(Mark One)

Commission file number 1-14369

AMERICAN COMMUNITY PROPERTIES TRUST
(Exact name of registrant as specified in its charter)

222 Smallwood Village Center
St. Charles, Maryland 20602
(Address of principal executive offices)(Zip Code)
(301) 843-8600
(Registrant's telephone number, including area code)

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

Securities registered pursuant to Section 12(g) of the Act: None

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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/

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

As of June 30, 2003 the aggregate market value of the common shares held by non-affiliates of the registrant based on the closing price reported on the American Stock Exchange was $12,713,684. As of March 1, 2004, there were 5,191,554 common shares outstanding.

Portions of the Proxy Statement to be filed with the Securities and Exchange Commission for Registrant's 2004 Annual Meeting of Shareholders to be held in June 2004 are incorporated by reference into Part III of this report.

References to "we," "us," "our" or the "Company" refer to American Community Properties Trust and our business and operations conducted through our subsidiaries.

On March 17, 1997, American Community Properties Trust ("ACPT" or "the Company"), a wholly owned subsidiary of Interstate General Company L.P. ("IGC" or "Predecessor"), was formed as a real estate investment trust under Article 8 of the Maryland Corporation Associations Code (the "Maryland Trust Law"). ACPT was formed to succeed to most of IGC's real estate assets.

On October 5, 1998, IGC transferred to ACPT the common shares of four subsidiaries that collectively comprised the principal real estate operations and assets of IGC. In exchange, ACPT issued to IGC 5,207,954 common shares of ACPT, all of which were distributed to the partners of IGC.

ACPT is a self-managed holding company that is primarily engaged in the investment of rental properties, property management services, community development and homebuilding. These operations are concentrated in the Washington, D.C. metropolitan area and Puerto Rico and are carried out through American Rental Properties Trust ("ARPT"), American Rental Management Company ("ARMC "), American Land Development U.S., Inc. ("ALD") and IGP Group Corp. ("IGP Group") and their subsidiaries. ACPT is taxed as a partnership. ARPT, ARMC and ALD are taxed as U.S. corporations and IGP Group's income is subject to Puerto Rico income taxes.

ARPT holds partnership interests in 15 investment apartment properties ("U.S. Apartment Partnerships") indirectly through American Housing Properties L.P. ("AHP"), a Delaware partnership, in which ARPT has a 99% limited partner interest and American Housing Management Company, a wholly owned subsidiary of ARPT, has a 1% general partner interest.

ARMC performs the United States property management operations. The U.S. property management operations provide management services for the U.S. Apartment Partnerships and for other rental apartments not owned by ACPT.

ALD owns and operates the assets of ACPT's United States community development operations. These include the following:

1. A 100% interest in St. Charles Community LLC which holds approximately 4,300 acres of land in St. Charles, Maryland; and
2. The Class B interest in Interstate General Properties Limited Partnership S.E., a Maryland partnership ("IGP") that represents IGP's rights to income, gains and losses associated with land in Puerto Rico held by Land Development Associates, S.E. ("LDA"), a 100% subsidiary of IGP and designated for development as saleable property.

IGP Group owns and operates the assets of ACPT's Puerto Rico division indirectly through a 99% limited partnership interest and 1% general partner interest in IGP excluding the Class B IGP interest transferred to ALD. IGP's assets and operations include:

1. a 100% partnership interest in LDA, a Puerto Rico special partnership, which holds 180 acres of land in the planned community of Parque Escorial and 490 acres of land in Canovanas;
2. general partner interests in 9 Puerto Rico apartment partnerships, limited partner interest in 1 of the 9 partnerships;
3. a limited partnership interest in ELI, S.E. ("ELI"), that shares 45.26% of the future cash flow generated from a 30 year lease to the State Insurance Fund of the Government of Puerto Rico; and
4. a 100% ownership interest through LDA and IGP in Brisas de Parque Escorial, Inc. ("Brisas") and Escorial Office Building I, Inc., Puerto Rico corporations which were organized to build 208 condominium units and a three-story office building of 57,000 sq. ft. of construction area, respectively.

Set forth below is a brief description of these businesses.

ACPT, indirectly through its subsidiary, ARPT, and ARPT's limited partnership subsidiary, American Housing Properties L.P. ("AHP"), hold interests in 15 U.S. apartment partnerships that own and operate apartment facilities in Maryland and Virginia. The U.S. apartment partnerships own a total of 2,472 rental units. Each of the apartment properties is financed by a mortgage that is non-recourse to the apartment partnership. Under non-recourse mortgages, the partners are not jointly and severally liable for the debt. The U.S. Department of Housing and Urban Development ("HUD") provides rent subsidies to the projects for residents of 993 apartment units and interest subsidies to projects comprising 248 units, excluding units receiving rent subsidies included in the 993 units above. In addition, 110 units are leased pursuant to HUD's Low Income Housing Tax Credit ("LIHTC") program, and 190 other units are leased under income guidelines set by the Maryland Community Development Administration. The remaining 931 units are leased at market rates.

The partnership agreements of nine of the U.S. apartment partnerships representing 54% of the 2,472 rental units provide that AHP will receive between 50% and 99.9% of distributable surplus cash from operations, refinancings or dispositions as general partner. In two of those partnerships representing 12% of the 2,472 rental units, AHP also receives 25.5% of the distributable surplus cash from operations as a limited partner. One partnership representing 8% of the 2,472 rental units is wholly owned. In three other partnerships representing 12% of the 2,472 rental units, AHP receives 0% to 5% of the distributable surplus cash from operations as general partner until the limited partners have received cash distributions equal to their contributed capital. Thereafter, AHP as general partner will receive 50% of the distributable cash flow from operations, refinancings and dispositions. In two partnerships representing 10% of the 2,472 rental units, AHP also receives 51% of the cash distributions as limited partner. Once the limited partners have received cash distributions equal to their capital contributions, AHP's general partner's distributions increase to 50% and its share of limited partnership distributions decreases to 25.5%. In one of these partnerships, AHP will receive 1% of the distributable cash flow from operations.

We are actively seeking additions to our rental property portfolio. Currently, we are in the development and finance acquisition stage of a new 252-unit apartment complex in Fairway Village in St. Charles. Preliminary cost estimates for the property (excluding the land held in our land inventory) are expected to range between $95,000 and $100,000 per unit. In addition, we are currently pursuing various opportunities to purchase apartment properties in the Washington, D.C. area.

The table below sets forth the name of each U.S. apartment partnership; the number of rental units in the property owned by such partnership; the percentage of all units held by U.S. apartment partnerships; the project cost; the percentage of such units under lease; and the expiration date for any subsidy contract:

1. Not subsidized.
2. Receives subsidies under the National Housing Act up to a maximum of $462,480 per year.
3. Not subsidized. ACPT acquired an ownership interest on January 23, 2003.
4. Not subsidized, but 20% of the units are subject to income guidelines set by the Maryland Community Development Administration ("MCDA").
5. Receives subsidies under the National Housing Act up to a maximum of $1,486,752 per year.
6. Not subsidized, but 51% of the units are subject to income guidelines set by the MCDA.
7. 56 units are subsidized under a six-month contract and receive subsidies under the National Housing Act up to a maximum of $259,530 for the period indicated. 96 units are not subsidized, but 51% of these are subject to income guidelines set by MCDA.
8. Receives subsidies under the National Housing Act up to a maximum of $242,640 per year. In addition, these properties receive interest rate subsidies.
9. Receives subsidies under the National Housing Act up to a maximum of $117,840 per year. In addition, these properties receive interest rate subsidies.
10. Not subsidized, but all units are set aside for low to moderate income tenants over 62 years of age under provisions set by the LIHTC program.
11. Receives subsidies under the National Housing Act up to a maximum of $4,027,296 per year.
12. Receives subsidies under the National Housing Act up to a maximum of $2,177,424 per year.
13. Not subsidized, but all units are set aside for low to moderate income tenants over 55 years of age under provisions set by the LIHTC program.

ACPT, indirectly through IGP holds interests in 9 Puerto Rico apartment partnerships which collectively own and operate a total of 12 apartment facilities in Puerto Rico. The Puerto Rico apartment partnerships own a total of 2,653 rental units, all of which receive rent subsidies from HUD. The properties held by the Puerto Rico apartment partnerships are financed by non-recourse mortgages.

Five of the Puerto Rico partnership agreements representing 67% of the 2,653 rental units provide that IGP receive 50% of the net cash flow from operations. In the remaining four partnerships, representing 33% of the 2,653 rental units IGP receives a 0% to 1% interest in profits, losses and net cash flow from operations until the limited partners have received cash distributions equal to their capital contributions. Thereafter, IGP will share 50% of cash distributions from operations, refinancing and disposition. As a result of loans made to various Puerto Rico apartment partnerships, IGP also holds notes receivable from four of these partnerships. The notes are required to be paid prior to paying partnership distributions from refinancing, sale or other capital events.

Puerto Rico has a population of approximately 3.9 million inhabitants, and the Puerto Rico Planning Board projects the population will continue to grow. Construction in the residential sector has shifted from single-family homes to multi-family dwellings such as walk-up condominiums. As presented in the 2003 Economic Report to the Governor, per capita personal income is $10,969 with an average family income of $37,221 in fiscal year 2003. The economy of Puerto Rico registered growth in constant dollars of 1.9% in 2003.

The table below sets forth the name of each apartment property owned by the Puerto Rico apartment partnerships; the number of rental units in the property owned by such partnership; the percentage of all units held by Puerto Rico apartment partnerships; the project cost; the percentage of such units under lease; and the expiration date for any subsidy contract:

In December 1998, LDA transferred title to a seven-acre site in Parque Escorial's office park on which a 150,000 square foot building was built by ELI, a special partnership in which LDA holds a 45.26% interest in future cash flow generated by the building lease. The building is leased to the State Insurance Fund of Puerto Rico, a Government Agency, for 30 years at the end of which the lessee can acquire it for $1. For income tax and book purposes, the lease is considered a finance lease; therefore, the lease payments are treated as mortgage payments. A significant portion of the lease payments consist of interest due from a government agency which when received by ELI are tax-free. The tax-free status stays intact when ELI distributes its income to LDA.

In October 2003, IGP transferred a parcel of land from their Parque Escorial land inventory to a wholly owned subsidiary for the purpose of constructing a 57,000 sq. ft. three story office building. The building is being constructed on 2.1 acres in the Parque Escorial Office Park, for a total cost of $10.7 million and is projected to be ready for occupancy in January 2005.

LDA also owns approximately 490 acres adjacent to the El Comandante Race Track in Canovanas, Puerto Rico. Portions of the land may also be developed for residential use. At present, LDA is in the process of developing and/or leasing the land for a fully integrated entertainment complex consisting of movie studios, an amphitheater, and an amusement park. In 1999, the Puerto Rico Government enacted Bill 1958, "The Film Industry Law". This law provides tax incentives and credits to producers, film projects and infrastructure developers in an effort to attract the film industry to Puerto Rico. In 2004, LDA filed an application with the Puerto Rico Film Commissioner to obtain a license in order to benefit from the incentives provided by the Film Industry Law for Infrastructure Projects; however, there are no assurances that we will obtain the license or the other requirements to move forward with this project.

HUD subsidies are provided principally under Sections 8 and 236 of the National Housing Act. Under Section 8, the government pays to the applicable apartment partnership the difference between market rental rates (determined in accordance with government procedures) and the rate the government deems residents can afford. Under Section 236, the government provides interest subsidies directly to the applicable apartment partnership through a reduction in the property's mortgage interest rate. In turn, the partnership provides a corresponding reduction in resident rental rates. In compliance with the requirements of Section 8 and Section 236, ARMC or IGP screens residents for eligibility under HUD guidelines. Subsidies are provided under contracts between the federal government and the apartment partnerships that are renewed annually.

Cash flow from projects whose mortgage loans are insured by the Federal Housing Authority ("FHA"), or financed through the housing agencies in Maryland, Virginia or Puerto Rico (the "State Financing Agencies,") are subject to guidelines and limits established by the apartment partnerships' regulatory agreements with HUD and the State Financing Agencies. The regulatory agreements also require that if cash from operations exceeds the allowable cash distributions, the surplus must be deposited into restricted escrow accounts held by the mortgagee and controlled by HUD or the applicable State Financing Agency. Funds in these restricted escrow accounts may be used for maintenance and capital improvements with the approval of HUD and/or the State Finance Agency.

The federal government has virtually eliminated subsidy programs for new construction of low and moderate income housing by profit-motivated developers such as ACPT. As a result, no new construction of apartment projects is expected in Puerto Rico. Any new apartment properties developed by ACPT in the U.S. will likely offer market rate rents.

Subsidy contracts for ACPT's investment apartment properties are scheduled to expire between 2004 and 2021. ACPT intends to seek the renewal of expiring subsidy contracts for its properties, with the exception of Wakefield Third Age where we have provided the required one-year notice to option out of the subsidy contracts. HUD has in the past approved new subsidy contracts for five-year terms, renewable annually. Please refer to the tables shown on the preceding pages for the expiration dates and amounts of subsidies for the respective partnerships.

HUD has received Congressional authority to convert expired contracts to resident-based vouchers. This would allow residents to choose where they wish to live, which is likely to include the dwelling unit in which they currently reside. This may negatively impact the income stream of certain properties. However, ACPT intends to maintain its properties in order to preserve their values and retain residents.

The HUD contract renewal process has been revised annually. Owners have six options for renewing their Section 8 contract depending upon whether the owner can meet the eligibility criteria. Historically, we have met the criteria necessary to renew our Section 8 contracts.

ACPT's investment properties that receive rent subsidies are not subject to the same market conditions as properties charging market rate rents. The Company's subsidized properties average annual occupancy is approximately 98%. ACPT's apartments in St. Charles that have market rate rents are impacted by the supply and demand for competing rental apartments in the area, as well as the local housing market. Our occupancy for our market rate properties range from 89% to 98%. When for-sale housing becomes more affordable due to lower mortgage interest rates or softening home prices, this can adversely impact the performance of rental apartments. Conversely, when mortgage interest rates rise or home prices increase the market for apartment rental units typically benefits.

ACPT does not currently intend to convert any of its U.S. properties into condominiums.

Most of ACPT's apartment properties in Puerto Rico were designed, located and maintained with the expectation that they may be converted into condominiums upon the expiration of subsidy contracts 20 to 40 years after construction. The demand for centrally located residential units within the San Juan metropolitan area, coupled with the acceptance of the condominium concept in Puerto Rico, make condominium conversions of these apartment units an attractive strategy.

ACPT's subsidiary, IGP, has been successful in converting rental apartments, having previously converted 2,192 units in Puerto Rico owned by IGP and certain affiliates. ACPT does not intend to convert other Puerto Rico properties at this time, and will pursue extensions of subsidy contracts as they mature.

ACPT, indirectly through its subsidiary ARMC, operates a property management business in the Washington, D.C. metropolitan area and in Richmond, Virginia. ARMC earns fees from the management of 4,176 rental apartment units. ACPT holds an ownership interest in 2,472 units, including the 226 units purchased in January 2003. Management fees for the 2,472 units are based on a percentage of rents ranging from 3.5% to 9.8%. The management contracts for these properties have terms of one or two years and are automatically renewed upon expiration but may be terminated on 30 days notice by either party. Management fees for other apartment properties owned by or affiliated with J. Michael Wilson, Chairman and CEO of ACPT, range from 3% to 4.5% of rents.

IGP earns fees from the management of 2,653 rental apartment units owned by the nine Puerto Rico apartment partnerships in which IGP holds an ownership interest. Management fees for these apartment properties, like those in the U.S., are based on a percentage of rents ranging from 2.85% to 9.25%. The management contracts for these properties have terms of three years and are customarily renewed upon expiration. IGP is also entitled to receive up to an aggregate of $192,000 annually in certain incentive management fees with respect to six properties owned by the Puerto Rico apartment partnerships.

IGP currently manages 918 rental apartments owned by a non-profit entity, which acquired the units from IGP in 1996 under the provisions of the Low Income Housing Preservation and Resident Home Ownership Act (also known as LIHPRHA). The management agreements for these properties expire March 15, 2004 and are expected to be renewed for one year at the current rate.

ACPT's community development assets consist of more than 4,700 acres of developed and undeveloped land in the master planned communities of St. Charles, Maryland, Parque Escorial in Carolina, Puerto Rico and Parque El Comandante in Canovanas, Puerto Rico. The land in St. Charles and Parque Escorial is being developed by ACPT and its subsidiaries for a variety of residential uses, including single-family homes, townhomes, condominiums and apartments, as well as commercial and industrial uses. ACPT has identified approximately 49 acres of Parque El Comandante to be developed for commercial use.

ACPT, indirectly through ALD, owns approximately 4,250 undeveloped acres in the planned community of St. Charles, which is comprised of a total of approximately 9,100 acres (approximately 14 square miles) located in Charles County, Maryland, 23 miles southeast of Washington, D.C.

Based on figures prepared by the Charles County Department of Planning and Growth Management ("DPGM"), the population of Charles County grew to 124,145 in 2000, up from 101,000 in 1990, and is projected to increase at a rate of 2% per year, reaching a total of 182,000 by 2020. Charles County was the ninth fastest growing county in the state between 1990 and 2000 census with an average annual growth rate during that period of 1.77%. The 2002 average household income in Charles County is estimated at $78,948. Building permit activity for new structures decreased to 2,528 permits issued in Charles County in 2003 compared to 2,846 permits issued in 2002. This reflects a decrease of 11%.

St. Charles is comprised of five separate villages: Smallwood Village (completed), Westlake Village (substantially completed), Fairway Village (currently under development), and Piney Reach and Wooded Glen, both undeveloped. Each of the developed villages consist of individually planned neighborhoods, and include schools, churches, recreation centers, sports facilities, and a shopping center. Other amenities include parks, lakes, hiking trails and bicycle paths. St. Charles also includes an 18-hole public golf course in its Fairway Village community. Each community is planned for a mix of residential housing, including detached single-family homes, townhomes, multiplex units and rental apartments. Typical lot sizes for detached homes range from 6,000 to 8,000 square feet.

The development of St. Charles as a planned unit development ("PUD") began in 1972 when Charles County approved a comprehensive PUD agreement for St. Charles. This master plan contemplates construction of approximately 24,730 housing units and 1,390 acres of commercial and industrial development. As of December 31, 2003, there were more than 11,000 completed housing units in St. Charles, including Carrington neighborhood, which began prior to 1972 and is not included in the PUD. In addition there are schools, recreation facilities, commercial, office and retail space in excess of 4.4 million square feet. In St. Charles, ACPT, through outside planners, engineers, architects and contractors, obtains necessary approvals for land development, plans individual neighborhoods in accordance with regulatory requirements, constructs roads, utilities and community facilities. ACPT develops lots for sale for detached single-family homes, townhomes, apartment complexes, and commercial and industrial development.

Fairway Village, named for the existing 18-hole public golf course it surrounds, is under development. The master plan provides for 3,346 dwelling units on 1,287 acres, including an industrial park and a 40-acre commercial center. Opened in 1999, Fairway Village continues to experience increased buyer activity and home sales as evidenced by the 88 lots settled in 2003 by Washington Homes, Inc., NVR (Ryan Homes) and Rainbow Homes. The original model home park has been converted for residential occupancy, and a new model home park is under construction at this time. Builders have settled 382 fully developed single-family lots in the first five parcels. Infrastructure construction has begun on the next 69 lots with delivery expected in May of 2004. Engineering of an additional 91 lots is in review by the County, and construction should commence in the summer of 2004.

In November 2002, we reached an agreement with the U.S. Home Corporation to develop as many as 400 units in an active adult community in Fairway Village. Construction is expected to commence in the second quarter of 2004.

In March 2004, the Company executed an agreement with a major homebuilder to purchase approximately 1,950 residential lots, approximately 1,359 single-family lots and 591 town home lots in Fairway Village. The agreement requires the homebuilder to provide $20 million of letters of credit to secure the purchase of the lots. These letters of credit will be used as collateral for major infrastructure loans from the Charles County Commissioners of up to $20 million. For each lot sold in Fairway Village, the Company will deposit $10,300 in an escrow account to fund the principal payments due to the Charles County Commissioners. Under the agreement, the builder is required to purchase at a minimum 200 residential lots developed by the Company per year on a cumulative basis. The price of the lots will be calculated based on 30% of the base sales price of homes sold by the builder. The current selling price of townhomes in this area is approximately $200,000 while single-family homes are selling in the $250,000 to $300,000 range. Based on 200 lot sales per year, it is estimated that settlements will take place over the next ten years.

The last two villages, Wooded Glen and Piney Reach, comprise approximately 3,000 acres, and are planned for development near the completion of Fairway Village. The County Commissioners must approve the total number and mix of residential units before development can begin. There can be no assurances that the total 24,730 units in St. Charles' master plan can be attained.

Our backlog as of December 31,2003 within our U.S. operations consisted of one single-family lot located inside the model park, at a base selling price of $70,000 and 4.1 acres of commercial land totaling $251,600.

The St. Charles master plan has been incorporated into Charles County's comprehensive zoning plan. In addition, the Charles County government has agreed to provide sufficient water and sewer connections for the balance of the housing units to be developed in St. Charles. Specific development plans for each village in St. Charles are subject to approval of the County Planning Commission. Such approvals have previously been received for the villages of Smallwood, Westlake and Fairway. Approvals have not yet been sought on the final two villages.

In 2001, the Charles County Commissioners enacted the Adequate Public Facilities Policy. This policy limits the number of residential building permits issued to the amount of school allocations calculated in a given period.

Under a settlement agreement reached between ACPT and the County, the County will provide guaranteed school allocations to St. Charles for 255 new dwelling units per year, cumulative through December 2005. The County will reevaluate the agreement in January 2005 in order to determine the number of additional school allocations necessary to sustain the continued development and sustained economic viability of the St. Charles PUD. There are no guarantees that the additional allocations will be granted. Under the settlement agreement, the County will also provide sewer connection for the next 2,000 units in Fairway Village at fees that will be $1,608 less per unit than the fee charged to builders outside of St. Charles. As of December 31, 2003, approximately 1,800 of the 2,000 units remained. Our agreement reached with the County also provides for the following: (i) a refund has been made to ACPT's predecessor for certain water and sewer fees previously paid; and (ii) the County has agreed to open the possibility of the Company's being allowed to annex additional contiguous land to St. Charles.

As part of the settlement agreement, the Company agreed to accelerate the construction of two major roadway links to the Charles County road system and to dismiss all pending water and sewer litigation. In accordance with the agreement, the Charles County Commissioners issued an $8,000,000 Consolidated Public Improvement Bond Offering ("Bonds") on behalf of the Company in March 2004. The fifteen-year bonds bear escalating interest rates of 4% to 5% and call for semi-annual interest payments and annual principal payments. The Charles County Commissioners will loan the Bond proceeds to the Company when certain major infrastructure development occurs over an eighteen-month period. In exchange, the Company will pay the County Commissioners a monthly payment equal to one-sixth of the semi-annual interest payments due on the Bonds and one-twelfth of the annual principal payment due on the Bonds. An additional $12,000,000 of bonds will be issued in the future. The loans from the County are collateralized by letters of credit from U.S. Home Corporation.

The complete terms of the settlement are contained in an Amended Order in Docket 90 before the County Commissioners of Charles County, a Consent Judgment in the Circuit Court, an Indenture, and a Settlement Agreement.

Competition among residential communities in Charles County is intense. Currently, there are approximately 30 subdivisions competing for new homebuyers within a five-mile radius of St. Charles. The largest competing housing developments are Kingsview, a 640-unit project being developed by Miller & Smith, Charles Crossing, a 451-unit project being developed by a local developer, and Highgrove, a 339-unit project also being developed by a local developer. Smaller projects are being developed by more than 20 other developers. The growing marketplace attracts major national and regional homebuilders. In this very price sensitive market, ACPT continues to position St. Charles to provide affordable building lots and homes while offering more amenities than the competition. A limited number of school allocation permits in Charles County has slowed the growth of new residential construction. The recent guarantee of school allocations of 255 new dwelling units per year, cumulative through December 2005, provides the Company with a competitive edge.

Management believes that the St. Charles master plan can be completed without material adverse environmental impact and in compliance with governmental regulations. In preparation for immediate and future development, Phase I Environmental Site Assessments have been prepared for substantially all of the undeveloped parcels. Historically the land has been used for farming and forestry and no significant environmental concerns were found. Jurisdictional determinations for wetlands have been approved by the Army Corps of Engineers for the Sheffield Neighborhood as well as parts of the Gleneagles Neighborhood in Fairway Village, the current phase of residential development. Management has developed an Environmental Policy Manual and has established an Environmental Review Committee and an Environmental Coordination Officer to anticipate environmental impacts and avoid regulatory violations. However, development can be delayed while local, state and federal agencies for environmentally sensitive areas are reviewing plans.

The ongoing process of land development requires the installation, inspection and maintenance of erosion control measures to prevent the discharge of silt-laden runoff from areas under construction. The capital expenditures for these environmental control facilities varies with the topography, proximity to environmental features, soil characteristics, total area denuded and duration of construction.

In 2003, we spent $63,000 for these costs. As land development continues, an annual cost of $100,000-$200,000 can be expected.

ACPT, indirectly holds a 100% interest in LDA, which in 1989 acquired the 427 acre site of the former El Comandante Race Track. The master plan for Parque Escorial was approved in 1994 and contemplates the construction of 2,700 dwelling units of various types on 282 acres and the development of 146 acres for commercial, office and light industrial uses. The commercial site is anchored by a Wal-Mart and Sam's Club, each consisting of 125,000 square feet. LDA has developed and sold 248 acres, and continues to own 180 acres of developed and undeveloped land. Parque Escorial is located approximately six miles from the central business district in San Juan, Puerto Rico.

Site improvements for the current residential phase, comprising approximately 2,096 units, are substantially complete. The Company has completed the development of a 208-unit homebuilding project and the remaining developed residential land has been sold, with the exception of one parcel for 160 units that will be transferred to IGP's subsidiary in 2004 for homebuilding operation. The next residential phase, comprising approximately 448 units, is in the design stage. There were no land sales in backlog within our Puerto Rico operations as of December 31, 2003.

Parque Escorial's master plan has been approved but specific site plans are subject to planning board review and approval. LDA has secured agreements with the Puerto Rico Aqueduct and Sewer Authority ("PRASA") to provide adequate water and sewer capacity for 2,200 units, which includes commercial land development. Historically PRASA has granted approvals for 400 units per year.

ACPT believes that in addition to developing commercial land for sale, opportunities exist to develop commercial rental properties in Puerto Rico, such as a film and television studio in its 524 acres community in Parque El Comandante. There can be no assurance that approvals for such development can be obtained, or if obtained that the Company will be able to successfully develop such land.

The Company believes that the scarcity of developable land in the San Juan metropolitan area creates a favorable market for condominium unit sales at Parque Escorial. Competition for condominium unit sales is expected primarily from condominium projects in areas the Company believes to be similar or less desirable than Parque Escorial. Parque Escorial's home prices appeal primarily to entry level purchasers.

Management of ACPT believes that the Parque Escorial master plan can be completed without material adverse environmental impact and in compliance with government regulations. All of the necessary agencies have endorsed Parque Escorial's environmental impact statement. Wal-Mart has provided mitigation for 12 acres of wetlands impacted by its development of the shopping center site and other land. An Erosion and Sedimentation Control Plan must be obtained prior to construction. This plan specifies the measures to be taken to prevent the discharge of silt-laden runoff from areas under construction. In 2003, we did not incur any of these costs. Once we begin development of the next phase, we expect to incur an estimated $10,000 per year during the development period.

During 2001, IGP formed a wholly owned subsidiary, Brisas, a Puerto Rico corporation, to construct and sell a 208-unit residential project. At December 31, 2003, the project was substantially completed and delivered 153 units with 55 units remaining to be delivered in 2004. There were 14 of these remaining units under contract with an average sales price per contract of $171,000. Each sale is backed by a $4,000 deposit and a non-contingent sales contract. Residential sales at Brisas have averaged eight units per month. The project is a "walk-up" type and is sold within the price range for FHA financing. The majority of the sales to date have been financed with conventional loans.

ACPT had 278 full-time employees as of December 31, 2003, 123 in the United States and 155 in Puerto Rico. Employees performing non-supervisory services through the Company's property management operations receive salaries funded by the owner partnerships.

ACPT files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). These filings are available to the public over the Internet at the SEC's web site at http://www.sec.gov. You may also read and copy any document the Company files at the SEC's public reference room located at 450 Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.

Our principal Internet address is www.acptrust.com. We make available, free of charge, on or through www.acptrust.com our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

ACPT owns real property located in the United States and Puerto Rico. As of December 31, 2003, the Company's community development land holdings and current operating apartment properties consisted of the following:

Below is a description of all material litigation that ACPT or any of its subsidiaries are a party to.

Langley, et al vs. St. Charles Associates Limited Partnership, et al, No. 08-C-00-269; Circuit Court for Charles County, Maryland. On February 24, 2000, the owners of a parcel of land located in Charles County sued the Company and one of its officers in the Circuit Court for Charles County, Maryland. The complaint claimed damages allegedly flowing from trespass and restrictions of access to property resulting from the construction of a county road in Charles County. St. Charles Community, LLC, completed the construction in question by agreement with and permission from the County. The first and second counts of the complaint sought $10,000,000 in compensatory damages and $10,000,000 in punitive damages. The third and final count sought an easement and right of way to the county road. On April 13, 2001, the Circuit Court dismissed all individual corporate officers from the lawsuit and dismissed the second and third counts. The Circuit Court also ordered that the County Commissioners of Charles County be joined as defendants in the case. The plaintiffs responded by filing an amended complaint purporting to cure the defects prompting the dismissals and adding the County Commissioners as defendants. On October 12, 2001, the Circuit Court again dismissed the individual corporate officers and dismissed the second and third counts with prejudice. Finally, by order dated November 27, 2002, the Circuit Court granted summary judgment on the remaining trespass claim in favor of the Company.

The plaintiffs have filed an appeal to the Maryland Court of Special Appeals, which is still pending. However, the parties to the appeal have recently reached an agreement in principle that, once finalized, would lead to dismissal of the appeal. The parties are in the process of formalizing this agreement.

St. Charles Planning & Design Review Board-Smallwood Village vs. George C. Vann, et al., No. 08-C-01-264; Circuit Court for Charles County, Maryland. On May 21, 2001, the Company was named as a third-party defendant in a three count complaint alleging that the Company schemed with the County Commissioners, one employee of the County, the St. Charles Planning & Design Review Board ("PDRB"), and the managing agent for the PDRB to prevent him from obtaining signage for one of his lots and the development of a second lot. Each of the three counts seeks actual and compensatory damages in an amount to be proven at trial, plus punitive damages in the amount of $3,000,000. The trial judge granted the Company's Motion to Dismiss all counts of the complaint at a May 2002 hearing. Vann appealed the dismissal and the appellate court dismissed the appeal as premature. Once the underlying claim between PDRB and Mr. Vann is tried, Mr. Vann has the right to refile his appeal. The Company will continue to defend against these charges.

New Capitol Park Plaza Tenants Association v. American Rental Management Co., Capital Park Apartments L.P., et al., Case No. 03-CA-8183, District of Columbia Superior Court. On October 7, 2003, New Capitol Park Plaza Tenants Association and several individual tenants filed a suit against a number of parties including the Company arising largely out of disruptions caused by renovation of the premises at 201 I Street, SW, Washington, DC (the "Premises"). Affiliates of J. Michael Wilson, the Company's Chief Executive Officer, own the Premises, hired and supervised the construction contractor also named as a defendant. The Company is the managing agent of the Premises. Plaintiffs allege that the Defendants, including ARMC, failed to address various alleged security, safety and health conditions at the Premises. It also alleges that ARMC and other Defendants failed to supervise or monitor the activities of employees of ARMC and employees of other Defendants, as well as construction workers on site, allegedly resulting in the loss of personal property. The complaint contains eleven counts, three of which are alleged against ARMC only (two counts of negligence and one count of negligent entrustment) and six of which are alleged against ARMC and other Defendants (three counts for violations of the District of Columbia Consumer Protection Procedures Act; one count for breach of contract; one count for negligent retention of employees and construction contractors; and one count for intrusion upon seclusion -- privacy violations). In addition to the other relief requested, Plaintiffs sought a temporary restraining order. A hearing has already been held on Plaintiffs' motion for a temporary restraining order, which motion has been denied. Other relief sought by the Plaintiffs includes a preliminary injunction; a declaratory judgment, which, among other things, would relieve the tenants of their obligations under their respective leases; unquantified compensatory damages; attorneys' fees; punitive damages; and the greater of compensatory or liquidated damages pursuant to their claims under the Consumer Protection Procedures Act.

Constance and Joseph Stephenson v. American Rental Management Co., Capital Park Apartments L.P., et al., Case No. 04-CA-000572, District of Columbia Superior Court. On February 3, 2004, Constance and Joseph Stephenson filed a suit arising largely out of disruptions caused by renovation of the premises located at 201 I Street, SW, Washington, DC (the "Premises"). Affiliates of J. Michael Wilson, the Company's Chief Executive Officer, own the Premises and are named as defendants. The Company is the managing agent of the Premises. Plaintiffs alleged that the Defendants (including the Company) failed to address various alleged security and safety conditions at the Premises and also failed to supervise or monitor the activities of construction workers on site. The complaint contains four counts alleged against Defendants including the Company. Those four counts are for violation of the District of Columbia Consumer Protection Procedures Act, breach of implied warranty of habitability, negligence, and intentional infliction of emotional stress. As relief, Plaintiffs seek a temporary restraining order, compensatory damages of $3,000,000, as well as unquantified punitive damages, declaratory judgment, which, among other things would relieve them of their obligations under their respective leases, preliminary injunction, attorneys' fees and an injunction requiring the inspection and remediation of mold within the Plantiffs' apartment.

Karen Stephenson v. American Rental Management Co., Capital Park Apartments L.P., et al., Case No. 04-CA-000410, District of Columbia Superior Court. On February 3, 2004, Karen Stephenson filed a suit arising largely out of disruptions caused by renovation of the premises located at 201 I Street, SW, Washington, DC (the "Premises"). Affiliates of J. Michael Wilson, the Company's Chief Executive Officer, own the Premises and are named as defendants. The Company is the managing agent of the Premises. Plaintiff alleged that the Defendants (including the Company) failed to address various alleged security and safety conditions at the Premises and also failed to supervise or monitor the activities of construction workers on site. The complaint contains four counts alleged against Defendants including the Company. Those four counts are for violation of the District of Columbia Consumer Protection Procedures Act, breach of implied warranty of habitability, negligence, and intentional infliction of emotional stress. As relief, Plaintiff seeks a temporary restraining order, compensatory damages of $1,000,000, as well as unquantified punitive damages, declaratory judgment, which, among other things would relieve her of her lease obligations, preliminary injunction, attorneys' fees and an injunction requiring the inspection and remediation of mold within the Plantiff's apartment.

Nine Capitol Park Apartments Tenants v. American Rental Management Co., Capitol Park Apartments L.P., et al., Case No. 04-CA-001073, District of Columbia Superior Court. On February 10, 2004, nine tenants filed a suit against a number of parties including the Company as a result of various health and safety hazards arising largely out of disruptions caused by renovations at the premises located at 101 and 103 G Street, SW, Washington, DC (the "Premises"). Affiliates of J. Michael Wilson, the Company's Chief Executive Officer, own the Premises, hired and supervised the construction contractor and are named as a defendant. The Company is the managing agent of the Premises. Plaintiffs allege that the Defendants, including ARMC, failed to address various alleged security, safety and health conditions at the Premises. The complaint contains nine counts alleged against Defendants including the Company. The nine counts are for violation of the District of Columbia Consumer Protection Procedures Act, breach of express warranty, breach of implied warranty of habitability, actual fraud, constructive fraud, negligence, negligent misrepresentation, breach of contract and intentional infliction of emotional stress. As relief, the Plaintiffs are seeking $8,200,000 of compensatory and punitive damages in addition to attorneys' fees and court costs and a remediation of the mold problems within each Plantiff's apartment.

Nissan Auto, Inc. vs. Departamento de Transportacion Publica, et al, No. KDP97-2292, Superior Court of San Juan, Puerto Rico. On November 17, 1997, Nissan Auto, Inc. filed a claim against the Company and eighteen other parties. The charges stem from the construction of an overpass. Nissan Auto alleges that the construction material and heavy equipment blocked the entrances to their business causing irreparable damage. Plaintiff is seeking $2,000,000 in compensatory damages for lost business, additional damages not to be determined until the problem is cured and $120,000 for other damages and costs. On February 11, 2000, IGP filed suit in the Superior Court of San Juan, Puerto Rico adding General Accident Insurance Company and Royal Insurance Company, IGP's insurance companies, as third party defendants to the action. On May 24, 2000 General Accident Insurance Company indicated it would cover IGP in this case up to the limit of its policy of $2,000,000 and, therefore, no loss contingency has been recorded. During 2003, the insurance company's lawyer held several depositions with the experts of both parties. In October 2003, a new or amended loss of earnings report subscribed by the Plaintiff's expert witness states that after a reevaluation of the Plaintiff's account statements the new "adjusted loss earnings" amount to $600,214 instead of $1,193,092 claimed in their first report. In November 2003, the Defendant's expert witness filed a report regarding the Plaintiff's economic damages or loss of earnings claims. Pursuant to the expert witness' report, the Plaintiff's loss of earnings/economic damages does not exceed $17,800. The next Plaintiff and Defendant's expert witness deposition is scheduled for April 2004. The Court scheduled a status conference for March 2004.

Antonio Santiago Rodriguez, et als. vs. Municipio de Carolina; ELI G.P. Inc., et als, No. FDP2000-0265(403), Superior Court of Carolina, Puerto Rico. On May 13, 2002, Antonio Santiago Rodriguez, et al filed a claim against the Company and twelve other parties. The charges stem from the construction of a local baseball park to be donated by ELI to the Municipality of Carolina as part of the agreement to construct a building for the State Insurance Fund of Puerto Rico. Plaintiff alleges that during the construction of the park from May 1999 to July 2000, the site grading work caused rain waters to flood its place of business. Subsequently the Municipality of Carolina expropriated the land occupied by the Plaintiff who is seeking $813,500 in compensatory damages for lost business, equipment and property, and $250,000 for mental anguish and moral damages. The Company is a limited partner in ELI and, as such, should not have any liability. During a status conference held in January 2004, Plaintiff's attorney announced his resignation as legal counsel and requested an extension of time in order to allow the Plaintiff to hire a new legal counsel. The court granted permission and scheduled a continuance status conference for June 25, 2004. The claim has an extensive discovery of evidence outstanding and oral dispositions are also pending.

Comité Loiza Valley en Acción, Inc. vs. Cantera Hipódromo, Inc., Carlos Ortiz Brunet, his wife Frances Vidal; Land Development Associates, S.E.; Integrand Assurance Company; American International Insurance Company; et als, No. FPE97-0759(406), Superior Court of Carolina, Puerto Rico. On November 24, 1997, the Plaintiffs, resident owners of Urbanización Loiza Valley in Canovanas, Puerto Rico, a neighborhood consisting of 56 houses near the property owed by LDA, filed a claim against Cantera Hipodromo, Inc. (the "lessee" who operates a quarry on the land owned by LDA), the owners of the lessee, the lessee's Insurance Companies and LDA. The Plaintiffs allege that as a result of certain explosions occurring in the quarry, their houses have suffered different types of damages and they have also suffered physical injuries and mental anguish. The damages claimed exceed $11,000,000. The physical damage to the property is estimated at less than $1,000,000. The lease agreement contains an indemnification clause in favor of LDA. The lessee has public liability insurance coverage of $1,000,000 through Integrand Assurance Company and an umbrella insurance coverage of $2,000,000 through American International Insurance Company. Integrand's legal counsel has provided the legal defense for all parties to date but in September declared that the allegations in the complaint regarding public nuisance do not fall under their policy. In November 2003 the lessee's legal counsel filed a motion in opposition to such allegation. The Court postponed the trial scheduled for January 2004 and did not reschedule a new trial date.

Due to the inherent uncertainties of the judicial process and the early stage of certain of these actions, we are unable to either predict the outcome of or estimate a range of potential loss associated with, these matters. While we intend to vigorously defend these matters and believe we have meritorious defenses available to us, there can be no assurance that we would prevail. If any of these matters are not resolved in our favor, it could have a material adverse effect on our financial condition and results of operations.

ACPT is also a party from time to time in various legal proceedings arising in the ordinary course of business. In management's opinion, all of these matters, taken together, are not expected to have a material adverse impact on ACPT.

No matters were submitted to a vote of the shareholders during the fourth quarter of the fiscal year ended December 31, 2003.

The principal market for our Company's common shares is the American Stock Exchange under the symbol "APO" but it is also listed on the Pacific Exchange under the same trading symbol. As of the close of business on March 1, 2004, there were 156 shareholders of record of ACPT's common shares. On March 1, 2004, the closing price reported by the American Stock Exchange was $8.20. The table below sets forth, for the periods indicated, the high and low sales prices of the Company's shares as reported in the consolidated reporting system of the American Stock Exchange Composite.

Under the terms of the Declaration of Trust of ACPT, the Board of Trustees will make minimum annual distributions to the shareholders equal to at least 45% of the net taxable income allocated to the shareholders reduced by any Puerto Rico income tax paid by ACPT and any U.S. federal income taxes paid by ARPT with respect to undistributed capital gains.

There were no cash dividends paid on the Company's common shares in 2003 or 2002. In January 2004, the Company's Board of Trustees declared a cash dividend of $0.10 per share payable on February 25, 2004 to shareholders of record on February 11, 2004. Dividend distributions in addition to the required minimum distribution (as stated above) will be evaluated quarterly and made at the discretion of the Board of Trustees. In making such determinations, the Board of Trustees will take into account various factors, including ACPT's anticipated needs for cash for future expansion and development, current and anticipated expenses, obligations and contingencies, and other similar working capital contributions.

The following table sets forth selected consolidated financial and operating data of the Company for the five years ended December 31, 2003. It should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8. Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing in Item 8 of this report. Historical results set forth in Selected Financial Information, the Financial Statements and Supplemental Data included in Item 6 and Item 8 and this section should not be taken as indicative of our future operations.

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements about our business outlook, assessment of market and economic conditions, strategies, future plans, anticipated costs and expenses, capital spending, and any other statements that are not historical. The accuracy of these statements is subject to a number of unknown risks, uncertainties, and other factors that may cause our actual results, performance or achievements of the Company to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following:

• National, regional and local economic and business conditions that will, among other things, affect:

• Demand for residential lots, commercial parcels and multifamily housing
• The ability of the general economy to recover timely from the recent economic downturn
• Availability and creditworthiness of tenants
• The availability of financing for both our customers and us

• Adverse changes in the real estate markets, including, among other things:

• Competition with other companies
• Risks of real estate acquisition and development (including our ability to obtain governmental approvals for development projects and to complete our current development projects on time and within budget)
• Ability to repay or refinance our high level of debt

• Ability to renew HUD subsidy contracts and availability of federal funds on a timely basis to service these contracts

• Ability to obtain insurance at a reasonable cost
• Government actions and initiatives
• Environmental and safety requirements

ACPT and its representatives may from time to time make written and oral forward looking statements, including statements contained in press releases, in its filings with the Securities and Exchange Commission, in its reports to shareholders and in its meetings with analysts and investors.

The words "believes", "expects", "estimates", "anticipates" and other similar expressions are intended to identify forward-looking statements. Although the Company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Such forward-looking statements are based on current expectations and speak only as of the date of such statements. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise. Given these uncertainties, readers are cautioned not to place undue reliance on such statements.

American Community Properties Trust ("ACPT" or "Company") is a self managed holding company that is primarily engaged in the investment of rental properties, property management services, community development, and homebuilding through its consolidated subsidiaries. These operations are managed out of two primary offices: St. Charles, Maryland, which also houses the executive offices, and San Juan, Puerto Rico.

The U.S. operations are managed through American Rental Management Company ("ARMC"). This includes the management of apartment properties in which we have an ownership interest, apartment properties owned by third parties including our founder's family ("Wilson Family") as well as our community development operations. American Land Development U.S. Inc. ("ALD") and its subsidiary own and develop our land holdings in St. Charles, Maryland. St. Charles is a 9,000 acre planned community consisting of residential, commercial, recreational and open space land. It has provided the Company and its predecessor with inventory for the last three decades with expectations of another three decades. Through the aid of outside consultants, we plan, design and develop the land for sale or use in our own investment portfolio. American Rental Properties Trust ("ARPT") and its subsidiaries hold the general and limited ownership interests in our U.S. apartment property portfolio. The apartment properties are individually organized into separate partnerships. ARPT's ownership in these partnerships ranges from 1% to 100%. We expect to retain the apartment land in St. Charles identified for future apartment units to expand our apartment investment portfolio. We are also seeking additional properties that will add value to our existing investment assets.

The Puerto Rico operations are managed through Interstate General Properties Limited Partnership S.E. ("IGP"), a wholly owned subsidiary of IGP Group Corp, a wholly owned subsidiary of the Company. IGP provides property management services to apartment properties in Puerto Rico in which we have an ownership interest, apartment properties owned by third parties, commercial properties owned by the Wilson Family as well as our homebuilding operations, community development operations and property management associations related to our planned communities. IGP holds our general, special and limited partnership ownership interests in our Puerto Rico apartment property portfolio. The apartment properties are individually organized into separate partnerships and receive HUD subsidies. IGP's ownership in these partnerships ranges from 1% to 50%. Land Development Associates, S.E. ("LDA") owns our community development assets, two planned communities, in Puerto Rico. The first planned community, Parque Escorial, consists of residential, commercial and recreation land similar to our U.S. operations but on a smaller scale. Through the aid of outside consultants, we plan, design and develop the land for sale or use in our own homebuilding operations or investment portfolio. Our second planned community is in the planning stages. LDA retained a limited partnership interest in a commercial building built on land in Parque Escorial contributed by LDA. Our homebuilding operation builds condominiums for sale on land located in Parque Escorial.

The taxable earnings from the apartment properties flow through to their owners. ARMC, ALD and APRT are all currently taxed as corporations. LDA's taxable earnings flow through to IGP. The portion of IGP's earning applicable to the residential land sales in Parque Escorial flow through to ALD and the remainder to IGP Group. IGP Group's earnings do not flow through to ACPT for federal tax purposes but the obligation to pay the Puerto Rico taxes does flow through to ACPT. ACPT is taxed as a partnership and its taxable income flows through to its shareholders. ACPT's federal taxable income consists of distributions from its corporate subsidiaries and any Puerto Rico taxes paid on IGP Group's share of Puerto Rico earnings.

The Securities and Exchange Commission defines critical accounting policies as those that are most important to the portrayal of our financial condition and results. The preparation of financial statements in conformity with accounting principles generally accepted in the United States, which we refer to as GAAP, requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied resulting in a different presentation of our financial statements. Below is a discussion of accounting policies, which we consider critical in that they may require complex judgment in their application or require estimates about matters, which are inherently uncertain.

Community development land sales are recognized at closing only when sufficient down payments have been obtained, possession and other attributes of ownership have been transferred to the buyer, and ACPT has no significant continuing involvement. Home sale revenues are recognized upon settlement with the homebuyers.

The costs of acquiring and developing land are allocated to our land assets and charged to cost of sales as the related inventories are sold. The cost of acquiring the land and construction of the condominiums are allocated to these assets and charged to cost of sales as the condominiums are sold. The cost of sales is determined by the relative sales value method, which relies on estimated costs and sales values. Residential and commercial land sales can be highly cyclical. Once development is undertaken, no assurances can be given that the Company will be able to sell the various developed lots or condominiums in a timely manner. Failure to sell such homes and lots in a timely manner could result in significantly increased carrying costs and erosion or elimination of profit with respect to any development. Even though our cost estimates are based on outside engineers' cost estimates, historical cost and actual development and construction costs can exceed estimates for various reasons, including but not limited to unknown site conditions, rising prices and changes in government regulations. Any estimates of such costs may differ substantially from the actual results of such costs and reduce or eliminate the future profits with respect to any development.

ACPT's interest costs related to land assets are allocated to our land assets based on their development stage and relative book value. The portion of interest allocated to land during the development and construction period is capitalized to the extent of qualifying assets. Remaining interest costs are expensed. The interest incurred on the land acquisition and construction loan is capitalized to the extent of qualifying assets.

In August 2001, the FASB issued Statement of Financial Accounting Standard ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS requires that one accounting model be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations. On a quarterly basis, ACPT evaluates the carrying value of its long-lived assets in accordance with SFAS No. 144. In cases where management is holding for sale particular properties, impairment is assessed on whether the net realizable value (estimated sales price less costs of disposal) of each individual property to be sold is less than the net book value. Otherwise, ACPT assesses impairment of its real estate properties based on whether it is probable that undiscounted future cash flows from each individual property will be less than its net book value. If a property is impaired, its basis is adjusted to its fair market value.

We are required to make assessments as to the useful lives of our real estate assets for purposes of determining the amount of depreciation to reflect on our income statement on an annual basis. Our assessments, all of which are judgmental determinations, of our investments in our real estate assets are as follows:

· Furniture, fixtures and equipment over five to seven years using the straight-line method

The Company's tax structure is a complex one that involves foreign source income, multiple entities that do not file a consolidated return and multiple entities with different tax structures. Due to the complex nature of our tax structure, our income tax expense and related balance sheet amounts involve significant management estimates and judgments.

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are frequently covered by insurance. If it has been determined that a loss is probable to occur, the estimated amount of the loss is expensed in the financial statements. While the resolution of these matters cannot be predicted with certainty, management believes the final outcome of such matters will not have a material adverse effect on the financial position or results of operations of the Company.

The following discussion is based on the consolidated financial statements of the Company. It compares the results of operations for our U.S. operations and our Puerto Rico operations for the three years ended December 31, 2003, 2002 and 2001. Historically, the Company's financial results have been significantly affected by the cyclical nature of the real estate industry. Accordingly, the Company's historical financial statements may not be indicative of future results.

Community development land sales revenue decreased 31% in 2003 to $6,893,000 from $9,974,000 in 2002.

Residential Land Sales

During 2003, we sold 88 standard size single-family lots for an average sales price of $62,000 compared to 87 standard size single-family lots which sold for an average sales price of $55,000, 54 small single-family lots for an average sales price of $43,000, and 20 townhome lots for an average sales price of $35,000 during the same period of 2002. The decrease in residential lots sold during 2003 compared to 2002 is attributable to state mandated changes in storm water management regulations that forced us to reengineer our design plans, thus delaying the development and release of the next parcel of land in Fairway Village. The sales price of the standard single family lot increased 13% in 2003 pursuant to escalation provisions in the sales contracts and price increases. At December 31, 2003 we had one single-family lot in backlog, located inside the model park, at a base selling price of $70,000. We commenced development of the next parcel of land in Fairway Village that contains a total of 69 lots. These lots are expected to be developed and ready for sale by the second quarter of 2004.

Commercial Land Sales

During 2003, we sold 8 acres of commercial land for sales prices that ranged from $2.19 to $9.51 per square foot compared to 13 acres of commercial land for sales prices that ranged from $1.21 to $5.21 per square foot for the same period in 2002. Our 2002 commercial land sales included the sale of a seven-acre parcel for retail use for $5.21 per square foot; we did not have a comparable sale in 2003. The average sales prices of these parcels differ due to their location, use and level of development. As of December 31, 2003, 4.1 acres for a total of $251,600 are in backlog.

Future Sales

In November 2002, we reached a joint venture agreement with the U.S. Home Corporation to develop as many as 400 units in an active adult community in the Gleneagles Neighborhood in Fairway Village. We are currently in the engineering phase for infrastructure improvements and expect the joint venture to commence during second quarter of 2004.

Gross profit is defined as land sales revenue less cost of sales. The combined gross profit of our community development operations for 2003 decreased to 29% from 2002's gross profit of 31%. The decrease was primarily attributable to the use and location of our commercial and industrial land sold during the respective periods. The gross profit in 2003 was also negatively impacted by the reduced sales volume of our residential and commercial land as well as an additional $53,000 of costs incurred related to a parcel of land sold in a prior year. The decrease was offset by price increases for our Fairway Residential lots resulting in gross profit margins of 43% in 2003 as compared to 31% in 2002. During 2003, the gross profit margins on the commercial parcels sold ranged from 5.66% to 38.7% compared to 58.2% to 70.1% earned in 2002. In 2002, we closed on a seven-acre parcel for retail use, which produced a 58% gross profit margin due to its higher selling price and limited site improvements with no comparable sale in the 2003 period. During 2003, we sold six acres located in our industrial parks developed in the 1970's and 1980's. Since that time, the county and state development requirements have continued to change requiring additional development to deliver the lots for final use. The increased carrying costs and additional development have eroded the profits resulting in a less than 6% gross margin for those parcels.

Community development land sales revenue decreased 2% in 2002 to $9,974,000 from $10,178,000 in 2001.

Residential Land Sales

During 2002, we sold 87 standard size single-family lots which sold for an average sales price of $55,000, 54 small single-family lots for an average sales price of $43,000, and 20 townhome lots for an average sales price of $35,000 compared to 79 standard size single-family lots for an average sales price of $52,000, 8 small single-family lots for an average sales price of $43,000, 26 townhome lots for an average price of $33,000. The decrease in residential lots sold during 2002 compared to 2001 is attributable to the fact that during the last three years demand for lots in Charles County has increased while the supply has decreased. We incurred hurdles in obtaining permits from the County on a timely basis to deliver a steady supply of lots. Pursuant to a 2002 agreement with Charles County, we will be able to obtain permits for 255 residential lots per year through 2005. The sales prices of the standard single family lot increased a slight 6% in 2002.

Commercial Land Sales

During 2002, we sold 13 acres of commercial land for sales prices that ranged from $1.21 to $5.21 per square foot compared to 27 acres of commercial land for sales prices that ranged from $0.92 to $12.58 per square foot for the same period in 2001. The average sales prices of these parcels differ due to their location, use and level of development.

The combined gross profit for 2002 was 31%, a 4% decrease from 2001's gross profit of 35%. These variations are a result of the change in mix of sales between years and the quality of the commercial sales. During 2002, 81% of the total sales revenue was generated by residential sales compared to 52% in 2001. Typically commercial sales outside of Fairway Village produce a greater gross profit margin than the residential lots. The margins for the residential lots in Fairway have increased from 31% in 2001 to 32% in 2002. These increases are primarily a result of the sales prices in Fairway Village escalating at a rate greater than the expected development costs. During 2002, the townhome lots in Smallwood Village were sold out. These lots produced a gross profit margin during the last two years that ranged from 18% to 20%. These margins were lower than our typical residential margins due to location and changes in the County's regulations. The gross profit margin of the significant 2002 commercial sale was 58%, 10% less than expected due to the unexpected costs of moving major utility lines from the purchaser's development path.

On March 4, 2004, we executed an agreement with a major homebuilder to purchase approximately 1,950 residential lots in Fairway Village. Pursuant to the terms of this agreement, the builder is required to purchase, at a minimum, 200 residential lots developed by the Company on a cumulative basis per year. The price of the lots will be based on a formula using the base sales price of the homes sold by the builder. Based on 200 lot sales per year, it is estimated that settlements will take place over the next ten years.

Certain of the apartment properties in which we hold an ownership interest qualify for the consolidation method of accounting. As a result, the apartment property's entire revenue and expenses are reflected in our financial statements with the portion of net income attributable to outside owners reflected as minority interest. Ten properties were consolidated during 2003 compared to seven properties during 2001 and 2002. The consolidation of the three additional properties resulted from the acquisitions of controlling interests in Bannister (December 2002), Village Lake (January 2003) and Coachman's (January 2003). Five of the properties are market rent properties, allowing us to determine the appropriate rental rates. Even though we can determine the rents, a portion of our units must be leased to tenants with low to moderate income. HUD subsidizes three of the properties and two properties are a mix of subsidized units and market rent units. HUD dictates the rents of the subsidized units.

The Company's share of the consolidated housing partnerships' net income (rental property revenue net of operating expenses, interest expense, depreciation and amortization and minority interest) increased to $2,810,000 in 2003 compared to $2,153,000 in 2002 and $1,828,000 in 2001. The overall increase in revenues and expenses in 2003 is primarily the result of the consolidation of the three additional properties as described above.

On a comparable basis of properties between years, the net income generated from the consolidated apartment partnerships' operations for 2003 was $2,482,000 as compared to $2,153,000 for 2002. The gross potential rent of the fair market properties in 2003 increased, on average 7%, due to favorable market conditions while subsidized rents increased on average 6% as allowed by HUD. The increases we experienced in our gross potential rents were partially offset by the increase in repairs and maintenance expenses incurred at our apartment property buildings during 2003. We also saw an increase in our bad debt expense along with additional interest expense and mortgage insurance expenses incurred related to the debt refinancing of one of our investment properties.

In 2002, market conditions allowed us to increase our market rate rents 7% over 2001's rents while the subsidized rents increased by 5%. Operating expenses increased 13% in 2002 and 7% in 2001. The increase in operating expenses in 2002 compared to 2001 is primarily due to historic high increases in commercial insurance for rental properties and increased maintenance costs as we push to improve the value of the properties. In 2002, the increase in the subsidies did not cover the increased cost of insurance and operating cost. In addition, during 2001 one property incurred a fire loss in excess of its insurance coverage of $60,000.

The results of our share of earnings from the partnerships that do not qualify for the consolidated method of accounting are reflected in this section. The affect on earnings varies from partnership to partnership, depending on our investment book basis in the property, where the partnership is in the earnings stream, whether or not the limited partners have recovered their capital contribution, the partnership's ability to distribute cash and the amortization of any sponsor and developer fees.

Equity in earnings from partnerships and sponsor and developer fees increased $689,000 during 2003 to $1,166,000 as compared to $477,000 for the same period in 2002. The increase in our earnings in the most recent fiscal year is primarily a result of distributions in excess of basis, $885,000, that we recognized in 2003 in conjunction with the refinancing of one of our partnership's mortgage. In 2003, the effect of the refinancing was partially offset by the fact that all of our deferred developer fees were fully amortized into income in 2002. Secondly, our prior year's earnings reflected our equity pick up from Bannister, which at that time was not consolidated for accounting purposes. The increases in the refinancing proceeds were also offset by increases in interest expense and mortgage insurance premiums from the refinancing of Crossland as well as an overall increase in property rehab costs and hazard insurance premiums.

In 2002, we recognized a 40% decrease in income from the apartment properties compared to 2001 primarily due to a fire loss in one subsidized property that exceeded the insurance coverage and one month's lost subsidy in another property during the conversion to market rents. Our share of this fire loss was $116,000. Since the fire, we have switched insurance carriers and coverage limits to prevent this from recurring in the future. Occupancy rates remained stable in 2002 compared to 2001. In 2001, one subsidized property received a retroactive increase in its subsidies and our share of cash flow from one property increased to 100% from 5% after the limited partners recovered their initial investment in the third quarter of 2000. On December 31, 2002, we purchased the limited partners interest in this property, refinanced the property and commenced a conversion from a HUD interest subsidy to a market rate property. The property was successfully converted to a market rate property and is now a part of our consolidated investment portfolio.

During 2002, $54,000 of architect fees was written off when an updated product design was selected for our next apartment complex. In 2001, we evaluated a potential acquisition to our apartment investment portfolio. The complex did not meet our acquisition requirements, resulting in the write-off of the $126,000 incurred during this process.

We earn a revenue-based monthly management fee from the apartment properties that we manage, including four properties owned by or an affiliate company of J. Michael Wilson. We receive an additional fee from these properties as well as the properties in Puerto Rico for their use of the property management computer system that we purchased at the end of 2001and a fee for vehicles purchased by the Company used on behalf of the properties. The cost of the computer system and vehicles are reflected within depreciation expense. This section includes only the fees earned from the properties that are not consolidated.

Management and other fees earned for the year ended December 31, 2003 were $1,283,000, a 4% decrease compared to $1,334,000 of fees earned in 2002. The fiscal year's decrease is primarily the result of $235,000 of management fees from Bannister, Coachman's and Village Lake recognized in 2002 but eliminated upon consolidation in 2003. This decrease was offset in part by the following: (1) an increase in partnership rental revenue earned in two of the apartment properties that we manage (2) recognition of a special management fee in conjunction with the refinancing of one of the partnership's mortgage in 2003 and (3) an increase in computer service income since the new software was in service for a full year in 2003 as compared to a partial year in 2002.

Management fees increased 12% in 2002 compared to 2001 as a result of an increase in the monthly management fee from a Wilson Family owned property from 2.5% to 4% and increased rental revenues earned by the apartment properties.

The costs associated with the oversight of our U.S. operations, accounting, human resources, office management and technology, as well as corporate and other executive office costs are included in this section. ARMC employs the centralized office management approach for its property management services for 14 properties located in St. Charles, Maryland and to a lessor extent the other managed properties. The apartment properties reimburse ARMC for certain costs incurred at the central office that are attributable to the operations of those properties. In accordance with EITF Topic 01-14, "Income Statement Characterization of Reimbursements Received for Out of Pocket Expenses Incurred" the cost and reimbursement of these costs are not included in general and administrative expenses, but rather they are reflected as separate line items on the consolidated income statement. In 2002, our Company maintained a policy of allocating corporate overhead charges incurred at the executive office to the Puerto Rico operations. Effective January 1, 2003, we no longer allocate these expenses to the Puerto Rico operations for reporting and management purposes.

General, administrative, selling and marketing costs incurred within our U.S. operations increased 30% in 2003 to $4,486,000 for the year ended December 31, 2003, compared to $3,456,000 for the same period of 2002. The year to date increase reflects additional compensation expense on incentive rights of approximately $334,000 as a result of the increases that we experienced in our share price this year, especially during the third and fourth quarters when the closing price ranged from $5.30 to $8.18. The increase is also the result of an additional $136,000 of bad debt expense that we recorded in the current year on accounts receivable balances in two of our properties. During the most recent fiscal year we saw an increase in other administrative costs such as general liability insurance premiums, and directors/officers' insurance premiums as a result of the escalating prices imposed by the insurance industry. The remainder of the increase is composed of a rise in audit and legal fees as well as additional staffing hired in 2003 related to the increased corporate governance regulations for public companies, as well as the absence in 2003 of a bad debt recovery compared to the $117,000 recovery in 2002.

General, administrative, selling and marketing costs incurred in the U.S. remained relatively stable during 2001, and 2002 despite rising prices. During 2002, certain related party transactions and staffing shortages in Puerto Rico required additional support from the U.S. office. The allocation of these costs to the Puerto Rico operations produced a 4% cost reduction attributable to the U.S. operations. In 2002, reductions in our share price resulted in a decrease in compensation expense compared to 2001.

The interest related to the U.S. recourse debt, exclusive of debt related to the apartment properties, is allocated to the qualifying land inventory based on its book balance. Any excess interest, interest on capital leases and amortization of certain loan fees are reflected as interest expense.

Interest expense decreased approximately $16,000 to $205,000 for the year ended December 31, 2003, compared to $221,000 for the same period in 2002 as a result of a reduction in our interest expense recognized on the outstanding balances of our capital leases and vehicle notes offset by an increase in the amortization of loan fees in 2003.

In 2002, interest expense decreased 85% compared to 2001. Overall interest expense declined during that period a result of the overall reduction in prime lending rate and debt refinanced at a reduced borrowing rate. The increase in 2001 was primarily due to the recognition of $812,000 of unamortized loan fees and warrants when we refinanced a $8,000,000 term loan.

The effective tax rates for 2003, 2002 and 2001 are 38%, 39% and 34% respectively. The federal and state statutory rate is 39%. The difference between the statutory rate and the effective rate for 2003 is related to the combined effect of permanent items while the difference for 2001 is related to an increase in the calculated tax benefit of certain investments in subsidiaries.

There were no land sales in 2003 and 2002. The next parcel of land will be available in 2004 and is being retained by the Company for our homebuilding operations. As of December 31, 2003, there were no land sales in backlog. On February 26, 2004, the Company executed an agreement with a purchaser to sell 9.6 acres of land in the master planned community of Parque Escorial. Under the terms of the agreement, 2.4 acres will be sold for $2,752,000 during the second quarter of 2004, while the remaining 7.2 acres will be sold for $7,448,000 in the first quarter of 2005.

There were no land sales during 2002 within our Puerto Rico operations. However, during 2001, we sold a parcel of land for 220 condominium units. Sales revenue in 2001 reflects the lot sales prices net of discounts for the imputed interest on partially non-interest bearing notes taken as partial payment for the purchase of the lots. During 2001, we recognized a gain $630,000 upon settlement of claim regarding 52 acres that were expropriated in 1998. We also received $121,000 of interest income related to this claim.

The gross profit margin in 2001 was 32%. In that year, we incurred $169,000 of costs associated with the clean-up of unsuitable materials located beneath the surface of one of our parcels of land sold in 2000. In connection with a lawsuit, which has been settled, we paid cost overruns of $630,000 to the contractor in 2001 and $233,000 to the plaintiff (Wal-Mart) in 2002. Based on these additional costs and our plans to provide upscale dwelling units in the Parque Escorial project, with the aid of outside consultants we updated our cost estimates for the remainder of the project resulting in a $1,368,000 increase in the 2001 cost of sales. The deductions were offset in part by the $630,000 expropriation gain recognized in 2001.

The homebuilding operations are conducted through a corporation known as Brisas de Parque Escorial, Inc. ("Brisas"). IGP and LDA have ownership interests in Brisas of 65% and 35%, respectively. In September 2002, we began the construction of a 208-unit condominium complex. As of December 31, 2003, the construction of this complex is substantially complete. The units are being sold individually from an onsite sales office to pre-qualified homebuyers.

During 2003 and 2002, home sales in Brisas generated $21,560,000 and $5,012,000, respectively. As of December 31, 2003, 153 units were sold with an average sales price of $174,000 and 14 units were under contract with an average sales price of $171,000. These sales are backed by $4,000 deposit and non-contingent sales contract. The gross profit in 2003 was 22% as compared to 20% in 2002. The increase in the gross profit percentage is the result of the fact that we wrote off prepaid selling expenses in 2002. There were no home sales in 2001.

All of our apartment properties in Puerto Rico are accounted for under the equity method of accounting and are all subsidized by HUD. The earnings from our investment in the commercial rental property owned by ELI are also reflected within this section. The recognition of earnings varies from partnership to partnership depending on our investment basis in the property, where the partnership is in the earnings stream, whether or not the limited partners have recovered their capital, the partnership's ability to distribute cash and the amortization of any sponsor and developer fees.

Equity in earnings from partnerships and sponsor and developer fees increased 12% to $2,598,000 during the twelve months ended December 31, 2003, compared to $2,327,000 in 2002. During 2003, we refinanced the existing two mortgages on two unconsolidated apartment partnerships, providing us with $310,000 of finance fees and $800,000 of cash distributions.

Equity in earnings from partnerships and sponsor and developer fees increased 74% to $2,327,000 during the twelve months ended December 31, 2002, compared to $1,336,000 in 2001. During 2002, we refinanced the existing mortgages on two unconsolidated apartment properties, providing us with $377,000 of note repayments, $507,000 of finance fees reflected within management fees and $4,823,000 of cash distributions. The increase in equity in earnings from partnerships is also the result of cash distributions received in excess of the investment basis of $1,091,000 and increased rents, reduced vacancies, reduced operating and financial expenses, offset in part by increased insurance premiums. These increases in earnings from partnerships were partially offset by the reduction in earnings from ELI.

During 2003, we wrote off the deferred project costs, $1,007,000, related to the potential development of an entertainment complex in Parque El Comandante with no similar write-offs in 2002. A significant portion of these costs arose from a consulting agreement entered into in July 1997. The consulting contract expired in July of 2003 and we chose not to renew it beyond December 31, 2003, weakening the prospects of finalizing this project. Due to the uncertainty of the realizability of these deferred costs we wrote them off.

In 2001, $101,000 of deferred project costs related to the development of an entertainment complex in Parque El Comandante was written off due to the fact that we exited the project with the entertainment company.

We earn a monthly fee from the apartment and commercial properties that we manage, including the properties owned by the Wilson Family. In addition to the monthly fee, we earn incentive management fees from three of the properties. Fees earned from another four property-owner associations operating in Parque Escorial as well as the fees earned from apartment property refinancings, as discussed above, are also reflected in this section. We deferred the portion of the refinancing fees related to our ownership percent in those partnerships.

Management fees decreased 8% in 2003 to $2,051,000 from $2,223,000 in 2002 primarily due to the recognition in 2002 of $103,000 of fees related to an adjustment in the basic management fees rate in four apartment properties and in 2003 the basic management fees income from another two apartment properties decreased by a reduction of $19,000 due to the exclusion by HUD of the retained excess income in the calculation of the management fees payable.

Management fees increased 4% in 2002 to $2,223,000 compared to $2,147,000 in 2001 primarily due to the recognition in 2002 of $253,000 of special fees related to the refinancing of two apartment properties. Basic management fees were lower in 2002 than in 2001 as two of our properties converted to condominiums and were sold during the second half of 2001. During 2001, HUD approved an increase in the management fees for six properties.

General, Administrative, Selling and Marketing Expense - Puerto Rico Operations:

The costs associated with the oversight of our operations, accounting, human resources, office management and technology are included within this section. The apartment properties reimburse IGP for certain costs incurred at IGP's office that are attributable to the operations of those properties. The amounts reflected in this section are net of those reimbursements.

General, administrative selling and marketing costs, excluding the prior year corporate allocation from executive office of $907,000, increased $665,000 in 2003 compared to 2002. The increase in 2003 is primarily due to the $581,000 of reserved incentive management fees due from one of our unconsolidated subsidiaries. This incentive management fee is to be paid out of surplus cash of the property upon which it becomes available. This year's increase is also the result of $80,000 of bonuses as well as increases in outstanding share incentive rights expenses recorded as a result of the increases in our share price that we experienced in 2003 versus 2002. Our 2003 increases were offset in part by a reduction in advertising, legal and consulting fees and the common area maintenance rent.

The 5% decrease in 2002 costs compared to 2001 is primarily attributable to the reduction in bad debt expense, professional services and the transfer of guard services to the Parque Escorial Owners' Association in 2002. Our 2002 reductions were offset in part by an increase in advertising and promotion expense, office rent and supplies as well as increases in property taxes and workers' compensation expenses.

The interest related to the Puerto Rico recourse debt, exclusive of debt related to the apartment properties and homebuilding operations, is allocated to the qualifying land inventory based on its book balance. Any excess bank interest, interest on capital leases and the amortization of certain loan fees are reflected on our financial statements as interest expense.

Interest expense decreased 61% in 2003 to $144,000 compared to interest expense of $365,000 in 2002. Our expense in 2002 decreased 57% when compared to 2001. We have been experiencing decreases in our interest expense costs primarily due to the fact that there have been increases in the amount of interest eligible for capitalization coupled with the reduction in the prime lending rates out in the market and our lower outstanding balances on our term loans.

The effective tax rate for 2003, 2002 and 2001 are 29%, 31% and 29%, respectively. The statutory rate for Puerto Rico is 29%. The increase in 2002 when compared to 2003 and 2001 is related to Puerto Rico source income being subject to U.S. income tax without the benefit of a foreign tax credit. During 2003 and 2001 a foreign tax credit was available to offset the U.S. income tax payable from the Puerto Rico source income.

The Company has historically met its liquidity requirements from cash flow generated from residential and commercial land sales, home sales, property management fees, distributions from apartment properties and bank financing. Anticipated cash flow from operations, existing loans, refinanced or extended loans, and new financing are expected to meet our financial commitments for the year. However, there are no assurances that these funds will be generated.

Net cash flow provided by operating activities produced $19,094,000 of cash flow in 2003, a 12% increase over the operating cash flows generated in 2002. In 2002, there was $17,078,000 of cash flows provided by operating activities compared to $11,884,000 in 2001. The results of operations are discussed in the RESULTS OF OPERATIONS section.

For the year-ended December 31, 2003, net cash used in investing activities was $9,293,000, a 5% decrease from the same period in 2002. In 2002, net cash used in investing activities reached $9,739,000, a 3% decrease from 2001. The current year's decrease is primarily attributable to a reduction in the cash outflow for land improvements in 2003 compared to 2002 offset in part by the $1.2 million of cash used this year for development costs related to the construction of the office building in Parque Escorial and the 252 unit apartment complex in Fairway Village with no comparable expenses in 2002.

In 2003, $6,988,000 of cash was used for net financing activities compared to $1,537,000 used in 2002 and $2,788,000 net cash used in 2001. During 2003, we made $42,196,000 of debt curtailments compared to $35,597,000 of advances.

The following chart reflects our contractual financial obligations as of December 31, 2003:

Substantially all of the Company's community development and homebuilding assets are encumbered by recourse debt. LDA's land loans due to FirstBank with an aggregate outstanding balance of $9,799,000 mature June 30, 2004 at which time we expect the bank to grant an extension to June 30, 2005. These loans make up the primary development facility for Parque Escorial and historically have been extended upon formal request. This credit facility has $1,345,000 of available development funds that have not been advanced. The maturity date of the $6,005,000 due KEMBT Corporation ("KEMBT") is tied to the maturity date of the FirstBank credit facility and any subsequent extensions. The LDA loans due FirstBank and the loan due KEMBT are subject to cross-collateral and cross-default provisions. The construction loan for the Brisas homebuilding project was extended to July 31, 2004. Construction advances of $1,159,000 remain available under this credit facility. We expect to repay this obligation prior to its maturity.

During 2002, we settled long-standing disputes with the Charles County Government. As part of that settlement, the County agreed to issue tax-exempt bonds to fund certain major infrastructure in St. Charles and we agreed to provide letters of credit to secure the bonds and escalate our development pace. The bonds will be repaid from future lot sales in St. Charles. Charles County general obligation bonds are typically issued once a year in March. At December 31, 2003, the Company estimated that the total cost to complete the infrastructure construction would be approximately $22.4 million. As of the end of the year, the County did not issue any bonds to the public related to the infrastructure project; however, they advanced to us $739,000 for our development costs incurred as of December 31, 2003. Please refer to the "recent development" section on page 31 for additional disclosures on this matter.

As more fully described in Note 4 of the Notes to Consolidated Financial Statements found within Item 8 of this 10K filing the non-recourse apartment properties' debt is collateralized by apartment projects and secured by the Federal Housing Administration ("FHA") or the Maryland Housing Fund.

In October 2003, we transferred a parcel of land from our Parque Escorial land inventory to a wholly owned subsidiary for the purpose of constructing a 57,000 square foot office building in the Carolina planned community of Parque Escorial. The building is being constructed on 2.1 acres in the Parque Escorial Office Park, for a total cost of $10.7 million. IGP has secured a construction loan of $8.6 million from Banco Popular of Puerto Rico to fund the development and construction costs of the project. The construction loan will mature in April 2005 and at such time will convert into a 30-year term loan. IGP obtained letters of intent for approximately 50% of the building prior to beginning construction. The office building is projected to be ready for occupancy in January 2005 and upon completion, it will be added to ACPT's portfolio of investment properties. As of December 31, 2003, the outstanding balance was $2.2 million.

As more fully described in Note 6 of the Notes to Consolidated Financial Statements found within Item 8 of this 10K filing, ACPT operates certain property and equipment under leases, some with purchase options that expire at various dates through 2006. ACPT is also obligated under several non-cancelable operating leases for office space and equipment. Capital leases are reported with general recourse debt.

In addition to our contractual obligations we have other purchase obligations consisting primarily of contractual commitments for normal operating expenses at our apartment properties, recurring corporate expenditures including compensation agreements and audit fees, non-recurring corporate expenditures such as improvements at our investment properties and costs associated with developing our land in the U.S. and Puerto Rico. Our purchase commitments also include amounts related to our intent to buy-back a piece of our land from a power plant company for $1,000,000. Our overall capital requirements will depend upon acquisition opportunities, the level of improvements on existing properties and the cost of future phases of residential and commercial land development.

We are actively seeking additions to our rental property portfolio. We are currently pursuing various opportunities to purchase apartment properties in the Washington, D.C. area. If these properties meet our requirements, we intend on financing their acquisition.

On January 12, 2004, the non-recourse mortgages for two apartment properties were refinanced for lower rate non-recourse debt of $16,800,000. The proceeds from the refinancings will be used for capital improvements at the two properties, repayment of long-term notes and working capital loans to the general partner (the Company) and distributions to the general and limited partners. The Company received a portion of the fees from each of the refinancings. One of the partnerships is a fully consolidated entity while the interest in the other partnership is recorded on our statements under the equity method.

In February 2004, the Company signed a loan agreement with Columbia Bank for a $2,700,000 acquisition and revolving development loan, which will be used for the construction of the next parcel of land in Fairway Village. The maturity date of the loan is set for February 15, 2006. We also extended the Banco Popular loan that matured in February to June 30, 2005 and paid $400,000 reducing the outstanding balance to $1,500,000.

In March 2004, the Charles County Commissioners issued an $8,000,000 Consolidated Public Improvement Bond Offering ("Bonds") on behalf of the Company. The fifteen-year bonds bear escalating interest rates of 4% to 5% and call for semi-annual interest payments and annual principal payments. The Charles County Commissioners will loan the Bond proceeds to the Company when certain major infrastructure development occurs over an eighteen-month period. In exchange, the Company will pay the County Commissioners a monthly payment equal to one-sixth of the semi-annual interest payments due on the Bonds and one-twelfth of the annual principal payment due on the Bonds.

During 2004, we will seek additional development loans, construction loans and permanent mortgages for continued development of St. Charles, a new apartment project in St. Charles, a new homebuilding project in Puerto Rico and other potential rental property opportunities. We expect that our financing efforts will be successful but there can be no assurances that we will be able to obtain necessary financing on acceptable terms or at all. The Company will evaluate and determine on a continuing basis, depending upon market conditions and the outcome of events described as "forward-looking statements" in this 10-K, the most efficient use of the Company's capital, including acquisitions and dispositions, purchasing, refinancing, exchanging or retiring certain of the Company's outstanding debt obligations or repurchasing shares of its common stock in privately negotiated transactions, open market transactions or by other direct or indirect means to the extent permitted by law and its existing contractual obligations.

ACPT and its subsidiaries typically provide guarantees for another subsidiary's loan or letters of credit. In many cases more than one company guarantees the same debt. All of these companies are consolidated and the debt or other financial commitment is included in ACPT's consolidated financial statements. These guarantees should not impair our ability to conduct our business through our subsidiaries or to pursue our development plans.

Inflation has been moderate in recent years. In general, we attempt to minimize any inflationary effect by increasing our market rents, land prices and home prices. However, in recent history, the increases in the HUD subsidies have not offset the increase in the costs to insure, operate and maintain the properties having a negative impact on our cash flow.

Certain of our debt and regulatory agreements require us to abide by covenants which, among other things, limit the ability of our subsidiaries to pay dividends or distributions. The regulatory agreements governing the apartment properties limit the dividend to annual or semi-annual distributions of no more than surplus cash. In addition, the distributions of 10 properties are limited to a specified annual cumulative rate of return ranging from 6% to 10%. Lender approval is required prior to LDA or Brisas making any cash distributions in excess of distributions to pay income taxes on LDA's and Brisas's generated taxable income, unless certain conditions exist that provide for adequate working capital for debt service and operations for the following twelve months. These restrictions are not expected to impair our ability to conduct our business through our subsidiaries or to pursue our development plans.

We carry various lines of insurance coverage for all of our investment properties, including property insurance and believe that we are adequately covered against normal risks. These policies, and other insurance policies we carry, have policy specifications, insured limits and deductibles that we consider commercially reasonable.

We renewed our insurance coverage on May 1, 2003 for our Puerto Rico operations and October 1, 2003 for our US operations for one-year policy terms. Although the insurance coverage provided for in the renewal policies did not materially change from the preceding year, our premium costs decreased by 2% as compared to the prior term. The deductible on our property insurance is $25,000. The deductibles for all other policies range from $500 to $25,000. The deductible for the Directors and Officers ("D&O") liability policy is $250,000 for securities claims and $150,000 for all other claims.

In November 2002, Congress passed the Terrorism Risk Insurance Act ("TRIA") which is designed to make terrorism insurance available. In connection with this legislation, we have purchased insurance for property damage due to terrorism. Our general liability policy provides TRIA coverage (subject to deductibles and insured limits) for liability to third parties that result from terrorist acts at our properties.

Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Although the occurrence of mold at multifamily and other structures, and the need to remediate such mold, is not a new phenomenon, there has been increased awareness in recent years that certain molds may in some instances lead to adverse health effects, including allergic or other reactions. To help limit mold growth, we educate residents about the importance of adequate ventilation and request or require that they notify us when they see mold or excessive moisture. We have established procedures for promptly addressing and remediating mold or excessive moisture from apartment homes when we become aware of its presence regardless of whether we or the resident believe a health risk is present. However, we cannot assure that mold or excessive moisture will be detected and remediated in a timely manner. If a significant mold problem arises at one of our properties, we could be required to undertake a costly remediation program to contain or remove the mold from the affected community and could be exposed to other liabilities. We cannot assure that we will have coverage under our existing policies for property damage or liability to third parties arising as a result of exposure to mold or a claim of exposure to mold at one of our apartment properties.

The use of financial instruments, such as debt instruments, subjects our Company to market risks, which may affect our future earnings and cash flows as well as the fair value of our assets. Market risk generally refers to the risk of loss from changes in interest rates and market prices. We are exposed to market risk primarily due to fluctuations in interest rates. We utilize both fixed-rate and variable-rate debt. For fixed-rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not our earnings or cash flow. Conversely, for variable- rate debt, changes in interest rates generally do not impact the fair market value of the debt instrument but do affect our earnings and cash flow. It is the Company's policy to minimize the impact of variable rate debt to the greatest extent possible by pursuing equity and long term fixed rate financing and refinancings of current fixed rate debt at lower rates when favorable market conditions exist. The following table provides information about the Company's financial instruments that are sensitive to changes in interest rates. The table presents the Company's debt obligations, principal repayments, related weighted average interest rates by expected maturity dates and fair values. The Company has no derivative financial instruments. We believe that the change in the fair value of our financial instruments resulting from a foreseeable fluctuation in interest rates would be immaterial to our total assets and total liabilities.