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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

          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 the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12 b-2).

        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.

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IRVINE APARTMENT COMMUNITIES, L.P.

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PART I

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, 2002, IACLLC had a 48.0% general partnership interest and The Irvine Company had a 52.0% 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 the San Francisco Bay Area, the La Jolla area of San Diego and West Los Angeles, which possess rental demographic and economic growth prospects similar to those on the Irvine Ranch in Orange County.  As of December 31, 2002, the Partnership owned 61 apartment communities (collectively, the “Properties”) representing 19,162 operating apartment units and 319 units under construction or development. 

          IAC Capital Trust (the “Trust”), a Delaware business trust, was formed on October 31, 1997.  The Trust was a limited purpose financing vehicle established by the Partnership.  The Trust existed for the sole purpose of issuing its preferred securities and investing the proceeds thereof in preferred limited partner units of the Partnership.  On December 31, 2002, the Trust redeemed all 6.0 million of its outstanding preferred securities at a redemption price of $25 per preferred security plus accrued and unpaid distributions thereon to December 31, 2002, the redemption date.  The redemption was funded by a corresponding redemption by the Partnership of all 6.0 million of its preferred limited partnership units, all of which were held by the Trust.  The redemption price for the preferred limited partnership units was $25 per preferred limited partnership unit plus accrued and unpaid distributions thereon to December 31, 2002.  The Partnership funded the redemption of its preferred limited partnership units through a  $150 million capital contribution by its general partner.  In return for its contribution, the general partner received 2,968,662 partnership units.  Immediately after the redemption of its outstanding preferred securities, the Trust was liquidated and delisted as a registrant of the Securities and Exchange Commission.

          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, 2002, 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.

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Description of Business

          As of December 31, 2002, the Partnership owned and operated 59 stabilized properties containing 17,833 units (the “Stabilized Communities”).  In addition, the Partnership owned two apartment communities with 1,329 operating apartment units and 319 units under construction or development (the “Communities Under Development”), for a total of 19,481 units.  Therefore, as of December 31, 2002, the Partnership owned 61 apartment communities representing 19,162 operating apartment units and 319 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 40,000 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, 2002, the Partnership had 2,614 units in operation at eight properties located off the Irvine Ranch. The Partnership has created these new market positions in locations 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, 2002, the average physical occupancy (number of units occupied divided by the total number of units excluding model and rehab units) of the Stabilized Communities was 94.2% and the average monthly rent per unit was $1,500. The Communities Under Development include a total of 1,648 apartment units.  Currently, the Partnership has one apartment community under development or construction that is expected to require total expenditures of approximately $297 million, of which $238 million had been incurred at December 31, 2002. As of December 31, 2002, 1,329 units were completed with 1,079 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

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“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.  Also during 2000, the renovations at 1221 Ocean Avenue were completed. 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. During 2002, a 206-unit apartment community in Northern California (Franklin Street) was completed and was 63.6% occupied as of December 31, 2002. Also during 2002, 1221 Ocean Avenue achieved stabilization. The Partnership has no plans to expand its off-Ranch portfolio beyond these eight properties.

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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 2,000 companies and approximately 45,000 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 40,000 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 multiple 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.

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          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, especially desirable to those selecting rental living as a lifestyle choice.  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 for general corporate purposes and to fund all or a portion of the capital requirements of its remaining development projects.  See “Capital Expenditures – Capital Investments in New Development.” Construction costs not yet funded total approximately $58.6 million.  The Partnership anticipates utilizing advances from its general and/or common limited partner and mortgage financing to support its construction activity and refinancing activity over time. Based on market conditions at the time such financing is obtained, the Partnership may find it advantageous to utilize other debt structures. 

Competition

          The Properties are located in developed areas.  There are numerous other rental apartment properties within and around the market area of each property including, in certain areas, units owned and operated by The Irvine Company.  In addition, The Irvine Company continues to develop properties in the market area.  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

          The Partnership has no 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 21, 2003, IACLLC had 58 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 changes and general economic trends.  During 2002, 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

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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 reduce contaminates from entering into run-off systems that eventually enter sensitive waterways.  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 Federal Clean Water Act requirements.

          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

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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 2,642 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, 2002, 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 three 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.  During 2002, the HAP contracts for two of these five HUD properties (Orchard Park and Woodbridge Villas) expired and

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are in the process of being reviewed as of December 31, 2002. The HAP contracts for the other three HUD properties will expire in 2003 and 2004.

          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 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” 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.  Also during 2000, the renovations at 1221 Ocean Avenue were completed. 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. During 2002, a 206-unit apartment community in Northern California (Franklin Street) was completed and was 63.6% occupied as of December 31, 2002. Also during 2002, 1221 Ocean Avenue achieved stabilization. The Partnership has no plans to expand its off-Ranch portfolio beyond these eight properties.

          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 1,648 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

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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 could be adversely affected.

          Real Estate 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.  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-two of the existing 59 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.

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          The Partnership owns 59 Stabilized Communities containing 17,833 apartment units and has two Communities Under Development.  Below is 2002 operating information for the Stabilized Communities:

   ¹  Represents amounts from initial stabilization date.

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          The Properties are located within the following jurisdictions in California:

          The unit mix of the Properties is as follows:

^(a) Includes 319 units under construction or development.

          The consolidated real estate and accumulated depreciation schedule of the Partnership is included on pages F-16 through F-18 of this Annual Report on Form 10-K.

          The Partnership believes that the Properties are well maintained and have no material deferred maintenance requirements. The average age of the Stabilized Communities is approximately 14 years.  The oldest of the Stabilized Communities was completed in 1969, and 42 of the 59 Stabilized Communities, totaling 13,165 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 302 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 59 Stabilized Communities contain swimming pools, spas, air conditioning and covered parking. Additional amenities may include a fitness center, business center, conference room, theater, clubhouse, tennis court, basketball court, 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.

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          There have been recent reports of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold in residential units. The Partnership believes it has implemented protocols and procedures that lessen the incidence of mold at its properties, and addresses remediation in a timely and responsible fashion.  The Partnership has been named as a defendant in suits that have alleged the presence of mold. Although there can be no assurance, management believes that these actions will not have a material adverse effect on the Partnership’s consolidated financial statements.

          None.

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PART II

          There is no established public trading market for the Partnership’s common partnership interests.  As of March 21, 2003, there were two holders of common partnership interests.

          The Partnership made aggregate distributions of $31,500,000 during 2002 on its common partnership interests.

          In the fourth quarter of 2002, 2,968,662 partnership units were issued to IACLLC in return for a $150 million capital contribution.

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