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

FORM 10-Q

(Mark One)
[X]	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Period Ended September 30, 2001.
	or
[  ]	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________________ to ________________

Commission File Number: 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 Their Charters)

Delaware Delaware	33-0587829 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)

(949) 720-5500

(Registrants’ telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

     Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter time as required), and (2) have 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 the number of units outstanding of each of the issuer’s classes of common partnership units, as of the latest practical date. Irvine Apartment Communities, L.P.: units of common partnership interest — 45,202,828 units as of November 12, 2001.

TABLE OF CONTENTS

		Consolidated Balance Sheets
		Consolidated Statements of Operations
		Consolidated Statements of Changes in Partners’ Capital
		Consolidated Statements of Cash Flows
		Balance Sheets
		Statements of Operations and Equity
		Statements of Cash Flows
		Notes to Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Item 3. Quantitative and Qualitative Disclosures About Market Risk.
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings.
	Item 2. Changes in Securities and Use of Proceeds.
	Item 3. Defaults Upon Senior Securities.
	Item 4. Submission of Matters to a Vote of Security Holders.
	Item 5. Other Information.
	Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES

Irvine Apartment Communities, L.P.
IAC Capital Trust

Index

			Page
Part I	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements — Irvine Apartment Communities, L.P.
	—	Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000	1
	—	Consolidated Statements of Operations for the three and nine months ended September 30, 2001 and 2000	2
	—	Consolidated Statements of Changes in Partners’ Capital for the nine months ended September 30, 2001 and 2000	3
	—	Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000	4
	Financial Statements — IAC Capital Trust
	—	Balance Sheets as of September 30, 2001 and December 31, 2000	5
	—	Statements of Operations and Equity for the three and nine months ended September 30, 2001 and 2000	6
	—	Statements of Cash Flows for the nine months ended September 30, 2001 and 2000	7
	Notes to Consolidated Financial Statements		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		18
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings		18
Item 2.	Changes in Securities and Use of Proceeds		18
Item 3.	Defaults Upon Senior Securities		18
Item 4.	Submission of Matters to a Vote of Security Holders		18
Item 5.	Other Information		18
Item 6.	Exhibits and Reports on Form 8-K		18
	SIGNATURES		19

Irvine Apartment Communities, L.P.

Consolidated Balance Sheets

		September 30,			December 31,
(in thousands)		2001			2000
		(unaudited)
Assets
Real estate assets, at cost
	Land	$	449,125		$	435,107
	Buildings and improvements		1,968,931			1,823,245
			2,418,056			2,258,352
	Accumulated depreciation		(424,006	)		(380,698	)
			1,994,050			1,877,654
	Under development, including land		90,793			164,153
			2,084,843			2,041,807
Cash and cash equivalents			10,607			97,406
Restricted cash			2,447			2,229
Deferred financing costs, net			10,390			11,787
Other assets			24,630			25,356
		$	2,132,917		$	2,178,585
Liabilities
Mortgages and notes payable		$	1,084,169		$	1,070,892
Accounts payable and accrued liabilities			55,193			46,101
Advance from affiliate			25,000			—
Security deposits			13,153			12,446
			1,177,515			1,129,439
Redeemable Preferred Interests
Redeemable Series A preferred limited partner units, 6,000 preferred partnership units outstanding at September 30, 2001 and December 31, 2000			144,259			144,212
Redeemable Series B preferred limited partner units, 2,000 preferred partnership units outstanding at December 31, 2000			—			48,714
			144,259			192,926
Partners’ Capital
General partner, 20,176 common partnership units at September 30, 2001 and December 31, 2000			636,889			657,009
Common limited partner, 25,027 common partnership units at September 30, 2001 and December 31, 2000			174,254			199,211
			811,143			856,220
		$	2,132,917		$	2,178,585

See accompanying notes.

Page 1

Irvine Apartment Communities, L.P.

Consolidated Statements of Operations

	Nine Months Ended				Three Months Ended
	September 30,				September 30,
(unaudited, in thousands)	2001		2000		2001		2000
Revenues
Rental income	$	226,843	$	206,174	$	76,572	$	71,947
Other income		7,572		7,093		2,746		2,611
Interest income		2,562		2,836		305		767
		236,977		216,103		79,623		75,325
Expenses
Property expenses		55,868		50,214		19,671		17,150
Real estate taxes		18,099		16,684		6,343		5,713
Interest expense, net		48,504		38,244		16,823		12,979
Depreciation and amortization		44,506		43,011		15,792		13,592
General and administrative		6,329		5,878		1,503		1,965
		173,306		154,031		60,132		51,399
Income before Redeemable Preferred Interests		63,671		62,072		19,491		23,926
Redeemable preferred interests		11,469		12,563		3,094		4,188
Net Income	$	52,202	$	49,509	$	16,397	$	19,738
Allocation of Net Income:
General Partner	$	23,300	$	22,099	$	7,319	$	8,810
Common Limited Partner	$	28,902	$	27,410	$	9,078	$	10,928

See accompanying notes.

Page 2

Irvine Apartment Communities, L.P.

Consolidated Statements of Changes in Partners’ Capital

		Irvine Apartment			The Irvine
(unaudited, in thousands)		Communities LLC			Company			Total
Partners’ Capital
Balance at January 1, 2000		$	682,315		$	230,606		$	912,921
	Net income		22,099			27,410			49,509
	Distributions		(42,516	)		(52,739	)		(95,255	)
Balance at September 30, 2000		$	661,898		$	205,277		$	867,175
Balance at January 1, 2001		$	657,009		$	199,211		$	856,220
	Net income		23,300			28,902			52,202
	Distributions		(42,849	)		(53,151	)		(96,000	)
	Redemption of preferred limited partner units (Note 4)		(571	)		(708	)		(1,279	)
Balance at September 30, 2001		$	636,889		$	174,254		$	811,143

See accompanying notes.

Page 3

Irvine Apartment Communities, L.P.

Consolidated Statements of Cash Flows

			Nine Months Ended
			September 30,
(unaudited, in thousands)			2001			2000
Cash Flows from Operating Activities
Net income			$	52,202		$	49,509
Adjustments to reconcile net income to net cash provided by operating activities:
	Amortization of deferred financing costs			1,397			1,488
	Depreciation and amortization			44,506			43,011
	Redeemable preferred interest			11,469			12,563
	Increase (decrease) in cash attributable to changes in operating assets and liabilities:
		Restricted cash		(218	)		(192	)
		Other assets		(418	)		7,908
		Accounts payable and accrued liabilities		5,681			8,583
		Security deposits		707			1,670
Net Cash Provided by Operating Activities				115,326			124,540
Cash Flows from Investing Activities
Capital improvements to operating real estate assets				(3,205	)		(1,751	)
Capital investments in real estate assets				(79,681	)		(100,996	)
Net Cash Used in Investing Activities				(82,886	)		(102,747	)
Cash Flows from Financing Activities
Proceeds from mortgages and notes payable				69,238			104,500
Payments on mortgages and notes payable				(56,008	)		(41,195	)
Redemption of preferred limited partner units				(50,000	)		—
Advance from affiliate				25,000			41,501
Additions to deferred financing costs				—			(1,741	)
Distributions to redeemable preferred limited partner unit holders				(11,469	)		(8,375	)
Distributions to partners				(96,000	)		(95,255	)
Net Cash Used in Financing Activities				(119,239	)		(565	)
Net (Decrease) Increase in Cash and Cash Equivalents				(86,799	)		21,228
Cash and Cash Equivalents at Beginning of Period				97,406			13,834
Cash and Cash Equivalents at End of Period			$	10,607		$	35,062
Supplemental Disclosure of Cash Flow Information
	Interest paid, net of amounts capitalized		$	40,647		$	30,612

See accompanying notes.

Page 4

IAC Capital Trust

Balance Sheets

		September 30,		December 31,
	(dollars in thousands)	2001		2000
		(unaudited)
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.

Page 5

IAC Capital Trust

Statements of Operations and Equity

	Nine Months Ended				Three Months Ended
	September 30,				September 30,
(unaudited, in thousands)	2001		2000		2001		2000
Revenue
Income from investment in subsidiary	$	9,282	$	9,282	$	3,094	$	3,094
Income before redeemable preferred interest		9,282		9,282		3,094		3,094
Redeemable preferred interest		9,282		9,282		3,094		3,094
Net Income	$	—	$	—	$	—	$	—
Equity — beginning of period	$	5	$	5
Net income		—		—
Equity — end of period	$	5	$	5

See accompanying notes.

Page 6

IAC Capital Trust

Statements of Cash Flows

		Nine Months
		Ended September 30,
(unaudited, in thousands)		2001			2000
Cash Flows from Operating Activities
Net income		$	—		$	—
Adjustments to reconcile net income to net cash provided by operating activities:
	Redeemable preferred interest		9,282			6,188
Net Cash Provided by Operating Activities			9,282			6,188
Cash Flows from Financing Activities
Distributions to preferred securities holders			(9,282	)		(6,188	)
Net Cash Used in Financing Activities			(9,282	)		(6,188	)
Net Increase in Cash and Cash Equivalents			—			—
Cash and Cash Equivalents at Beginning of Period			5			5
Cash and Cash Equivalents at End of Period		$	5		$	5

See accompanying notes.

Page 7

Irvine Apartment Communities, L.P.
IAC Capital Trust

Notes to Consolidated Financial Statements

(unaudited)

Note 1 — Organization

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 limited partnership units in the Partnership and IACLLC became 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 September 30, 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. 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 September 30, 2001, the Partnership owned 61 apartment communities representing 18,651 operating apartment units and 830 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 September 30, 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.

Note 2 — Basis of Presentation

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

Page 8

Trust’s investment in subsidiary relates to the redeemable Series A preferred limited partner units in the Partnership. The Trust has less than a controlling interest in the Partnership and accounts for its investment using the equity method.

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 has 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 $160,448,000 and $146,369,000 for the nine months ended September 30, 2001 and 2000, respectively, and $53,304,000 and $51,695,000 for the three months ended September 30, 2001 and 2000, respectively. All other segment measurements are included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2000.

Profits and losses of the Partnership are generally allocated to the general partner and to 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 holders of the Series B redeemable preferred limited partner units were entitled to distributions at an annual rate of 8 3/4% of the stated value per unit (see Note 5). The stated value of each unit was $25.

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 September 30, 2001 and December 31, 2000, and the revenues and expenses for the three and nine months ended September 30, 2001 and 2000. Actual results could differ from those estimates.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal, recurring nature. Operating results for the three and nine months ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. These financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Partnership’s and the Trust’s Annual Report on Form 10-K for the year ended December 31, 2000.

Page 9

Note 3 — Mortgages and Notes Payable

Unsecured Line of Credit: Previously, the Partnership had a $125 million unsecured revolving credit facility. 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.

Tax-Exempt Mortgage Bond Financings: 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 2001 Bonds represent loans payable that are collateralized by a deed of trust granting a security interest in the Project. The 2001 Bonds bear interest at a weekly-remarketed tax-exempt rate and are due August 2034. As of September 30, 2001, the Partnership had received proceeds of $6.1 million representing land acquisition, transaction and development costs related to the Project. The remaining $13.1 million of proceeds (included as a receivable in other assets) from the 2001 Bonds is held by a trustee and will be funded 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.

Note 4 — 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

	Nine Months Ended September 30, 2001 and 2000
				The Irvine
	IACLLC			Company			Total
(in thousands, except percentages)
Balance at beginning and end of period		20,176			25,027			45,203
Ownership interest at end of period		44.6	%		55.4	%		100	%

Page 10

Note 5 — Minority Redeemable Preferred Interests

In January 1998, the 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 unsecured 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.

Note 6 — Certain Transactions With Related Parties

Included in general and administrative expenses are charges from The Irvine Company pursuant to an administrative services agreement covering services for information technology and other services totaling $495,000 and $171,000 for the nine months ended September 30, 2001 and 2000, respectively, and $210,000 and $145,000 for the three months ended September 30, 2001 and 2000, respectively. The Irvine Company and the Partnership jointly purchase employee health care insurance and property and casualty insurance. The Partnership incurred rent totaling $464,000 and $418,000 for the nine months ended September 30, 2001 and 2000, respectively, and $170,000 and $140,000 for the three months ended September 30, 2001 and 2000, respectively, related to leases with The Irvine Company that expire at the end of 2003. IAMC incurred rent totaling $264,000 and $214,000 for the nine months ended September 30, 2001 and 2000, respectively, and $87,000 and $82,000 for the three months ended September 30, 2001 and 2000, respectively, related to a lease with The Irvine Company that expires in June 2005.

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 $9.6 million and $12.7 million for the nine months ended September 30, 2001 and 2000, respectively, and $4.3 million and $5.6 million for the three months ended September 30, 2001 and 2000, respectively. The aggregate amount incurred by the Partnership for such costs was $10.2 million and $8.9 million for the nine months ended September 30, 2001 and 2000, respectively, and $2.4 million and $2.9 million for the three months ended September 30, 2001 and 2000, respectively.

Included in other assets at September 30, 2001 is approximately $658,000 due from The Irvine Company. The amount represents a receivable of the Partnership for general and administrative costs and development costs incurred by the Partnership on behalf of The Irvine Company.

Included in accounts payable and accrued liabilities at September 30, 2001 is approximately $165,000 due to The Irvine Company. The amount represents a payable to The Irvine Company for information technology costs incurred by The Irvine Company on behalf of the Partnership.

During the first quarter of 2001, the Partnership recorded interest income of approximately $48,000 related to amounts due from The Irvine Company at the end of 2000. Amounts due from The Irvine Company accrued interest at 5.73%. As of September 30, 2001, The Irvine Company had advanced to the Partnership $25 million for construction purposes. During the third quarter of 2001, the Partnership recorded interest expense of approximately $102,000 relating to advances from The Irvine Company, with the interest accruing at 3.05%. For the three and nine

Page 11

months ended September 30, 2000, the Partnership incurred net interest expense of approximately $321,000 and $489,000, respectively, relating to advances from The Irvine Company, with interest accruing at 5.73%.

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 shall bear interest at a variable or fixed rate to be quoted by the Partnership however the rate shall not be lower than the applicable federal rate or 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. As of September 30, 2001, there were no borrowings under the Loan Agreement.

Page 12

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion compares the activities of the Partnership for the three and nine month periods ended September 30, 2001 (unaudited) with the activities of the Partnership for the three and nine month periods ended September 30, 2000 (unaudited). The Trust is a limited purpose financing vehicle established by the Partnership and exists for the sole purpose of issuing preferred securities and investing the proceeds thereof in preferred limited partnership units of the Partnership.

The following discussion should be read in conjunction with all the financial statements appearing elsewhere in this report, as well as the information presented in the Partnership’s and the Trust’s Annual Report on Form 10-K for the year ended December 31, 2000.

Certain information set forth below is forward looking and involves various risks and uncertainties. Such information is based upon a number of estimates and assumptions that inherently are subject to business, economic and competitive uncertainties and contingencies, many of which are beyond the Partnership’s control.

Results of Operations

Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000.

The Partnership’s net income was $16.4 million for the three months ended September 30, 2001, down from $19.7 million for the same period of 2000. The Partnership’s net income decreased in 2001 due to an increase in interest expense related to the additional conventional mortgage financings in 2000 and tax-exempt mortgage bond financing in 2001. The decrease was offset, in part, by an increase in rental rates within its stabilized portfolio.

Revenue and Expense Data

			Three Months Ended
			September 30,
			2001		2000
(dollars in thousands)
	Number of stabilized communities			58		56
	Number of operating units at end of period			18,651		17,797
	Consolidated Information:
		Operating revenues	$	79,318	$	74,558
		Property expenses	$	19,671	$	17,150
		Real estate taxes	$	6,343	$	5,713

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 6.4% to $79.3 million in the third quarter of 2001, up from $74.6 million in the same period of 2000. Operating revenues 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.

Property expenses increased by 14.7% to $19.7 million in the third quarter of 2001, up from $17.2 million in the same period of 2000. The 2001 increase reflects incremental expenses from newly delivered rental units and communities stabilized during 2001. To improve operating efficiency and reduce operating costs, the Partnership formed IAMC in March 1998 to manage the Partnership’s properties. The personnel and office costs of IAMC are included in property expenses.

Page 13

Real estate taxes totaled $6.3 million in the third quarter of 2001 and $5.7 million in the same period of 2000. Real estate taxes increased in the third quarter of 2001 due primarily to the addition of new rental units.

Net interest expense increased to $16.8 million in the third quarter of 2001 compared to $13.0 million in the same period of 2000. Total interest incurred was $18.1 million in the third quarter of 2001 and $14.5 million in the same period of 2000. Total interest incurred increased due to the impact of the Partnership’s additional conventional mortgage financings in 2000 and tax-exempt mortgage bond financing in 2001. Capitalized interest totaled $1.3 million in the third quarter of 2001 and $1.5 million in the same period of 2000. The Partnership capitalizes interest on projects actively under development using qualifying asset balances and applicable weighted average interest rates.

Depreciation and amortization expense increased to $15.8 million in the third quarter of 2001, up from $13.6 million in the same period of 2000. The increase in 2001 was mostly due to the completion and delivery of newly developed rental units.

General and administrative expense decreased to $1.5 million in the third quarter of 2001, down from $2.0 million in the same period of 2000. The decrease in 2001 was due to cost reductions related to staffing and associated overhead costs.

Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000.

The Partnership’s net income was $52.2 million for the nine months ended September 30, 2001, up from $49.5 million for the same period of 2000. The Partnership’s net income increased in 2001 due to an increase in rental rates within its stabilized portfolio. The increase was offset, in part, by an increase in interest expense related to the additional conventional mortgage financings obtained in 2000 and tax-exempt mortgage bond financing in 2001.

Revenue and Expense Data

			Nine Months Ended
			September 30,
			2001		2000
(dollars in thousands)
	Number of stabilized communities			58		56
	Number of operating units at end of period			18,651		17,797
	Consolidated Information:
		Operating revenues	$	234,415	$	213,267
		Property expenses	$	55,868	$	50,214
		Real estate taxes	$	18,099	$	16,684

Operating revenues (rental and other income) increased by 9.9% to $234.4 million in the first nine months of 2001, up from $213.3 million in the same period of 2000. Operating revenues 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.

Property expenses increased by 11.3% to $55.9 million in the first nine months of 2001, up from $50.2 million in the same period of 2000. The 2001 increase reflects incremental expenses from newly delivered rental units and communities stabilized during 2001.

Real estate taxes totaled $18.1 million in the first nine months of 2001 and $16.7 million in the same period of 2000. Real estate taxes increased in the first nine months of 2001 due primarily to the addition of new rental units.

Net interest expense increased to $48.5 million in the first nine months of 2001 compared to $38.2 million in the same period of 2000. Total interest incurred was $52.9 million in the first nine months of 2001 and $43.1 million in

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the same period of 2000. The increase in interest incurred in the first nine months of 2001 was primarily due to the impact of the Partnership’s additional conventional mortgage financings in 2000 and the tax-exempt mortgage bond financing in 2001. Capitalized interest totaled $4.4 million in the first nine months of 2001 and $4.9 million in the same period of 2000. The Partnership capitalizes interest on projects actively under development using qualifying asset balances and applicable weighted average interest rates.

Depreciation and amortization expense increased to $44.5 million in the first nine months of 2001, up from $43.0 million in the same period of 2000. The increase in 2001 was mostly due to the completion and delivery of newly developed rental units.

General and administrative expense increased to $6.3 million in the first nine months of 2001, up from $5.9 million in the same period of 2000. The increase in 2001 was the result of additional employee related costs incurred during the first half of 2001.

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.

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 6.43% at September 30, 2001.

Debt Structure at September 30, 2001

			Debt		Weighted Average
			Balance		Interest Rate
(dollars in thousands)
Fixed rate debt
	Conventional mortgage financings		$	503,281		7.51	%
	Mortgage notes payable to The Irvine Company			57,760		6.14	%
	Tax-exempt assessment district debt			4,645		6.29	%
	Unsecured tax-exempt bond financings			334,190		4.93	%
	Unsecured notes payable			99,455		7.10	%
		Total fixed rate debt		999,331		6.52	%
Variable rate debt
	Tax-exempt mortgage bond financings			19,200		3.30	%
	Tax-exempt assessment district debt			15,600		4.60	%
	Unsecured tax-exempt bond financings			50,038		3.30	%
		Total variable rate debt		84,838		3.54	%
		Total debt	$	1,084,169		6.29	%

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Operating Activities: Cash provided by operating activities was $115.3 million and $124.5 million in the first nine months of 2001 and 2000, respectively. Cash provided by operating activities decreased in the first nine months of 2001 compared to the same period in 2000 primarily due to an increase in interest expense and changes in working capital during the first nine months of 2001 partially offset by an increase in the Partnership’s NOI.

Investing Activities: Cash used in investing activities was $82.9 million and $102.7 million in the first nine months of 2001 and 2000, respectively. The decrease reflects decreased development activity in the first nine months of 2001 as compared to 2000.

Financing Activities: Cash used in financing activities was $119.2 million and approximately $565,000 in the first nine months of 2001 and 2000, respectively. Cash used in financing activities increased primarily as a result of the net proceeds from borrowings and advances during the first nine months of 2000 and the redemption of the Series B Preferred Limited Partner Units during the first nine months of 2001.

Capital Expenditures

Capital expenditures consist of capital improvements and investments in real estate assets. Capital improvements to operating real estate assets totaled $3.2 million and $1.8 million in the first nine months of 2001 and 2000, respectively. Capital investments in real estate assets totaled $79.7 million and $101.0 million in the first nine months of 2001 and 2000, respectively. These investments consisted of new development 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 $2.3 million in the first nine months of 2001. These expenditures were made at six properties: Promontory Point, Turtle Rock Vista, Rancho San Joaquin, Park West, Woodbridge Willows, and The Bays.

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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 $344 million, of which $210 million had been incurred as of September 30, 2001. Funding for these developments is expected to come from borrowings from financial institutions and refinancing of long-term debt. The Partnership has no plans for future development beyond the remaining two apartment communities currently under development.

Construction Information

								Total
						Commencement		Estimated Costs
Apartment Community			Location	Units		of Construction		(in millions)
On Irvine Ranch:
	Villa Siena(1)		Irvine		1,442		2/99	$	298
Off Irvine Ranch:
	Franklin Street		Redwood City		206		11/00		74
		Total			1,648			$	372

(1) As of September 30, 2001, 818 units were delivered and 596 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 enters 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.

Recently Issued Accounting Standards

In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and its amendments Statements No. 137 and 138, in June 1999 and June 2000, respectively, (collectively, the “Statements”). The Statements are effective for fiscal years beginning after June 15, 2000 (January 1, 2001 for the Partnership). The Partnership adopted the new Statements on January 1, 2001; however, because the Partnership currently has no derivatives, there is currently no impact on the financial position or the results of operations of the Partnership.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Refer to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2000 for detailed disclosure about quantitative and qualitative disclosures about market risk. Quantitative and qualitative disclosures about market risk have not materially changed since December 31, 2000.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

     Not applicable.

Item 2. Changes in Securities and Use of Proceeds.

     Not applicable.

Item 3. Defaults Upon Senior Securities.

     Not applicable.

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

     Not applicable.

Item 5. Other Information.

     Not applicable.

Item 6. Exhibits and Reports on Form 8-K.

     (a) Exhibits:

     None.

     (b) During the third quarter of 2001, the Partnership and the Trust filed no current reports on Form 8-K.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.

IRVINE APARTMENT COMMUNITIES, L.P.

By:   Irvine Apartment Communities LLC
its sole general partner

Date: November 12, 2001 By:   /s/ Michael D. McKee
————————————

Michael D. McKee
Vice Chairman,
Chief Financial Officer and Secretary

IAC CAPITAL TRUST

Date: November 12, 2001 By:   /s/ David A. Patty
————————————

David A. Patty
Regular Trustee

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