.5 million in 1999. Real estate taxes increased in 2001 and 2000 primarily due to the addition of new rental units through development.

Net interest expense increased to $65.2 million in 2001 from $54.7 million in 2000, which had increased from $35.7 million in 1999. Total interest incurred was $70.4 million in 2001 compared with $60.9 million in 2000 and $50.1 million in 1999. The increase in interest incurred in 2001 was primarily due to the additional mortgage financings in

2000 and the tax-exempt mortgage bond financing in 2001. The increase in interest incurred in 2000 was primarily due to the additional mortgage financings and tax-exempt mortgage bond financings in 2000 and 1999, partially offset by the repayment of certain conventional mortgages in 2000 and the unsecured term loan in 1999. Net interest expense increased in 2001 and 2000 due to a decrease in capitalized interest during 2001 and 2000, respectively, as a result of a lower average qualifying asset balance for projects under development. The Partnership capitalizes interest on projects actively under development using qualifying asset balances and applicable weighted average interest rates. Capitalized interest totaled $5.2 million in 2001, $6.2 million in 2000 and $14.4 million in 1999.

Interest income totaled $2.8 million in 2001, $4.4 million in 2000 and $2.4 million in 1999. The changes in interest income reflect changes in the Partnership’s average cash balances.

Depreciation and amortization expense increased to $61.1 million in 2001, up from $56.6 million in 2000. These expenses had increased in 2000 from $44.4 million in 1999. The increases in both years reflect the completion and delivery of newly developed rental units. In addition, the 2001 and 2000 amounts reflect a full year of depreciation related to the step-up in basis recorded in conjunction with the Merger.

General and administrative expense decreased to $7.8 million in 2001, down from $10.0 million in 2000. These expenses had decreased in 2000 from $13.9 million in 1999. The decrease in 2001 was the result of cost reductions related to staffing and associated overhead costs. The decrease in 2000 was the result of additional costs incurred associated with the Merger and the write-off of certain abandoned costs, both in the second quarter of 1999.

Liquidity and Capital Resources

The Partnership believes that cash provided by operations will be adequate to meet ongoing operating requirements, debt service payments and payment of distributions by the Partnership to the preferred limited partners in both the short and long term.

Liquidity: The Partnership expects to meet its short-term and long-term liquidity requirements, such as construction costs and scheduled debt maturities, through the refinancing of long-term debt or borrowings from financial institutions. The Partnership’s $125 million unsecured revolving credit facility was terminated as of December 27, 2000.

Preferred Interests: In January 1998, the Trust issued 6.0 million of its 8 1/4% Series A Preferred Securities. The proceeds of $150 million were used to purchase an equivalent amount of 8 1/4% Series A Preferred Limited Partner Units in the Partnership. The Partnership used the $150 million of proceeds, net of costs and expenses, all of which were paid by the Partnership, to repay outstanding borrowings under the credit facility and to fund development and an acquisition. In November 1998, the Partnership issued 2.0 million of 8 3/4% Series B Preferred Limited Partner Units. The Partnership used the net proceeds to reduce the outstanding balance on its unsecured line of credit. On July 12, 2001, the Partnership’s 2.0 million of 8 3/4% Series B Preferred Limited Partner Units were redeemed by the Partnership.

Debt: The Partnership’s conventional debt bears interest at fixed interest rates. Interest rates on conventional mortgage debt were reduced to then-current market rates at the time of IAC, Inc.’s December 1993 initial public offering through interest rate buy-down agreements that are scheduled to expire at various dates prior to loan maturity that range from 2002 to 2008. The weighted average effective interest rate on the Partnership’s debt, including the non-cash charges of amortization of deferred financing costs, was 6.35% at December 31, 2001.

On August 1, 2001, the Partnership completed a $69.2 million offering of tax-exempt mortgage bonds. The offering included $19.2 million of new tax-exempt mortgage bonds that are recourse to the Partnership (the “2001 Bonds”) for the construction of a 104-unit apartment building (the “Project”) at the Partnership’s Villa Siena property. Additionally, the offering included the refinancing of the Partnership’s existing $32 million tax-exempt mortgage bonds and $18 million tax-exempt mortgage bonds (the “Refinanced Bonds” and collectively with the 2001 Bonds, the “Bonds”). The 2001 Bonds bear interest at a weekly-remarketed tax-exempt rate and are due August 2034. Proceeds from the Refinanced Bonds were used to repay the Partnership’s existing tax-exempt mortgage bonds. This transaction is more fully discussed in Note 3 of the Notes to Consolidated Financial Statements.

Two of the Partnership’s properties (Rancho Monterey and Santa Clara) are security for conventional mortgages which are recourse to the Partnership. These conventional mortgages are subject to conversion to nonrecourse upon achieving certain loan to value hurdles.

Debt Structure


			Balance at		Weighted
			December 31,		Average
*(dollars in millions)*			2001		Interest Rate

Fixed rate debt
	Conventional mortgage financings		$	501.6		7.51	%
	Mortgage notes payable to The Irvine Company			57.5		6.14	%
	Tax-exempt assessment district debt			4.6		6.29	%
	Unsecured tax-exempt bond financings			334.2		4.93	%
	Unsecured notes payable			99.5		7.10	%

		Total fixed rate debt		997.4		6.52	%

Variable rate debt
	Tax-exempt mortgage bond financings			19.2		2.60	%
	Tax-exempt assessment district debt			15.4		1.70	%
	Unsecured tax-exempt bond financings			50.0		2.60	%

		Total variable rate debt		84.6		2.44	%

		Total debt	$	1,082.0		6.20	%

Operating Activities: Cash provided by operating activities was $145.9 million, $153.5 million and $140.8 million in 2001, 2000 and 1999, respectively. Cash provided by operating activities decreased in 2001 compared to 2000 due to changes in working capital during 2001. Cash provided by operating activities increased in 2000 compared to 1999 due to higher revenues from newly delivered rental units from the Partnership’s development program and properties stabilized during 2000 and 1999, as well as an increase in rental rates and physical occupancy within its stabilized portfolio.

Investing Activities: Cash used in investing activities was $106.9 million, $133.0 million and $152.9 million in 2001, 2000 and 1999, respectively. Changes in the amount of cash used in investing activities in each year reflect changing levels of real estate development in 2001, 2000 and 1999. Real estate development is typically funded by mortgage financing (see “Financing Activities” and “Capital Expenditures”).

Financing Activities: Cash used in financing activities was $133.8 million in 2001 while cash provided by financing activities was $63.1 million and $21.0 million in 2000 and 1999, respectively. The Partnership received $57.1 million during 2001 from a tax-exempt mortgage bond financing. The proceeds from this financing were used to refinance existing tax-exempt mortgage bond financings and to fund construction of a new apartment building at the Partnership’s Villa Siena property. Also in 2001, the Partnership redeemed its $50 million of Series B Preferred Limited Partner Units. The Partnership received a total of $238.8 million during 2000 from conventional mortgage financings and $11 million from additional mortgage notes payable to The Irvine Company. The proceeds from these financings were used to fund construction of new apartment communities and repay certain conventional mortgages. The Partnership received $8.3 million during 1999 from a tax-exempt mortgage bond financing, $115 million in September 1999 from a conventional mortgage financing and $70 million in October 1999 from a conventional mortgage financing. The proceeds from these financings were used to fund construction of new apartment communities, to repay the advances from affiliate and to repay an unsecured term loan, which was repaid in November 1999. Additionally, the Partnership paid $139.1 million in distributions to partners and redeemable preferred interest holders in 2001 compared to $141.2 million in 2000 and $66.6 million in 1999.

Capital Expenditures

Capital expenditures consist of capital improvements and investments in real estate assets. Capital improvements to operating real estate assets totaled $4.1 million, $2.3 million and $6.5 million in 2001, 2000 and 1999, respectively. Capital investments in real estate assets totaled $103 million, $131 million and $146 million in 2001, 2000 and 1999, respectively, and consisted of capital investments in new developments and capital replacements.

Capital Improvements: The Partnership has a policy of capitalizing expenditures related to new assets, the material enhancement of the value of an existing asset, or the substantial extension of an existing asset’s useful life.

Capital Replacements: Capital replacements consist of special programs to upgrade and enhance a community to achieve higher rental rates. Expenditures for capital replacements totaled $3.0 million in 2001. These expenditures were made at six properties: Promontory Point, Turtle Rock Vista, Rancho San Joaquin, Park West, Woodbridge Willows and The Bays.

Capital Investments in New Development: Currently, the Partnership has two apartment communities under development or construction that are expected to require total expenditures of approximately $373 million, of which $259 million had been incurred at December 31, 2001. Funding for these developments is expected to come from borrowings from financial institutions and refinancing of long-term debt. (See Item 13 and Note 7 of the Notes to Consolidated Financial Statements).

Construction Information

Total

Estimated

Commencement

Costs

Apartment Community

Location

Units

Of Construction

(in millions)

On Irvine Ranch:

Villa Siena ⁽¹⁾

Irvine

1,442

2/99

299

Off Irvine Ranch:

Franklin Street

Redwood City

206

11/00

Total

1,648

373

⁽¹⁾ As of December 31, 2001, 967 units were delivered and 671 units were occupied.

The estimated costs of apartment communities that are in development are only estimates. Actual results will depend on numerous factors, many of which are beyond the control of the Partnership. These include the extent and timing of economic growth in the Partnership’s rental markets; future trends in the pricing of construction materials and labor; product design changes; entitlement decisions by local government authorities; weather patterns; changes in interest rate levels; and other changes in capital markets. No assurance can be given that the estimates set forth in the foregoing table will not vary substantially from actual results.

Impact of Inflation

The Partnership’s business is affected by general economic conditions, including the impact of inflation and interest rates. Substantially all of the Partnership’s leases allow, at time of renewal, for adjustments in the rent payable thereunder, and thus may enable the Partnership to seek increases in rents. Substantially all leases are for a period of one year or less. The short-term nature of these leases generally serves to minimize the risk to the Partnership of the adverse effects of inflation. For construction, the Partnership has entered into various contracts for the development and construction of new apartment communities. These are fixed-fee contracts and thus partially insulate the Partnership from inflationary risk.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Partnership’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during

the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts, value of real estate investments, intangible assets, financing operations and contingencies and litigation. 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 values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Real Estate Assets and Depreciation: Real estate assets, which are held as long-term investments, are stated at cost less accumulated depreciation. Impairment losses on long-lived assets used in operations are recorded when events and circumstances indicate that the assets, on a property-by-property basis, are impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts. Land and infrastructure costs are allocated to properties based on relative fair value. Costs related to the development and construction of properties are capitalized as incurred. Interest and property taxes are capitalized to apartment communities which are under active development. When a building within a community under construction is completed and held available for occupancy, the related costs are expensed.

Repair and maintenance expenditures are expensed as incurred. Major replacements and betterments are capitalized and depreciated over their useful lives. Depreciation is computed on a straight-line basis over the useful lives of the properties (principally forty years for buildings; twenty years for siding, roofs and balconies; fifteen years for plumbing and air conditioning equipment; ten years for pools, tennis courts, parking lots and driveways; and five to ten years for furniture and fixtures).

Revenue Recognition: The Partnership leases apartment units to a diverse resident base for terms of one year or less. Credit investigations are performed for all prospective residents and security deposits are also obtained. Resident receivables are evaluated for collectibility each month. Rental revenue is recognized on an accrual basis as it is earned over the life of the lease. Interest income is recorded as earned.

The Partnership’s critical accounting policies are more fully described in Note 2 of the Notes to Consolidated Financial Statements.

Off-Balance Sheet Transactions

As of December 31, 2001, the Partnership had $42.2 million of assessment district debt, of which $20.1 million was reflected on the balance sheet and $22.1 million was off-balance sheet. See Notes 3 and 10 of the Notes to Consolidated Financial Statements for a complete description of the Partnership’s assessment district debt.

Contractual Obligations and Commercial Commitments

The Partnership’s only material contractual obligations and commercial commitments are its mortgages and notes payable. See Note 3 of the Notes to Consolidated Financial Statements for a discussion of the mortgages and notes payable and their related maturities.

Related Party Transactions

See Item 13 and Note 8 of the Notes to Consolidated Financial Statements for a description of the Partnership’s transactions with related parties.

Impact of New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, Business Combinations (“Statement No. 141”). This pronouncement supersedes Accounting Principles Board (“APB”) Opinion No. 16, Business Combinations, and Statement of Financial Accounting Standards No. 38, Accounting for Preacquisition Contingencies of Purchased Enterprises. The Partnership will adopt Statement No. 141 for all business combinations initiated after June 30, 2001.

In June 2001, Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets was issued. This pronouncement changes the accounting for goodwill from an amortization method to an impairment approach. As of December 31, 2001, the Partnership does not have any goodwill recorded and does not believe that this pronouncement will have a material impact on its financial position or results of operations.

In August 2001, Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“Statement No. 144”) was issued. This pronouncement supersedes Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (“Statement No. 121”) and a portion of APB Opinion No. 30, Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions (“APB No. 30”), and is required to be adopted on January 1, 2002. Statement No. 144 retains the fundamental provisions of Statement No. 121 as it relates to assets to be held and used and assets to be sold, but adds provisions for assets to be disposed of other than by sale. It also changes the accounting for the disposal of a segment under APB No. 30 by requiring the operations of any assets with their own identifiable cash flows that are disposed of or held for sale to be removed from operating income and reported as discontinued operations. Treating such assets as discontinued operations would also require the reclassification of the operations of any such assets for any prior periods presented. The Partnership does not expect the adoption of Statement No. 144 to have a material impact on its financial condition or the results of its operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Partnership’s exposure to market risk for changes in interest rates relates primarily to the Partnership’s current and future debt obligations. The Partnership’s philosophy is to maintain a fairly low tolerance to interest rate fluctuation risk. The Partnership is still vulnerable, however, to significant fluctuations of interest rates on its variable rate debt, repricing on its fixed rate debt at various points in the future and future debt.

The Partnership has managed and will continue to manage interest rate risk by maintaining a ratio of fixed rate long-term debt to total debt such that variable rate exposure is kept at an acceptable level and taking advantage of favorable market conditions for long-term debt.

The following table provides information about the Partnership’s financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted-average interest rates by expected maturity dates.


Interest Rate Sensitivity
Principal (Notional) Amount by Expected Maturity

																	There-					Fair Value
(dollars in thousands)		2002			2003			2004			2005			2006			after			Total		12/31/01

Liabilities
Tax-exempt mortgage bond financing																	$	19,200		$	19,200	$	19,200
	Average interest rate ¹
Conventional mortgage financings		$	7,179		$	19,471		$	11,483		$	9,137		$	9,879			444,439			501,588		522,042
	Average interest rate		7.54	%		7.59	%		7.58	%		7.64	%		7.64	%		8.73	%
Mortgage notes payable to The
	Irvine Company		1,209			11,982			1,398			1,512			1,601			39,767			57,469		50,684
	Average interest rate		6.14	%		6.14	%		5.75	%		5.75	%		5.75	%		5.75	%
Tax-exempt assessment district debt			632			689			731			770			842			16,393			20,057		20,057
	Average interest rate ²
Unsecured tax-exempt bond financings																		384,228			384,228		387,523
	Average interest rate ³
Unsecured notes payable																		99,473			99,473		99,612
	Average interest rate																	7.10	%

¹ The interest rate is a weekly remarketed tax-exempt based rate. The interest rate inclusive of fees as of December 31, 2001 was 2.60%.

² $4,601 of debt is fixed at 6.29% and $15,456 is variable at the daily remarketed tax-exempt based rate. The weighted average variable interest rate was 1.70% as of December 31, 2001.

³ The interest rate for $50,038 of the unsecured tax-exempt bond financings is a weekly remarketed tax-exempt based rate. The interest rate inclusive of fees as of December 31, 2001 was 2.60%. The remaining $334,190 is fixed at 5.23% through its mandatory tender dates ranging from May 2008 to May 2013.

Item 8. Financial Statements and Supplementary Data

The financial statements and related reports of independent auditors listed in the accompanying index are filed as part of this report. See “Index to Financial Statements” on page F-1.

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

None.

PART III

Item 10. Directors and Executive Officers of the Registrants

The Partnership does not have any directors or officers. The Partnership is managed by its sole general partner, IACLLC. The business and policy making functions are carried out through the directors of IACLLC and through those employees at IACLLC listed below under the caption “Executive Officers of Irvine Apartment Communities, L.P.”

Board of Directors of Irvine Apartment Communities LLC

The following sets forth certain information regarding the Board of Directors of IACLLC as of February 22, 2002:

Donald Bren, 69. Mr. Bren has been Chairman of the Board of The Irvine Company since 1983, and Chairman of the Board of IACLLC since its formation. He is a member of the Board of Overseers of the University of California, Irvine, and is a member of the Board of Trustees of the California Institute of Technology, the Los Angeles County Museum of Art and the Orange County Museum of Art.

Michael D. McKee, 56. Mr. McKee has been a Director of IACLLC since its formation. Mr. McKee is Vice Chairman and Chief Operating Officer of The Irvine Company. From April 1994 to December 1996, he was Executive Vice President, Chief Legal Officer and Secretary of The Irvine Company, and from January 1997 to June 2001, he was Executive Vice President, Chief Financial Officer and Secretary of The Irvine Company. Prior to joining The Irvine Company, Mr. McKee was the managing partner of the Orange County office of Latham & Watkins, an international law firm. Mr. McKee is a member of the Board of Directors of The Irvine Company, the Donald Bren Foundation, Mandalay Resorts Group and Health Care Property Investors.

Stan Ross, 65. Mr. Ross, retired Vice Chairman of Ernst & Young LLP, is widely recognized for his experience in strategic planning for real estate companies, mergers, acquisitions and reorganizations, and the development of creative financial structures. He was involved in the initial organization of The Resolution Trust Corporation (RTC) and was a member of the Auditing Standards Board of the AICPA. He is Chairman and a Senior Fellow of the USC Lusk Center for Real Estate. Previously, Mr. Ross was a Managing Partner of E&Y Kenneth Leventhal Real Estate Group, where he was responsible for the firm’s overall business planning, strategy, direction and operations. Mr. Ross serves on The Irvine Company’s Board of Directors, as well as the company’s Finance/Audit Committee and Executive Committee. Mr. Ross also is a member of the Board of Directors of Forrest City Enterprises.

Raymond L. Watson, 75. Mr. Watson has been a Director of IACLLC since its formation, and Vice Chairman of the Board of The Irvine Company since 1986. From 1973 to 1977, Mr. Watson was President and Chief Executive Officer of The Irvine Company. Mr. Watson has been associated with the Walt Disney Company for many years as a member of the Board of Directors and Chairman of the Executive Committee. He serves as the Chairman of the Board of the Public Policy Institute of California, and on the Board of Governors of the University of California Humanities Research Institute.

Executive Officers of Irvine Apartment Communities, L.P.

The Partnership is managed by its sole general partner, IACLLC. The executive officers of IACLLC listed below perform policy making functions for the Partnership. The following sets forth certain information regarding such individuals as of February 22, 2002 and other positions held by them over the last five years:

Name Age Present and Prior Positions Held Years Positions Held

Max L. Gardner 50 President of IACLLC 2000 — Present

Executive Vice President, Operations of IACLLC 1999 — 2000

Senior Vice President, Western Region, AvalonBay Communities, Inc.
1998 — 1999

Executive Vice President and Chief Operating Officer, Bay Apartment Communities, Inc.
1995 — 1998

David A. Patty 51
Executive Vice President of Finance and Administration, Investment Properties Group, a division of The Irvine Company
2001 — Present

Senior Vice President and Chief Administrative Officer of IACLLC 1999 — Present

Senior Vice President and Chief Investment Officer, The Irvine Company
1996 — 1999

Item 11. Executive Compensation

Irvine Apartment Communities, L.P.

The Partnership does not have any employees. The Partnership is managed by its sole general partner, IACLLC. The executive officers of IACLLC who perform policy making functions for the Partnership are compensated for such services as employees of IACLLC.

Compensation of Directors

Neither IACLLC nor the Partnership pays any of the members of the Board for their services as directors.

IAC Capital Trust

The Trust does not have any directors or officers. The Trust is managed by IACLLC. Information with respect to the Trust required under Part III (Items 10, 11, 12 and 13) is included as described in this Part III. All of such information is equally applicable to the Trust as to the Partnership.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the Trust’s Regular Trustee and beneficial owners of more than 10% of the Series A Preferred Securities of the Trust, to file initial reports of ownership and reports of changes in ownership with the SEC and the NYSE. Such persons are required by SEC regulations to furnish the Trust with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to the Trust, the Trust noted that no individual who, at any time during 2001, was a Regular Trustee or beneficial owner of more than 10% of the Series A Preferred Securities of the Trust failed to file the reports required by Section 16(a) of the Exchange Act on a timely basis.

Item 12. Security Ownership of Certain Beneficial Owners and Management

IACLLC, the sole general partner of the Partnership, owns all of the outstanding units of general partnership interest of the Partnership.

Mr. Bren is the sole shareholder and Chairman of the Board of Directors of The Irvine Company, which owns all of the outstanding common limited partnership units of the Partnership and all of the outstanding membership interests in IACLLC, and therefore may be deemed to have beneficial ownership of the general and limited partnership units of the Partnership owned by IACLLC and The Irvine Company. Mr. Bren disclaims such beneficial ownership.

Item 13. Certain Relationships and Related Transactions

Transactions with The Irvine Company

On June 7, 1999, IAC, Inc. was merged with and into IACLLC. As a result of the Merger and a related transaction in which The Irvine Company acquired an additional 74,523 common limited partnership units, The Irvine Company beneficially owns and controls all of the outstanding common partnership units in the Partnership and IACLLC has become the sole general partner of the Partnership. At December 31, 2001, IACLLC had a 44.6% general partnership interest and The Irvine Company had a 55.4% common limited partnership interest in the Partnership.

In conjunction with the Merger, the Partnership and The Irvine Company entered into a separate agreement whereby The Irvine Company agreed to fund certain construction cost overruns and net operating income shortfalls of the Partnership in connection with the development and operation of nine apartment projects which were under development at the time of the Merger. The Irvine Company is obligated to contribute to the Partnership an amount equal to the difference between the total costs incurred by the Partnership to complete the construction of the respective apartment project and the amount of the approved budget for such construction. Contributions for construction cost overruns made during 2001 totaled $2.5 million. In addition, The Irvine Company is obligated to contribute to the Partnership an amount equal to the difference between the approved budgeted pro forma stabilized net operating income of the respective apartment project and the net operating income earned by the Partnership from the operation of such property for a period of time not to exceed two years after the completion of such property. Contributions for net operating income shortfalls made during 2001 totaled $577,000.

Included in general and administrative expenses are charges from The Irvine Company pursuant to an administrative service agreement covering services for information technology and other services totaling $704,000 for the year ended December 31, 2001. The Irvine Company and the Partnership jointly purchase employee health care insurance and property and casualty insurance. In addition, the Partnership incurred rent totaling $649,000 for the year ended December 31, 2001 related to leases with The Irvine Company that expire in 2003. IAMC incurred rent totaling $351,000 for the year ended December 31, 2001 related to a lease with The Irvine Company.

Included in accounts payable and accrued liabilities at December 31, 2001 is $370,000 due to The Irvine Company. The amount represents a payable to The Irvine Company for information technology and development costs incurred by The Irvine Company on behalf of the Partnership.

Included in other assets at December 31, 2001 is approximately $4.5 million due from The Irvine Company. The amount represents a receivable of the Partnership for property taxes, general and administrative costs and development costs incurred by the Partnership on behalf of The Irvine Company.

During 2001, The Irvine Company advanced to the Partnership amounts totaling $58.4 million, of which $53.2 million was outstanding as of December 31, 2001. Advances from The Irvine Company accrued interest at an average interest rate of 2.04% in December 2001. For the year ending December 31, 2001, the Partnership incurred approximately $314,000 of interest costs related to the advances.

In October 2000, the Partnership and The Irvine Company entered into a Loan Agreement whereby the Partnership is the lender and The Irvine Company is the borrower. Borrowings under the Loan Agreement bear interest at a variable or fixed rate to be quoted by the Partnership, however, the rate shall not be lower than the rate at which interest is paid to the Partnership on its overnight cash investments. The Irvine Company shall make monthly interest payments on each borrowing until the principal is repaid. The Loan Agreement expires in June 2003. During the second quarter of 2001, the Partnership made loans to The Irvine Company totaling $102.3 million. These loans were repaid by the end of the same quarter. The Partnership accrued interest on these loans at a rate of 3.82% and earned interest income of approximately $480,000. As of December 31, 2001, there were no borrowings outstanding under the Loan Agreement.

During 2001, the Partnership was reimbursed for $1.5 million of ground rent payments from The Irvine Company relating to the retail portion of the Partnership’s Cherry Orchard Apartments property.

Two of the Partnership’s apartment communities are financed by mortgage notes payable to The Irvine Company. These mortgage notes totaled $57.5 million at December 31, 2001. The mortgage notes are collateralized by all-inclusive trust deeds on each of the apartment communities financed. They bore a weighted average fixed interest rate of 6.14% at December 31, 2001, are fully amortizing and mature between 2003 and 2024. Interest incurred on the mortgage notes payable to The Irvine Company totaled $3.6 million for the year ended December 31, 2001. The mortgage notes payable to The Irvine Company “wrap around” secured first trust deed notes payable to third-party financial institutions. The secured first trust deed notes totaled $58.2 million as of December 31, 2001.

The Partnership had a $125 million unsecured revolving credit facility that was amended in June 1999. The amended credit facility bore interest at LIBOR plus 0.65% or prime and was to mature in June 2001. The credit facility was terminated as of December 27, 2000. The Partnership had entered into letters of credit under the credit facility. In conjunction with the termination of the credit facility, the letters of credit under the credit facility were transferred to the credit facility of The Irvine Company. The Partnership continues to pay all fees related to the letters of credit transferred to The Irvine Company, as such letters of credit remain outstanding to secure obligations of the Partnership.

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)(1 and 2) Financial Statements and Financial Statement Schedules

The financial statements and financial statement schedules listed in the Index to Financial Statements on Page F-1 of this report are filed as part of this report.

(a)(3) Exhibits

The Exhibit Index is included on pages 30 through 32 of this report.

INDEX TO EXHIBITS

Exhibit

Number Description

2.2 Purchase and Sale Agreement and Joint Escrow Instructions dated April 18, 1997 by and between Aoki Construction (CA) Co., Ltd. and the Partnership (incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K of the Partnership filed on August 6, 1997).

3.1 Third Amended and Restated Agreement of Limited Partnership of Irvine Apartment Communities, L.P. dated June 9, 1999 (incorporated by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q of the Partnership for the quarter ended September 30, 1999 (the “1999 Third Quarter Form 10-Q”)).

3.2 Designation Instrument dated January 20, 1998, relating to the Series A Preferred L.P. Units of the Partnership (incorporated by reference to Exhibit 3.6 of the Annual Report on Form 10-K of the Partnership for the year ended December 31, 1997 (the “1997 Form 10-K”)).

4.1 Indenture dated as of October 1, 1997 between the Partnership and First Trust of California, National Association, as Trustee (the “Trustee”) (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K of the Partnership filed on October 1, 1997 (the “October 1997 Form 8-K”)).

4.2 Supplemental Indenture No. 1 dated as of October 1, 1997, relating to the Partnership’s 7% Notes due 2007, between the Partnership and the Trustee (incorporated by reference to Exhibit 4.2 of the October 1997 Form 8-K).

4.3 Form of Series A Trust Preferred Security (included in Exhibit 4.5).

4.4 Amended and Restated Declaration of Trust dated January 20, 1998 of IAC Capital Trust (incorporated by reference to Exhibit 4.4 of the 1997 Form 10-K).

4.5 Certificate of Terms dated January 20, 1998 Relating to Series A Preferred Securities of IAC Capital Trust (incorporated by reference to Exhibit 4.5 of the 1997 Form 10-K).

10.1 Purchase and Sale Agreement and Joint Escrow Instructions dated April 18, 1997 by and between Aoki Construction (CA) Co., Ltd. and the Partnership (see Exhibit 2.2).

10.2 Lease Agreement (incorporated by reference to Exhibit 10.2 of the Annual Report on Form 10-K of the Partnership for the year ended December 31, 1993 (the “1993 Form 10-K”)).

10.3 Administrative Services Agreement (incorporated by reference to Exhibit 10.5 of the 1993 Form 10-K).

10.3.1 Amendment and Extension to the Administrative Services Agreement (incorporated by reference to Exhibit 10.5.1 of the Annual Report on Form 10-K of the Company for the year ended December 31, 1994).

10.3.2 Amendment No. 4 to the Administrative Services Agreement (incorporated by reference to Exhibit 10.5.4 of the Quarterly Report on Form 10-Q of the Partnership and the Trust for the quarter ended June 30, 1998 (the “1998 Second Quarter Form 10-Q”)).

Exhibit

Number Description

10.4 Contribution Agreement and Escrow Instructions Agreement (incorporated by reference to Exhibit 10.7 of the 1993 Form 10-K).

10.5 Irrevocable Trust Agreement (incorporated by reference to Exhibit 10.10 of the 1993 Form 10-K).

10.6 First Amended and Restated Revolving Credit Agreement dated as of June 7, 1999 (incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q of the Partnership for the quarter ended June 30, 1999 (the “1999 Second Quarter Form 10-Q”)).

10.7 Amended and Restated Partnership Agreement of Irvine Apartment Management Company dated January 1, 2000 by and between Apartment Management Company, LLC and Western National Securities d/b/a Western National Property Management (“WNPM”) (incorporated by reference to Exhibit 10.7 of the Annual Report on Form 10-K of the Partnership for the year ended December 31, 1999 (the “1999 Form 10-K”)).

10.8 Amended and Restated Management Agreement dated as of January 1, 2000 by and between the Partnership and Irvine Apartment Management Company (incorporated by reference to Exhibit 10.8 of the 1999 Form 10-K).

10.8.1 Amendment One to Amended and Restated Management Agreement dated July 1, 2000 by and between the Partnership and Irvine Apartment Management Company (incorporated by reference to Exhibit 10.8.1 of the Annual Report on Form 10-K of the Partnership for the year ended December 31, 2000 (the “2000 Form 10-K”)).

10.8.2 Amendment Two to Amended and Restated Management Agreement dated March 30, 2001 by and between the Partnership and Irvine Apartment Management Company.

10.9 Loan Agreement by and between California Statewide Communities Development Authority and the Partnership dated as of May 15, 1998 (incorporated by reference to Exhibit 10.24 of the 1998 Form 10-K).

10.10 Indenture of Trust by and between California Statewide Communities Development Authority and U.S. Bank Trust National Association, as Trustee dated as of May 15, 1998 securing $334,190,000 California Statewide Communities Development Authority Apartment Development Revenue Refunding Bonds, Series 1998A (Irvine Apartment Communities, L.P.) (incorporated by reference to Exhibit 10.25 of the 1998 Form 10-K).

10.11 First Supplemental Indenture of Trust by and between California Statewide Communities Development Authority and U.S. Bank Trust National Association, as Trustee dated as of June 11, 1998 ($334,190,000 California Statewide Communities Development Authority Apartment Development Revenue Refunding Bonds, Series 1995A) (incorporated by reference to Exhibit 10.26 of the 1998 Form 10-K).

Exhibit

Number Description

10.12 Letter dated June 8, 1999 regarding the Funding Agreement between The Irvine Company and the Partnership (incorporated by reference to Exhibit 10.16 of the 1999 Form 10-K).

10.13 Loan Agreement dated October 24, 2000 by and between the Partnership and The Irvine Company (incorporated by reference to Exhibit 10.17 of the 2000 Form 10-K).

21.1 Subsidiaries of the Partnership (incorporated by reference to Exhibit 21.2 of the 1997 Form 10-K).

21.2 Subsidiaries of the Trust (none).

24 Power of Attorney (included in signature page of this Report).

(b) Reports on Form 8-K

The Partnership did not file any reports on Form 8-K during the fourth quarter of 2001.

The Trust did not file any reports on Form 8-K during the fourth quarter of 2001.

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

IRVINE APARTMENT COMMUNITIES, L.P.

By:      Irvine Apartment Communities LLC
its sole general partner

Date: March 28, 2002 By:      /s/   MICHAEL D. MCKEE

Michael D. McKee
Vice Chairman

IAC CAPITAL TRUST

Date: March 28, 2002 By:      /s/   DAVID A. PATTY

David A. Patty
Regular Trustee

The undersigned hereby constitute and appoint Michael D. McKee and David A. Patty, and each of them, their true and lawful attorneys-in-fact and agents, with full powers of substitution and resubstitution, for them and in their names, places and steads, in any and all capacities, to sign the Annual Report on Form 10-K of Irvine Apartment Communities, L.P. and of IAC Capital Trust for the fiscal year ending December 31, 2001 and all amendments to such Annual Report on Form 10-K, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform to all intents and purposes as they might or could do in person, hereby ratifying all that said attorneys-in-fact and agents, each acting alone, or their substitutes, may lawfully do or cause to be done by virtue thereof.

Signature Title Date

/s/ MAX L. GARDNER

Max L. Gardner President of IACLLC
(Principal Executive Officer) March 28, 2002

/s/ DAVID A. PATTY

David A. Patty Senior Vice President and
Chief Administrative Officer of IACLLC
(Principal Financial Officer and
Principal Accounting Officer) March 28, 2002

/s/ DONALD BREN

Donald Bren Director of IACLLC March 28, 2002

/s/ MICHAEL D. MCKEE

Michael D. McKee Director of IACLLC March 28, 2002

/s/ STAN ROSS

Stan Ross Director of IACLLC March 28, 2002

/s/ RAYMOND L. WATSON

Raymond L. Watson Director of IACLLC March 28, 2002

IRVINE APARTMENT COMMUNITIES, L.P.
IAC CAPITAL TRUST

INDEX TO FINANCIAL STATEMENTS


		Page

IRVINE APARTMENT COMMUNITIES, L.P.
	Consolidated Balance Sheets		F-2
	Consolidated Statements of Operations		F-3
	Consolidated Statements of Changes in Partners’ Capital		F-4
	Consolidated Statements of Cash Flows		F-5
	Notes to Consolidated Financial Statements		F-6
	Schedule III — Consolidated Real Estate and Accumulated Depreciation		F-17
	Report of Independent Auditors		F-20
IAC CAPITAL TRUST
	Balance Sheets		F-21
	Statements of Operations and Equity		F-22
	Statements of Cash Flows		F-23
	Notes to Financial Statements		F-24
	Report of Independent Auditors		F-25

F-1

IRVINE APARTMENT COMMUNITIES, L.P.

CONSOLIDATED BALANCE SHEETS


		December 31,

(in thousands)		2001			2000

ASSETS
Real estate assets, at cost
	Land	$	453,327		$	435,107
	Buildings and improvements		1,992,234			1,823,245

			2,445,561			2,258,352
	Accumulated depreciation		(439,508	)		(380,698	)

			2,006,053			1,877,654
	Under development, including land		84,866			164,153

			2,090,919			2,041,807
Cash and cash equivalents			2,572			97,406
Restricted cash			14,567			4,129
Deferred financing costs, net			9,991			11,787
Other assets			16,308			23,456

		$	2,134,357		$	2,178,585

LIABILITIES
Mortgages and notes payable		$	1,082,015		$	1,070,892
Accounts payable and accrued liabilities			40,635			46,101
Advances from affiliate			53,200
Security deposits			13,210			12,446

			1,189,060			1,129,439

REDEEMABLE PREFERRED INTERESTS
Redeemable Series A preferred limited partner units, 6,000 preferred partnership units outstanding at December 31, 2001 and 2000			144,275			144,212
Redeemable Series B preferred limited partner units, 2,000 preferred partnership units outstanding at December 31, 2000						48,714

			144,275			192,926

PARTNERS’ CAPITAL
General Partner, 20,176 common partnership units outstanding at December 31, 2001 and 2000			634,094			657,009
Common Limited Partner, 25,027 common partnership units outstanding at December 31, 2001 and 2000			166,928			199,211

			801,022			856,220

		$	2,134,357		$	2,178,585

See accompanying notes.

F-2

IRVINE APARTMENT COMMUNITIES, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31,

(in thousands) 2001 2000 1999

REVENUES

Rental income
$ 304,313 $ 280,334 $ 243,890

Other income
9,796 9,400 7,111

Interest income
2,770 4,361 2,414

316,879 294,095 253,415

EXPENSES

Property expenses
77,427 67,052 54,218

Real estate taxes
23,325 21,253 19,544

Interest expense, net
65,198 54,693 35,686

Depreciation and amortization
61,107 56,640 44,441

General and administrative
7,789 9,953 13,875

234,846 209,591 167,764

Income before redeemable preferred interests
82,033 84,504 85,651

Redeemable preferred interests
14,563 16,750 16,750

NET INCOME
$ 67,470 $ 67,754 $ 68,901

ALLOCATION OF NET INCOME

General Partner
$ 30,115 $ 30,243 $ 30,752

Common Limited Partner(s)
$ 37,355 $ 37,511 $ 38,149

See accompanying notes.

F-3

IRVINE APARTMENT COMMUNITIES, L.P.

CONSOLIDATED STATEMENTS OF CHANGES
IN PARTNERS’ CAPITAL

Irvine Apartment

Irvine Apartment Communities, Inc.

(in thousands) Communities LLC (predecessor) Limited Partner(s) Total

PARTNERS’ CAPITAL

Balance at January 1, 1999
$ 195,858 $ 185,821 $ 381,679

Net Income
$ 16,595 14,157 38,149 68,901

Contributions
394 394

Distributions
(14,462 ) (7,768 ) (27,574 ) (49,804 )

Merger Transaction (Note 7)
680,182 (202,641 ) 34,210 511,751

Balance at December 31, 1999
$ 682,315 $ — $ 230,606 $ 912,921

Net Income
$ 30,243 $ 37,511 $ 67,754

Distributions
(55,549 ) (68,906 ) (124,455 )

Balance at December 31, 2000
$ 657,009 $ 199,211 $ 856,220

Net Income
$ 30,115 $ 37,355 $ 67,470

Contributions
3,111 3,111

Distributions
(55,570 ) (68,930 ) (124,500 )

Redemption of preferred limited partner units (Note 6)
(571 ) (708 ) (1,279 )

Balance at December 31, 2001
$ 634,094 $ 166,928 $ 801,022

COMMON PARTNERSHIP UNITS OUTSTANDING

Balance at January 1, 1999
20,164 25,027 45,191

Additional common partnership units issued
12 12

Merger Transaction (Note 7)
20,176 (20,176 )

Balance at December 31, 1999
20,176 — 25,027 45,203

Balance at December 31, 2000
20,176 25,027 45,203

Balance at December 31, 2001
20,176 25,027 45,203

See accompanying notes.

F-4

IRVINE APARTMENT COMMUNITIES, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS


			Years Ended December 31,

(in thousands)			2001			2000			1999

CASH FLOWS FROM OPERATING ACTIVITIES
Net income			$	67,470		$	67,754		$	68,901
Adjustments to reconcile net income to net cash provided by operating activities:
	Amortization of deferred financing costs			1,796			1,866			1,879
	Depreciation and amortization			61,107			56,640			44,441
	Redeemable preferred interests			14,563			16,750			16,750
	Increase (decrease) in cash attributable to changes in operating assets and liabilities:
		Restricted cash		(221	)		(2,185	)		(291	)
		Other assets		6,821			11,684			(2,070	)
		Accounts payable and accrued liabilities		(6,434	)		(852	)		10,096
		Security deposits		764			1,848			1,131

Net Cash Provided by Operating Activities				145,866			153,505			140,837

CASH FLOWS FROM INVESTING ACTIVITIES
Capital improvements to operating real estate assets				(4,121	)		(2,253	)		(6,495	)
Capital investments in real estate assets				(102,768	)		(130,778	)		(146,367	)

Net Cash Used in Investing Activities				(106,889	)		(133,031	)		(152,862	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgages and notes payable				57,121			249,725			193,293
Payments on mortgages and notes payable				(58,180	)		(43,501	)		(104,316	)
Redemption of preferred limited partner units				(50,000	)
Advances to affiliate				(102,300	)
Payments from affiliate				102,300
Advances from affiliate				58,400			41,501			71,700
Payment to affiliate				(5,200	)		(41,501	)		(71,700	)
Additions to deferred financing costs							(1,921	)		(1,452	)
Distributions to redeemable preferred limited partner unit holders				(14,563	)		(16,750	)		(16,750	)
Contributions from partner				3,111
Distributions to partners				(124,500	)		(124,455	)		(49,804	)

Net Cash (Used in) Provided by Financing Activities				(133,811	)		63,098			20,971

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS				(94,834	)		83,572			8,946
Cash and Cash Equivalents at Beginning of Year				97,406			13,834			4,888

CASH AND CASH EQUIVALENTS AT END OF YEAR			$	2,572		$	97,406		$	13,834

Supplemental Disclosure of Cash Flow Information
	Interest paid, net of amounts capitalized		$	77,819		$	50,522		$	33,183

See accompanying notes.

F-5

IRVINE APARTMENT COMMUNITIES, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION

Irvine Apartment Communities, L.P. (the “Partnership”), a Delaware limited partnership, was formed on November 15, 1993. In connection with an initial public offering of common shares on December 8, 1993, Irvine Apartment Communities, Inc. (“IAC, Inc.”) obtained a general partnership interest in and became the sole managing general partner of the Partnership. The Irvine Company transferred 42 apartment communities and a 99% interest in a limited partnership which owns one apartment community to the Partnership. On June 7, 1999, IAC, Inc. was merged with and into TIC Acquisition LLC (the “Acquiror”), a Delaware limited liability company indirectly wholly owned by The Irvine Company (the “Merger”), with the Acquiror remaining as the surviving entity and renamed Irvine Apartment Communities LLC (“IACLLC”). As a result of the Merger and a related transaction in which The Irvine Company acquired an additional 74,523 common limited partnership units, The Irvine Company beneficially owns and controls all of the outstanding common partnership units in the Partnership and IACLLC has become the sole general partner of the Partnership. The Partnership’s management and operating decisions are under the unilateral control of IACLLC. All management powers over the business and affairs of the Partnership are vested exclusively in IACLLC. At December 31, 2001, IACLLC had a 44.6% general partnership interest in the Partnership and The Irvine Company had a 55.4% common limited partnership interest in the Partnership.

The Partnership owns, operates and develops apartment communities in Orange County, California and, since 1997, other locations in California. As of June 30, 2001, the Partnership owned 65 apartment communities. In July 2001, due to the similarity of property operations and product type and the proximity of property locations, the following apartment communities were combined for reporting purposes: Bayport, Bayview and Baywood are now considered one apartment community; Santa Rosa and Santa Rosa II are now considered one apartment community; and One Park Place and Villa Siena are now considered one apartment community. Therefore, as of December 31, 2001, the Partnership owned 61 apartment communities representing 18,800 operating apartment units and 681 units under construction or development. In March 1998, the Partnership and Western National Property Management (“WNPM”) announced the formation of a strategic alliance that assumed all property management responsibilities for the Partnership’s Southern California portfolio. Subsequently, the property management responsibilities of the new entity, Irvine Apartment Management Company (“IAMC”), were expanded to include the Partnership’s entire portfolio. On March 30, 2001, The Irvine Company purchased WNPM’s 25% interest in IAMC. At December 31, 2001, IAMC is owned 75% by the Partnership and 25% by The Irvine Company.

IAC Capital Trust (the “Trust”), a Delaware business trust, was formed on October 31, 1997. The Trust is a limited purpose financing vehicle established by the Partnership. The Trust exists for the sole purpose of issuing redeemable preferred securities and investing the proceeds thereof in preferred limited partner units of the Partnership.

Profits and losses of the Partnership are generally allocated to the general partner and the common limited partner based on their respective ownership interests in the Partnership. The holders of the Series A redeemable preferred limited partner units and redeemable preferred securities are entitled to distributions/dividends at an annual rate of 8 1/4% of the stated value per unit/security. The stated value of each unit/security is $25.

The accompanying financial statements include the consolidated accounts of the Partnership and its financially controlled subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Prior to the Merger, all costs incurred by IAC, Inc. relating to the ownership of interests in and operation of the Partnership, including the compensation of its officers and employees, stock incentive plans, director fees and the costs and expenses of being a public company, were reimbursed by the Partnership.

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of December 31, 2001 and 2000, and the revenues and expenses for the three years ended December 31, 2001. Actual results could differ from those estimates.

F-6

IRVINE APARTMENT COMMUNITIES, L.P.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Real Estate Assets and Depreciation: Real estate assets, which are held as long-term investments, are stated at cost less accumulated depreciation. Impairment losses on long-lived assets used in operations are recorded when events and circumstances indicate that the assets, on a property-by-property basis, are impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts. As of December 31, 2001, no impairment losses have been recorded. Land and infrastructure costs are allocated to properties based on relative fair value. Costs related to the development and construction of properties are capitalized as incurred. Interest and property taxes are capitalized to apartment communities which are under active development. When a building within a community under construction is completed and held available for occupancy, the related costs are expensed.

Cash and Cash Equivalents: The Partnership considers all highly liquid investments with a remaining original maturity when purchased of three months or less to be cash equivalents.

Restricted Cash: Restricted cash is comprised of reserve accounts for capital replacements, property taxes and insurance. These restricted funds are subject to supervision and approval by a lender or a government agency. The terms of the contract with the government agency contain certain restrictions concerning operating policies, rental charges, operating expenditures, distributions to owners and other matters. Additionally, restricted cash includes proceeds from the tax-exempt mortgage bond financing that are being held by a trustee (see Note 3).

Deferred Financing Costs: Costs incurred in obtaining long-term financing or costs to buy down or hedge interest costs are deferred and amortized over the term of the related debt agreements using the effective interest method. Unamortized financing costs are written-off when debt is retired before the maturity date. The accumulated amortization of such deferred financing costs was $14.4 million and $12.6 million at December 31, 2001 and 2000, respectively.

Income Taxes: The Partnership’s taxable income is reportable by its partners. Accordingly, no provision has been made for federal income taxes in the accompanying statements of operations.

Descriptive Information About Reportable Segments: The Partnership operates and develops apartment communities in California which generate rental and other income through the leasing of apartment units to a diverse base of renters. The Partnership separately evaluates the performance of each of its apartment communities. However, because each of the apartment communities have similar economic characteristics, facilities, services and tenants, the apartment communities have been aggregated into a single dominant apartment communities segment.

The Partnership evaluates performance and allocates resources primarily based on the net operating income (“NOI”) of individual apartment communities. NOI is defined by the Partnership as rental and other income less property expenses and real estate taxes. Accordingly, NOI excludes certain expenses included in the determination of net income. NOI from apartment communities totaled $213.4 million, $201.4 million and $177.2 million for the years ended December 31, 2001, 2000 and 1999, respectively. All other segment measurements are disclosed in the Partnership’s consolidated financial statements.

All revenues are from external customers and there are no revenues from transactions with other segments. There are no tenants which contributed 10% or more of the total revenues during 2001, 2000 or 1999. Interest expense on debt is not allocated to individual apartment communities, even if such debt is secured by the apartment communities. There is no provision for income taxes as the Partnership’s taxable income is reported by each of its partners.

New Accounting Pronouncements: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“Statement No. 133”), as amended by

F-7

IRVINE APARTMENT COMMUNITIES, L.P.

Statement No. 137 and Statement No. 138, which is required to be adopted for fiscal years beginning after June 15, 2000. Statement No. 133 requires the Partnership to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, a change in the fair value of the derivative will either be offset against the change in the fair value of the hedged asset, liability or firm commitment through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. As of December 31, 2001, the Partnership is not involved with any derivative instruments or hedging activities and the implementation of Statement No. 133 has had no material impact on the Partnership’s financial position or results of operations.

Reclassifications: Certain amounts in the 2000 and 1999 financial statements have been reclassified to conform with financial statement presentations in 2001.

NOTE 3 — MORTGAGES AND NOTES PAYABLE

Tax-Exempt Mortgage Bond Financings: In October 1998, the Partnership assumed $18 million in tax-exempt mortgage bond financings associated with the purchase of a 216-unit apartment community (One Park Place; now part of the Partnership’s Villa Siena property). The tax-exempt financings represented loans payable that were collateralized by a deed of trust granting a security interest in this apartment community. Monthly interest payments were made to a trustee, which in turn paid the bondholders when interest was due. The bonds bore interest at a weekly remarketed tax-exempt rate and were due April 2025.

In September 1999, the Partnership completed a $32 million offering of tax-exempt mortgage bond financings for the construction of two apartment buildings comprising of 201 units at the Partnership’s Villa Siena property. The tax-exempt financings represented loans payable that were collateralized by a deed of trust granting a security interest in these two apartment buildings. Monthly principal and interest payments were made to a trustee, which in turn paid the bondholders when interest was due. The bonds bore interest at a weekly-remarketed tax-exempt rate and were due September 2029.

On August 1, 2001, the Partnership completed a $69.2 million offering of tax-exempt mortgage bonds. The offering included $19.2 million of new tax-exempt mortgage bonds (the “2001 Bonds”) for the construction of a 104-unit apartment building (the “Project”) at the Partnership’s Villa Siena property. Additionally, the offering included the refinancing of the Partnership’s existing $32 million tax-exempt mortgage bonds and $18 million tax-exempt mortgage bonds (the “Refinanced Bonds” and collectively with the 2001 Bonds, the “Bonds”). Payment of principal and interest on the Bonds is secured by an irrevocable direct-pay letter of credit issued by Bank of America, N.A. As a result, the Bonds were assigned the rating of “Aaa"/ “VMIG 1” from Moody’s. Monthly interest payments are made to a trustee, which in turn pays the bondholders when interest is due. The Bonds had an average floating interest rate inclusive of fees of 2.60% at December 31, 2001. The 2001 Bonds represent loans payable that are collateralized by a deed of trust granting a security interest in the Project and are recourse to the Partnership. The 2001 Bonds bear interest at a weekly-remarketed tax-exempt rate and are due

F-8

IRVINE APARTMENT COMMUNITIES, L.P.

August 2034. As of December 31, 2001, the Partnership had received proceeds of $7.1 million representing land acquisition, transaction and development costs related to the Project. The remaining $12.1 million of proceeds (included in restricted cash) from the 2001 Bonds is held by a trustee and will be released for construction of the Project as costs are incurred. Proceeds from the Refinanced Bonds were used to repay the Partnership’s existing tax-exempt mortgage bonds. All terms of the Refinanced Bonds remain unchanged; however, the Refinanced Bonds are now unsecured and no longer collateralized by a deed of trust.

Conventional Mortgage Financings: Conventional mortgages are collateralized by apartment communities having a net book value of $558.2 million as of December 31, 2001. The mortgages are generally due in monthly installments and mature at various dates through 2018. Prior to the initial public offering (the “Offering”) of IAC, Inc. in 1993, interest rates on eleven of the conventional mortgages were fixed at rates which ranged from 7.75% to 9.63%, with a weighted average rate of 8.69%. In connection with the Offering, the interest rates on these mortgages were adjusted to market rates for specified periods of time and currently range from 6.15% to 8.50%. The interest reduction periods expire prior to the loan maturity dates and the remaining interest reduction periods range from 2002 to 2008.

In February 2000, the Partnership obtained $78.5 million of conventional mortgage financing from a financial institution. The mortgage financing is secured by two of the Partnership’s apartment communities and is recourse to the Partnership. The recourse provision of the financing is subject to conversion to nonrecourse upon achieving certain loan to value hurdles. The financing is due in monthly installments of principal and interest, bears interest at a fixed rate of 7.29% and matures in November 2010. Proceeds from the financing were used for the repayment of certain conventional mortgages and for general construction purposes.

During the second quarter of 2000, the Partnership repaid the conventional mortgages securing the Promontory Point and San Paulo apartment communities.

In July 2000, the Partnership obtained $26 million of conventional mortgage financing from a financial institution. The mortgage financing is secured by one of the Partnership’s apartment communities. The financing is due in monthly installments of principal and interest, bears interest at a fixed rate of 7.5% and matures in August 2011. Proceeds from the financing were used for general construction purposes.

In October 2000, the Partnership obtained $112.6 million of conventional mortgage financing from a financial institution. The mortgage financing is secured by three of the Partnership’s apartment communities. The financing is due in monthly installments of principal and interest, bears interest at a fixed rate of 7.95% and matures in November 2011. Proceeds from the financing were used for general construction purposes.

In December 2000, the Partnership obtained an additional $21.7 million of conventional mortgage financing on five of the Partnership’s apartment communities from a financial institution. The additional financing is due in monthly installments of principal and interest, bears interest at a fixed rate of 7.88% and matures in July 2008. Proceeds from the additional financing were used for general construction purposes.

As of December 31, 2001, the weighted average interest rate for all the conventional mortgages was 7.51%. Including the amortization of deferred financing costs, the all-in interest rate was 7.73%.

Mortgage Notes Payable to The Irvine Company: Two of the Partnership’s apartment communities are financed by mortgage notes payable to The Irvine Company. In December 2000, the Partnership obtained an additional $11 million mortgage financing payable to The Irvine Company which is secured by one of the apartment communities. These mortgage notes totaled $57.5 million and $58.6 million at December 31, 2001 and 2000, respectively. The mortgage notes are collateralized by all-inclusive trust deeds on each of the apartment communities financed. They bore a weighted average fixed interest rate of 6.14% at December 31, 2001, are fully amortizing and mature between 2003 and 2024. Interest incurred on the mortgage notes payable to The Irvine Company totaled $3.6 million, $2.8 million and $2.8 million for the years ended December 31, 2001, 2000 and 1999, respectively. The mortgage notes payable to The Irvine Company “wrap around” secured first trust deed notes payable to third-party financial institutions. The secured first trust deed notes totaled $58.2 million and $59.2 million as of December 31, 2001 and 2000, respectively.

Tax-Exempt Assessment District Debt: In connection with the Offering, the Partnership assumed certain tax-exempt assessment district debt of the predecessor entity. Tax-exempt assessment district debt represents debt issued by municipal government authorities to finance the construction of infrastructure and improvements. The debt obligations are repaid by the Partnership through assessments.

F-9

IRVINE APARTMENT COMMUNITIES, L.P.

Unsecured Tax-Exempt Bond Financings: In June 1998, the Partnership completed a $334 million offering of unsecured tax-exempt debt at an average interest rate of 4.93% in four tranches with mandatory tender dates ranging from May 2008 to May 2013. The bonds mature in May 2025. Proceeds from the offering were used to repay the Partnership’s existing tax-exempt mortgage debt and to pay costs associated with prepayment penalties and the unwinding of certain swap agreements. The Partnership recorded an extraordinary item related to debt extinguishment of $42.5 million in June 1998. The Partnership was in compliance with all covenant requirements at December 31, 2001.

Unsecured Notes Payable: In October 1997, the Partnership issued $100 million aggregate principal amount of 7% senior unsecured notes pursuant to its shelf registration statement. The notes are due on October 1, 2007. The Partnership was in compliance with all covenant requirements at December 31, 2001.

Unsecured Line of Credit: The Partnership had a $125 million unsecured revolving credit facility that was amended in June 1999. The amended credit facility bore interest at LIBOR plus 0.65% or prime and was to mature in June 2001. The credit facility was terminated as of December 27, 2000. The Partnership had entered into letters of credit under the credit facility. In conjunction with the termination of the credit facility, the letters of credit under the credit facility were transferred to the credit facility of The Irvine Company. The Partnership continues to pay all fees related to the letters of credit transferred to The Irvine Company, as such letters of credit remain outstanding to secure obligations of the Partnership.

Capitalized Interest: The Partnership capitalizes interest on projects actively under development using qualifying asset balances and applicable weighted average interest rates. The average qualifying asset balance for projects under development was approximately $93.3 million, $80.8 million and $182.7 million for the years ended December 31, 2001, 2000 and 1999, respectively. Interest capitalized was $5.2 million, $6.2 million and $14.4 million in 2001, 2000 and 1999, respectively. Interest incurred totaled $70.4 million, $60.9 million, and $50.1 million for the years ended December 31, 2001, 2000 and 1999, respectively.

Other Matters: Mortgages and notes payable totaling $997.3 million are subject to prepayment penalties at December 31, 2001.

F-10

IRVINE APARTMENT COMMUNITIES, L.P.

Mortgages and Notes Payable at December 31, 2001

(dollars in thousands)


							Expiration of
		Outstanding		Effective			Interest Rate		Interest Rate
		Principal		Interest			Reduction		After			Maturity
Type of Debt		Balance		Rate			Period		Step-Up			Date

Tax-exempt mortgage bond financing		$	19,200		2.60	%							8/34

Conventional mortgage financings:
	Amherst Court		10,900		7.15	%							11/09
	Baypointe		42,550		7.95	%							11/11
	The Bays		26,621		6.91	%		7/08		9.25	%		7/18
	The Bays		12,304		7.88	%							7/08
	Deerfield Phase I		6,742		6.57	%		7/02		8.90	%		7/08
	Deerfield Phase I		5,209		7.88	%							7/08
	Mariner Square		5,072		8.50	%							8/08
	Newport Ridge		62,386		7.37	%							10/10
	Parkwood		11,365		8.50	%							7/08
	Rancho Maderas		25,676		7.50	%							8/11
	Rancho Mariposa		11,420		7.75	%							6/03
	Rancho Monterey		35,932		7.29	%							11/10
	Rancho Santa Fe		42,875		7.95	%							11/11
	San Carlo		32,487		7.15	%							11/09
	San Mateo		22,214		7.37	%							10/10
	Santa Clara		40,509		7.29	%							11/10
	Santa Maria		24,345		7.15	%							11/09
	Sierra Vista		27,939		7.37	%							10/10
	The Parklands		4,184		6.15	%							4/04
	Turtle Rock Canyon		27,150		7.95	%							11/11
	Turtle Rock Vista		12,051		8.50	%							7/08
	Woodbridge Pines		7,688		6.91	%		9/08		9.25	%		8/18
	Woodbridge Pines		3,969		7.88	%							7/08

			501,588		7.51	%							7/09

Mortgage notes payable to The Irvine Company:
	Parkwest		31,955		5.75	%							7/24
	Rancho San Joaquin		10,913		7.81	%							8/03
	Rancho San Joaquin		14,601		5.75	%							1/15

			57,469		6.14	%							1/18

Tax-exempt assessment district debt:
	Fixed rate		4,601		6.29	%							7/17
	Variable rate		15,456		1.70	%							9/18

			20,057		2.75	%							4/18

Unsecured tax-exempt bond financings			384,228		4.63	%							8/25

Unsecured notes payable			99,473		7.10	%							10/07

Total/weighted average		$	1,082,015		6.20	%							5/11

Scheduled Principal Amortization: Mortgages and Notes Payable at December 31, 2001

(dollars in thousands)


	Year of Maturity

Type of Debt	2002			2003			2004			2005			2006			Thereafter			Total

Tax-exempt mortgage bond financing																$	19,200		$	19,200
Conventional mortgage financings	$	7,179		$	19,471		$	11,483		$	9,137		$	9,879			444,439			501,588
Mortgage notes payable to The Irvine Company		1,209			11,982			1,398			1,512			1,601			39,767			57,469
Tax-exempt assessment district debt		632			689			731			770			842			16,393			20,057
Unsecured tax-exempt bond financings																	384,228			384,228
Unsecured notes payable																	99,473			99,473

Totals	$	9,020		$	32,142		$	13,612		$	11,419		$	12,322		$	1,003,500		$	1,082,015

Percentage of debt		0.8	%		3.0	%		1.3	%		1.1	%		1.1	%		92.7	%		100.0	%

F-11

IRVINE APARTMENT COMMUNITIES, L.P.

NOTE 4 — FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts reported in the balance sheet for financial instruments approximate their fair value except as discussed below. The fair values of the conventional mortgage financings and the mortgage notes payable to The Irvine Company are estimated using discounted cash flow analyses and the Partnership’s current estimated borrowing rates for similar types of borrowing arrangements. The interest rate used in the fair value calculation ranges from 5.46% to 7.84% based on the terms of the loan. As of December 31, 2001, the fair values of the conventional mortgage financings and the mortgage notes payable to The Irvine Company were $522.0 million and $50.7 million, respectively. The fair values of the unsecured notes payable and unsecured tax-exempt bond financings based on prevailing interest rates at December 31, 2001 were $99.6 million and $387.5 million, respectively.

NOTE 5 — REDEEMABLE PREFERRED INTERESTS

In January 1998, IAC Capital Trust issued 6.0 million of 8 1/4% Series A Preferred Securities. The proceeds of $150 million were used to purchase an equivalent amount of 8 1/4% Series A Preferred Limited Partner Units in the Partnership. The Partnership used the $150 million of proceeds, net of costs and offering expenses, all of which were paid by the Partnership, to repay the outstanding balance on the Partnership’s credit facility and to fund development.

In November 1998, the Partnership issued 2.0 million of 8 3/4% Series B Preferred Limited Partner Units. The Partnership used the net proceeds to reduce the outstanding balance on its unsecured line of credit.

On July 12, 2001, the Partnership’s 2.0 million of 8 3/4% Series B Preferred Limited Partner Units were redeemed by the Partnership. The Partnership utilized its cash on hand for the redemption.

F-12

IRVINE APARTMENT COMMUNITIES, L.P.

NOTE 6 — PARTNERS’ CAPITAL

In conjunction with the redemption of the Series B Preferred Limited Partner Units (see Note 5), $1.3 million was charged directly to partners’ capital, which represents the excess of the redemption price over the carrying amount of the preferred limited partner units.

Reconciliation of Common Partnership Units Outstanding

(in thousands, except percentages) For the Years Ended December 31, 2001 and 2000

The Irvine

IACLLC Company Total

Balance at beginning and end of period
20,176 25,027 45,203

Ownership interest at end of period
44.6 % 55.4 % 100 %

Net Income Allocation

For the Years Ended December 31,

(dollars in thousands) 2001 2000 1999

Limited Partners:

Income allocated to The Irvine Company (and certain of its affiliates) based on their ownership interest
$ 37,355 $ 37,511 $ 38,096

Income allocated to others based on their ownership interest
53

37,355 37,511 38,149

General Partner:

Income allocated to IAC, Inc. based on its ownership interest
14,157

Income allocated to IACLLC based on its ownership interest
30,115 30,243 16,595

30,115 30,243 30,752

Net Income
$ 67,470 $ 67,754 $ 68,901

Stonecrest Village Company, LLC (“SVC”), which owned a 0.68% common limited partnership interest in the Partnership as of March 31, 2000, was owned by California Pacific Homes (“CPH”), an affiliated entity of The Irvine Company. Effective April 1, 2000, Mr. Bren, the 100% owner of The Irvine Company and also the 100% owner of CPH, contributed his ownership of CPH to The Irvine Company. As a result of this contribution of CPH and, accordingly, CPH’s 0.68% common limited partnership interest in the Partnership, The Irvine Company owns all the outstanding common limited partnership interests of the Partnership.

NOTE 7 — MERGER BETWEEN IAC, INC. AND ACQUIROR

On June 7, 1999, pursuant to the Merger, each outstanding share of IAC, Inc.’s common stock was converted into the right to receive $34 in cash. The Merger and related transactions were accounted for using the purchase method of accounting in accordance with GAAP. Accordingly, the assets and liabilities of the Partnership were adjusted to fair value. The step-up in basis related to IACLLC’s and The Irvine Company’s investment in the Partnership of $511.8 million approximates the fair value of the net assets acquired and was allocated to the assets of the Partnership using push-down accounting based on the excess of their estimated fair value over their historical carrying amount. Accordingly, $131.9 million of the step-up in basis was allocated to land and $379.9 million was allocated to buildings and improvements.

In conjunction with the Merger, IAC, Inc. and the Partnership entered into a separate agreement whereby IAC, Inc. agreed to reimburse the Partnership for all costs of the Merger incurred on IAC, Inc.’s behalf during 1999. In June 1999, the Partnership was reimbursed for $6.6 million of Merger costs, of which $2.6 million had been incurred and expensed during the first quarter of 1999 and $4.0 million was incurred during the second quarter of 1999. Additionally, the Partnership agreed to pay in cash the difference between $34 per share and the exercise price of the vested stock options of IAC, Inc. which were outstanding at the time of the Merger. During the second quarter of 1999, the Partnership’s cash payments related to vested stock options totaled $4.1 million, of which $1.8 million was capitalized to real estate under development and $2.3 million was charged to operations as general and administrative expenses.

Also in conjunction with the Merger, the Partnership and The Irvine Company entered into a separate agreement whereby The Irvine Company agreed to fund certain construction cost overruns and net operating income shortfalls of the Partnership in connection with the development and operation of nine apartment projects which were under development at the time of the Merger. The Irvine Company is obligated to contribute to the Partnership an amount equal to the difference between the total costs incurred by the Partnership to complete the construction of the respective apartment project and the amount of the approved budget for such construction. Contributions for construction cost overruns made during 2001 totaled $2.5 million. There were no contributions for construction cost overruns made during 2000. In addition, The Irvine Company is obligated to contribute to the Partnership an amount equal to the difference between the approved budgeted pro forma stabilized net operating income of the respective apartment project and the net operating income earned by the Partnership from the operation of such property for a period of time not to exceed two

F-13

IRVINE APARTMENT COMMUNITIES, L.P.

years after the completion of such property. Contributions for net operating income shortfalls made during 2001 totaled $577,000. There were no contributions for net operating income shortfalls made during 2000.

NOTE 8 — CERTAIN TRANSACTIONS WITH RELATED PARTIES

Included in general and administrative expenses are charges from The Irvine Company pursuant to an administrative service agreement covering services for information technology and other services totaling $704,000 for the year ended December 31, 2001. The amounts for the corresponding periods in 2000 and 1999 were $318,000 and $99,000, respectively. The Irvine Company and the Partnership jointly purchase employee health care insurance and property and casualty insurance. In addition, the Partnership incurred rent totaling $649,000, $560,000 and $556,000 for the years ended December 31, 2001, 2000 and 1999, respectively, related to leases with The Irvine Company that expire in 2003. IAMC incurred rent totaling $351,000, $301,000 and $203,000 for the years ended December 31, 2001, 2000 and 1999, respectively, related to a lease with The Irvine Company.

The Partnership reimburses IACLLC for substantially all of its costs incurred in operating the Partnership, including the compensation of each of the employees of IACLLC who perform services for the Partnership. The aggregate amount paid by the partnership to IACLLC for such costs was $11.2 million, $12.6 million and $6.6 million for years ended December 31, 2001, 2000 and 1999, respectively. The aggregate amount incurred by the Partnership for such costs was $12.7 million, $11.9 million and $6.9 million for the years ending December 2001, 2000 and 1999, respectively.

During 2001, The Irvine Company advanced to the Partnership amounts totaling $58.4 million, of which $53.2 million was outstanding as of December 31, 2001. Advances from affiliate accrued interest at an average interest rate of 2.04% in December 2001. For the year ending December 31, 2001, the Partnership incurred approximately $314,000 of interest costs related to the advances. For the years ended December 31, 2000 and 1999, the Partnership incurred approximately $572,000 and $775,000, respectively, of interest costs related to advances.

In October 2000, the Partnership and The Irvine Company entered into a Loan Agreement whereby the Partnership is the lender and The Irvine Company is the borrower. Borrowings under the Loan Agreement bear interest at a variable or fixed rate to be quoted by the Partnership however the rate shall not be lower than the rate at which interest is paid to the Partnership on its overnight cash investments. The Irvine Company shall make monthly interest payments on each borrowing until the principal is repaid. The Loan Agreement expires in June 2003. During the second quarter of 2001, the Partnership made loans to The Irvine Company totaling $102.3 million. These loans were repaid by the end of the same quarter. The Partnership accrued interest on these loans at a rate of 3.82% and earned interest income of approximately $480,000. As of December 31, 2001, there were no borrowings outstanding under the Loan Agreement.

During 2001, the Partnership was reimbursed for $1.5 million of ground rent payments from The Irvine Company relating to the retail portion of the Partnership’s Cherry Orchard Apartments property.

F-14

IRVINE APARTMENT COMMUNITIES, L.P.

NOTE 9 — SAVINGS PLAN

Effective January 1, 1994, IAC, Inc. implemented a defined contribution 401(k) benefit plan covering substantially all employees who have satisfied minimum age and service requirements. Upon the Merger, this plan was transferred to, and is currently maintained by, IACLLC. The Partnership pays for these costs as they relate to IACLLC employees providing services on the Partnership’s behalf. The Partnership matches employee contributions up to 50%, within certain limits, which are accrued as incurred. The Partnership also makes contributions to this plan for each participant generally equal to 3% of the participant’s base salary. The aggregate cost of these contributions by the Partnership was $151,000, $151,000 and $197,000 in 2001, 2000 and 1999, respectively.

NOTE 10 — AGREEMENTS, COMMITMENTS AND CONTINGENCIES

Management Agreement: The Partnership has a management agreement with IAMC whereby IAMC has the exclusive right to manage all of the Partnership’s properties. The agreement has no stated maturity date, however, either party can terminate the agreement after giving thirty days written notice.

Litigation: The Partnership is party to various legal actions which are incidental to its business. Management believes that these actions will not have a material adverse effect on the Partnership’s consolidated financial statements.

Assessment Districts: In some of the local jurisdictions within Orange County, assessment districts were formed by local governments to finance major infrastructure improvements. At December 31, 2001, the Partnership had $42.2 million of assessment district debt, of which $20.1 million was reflected on the balance sheet.

Rent Restrictions: As of December 31, 2001, 17.0% of the apartment units within the Partnership’s stabilized portfolio were required to be set aside for residents within certain income levels and had limitations on the rent that could be charged to such tenants. The rental revenue from five of these projects includes governmental rent subsidy payments of $3.5 million, $3.6 million and $3.8 million for the years ended December 31, 2001, 2000 and 1999, respectively.

F-15

IRVINE APARTMENT COMMUNITIES, L.P.

NOTE 11 — QUARTERLY FINANCIAL DATA (UNAUDITED)

(dollars in thousands)


2001 Quarters Ended	March 31		June 30		September 30		December 31

Revenues	$	78,745	$	78,609	$	79,623	$	79,902
Expenses	$	54,834	$	58,340	$	60,132	$	61,540
Net income	$	19,723	$	16,082	$	16,397	$	15,268


2000 Quarters Ended	March 31		June 30		September 30		December 31

Revenues	$	68,673	$	72,105	$	75,325	$	77,992
Expenses	$	48,485	$	54,147	$	51,399	$	55,560
Net income	$	16,000	$	13,771	$	19,738	$	18,245

F-16

IRVINE APARTMENT COMMUNITIES, L.P.

SCHEDULE III — CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
(dollars in thousands)

Gross Carrying Amount

at December 31, 2001 (a) (b)

City, State Number Buildings and Accumulated Date of Depreciable

Apartment Community Name of Units Encumbrances(c) Land (e) Improvements Total Depreciation Completion Life(d)

Properties Stabilized For All of 2001:

Irvine, California

Amherst Court
162 $ 10,900 $ 2,646 $ 14,348 $ 16,994 $ 4,234 1991 5-40 years

Berkeley Court
152 2,456 12,407 14,863 4,191 1986 5-40 years

Brittany at Oak Creek
393 10,325 34,168 44,493 3,025 1999 5-40 years

Cedar Creek
176 2,471 13,306 15,777 4,603 1985 5-40 years

Columbia Court
58 949 4,185 5,134 1,384 1984 5-40 years

Cornell Court
109 2,017 8,922 10,939 2,656 1984 5-40 years

Cross Creek
136 2,032 11,054 13,086 3,873 1985 5-40 years

Dartmouth Court
294 5,493 24,846 30,339 8,465 1986 5-40 years

Deerfield
288 11,951 6,614 17,551 24,165 6,658 1975/83 5-40 years

Harvard Court
112 2,148 8,609 10,757 2,944 1986 5-40 years

Northwood Park
168 2,923 12,161 15,084 4,536 1985 5-40 years

Northwood Place
604 10,150 46,774 56,924 16,614 1986 5-40 years

Orchard Park
60 1,721 3,406 5,127 1,265 1982 5-40 years

Park West
880 31,955 25,963 73,639 99,602 37,526 1970/71/72 5-40 years

Parkwood
296 11,365 9,963 17,813 27,776 7,289 1974 5-40 years

Rancho San Joaquin
368 25,514 10,677 39,065 49,742 17,184 1976 5-40 years

San Carlo
354 32,487 6,078 36,275 42,353 10,312 1989 5-40 years

San Leon
248 4,271 20,819 25,090 6,901 1987 5-40 years

San Marco
426 7,071 33,888 40,959 10,311 1988 5-40 years

San Marino
200 3,415 16,222 19,637 5,687 1986 5-40 years

San Mateo
283 22,214 3,833 24,026 27,859 6,806 1990 5-40 years

San Paulo
382 4,667 33,306 37,973 7,027 1993 5-40 years

San Remo
248 4,221 19,734 23,955 6,822 1986/88 5-40 years

Santa Clara
378 40,509 6,541 41,060 47,601 7,260 1996 5-40 years

Santa Maria
227 24,345 5,091 26,878 31,969 4,120 1997 5-40 years

Santa Rosa
575 13,284 63,410 76,694 9,701 1996/98 5-40 years

Sonoma at Oak Creek
196 5,697 18,370 24,067 1,929 1999 5-40 years

Stanford Court
320 5,783 23,376 29,159 7,769 1985 5-40 years

The Parklands
121 4,184 1,344 11,400 12,744 4,117 1983 5-40 years

Turtle Rock Canyon
217 27,150 3,696 27,484 31,180 7,043 1991 5-40 years

Turtle Rock Vista
252 12,051 8,760 23,475 32,235 7,992 1976/77 5-40 years

Villa Coronado
513 9,908 52,767 62,675 9,497 1996 5-40 years

Windwood Glen
196 3,284 14,358 17,642 4,911 1985 5-40 years

Windwood Knoll
248 3,655 17,112 20,767 5,956 1983 5-40 years

Woodbridge Oaks
120 1,974 9,494 11,468 3,434 1983 5-40 years

Woodbridge Pines
220 11,657 7,375 14,189 21,564 5,943 1976 5-40 years

Woodbridge Villas
258 6,828 14,511 21,339 5,526 1982 5-40 years

Woodbridge Willows
200 3,503 16,822 20,325 6,581 1984 5-40 years

10,438 266,282 218,827 901,230 1,120,057 272,092

Newport Beach, California

Baypointe
300 42,550 6,824 38,297 45,121 5,403 1997 5-40 years

Mariner Square
114 5,072 2,238 8,867 11,105 4,654 1969 5-40 years

Newport North
570 15,586 46,745 62,331 15,277 1986 5-40 years

Newport Ridge
512 62,386 14,235 61,389 75,624 10,427 1996 5-40 years

Promontory Point
520 24,928 73,341 98,269 25,130 1974 5-40 years

The Bays
556 38,925 22,397 43,507 65,904 15,769 1971/73/84 5-40 years

The Colony at Fashion Island
245 5,014 49,869 54,883 5,685 1998 5-40 years

2,817 148,933 91,222 322,015 413,237 82,345

F-17

IRVINE APARTMENT COMMUNITIES, L.P.

Gross Carrying Amount

at December 31, 2001 (a) (b)

City, State Number Buildings and Accumulated Date of Depreciable

Apartment Community Name of Units Encumbrances(c) Land (e) Improvements Total Depreciation Completion Life(d)

Tustin, California

Rancho Alisal
356 6,114 30,394 36,508 9,447 1988/91 5-40 years

Rancho Maderas
266 26,676 3,047 24,158 27,205 6,549 1989 5-40 years

Rancho Mariposa
238 11,420 2,224 22,805 25,029 5,582 1992 5-40 years

Rancho Monterey
436 35,932 9,150 46,275 55,425 7,851 1996 5-40 years

Rancho Santa Fe
316 42,875 9,670 36,855 46,525 4,007 1998 5-40 years

Rancho Tierra
252 2,996 24,213 27,209 6,699 1989 5-40 years

Sierra Vista
306 27,939 4,092 30,695 34,787 7,362 1992 5-40 years

2,170 143,842 37,293 215,395 252,688 47,497

Northern California

The Hamptons at Cupertino
342 17,209 47,186 64,395 4,289 1998 5-40 years

The Villas at Bair Island Marina
155 3,900 37,412 41,312 2,530 2000 5-40 years

497 21,109 84,598 105,707 6,819

San Diego County, California

Arcadia at Stonecrest
336 9,475 33,985 43,460 2,667 1999 5-40 years

Villas of Renaissance
923 23,948 115,851 139,799 14,719 1992 5-40 years

1,259 33,423 149,836 183,259 17,386

Total Properties Stabilized for All of 2001
17,181 559,057 401,874 1,673,074 2,074,948 426,139

Properties Stabilized During 2001:

Cherry Orchard Apartments (Sunnyvale)
300 56,922 56,922 1,053 2001 5-40 years

La Jolla Palms (La Jolla)
232 7,950 46,324 54,274 2,491 2001 5-40 years

Total Properties Stabilized During 2001:
532 7,950 103,246 111,196 3,544

Total Stabilized Portfolio
17,713 $ 559,057 $ 409,824 $ 1,776,320 $ 2,186,144 $ 429,683

Delivered Units in Projects Under Development

Villa Siena (Irvine)
967 28,503 143,115 171,618 4,888 1995/00/01 5-40 years

1221 Ocean Avenue (Santa Monica)
120 15,000 72,703 87,703 4,490 2000 5-40 years

Other
96 96 447

Total Delivered Units
1,087 43,503 215,914 259,417 9,825

Total Stabilized and Delivered
18,800 559,057 453,327 1,992,234 2,445,561 439,508

Units Under Development

Villa Siena (Irvine)
475 19,200 16,248 27,293 43,541

Franklin Street (Redwood City)
206 4,600 36,457 41,057

Other
268 268

Total Units Under Development
681 19,200 20,848 64,018 84,866

Total
19,481 $ 578,257 $ 474,175 $ 2,056,252 $ 2,530,427 $ 439,508

Notes:

(a) The aggregate cost of land and buildings for federal income tax purposes is approximately $1,570,478 (unaudited).

(b) The gross amount at which buildings and improvements are carried represent historical cost amounts incurred in the development of the projects and capital improvements incurred subsequent to the completion of construction. Prior to IAC, Inc.’s December 1993 initial public offering, the gross land and improvements amounts represent The Irvine Company’s historical cost basis. In conjunction with the Merger, the historical cost of land includes a $131.9 million step-up and the historical cost of buildings and improvements includes a $379.9 million step-up.

(c) Encumbrances represent debt secured by deeds of trust.

(d) Estimated useful lives are five to seven years for furniture and fixtures, five to twenty years for improvements and forty years for buildings.

(e) Land acquired from The Irvine Company is recorded at cost based on the purchase price.

F-18

IRVINE APARTMENT COMMUNITIES, L.P.

A summary of activity of real estate and accumulated depreciation is as follows:


		December 31,

*Real Estate*		2001		2000		1999

Balance at beginning of year:		$	2,422,505	$	2,288,008	$	1,626,353
Additions:
	Through cash expenditures		107,922		134,497		149,904
	Through step-up in basis due to Merger						511,751

Balance at end of year		$	2,530,427	$	2,422,505	$	2,288,008


	December 31,

*Accumulated Depreciation*	2001		2000		1999

Balance at beginning of year	$	380,698	$	325,229	$	281,449
Charges to depreciation expense		58,810		55,469		43,780

Balance at end of year	$	439,508	$	380,698	$	325,229

F-19

IRVINE APARTMENT COMMUNITIES, L.P.

REPORT OF INDEPENDENT AUDITORS

To The Partners
Irvine Apartment Communities, L.P.

We have audited the accompanying consolidated balance sheets of Irvine Apartment Communities, L.P., a Delaware limited partnership, as of December 31, 2001 and 2000, and the related consolidated statements of operations, changes in partners’ capital and cash flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement schedule on pages F-17 through F-19. These financial statements and schedule are the responsibility of management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Irvine Apartment Communities, L.P. at December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

ERNST & YOUNG LLP

Los Angeles, California
March 1, 2002

F-20

IAC CAPITAL TRUST

BALANCE SHEETS

December 31,

(dollars in thousands) 2001 2000

ASSETS

Cash
$ 5 $ 5

Investment in Subsidiary
150,000 150,000

$ 150,005 $ 150,005

LIABILITIES AND EQUITY

Redeemable Preferred Securities, 25,000,000 securities authorized

Redeemable Series A Preferred Securities, 6,900,000 securities authorized, 6,000,000 securities issued and outstanding
$ 150,000 $ 150,000

Equity

Common Securities, 20,000 securities authorized, 200 securities issued and outstanding
5 5

$ 150,005 $ 150,005

See accompanying notes.

F-21

IAC CAPITAL TRUST

STATEMENTS OF OPERATIONS AND EQUITY

Years Ended December 31,

(in thousands) 2001 2000 1999

REVENUE

Income from investment in subsidiary
$ 12,375 $ 12,375 $ 12,375

Income Before Redeemable Preferred Interest
12,375 12,375 12,375

Redeemable preferred interest
12,375 12,375 12,375

NET INCOME
$ — $ — $ —

Equity — beginning of period
$ 5 $ 5 $ 5

Issuance of common securities
— — —

Net income
— — —

EQUITY — END OF PERIOD
$ 5 $ 5 $ 5

See accompanying notes.

F-22

IAC CAPITAL TRUST

STATEMENTS OF CASH FLOWS

Years Ended December 31,

(in thousands) 2001 2000 1999

CASH FLOWS FROM OPERATING ACTIVITIES

Net income
$ — $ — $ —

Adjustments to reconcile net income to net cash provided by operating activities:

Redeemable preferred interest
12,375 12,375 12,375

Net Cash Provided by Operating Activities
12,375 12,375 12,375

CASH FLOWS FROM FINANCING ACTIVITIES

Distributions to preferred securities holders
(12,375 ) (12,375 ) (12,375 )

Net Cash Used in Financing Activities
(12,375 ) (12,375 ) (12,375 )

NET INCREASE IN CASH
— — —

Cash at beginning of period
5 5 5

CASH AT END OF PERIOD
$ 5 $ 5 $ 5

See accompanying notes.

F-23

IAC CAPITAL TRUST

NOTES TO FINANCIAL STATEMENTS

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION

IAC Capital Trust (the “Trust”) is a business trust formed on October 31, 1997 under the Delaware Business Trust Act. The Trust commenced operations on January 20, 1998 with the issuance of its redeemable preferred securities. Irvine Apartment Communities LLC (“IACLLC”) and certain members of management of IACLLC acquired all of the common securities of the Trust, representing common undivided beneficial interests in all of the assets of the Trust, for an aggregate consideration of $5,000.

The Trust is a limited purpose financing vehicle established by Irvine Apartment Communities, L.P. (the “Partnership”) and exists for the sole purpose of issuing redeemable preferred securities and investing the proceeds thereof in redeemable preferred limited partner units of the Partnership. The redeemable preferred securities have no voting rights except in limited circumstances. The Trust’s declaration does not permit the incurrence by the Trust of any indebtedness for borrowed money or the making of any investment other than in the redeemable preferred limited partner units of the Partnership.

The Partnership pays all obligations (other than with respect to the Trust securities) and all costs and expenses of the Trust, including the fees and expenses of the trustees and any income taxes, duties and other governmental charges.

NOTE 2 — REDEEMABLE PREFERRED INTEREST

There are 6.0 million redeemable preferred securities outstanding that bear an annual cash distribution rate of 8 1/4% which is paid quarterly. The redeemable preferred securities have a stated maturity of December 31, 2092.

NOTE 3 — INVESTMENT IN IRVINE APARTMENT COMMUNITIES, L.P.

The proceeds from the issuance of redeemable preferred securities were invested in redeemable preferred limited partner units of the Partnership which bear an annual cash distribution rate of 8 1/4% which is paid quarterly. The Trust accounts for its investment in the Partnership using the equity method of accounting.

NOTE 4 — INCOME TAXES

The Trust has elected to be taxed as a REIT and, as such, will generally not be subject to federal and state income taxation at the corporate level. To maintain its REIT status, the Trust is required to distribute annually at least 95% of its REIT taxable income to its shareholders and to satisfy certain other requirements. Accordingly, no provision has been made for federal income taxes in the accompanying statements of operations.

F-24

IAC CAPITAL TRUST

REPORT OF INDEPENDENT AUDITORS

To the Trustees
IAC Capital Trust

We have audited the accompanying balance sheets of IAC Capital Trust, a Delaware Business Trust, as of December 31, 2001 and 2000, and the related statements of operations and equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IAC Capital Trust at December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

ERNST & YOUNG LLP

Los Angeles, California
March 1, 2002

F-25


Item		Page


PART I

1. Business			3
2. Properties			13
3. Legal Proceedings			15
4. Submission of Matters to a Vote of Security Holders			15

PART II

5. Market for Registrants’ Common Equity and Related Stockholder Matters			16
6. Selected Financial Data			17
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
7A. Quantitative and Qualitative Disclosures About Market Risk			24
8. Financial Statements and Supplementary Data			24
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			24

PART III

10. Directors and Executive Officers of the Registrants			25
11. Executive Compensation			26
12. Security Ownership of Certain Beneficial Owners and Management			26
13. Certain Relationships and Related Transactions			27

PART IV

14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K			29
	Signatures		33

•		Provide an exceptional living environment for residents. The Properties are located in selected markets of California with historically strong economies and highly educated, relatively affluent renters. The Properties are conceived, designed, constructed, maintained and operated to appeal to this renter base. Property sites are often chosen based on their proximity to employment centers, schools, retail centers and recreational facilities, and are usually situated amid parks, hiking trails and other open space. Community amenities often include swimming pools and spas, fitness centers, business centers with self-service computer and telecommunications services, and other, property-specific recreation facilities. On-site staff are highly skilled to deliver a high standard of customer service to all residents, with compensation based, in part, on the annual achievement of specific customer service goals.

•		Enhance efficiency of operations. The Partnership had historically subcontracted on-site staffing, personnel management and accounting functions to three independent property management firms. In March 1998, the Partnership and WNPM entered into a strategic alliance that, in April 1998, assumed all property management responsibilities for the Partnership’s Southern California portfolio and, in January 1999, assumed responsibility for the Partnership’s entire portfolio. By centralizing all property management functions into one entity, the strategic alliance provides greater efficiencies, reduces property management fees and property management costs, improves training of on-site employees and enhances service to customers. Through December 31, 1999, WNPM was the managing member of IAMC and was responsible for its day to day operations, but the Partnership, through its control of a majority of the board of directors of IAMC, had significant control over IAMC including approval of business plans and budgets, compensation, and the employment of the executive officers of IAMC. On January 1, 2000, the partnership agreement for IAMC was amended and restated whereby the Partnership purchased a 24% partnership interest in IAMC from WNPM, resulting in the Partnership owning a 75% partnership interest in IAMC and WNPM owning a 25% interest in IAMC. On March 30, 2001, The

		Irvine Company purchased WNPM’s 25% interest in IAMC. At December 31, 2001, IAMC is owned 75% by the Partnership and 25% by The Irvine Company.

•		Capitalize on strong brand identity within Orange County to enhance marketing efforts and extend that identity to the Partnership’s other markets in California. The Partnership designs and implements marketing programs within its targeted markets to capitalize on its brand name awareness among renters in Orange County, and to broaden that recognition to potential renters in all locations where it operates. Management believes that a strong brand identity, and associated characteristics of quality and standards of service, provides the Properties with a competitive advantage in the attraction and retention of new residents. The Partnership’s marketing programs share common visual and textual themes that reinforce brand identity. These programs include a website with pages highlighting each property, a magazine guide that is updated and distributed quarterly, and single-source 800 telephone number to provide information on the Properties. In addition, targeted advertising campaigns promote the Partnership’s portfolio and its attractive quality of lifestyle characteristics.

•		Complete development of the Communities Under Development to complement and expand the Partnership’s existing rental market base. The broad employment and renter base on the Irvine Ranch allows development of a variety of apartment property types and amenity levels, including projects designed for the family, luxury and senior markets, and the area’s large population of young professionals. The Partnership’s development program through market segmentation, has identified target markets and, supported by consumer research and focus group studies, market segmentation decisions have been made at the earliest planning stages, when new residential villages for the Irvine Ranch were conceived and the villages’ largest and most important amenities were selected. Location of schools, recreational facilities, retail centers, open space and views were all important considerations. Individual development decisions — including site location, product design, amenities and marketing programs — have also been geared to appeal to the needs and desires of the target rental market.

•		Utilize experienced management to create high-quality, well-built properties designed to sustain their value. The Partnership brings considerable management expertise to all aspects of the development, construction and leasing process. Senior management is actively involved in new project development from the inception of a new apartment community and is responsible for target market identification; design of site plans, building plans, and floor plans; project and unit amenity selection; and site-specific governmental approvals. The Partnership engages experienced independent general contractors to act as intermediaries with subcontractors and to manage on-site activities under the close supervision of the Partnership’s internal construction group. The Partnership builds properties using high-quality construction materials and techniques, and believes that this higher initial investment in quality enhances long-term value creation by sustaining high community rental income levels and reducing long-term expense levels.


										2001 Average Monthly Rental Rates
				Year				Average Unit Size						2001 Average
Property				Completed		Number of Units		(Square Feet)		Per Unit		Per Square Foot		Physical Occupancy

Properties Stabilized Before 2001
	Irvine, CA (38 Properties)
		Amherst Court			1991		162		724		1,312		1.81		97.0	%
		Berkeley Court			1986		152		877		1,379		1.57		98.5	%
		Brittany at Oak Creek			1999		393		907		1,472		1.62		95.3	%
		Cedar Creek			1985		176		811		1,186		1.46		95.7	%
		Columbia Court			1984		58		852		1,277		1.50		98.7	%
		Cornell Court			1984		109		894		1,475		1.65		95.6	%
		Cross Creek			1985		136		935		1,293		1.38		97.2	%
		Dartmouth Court			1986		294		896		1,355		1.51		97.0	%
		Deerfield			1975/83		192/96		847		1,189		1.40		97.0	%
		Harvard Court			1986		112		826		1,322		1.60		96.6	%
		Northwood Park			1985		168		944		1,195		1.27		95.7	%
		Northwood Place			1986		604		954		1,207		1.27		95.8	%
		Orchard Park			1982		60		971		1,009		1.04		99.9	%
		Park West			1970/71/72		256/276/348		1,004		1,311		1.31		92.0	%
		Parkwood			1974		296		886		1,248		1.41		95.7	%
		Rancho San Joaquin			1976		368		896		1,334		1.49		94.6	%
		San Carlo			1989		354		1,074		1,507		1.40		95.1	%
		San Leon			1987		248		951		1,302		1.37		94.3	%
		San Marco			1988		426		923		1,251		1.36		94.1	%
		San Marino			1986		200		927		1,293		1.39		95.3	%
		San Mateo			1990		283		720		1,201		1.67		95.7	%
		San Paulo			1993		382		1,001		1,170		1.17		95.1	%
		San Remo			1986/88		136/112		966		1,260		1.30		95.2	%
		Santa Clara			1996		378		967		1,480		1.53		94.3	%
		Santa Maria			1997		227		1,125		1,713		1.52		93.5	%
		Santa Rosa			1996/98		368/207		1,017		1,246		1.23		92.8	%
		Sonoma at Oak Creek			1999		196		1,160		1,733		1.49		95.9	%
		Stanford Court			1985		320		799		1,300		1.63		96.5	%
		The Parklands			1983		121		794		1,135		1.43		99.6	%
		Turtle Rock Canyon			1991		217		1,024		1,578		1.54		94.5	%
		Turtle Rock Vista			1976/77		112/140		1,155		1,605		1.39		93.8	%
		Villa Coronado			1996		513		929		1,488		1.60		94.7	%
		Windwood Glen			1985		196		878		1,263		1.44		95.5	%
		Windwood Knoll			1983		248		903		1,136		1.26		96.6	%
		Woodbridge Oaks			1983		120		976		1,072		1.10		99.6	%
		Woodbridge Pines			1976		220		872		1,249		1.43		95.0	%
		Woodbridge Villas			1982		258		871		1,148		1.32		95.7	%
		Woodbridge Willows			1984		200		894		1,235		1.38		95.9	%

			Subtotal				10,438		938		1,323		1.41		95.1	%

	Newport Beach, CA (7 Properties)
		Baypointe			1997		300		1,037		1,705		1.64		95.4	%
		Mariner Square			1969		114		1,104		1,451		1.31		95.3	%
		Newport North			1986		570		947		1,345		1.42		95.1	%
		Newport Ridge (Newport Coast)			1996		512		957		1,670		1.75		94.0	%
		Promontory Point			1974		520		1,053		2,165		2.06		92.4	%
		The Bays			1971/73/84		104/64/320/68		1,044		1,442		1.38		94.0	%
		The Colony at Fashion Island			1998		245		1,326		2,680		2.02		92.8	%

			Subtotal				2,817		1,037		1,733		1.67		94.1	%

	Tustin, CA (7 Properties)
		Rancho Alisal			1988/91		344/12		967		1,300		1.34		94.6	%
		Rancho Maderas			1989		266		939		1,302		1.39		95.2	%
		Rancho Mariposa			1992		238		856		1,263		1.48		94.1	%
		Rancho Monterey			1996		436		932		1,458		1.56		95.0	%
		Rancho Santa Fe			1998		316		1,120		1,743		1.56		94.3	%
		Rancho Tierra			1989		252		1,031		1,385		1.34		94.7	%
		Sierra Vista			1992		306		852		1,340		1.57		93.5	%

			Subtotal				2,170		958		1,408		1.47		94.5	%

	Subtotal (52 Properties)						15,425		959		1,410		1.47		94.8	%

	Off-Ranch (4 Properties)
		Arcadia at Stonecrest (San Diego)			1999		336		951		1,450		1.52		95.8	%
		The Hamptons at Cupertino (Cupertino)			1998		342		951		2,265		2.38		96.2	%
		The Villas at Bair Island Marina (Redwood City)			2000		155		1,091		2,958		2.71		94.5	%
		Villas of Renaissance (La Jolla)			1992		923		957		1,479		1.55		94.8	%

			Subtotal				1,756		967		1,757		1.82		95.2	%

Properties Stabilized Before 2001 (56 Properties)							17,181		960		1,445		1.51		94.9	%

Properties Stabilized During 2001¹

		Cherry Orchard Apartments (Sunnyvale)			2001		300		984		1,990		2.02		97.2	%
		La Jolla Palms (La Jolla)			2001		232		905		1,667		1.84		94.9	%

			Subtotal				532		950		1,849		1.95		96.2	%

Total Portfolio (58 Properties)							17,713		960		1,457	$	1.43		95.0	%


							Communities
			Stabilized Communities				Under Development				Total

			Number of		Number		Number of		Number		Number of		Percent of
Location			Properties		Of Units		Properties		of Units		Properties		Total

Orange County
	Irvine			38		10,438		1		1,442		39		64	%
	Newport Beach			6		2,305						6		10	%
	Tustin			7		2,170						7		11	%
	Newport Coast			1		512						1		2	%
San Francisco Bay Area
	Cupertino			1		342						1		2	%
	Redwood City			1		155		1		206		2		3	%
	Sunnyvale			1		300						1		2	%
Northern San Diego County
	La Jolla			2		1,155						2		3	%
	San Diego			1		336						1		2	%
Los Angeles County
	Santa Monica							1		120		1		1	%

		Totals		58		17,713		3		1,768		61		100	%


		Stabilized		Communities
		Communities		Under Development		Total Number of		Percent of
Unit Type		Number of Units		Number of Units		Units		Total Units

Studio/Junior			547		128		675		3	%
One Bedroom			4,561		647		5,208		27	%
Two Bedroom			10,935		934		11,869		61	%
Three Bedrooms or More			1,670		59		1,729		9	%

	Total		17,713		1,768		19,481		100	%

¹		A property is typically considered stabilized at the earlier of one year after completion of construction or when it achieves 95% occupancy.




²		In July 2001, due to the similarity of property operations and product type and the proximity of property locations, the following apartment communities were combined for reporting purposes: Bayport, Bayview and Baywood are now considered one apartment community; Santa Rosa and Santa Rosa II are now considered one apartment community; and One Park Place and Villa Siena are now considered one apartment community. Certain prior period information has been restated to conform with this current presentation.




³		Average physical occupancy is calculated by dividing the total occupied units in the stabilized properties on a weekly basis by the total units in the stabilized properties on a weekly basis.




⁴		Average monthly rent per unit is calculated by dividing average rental revenue per unit by average economic occupancy.

¹		The interest rate is a weekly remarketed tax-exempt based rate. The interest rate inclusive of fees as of December 31, 2001 was 2.60%.




²		$4,601 of debt is fixed at 6.29% and $15,456 is variable at the daily remarketed tax-exempt based rate. The weighted average variable interest rate was 1.70% as of December 31, 2001.




³		The interest rate for $50,038 of the unsecured tax-exempt bond financings is a weekly remarketed tax-exempt based rate. The interest rate inclusive of fees as of December 31, 2001 was 2.60%. The remaining $334,190 is fixed at 5.23% through its mandatory tender dates ranging from May 2008 to May 2013.


Name	Age		Present and Prior Positions Held	Years Positions Held

Max L. Gardner		50	President of IACLLC	2000 — Present
			Executive Vice President, Operations of IACLLC	1999 — 2000
			Senior Vice President, Western Region, AvalonBay Communities, Inc.	1998 — 1999
			Executive Vice President and Chief Operating Officer, Bay Apartment Communities, Inc.	1995 — 1998
David A. Patty		51	Executive Vice President of Finance and Administration, Investment Properties Group, a division of The Irvine Company	2001 — Present
			Senior Vice President and Chief Administrative Officer of IACLLC	1999 — Present
			Senior Vice President and Chief Investment Officer, The Irvine Company	1996 — 1999


Exhibit
Number		Description

	2.2	Purchase and Sale Agreement and Joint Escrow Instructions dated April 18, 1997 by and between Aoki Construction (CA) Co., Ltd. and the Partnership (incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K of the Partnership filed on August 6, 1997).
	3.1	Third Amended and Restated Agreement of Limited Partnership of Irvine Apartment Communities, L.P. dated June 9, 1999 (incorporated by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q of the Partnership for the quarter ended September 30, 1999 (the “1999 Third Quarter Form 10-Q”)).
	3.2	Designation Instrument dated January 20, 1998, relating to the Series A Preferred L.P. Units of the Partnership (incorporated by reference to Exhibit 3.6 of the Annual Report on Form 10-K of the Partnership for the year ended December 31, 1997 (the “1997 Form 10-K”)).
	4.1	Indenture dated as of October 1, 1997 between the Partnership and First Trust of California, National Association, as Trustee (the “Trustee”) (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K of the Partnership filed on October 1, 1997 (the “October 1997 Form 8-K”)).
	4.2	Supplemental Indenture No. 1 dated as of October 1, 1997, relating to the Partnership’s 7% Notes due 2007, between the Partnership and the Trustee (incorporated by reference to Exhibit 4.2 of the October 1997 Form 8-K).
	4.3	Form of Series A Trust Preferred Security (included in Exhibit 4.5).
	4.4	Amended and Restated Declaration of Trust dated January 20, 1998 of IAC Capital Trust (incorporated by reference to Exhibit 4.4 of the 1997 Form 10-K).
	4.5	Certificate of Terms dated January 20, 1998 Relating to Series A Preferred Securities of IAC Capital Trust (incorporated by reference to Exhibit 4.5 of the 1997 Form 10-K).
	10.1	Purchase and Sale Agreement and Joint Escrow Instructions dated April 18, 1997 by and between Aoki Construction (CA) Co., Ltd. and the Partnership (see Exhibit 2.2).
	10.2	Lease Agreement (incorporated by reference to Exhibit 10.2 of the Annual Report on Form 10-K of the Partnership for the year ended December 31, 1993 (the “1993 Form 10-K”)).
	10.3	Administrative Services Agreement (incorporated by reference to Exhibit 10.5 of the 1993 Form 10-K).
	10.3.1	Amendment and Extension to the Administrative Services Agreement (incorporated by reference to Exhibit 10.5.1 of the Annual Report on Form 10-K of the Company for the year ended December 31, 1994).
	10.3.2	Amendment No. 4 to the Administrative Services Agreement (incorporated by reference to Exhibit 10.5.4 of the Quarterly Report on Form 10-Q of the Partnership and the Trust for the quarter ended June 30, 1998 (the “1998 Second Quarter Form 10-Q”)).


	IRVINE APARTMENT COMMUNITIES, L.P.
	By:	Irvine Apartment Communities LLC its sole general partner


Date: March 28, 2002	By:	/s/ MICHAEL D. MCKEE

		Michael D. McKee Vice Chairman


	IAC CAPITAL TRUST

Date: March 28, 2002	By:	/s/ DAVID A. PATTY

		David A. Patty Regular Trustee


Signature	Title	Date


/s/ MAX L. GARDNER Max L. Gardner	President of IACLLC (Principal Executive Officer)	March 28, 2002

/s/ DAVID A. PATTY David A. Patty	Senior Vice President and Chief Administrative Officer of IACLLC (Principal Financial Officer and Principal Accounting Officer)	March 28, 2002

/s/ DONALD BREN Donald Bren	Director of IACLLC	March 28, 2002

/s/ MICHAEL D. MCKEE Michael D. McKee	Director of IACLLC	March 28, 2002

/s/ STAN ROSS Stan Ross	Director of IACLLC	March 28, 2002

/s/ RAYMOND L. WATSON Raymond L. Watson	Director of IACLLC	March 28, 2002


					Irvine Apartment
		Irvine Apartment			Communities, Inc.
(in thousands)		Communities LLC			(predecessor)			Limited Partner(s)			Total

PARTNERS’ CAPITAL
Balance at January 1, 1999					$	195,858		$	185,821		$	381,679
	Net Income	$	16,595			14,157			38,149			68,901
	Contributions					394						394
	Distributions		(14,462	)		(7,768	)		(27,574	)		(49,804	)
	Merger Transaction (Note 7)		680,182			(202,641	)		34,210			511,751

Balance at December 31, 1999		$	682,315		$	—		$	230,606		$	912,921

	Net Income	$	30,243					$	37,511		$	67,754
	Distributions		(55,549	)					(68,906	)		(124,455	)

Balance at December 31, 2000		$	657,009					$	199,211		$	856,220

	Net Income	$	30,115					$	37,355		$	67,470
	Contributions		3,111									3,111
	Distributions		(55,570	)					(68,930	)		(124,500	)
	Redemption of preferred limited partner units (Note 6)		(571	)					(708	)		(1,279	)

Balance at December 31, 2001		$	634,094					$	166,928		$	801,022

COMMON PARTNERSHIP UNITS OUTSTANDING
Balance at January 1, 1999						20,164			25,027			45,191
	Additional common partnership units issued					12						12
	Merger Transaction (Note 7)		20,176			(20,176	)

Balance at December 31, 1999			20,176			—			25,027			45,203

Balance at December 31, 2000			20,176						25,027			45,203

Balance at December 31, 2001			20,176						25,027			45,203


*(in thousands, except percentages)*	For the Years Ended December 31, 2001 and 2000

				The Irvine
	IACLLC			Company			Total

Balance at beginning and end of period		20,176			25,027			45,203

Ownership interest at end of period		44.6	%		55.4	%		100	%


		For the Years Ended December 31,

*(dollars in thousands)*		2001		2000		1999

Limited Partners:
	Income allocated to The Irvine Company (and certain of its affiliates) based on their ownership interest	$	37,355	$	37,511	$	38,096
	Income allocated to others based on their ownership interest						53

			37,355		37,511		38,149

General Partner:
	Income allocated to IAC, Inc. based on its ownership interest						14,157
	Income allocated to IACLLC based on its ownership interest		30,115		30,243		16,595

			30,115		30,243		30,752

Net Income		$	67,470	$	67,754	$	68,901


							Gross Carrying Amount
							at December 31, 2001 (a) (b)

City, State			Number						Buildings and				Accumulated		Date of		Depreciable
		Apartment Community Name	of Units		Encumbrances(c)		Land (e)		Improvements		Total		Depreciation		Completion		Life(d)

Properties Stabilized For All of 2001:
	Irvine, California
		Amherst Court		162	$	10,900	$	2,646	$	14,348	$	16,994	$	4,234		1991	5-40 years
		Berkeley Court		152				2,456		12,407		14,863		4,191		1986	5-40 years
		Brittany at Oak Creek		393				10,325		34,168		44,493		3,025		1999	5-40 years
		Cedar Creek		176				2,471		13,306		15,777		4,603		1985	5-40 years
		Columbia Court		58				949		4,185		5,134		1,384		1984	5-40 years
		Cornell Court		109				2,017		8,922		10,939		2,656		1984	5-40 years
		Cross Creek		136				2,032		11,054		13,086		3,873		1985	5-40 years
		Dartmouth Court		294				5,493		24,846		30,339		8,465		1986	5-40 years
		Deerfield		288		11,951		6,614		17,551		24,165		6,658		1975/83	5-40 years
		Harvard Court		112				2,148		8,609		10,757		2,944		1986	5-40 years
		Northwood Park		168				2,923		12,161		15,084		4,536		1985	5-40 years
		Northwood Place		604				10,150		46,774		56,924		16,614		1986	5-40 years
		Orchard Park		60				1,721		3,406		5,127		1,265		1982	5-40 years
		Park West		880		31,955		25,963		73,639		99,602		37,526		1970/71/72	5-40 years
		Parkwood		296		11,365		9,963		17,813		27,776		7,289		1974	5-40 years
		Rancho San Joaquin		368		25,514		10,677		39,065		49,742		17,184		1976	5-40 years
		San Carlo		354		32,487		6,078		36,275		42,353		10,312		1989	5-40 years
		San Leon		248				4,271		20,819		25,090		6,901		1987	5-40 years
		San Marco		426				7,071		33,888		40,959		10,311		1988	5-40 years
		San Marino		200				3,415		16,222		19,637		5,687		1986	5-40 years
		San Mateo		283		22,214		3,833		24,026		27,859		6,806		1990	5-40 years
		San Paulo		382				4,667		33,306		37,973		7,027		1993	5-40 years
		San Remo		248				4,221		19,734		23,955		6,822		1986/88	5-40 years
		Santa Clara		378		40,509		6,541		41,060		47,601		7,260		1996	5-40 years
		Santa Maria		227		24,345		5,091		26,878		31,969		4,120		1997	5-40 years
		Santa Rosa		575				13,284		63,410		76,694		9,701		1996/98	5-40 years
		Sonoma at Oak Creek		196				5,697		18,370		24,067		1,929		1999	5-40 years
		Stanford Court		320				5,783		23,376		29,159		7,769		1985	5-40 years
		The Parklands		121		4,184		1,344		11,400		12,744		4,117		1983	5-40 years
		Turtle Rock Canyon		217		27,150		3,696		27,484		31,180		7,043		1991	5-40 years
		Turtle Rock Vista		252		12,051		8,760		23,475		32,235		7,992		1976/77	5-40 years
		Villa Coronado		513				9,908		52,767		62,675		9,497		1996	5-40 years
		Windwood Glen		196				3,284		14,358		17,642		4,911		1985	5-40 years
		Windwood Knoll		248				3,655		17,112		20,767		5,956		1983	5-40 years
		Woodbridge Oaks		120				1,974		9,494		11,468		3,434		1983	5-40 years
		Woodbridge Pines		220		11,657		7,375		14,189		21,564		5,943		1976	5-40 years
		Woodbridge Villas		258				6,828		14,511		21,339		5,526		1982	5-40 years
		Woodbridge Willows		200				3,503		16,822		20,325		6,581		1984	5-40 years

				10,438		266,282		218,827		901,230		1,120,057		272,092

	Newport Beach, California
		Baypointe		300		42,550		6,824		38,297		45,121		5,403		1997	5-40 years
		Mariner Square		114		5,072		2,238		8,867		11,105		4,654		1969	5-40 years
		Newport North		570				15,586		46,745		62,331		15,277		1986	5-40 years
		Newport Ridge		512		62,386		14,235		61,389		75,624		10,427		1996	5-40 years
		Promontory Point		520				24,928		73,341		98,269		25,130		1974	5-40 years
		The Bays		556		38,925		22,397		43,507		65,904		15,769		1971/73/84	5-40 years
		The Colony at Fashion Island		245				5,014		49,869		54,883		5,685		1998	5-40 years

				2,817		148,933		91,222		322,015		413,237		82,345

(a)		The aggregate cost of land and buildings for federal income tax purposes is approximately $1,570,478 (unaudited).




(b)		The gross amount at which buildings and improvements are carried represent historical cost amounts incurred in the development of the projects and capital improvements incurred subsequent to the completion of construction. Prior to IAC, Inc.’s December 1993 initial public offering, the gross land and improvements amounts represent The Irvine Company’s historical cost basis. In conjunction with the Merger, the historical cost of land includes a $131.9 million step-up and the historical cost of buildings and improvements includes a $379.9 million step-up.




(c)		Encumbrances represent debt secured by deeds of trust.




(d)		Estimated useful lives are five to seven years for furniture and fixtures, five to twenty years for improvements and forty years for buildings.




(e)		Land acquired from The Irvine Company is recorded at cost based on the purchase price.


		December 31,

(dollars in thousands)		2001		2000

ASSETS
Cash		$	5	$	5
Investment in Subsidiary			150,000		150,000

		$	150,005	$	150,005

LIABILITIES AND EQUITY
Redeemable Preferred Securities, 25,000,000 securities authorized
	Redeemable Series A Preferred Securities, 6,900,000 securities authorized, 6,000,000 securities issued and outstanding	$	150,000	$	150,000
Equity
	Common Securities, 20,000 securities authorized, 200 securities issued and outstanding		5		5

		$	150,005	$	150,005