SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

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

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.

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

As of March 21, 2000, the aggregate market value of the Units held by non-affiliates of the registrant based on the closing price reported on the American Stock Exchange was $6.50.

Class A Units Outstanding at (date): 2,055,780 Class A Units

Interstate General Company L.P. (the "Company" or "IGC") was formed as a Delaware limited partnership in 1986. Directly and through predecessors, the Company has been engaged in business since 1957. IGC's headquarters are located in Chantilly, Virginia. IGC has traded publicly as a master limited partnership since February 1987 on the American Stock Exchange ("AMEX") and Pacific Stock Exchange ("PSE"). During 1998, the Company's management and the Board of Directors of the Company's Managing General Partner restructured IGC and transferred the primary real estate operations to American Community Properties Trust ("ACPT") and distributed, as a dividend, the common shares of ACPT to its unit holders (the "Distribution").

IGC owns the following assets: Towne Center land in St. Charles, Maryland, which had been the subject of wetlands litigation; certain single-family home lots in the Dorchester neighborhood, also in St. Charles, Maryland; certain land in Pomfret, Maryland, St. Mary's County, Maryland, and Prince William County, Virginia; a 50% interest in a partnership that owns land under development in Brandywine, Maryland; 100% of the membership interest in American Family Homes, LLC ("AFH"); a note in the amount of $8.154 million payable by a subsidiary of ACPT; as well as fractional partnership interests in Chastleton Apartment Associates, Coachman's Limited Partnership, Headen House Associates Limited Partnership, Palmer Apartments Associates Limited Partnership, Wakefield Terrace Associates Limited Partnership and Wakefield Third Age Associates Limited Partnership. To avoid termination of the partnerships for tax purposes, 60% of the general partner interest in the latter four partnerships was not transferred from IGC to ACPT with the other assets in 1998. These interests were subsequently transferred in February 2000.

All of the outstanding stock of Interstate Waste Technologies ("IWT") and Caribe Waste Technologies ("CWT") (excluding shares issued as incentive compensation for employees) are held in a trust (the "CWT Trust") for the benefit of IGC Unit holders.

The following summarizes the business operations and segments of IGC:

IGC has extensive experience in developing planned communities. Historically, the Company and its predecessors have developed land for more than 13,000 housing units.

The Company currently holds 152 acres in Towne Center South, St. Charles, Maryland. The property is zoned for commercial, retail, and office development. The Company is proceeding with plans for development of 82 acres, which are now available, as a result of the wetlands settlement (see p. 7).

The Company plans to develop an 812-acre property, in Pomfret, Maryland, known as Waverly, as an age-qualified adult community consisting of approximately 2,000 single family housing units and a golf course.

In addition, the Company is developing the 170-acre planned community of Westbury, located in Lexington Park, Maryland. The community is located in St. Mary's County, approximately one mile from the Patuxent River Naval Air Warfare Center. Development at Westbury includes town home and single-family lots. In March 1997, the Company entered into a contract to sell 52 of the town home lots to a third-party homebuilder. As of December 31, 1999, 19 of those town home lots remain to be purchased. Westbury's final phase, consisting of approximately 250 single-family home lots, is currently under construction. Of the single-family home lots, 63 have been developed, of which 28 have been sold and 35 remain under contract. The other 187 lots remain to be developed.

In Prince George's County, Maryland, the Company is proceeding with the development of Phase One of the 277-acre mixed-use project known as Brandywine. IGC obtained building permits for the first phase of 48 single-family homes in December 1998. Construction is expected to begin in the spring of 2000.

Environmental Impact. Management believes that all current land development plans can be completed without a material adverse environmental impact and in compliance with government regulations.

Competition. IGC is subject to market competition on its commercial land sales, however, the Company believes it can compete successfully by offering well located land that can be developed at a reasonable cost.

AFH builds semi-custom homes for homebuyers who own land or have land under contract. AFH operates out of seven offices in Virginia, North Carolina, and South Carolina.

Environmental Impact. Management believes that the Company's home building operations are in compliance with governmental regulations.

Competition. The housing industry is cyclical and is influenced by various economic factors and seasonality. These variables include, for example, consumer confidence, interest rate fluctuations, property and federal taxes, demographics and mortgage finance options. The Company's home building operations could be affected by any one or more of these factors.

The home building industry in the Mid-Atlantic region is highly competitive. In addition to a large number of builders, there is an abundant supply of resale homes and rental housing. AFH has three major competitors in the Carolinas, and two major competitors in Virginia. AFH creates its market niche by building homes at the location chosen by the customer.

In 1990, IGC formed a wholly owned subsidiary, Interstate Waste Technologies, Inc. ("IWT"), to develop innovative solutions for the disposal of municipal waste and to pursue waste disposal contracts with municipalities.

In 1996, a second subsidiary, Caribe Waste Technologies, Inc. ("CWT"), was formed in Puerto Rico. CWT is an entity established to perform waste disposal projects in the Caribbean.

IWT/CWT's business plan is to develop and operate waste disposal projects using an environmentally superior technology licensed from Thermoselect S.A., a Swiss Company. Project development efforts are worldwide. IWT/CWT has the right to develop projects using the Thermoselect technology in North, Central, and South America and for selected other projects worldwide. Typically, IWT/CWT and its co-venture partners offer to own, finance, build, and operate for a 25 or 30-year period, plants under contract to municipal governments. Current co-venture partners include the technology provider, Thermoselect, the constructor, Fluor Daniel Inc., and our plant operator, two subsidiaries of The Vivendi Group, the world's most experienced waste plant operator. IWT has also signed an agreement with Thermoselect to be sales and marketing representatives for Thermoselect domestic waste facilities in North America and the Caribbean. IWT is to begin these activities in the second quarter of 2000.

In December 1998, CWT entered into a host community and sponsor agreement with the Municipality of Caguas, Puerto Rico. The agreement describes the basis on which CWT will enter into a contract to develop and construct a Thermoselect waste facility with a capacity of up to 3,000 tons per day to process waste from the metropolitan San Juan area. Final permits and approval are still pending before the Caguas project can proceed. CWT is also pursuing a project in the northwest part of Puerto Rico.

During 1999, IWT began to explore development possibilities in a number of Chinese cities. We believe that the cities of Shanghai, Wuhan, Nanchang, and Guangzhou are sufficiently interested to warrant continuing efforts.

The government of the U.S. Virgin Islands recently issued a RFP for which responses are due May 22, 2000. Management believes CWT is well positioned to aggressively compete to win this award.

IWT is also pursuing projects in St. Maarten, Chile, Columbia, Singapore, Hong Kong, and the Philippines, which are in the exploratory stage.

Certain IWT/CWT costs related to development activities have been capitalized and the recovery of the costs is dependent upon future revenues from the development, construction, and operation of waste disposal plants. During 1999 IWT and CWT elected to write off $1,180,000 as a reserve against costs incurred related to several waste development projects that the Company is still pursuing, but for which it believes the likelihood for success is not high. While the Company still believes there is sufficient interest to warrant continuing efforts in these locations, it does not believe the probability of recovering the investment from future revenues from the development of these projects is high.

At December 31, 1999 and 1998, deferred costs regarding waste technology, net of reserves or direct write-offs, were $4,161,000 and $3,326,000, respectively.

Environmental Impact. Management believes that the proposed IWT and CWT facilities can be completed without a material adverse environmental impact and in compliance with government regulations. The many approvals and permits required under the U.S. Clean Air Act, U.S. Clean Water Act, and corresponding foreign regulations will require substantial time and effort to obtain.

Competition. There is intense competition for municipal waste disposal contracts throughout the United States and internationally. The competition uses a variety of methods and there are ranges of costs available. Management feels IWT and CWT can provide its superior facilities at a competitive price.

Employees. IGC has 44 full-time employees as of December 31, 1999. All employees are based in the United States.

Significant Customers. No single customer accounted for more than 10% of IGC's revenues during the year ended December 31, 1999.

IGC owns real property in Charles County, Maryland; Prince George's County, Maryland; St. Mary's County, Maryland; Prince William County, Virginia; North Carolina; South Carolina, and Virginia.

As of December 31, 1999, the Company's community development land holdings consisted of the following:

The Company is pleased to report that the entire wetlands litigation was settled successfully as of November 22, 1999. As reported in Registrant's 10-K for the period ending December 31, 1998, convictions in the wetlands litigation in the United States District Court for the District of Maryland were reversed by the United States Court of Appeals for the Fourth Circuit and the case remanded to the District Court for a new trial.

On August 26, 1999, IGC agreed to plead guilty to a single violation of the Clean Water Act ("CWA"). The violation involves the placing of fill in 1990 by a contractor for IGC while constructing a road through Dorchester Neighborhood in St. Charles, Maryland. IGC agreed to pay a fine of $1 million and to transfer two acres of land in Town Center South to a land conservation or similar organization. IGC and its affiliate, St. Charles Associates Limited Partnership, ("SCA"), also agreed to enter into a consent decree whereby a civil complaint by the government against them for alleged violations of the CWA would be dismissed. Under the consent decree, IGC and SCA agreed to pay a civil penalty of $400,000 ($40,000 of which is to be placed in escrow to pay the cost of remediation in Dorchester Neighborhood) and complete within 24 months a remediation plan covering certain land in Town Center South and in another location in St. Charles. IGC and SCA also entered into a compliance agreement with the U.S. Environmental Protection Agency resolving all debarment matters arising out of the alleged CWA violations. As part of the settlement, all criminal charges against James J. Wilson, IGC's chairman and CEO, were dismissed. The plea agreement and consent decree were approved by the court on November 22, 1999.

Management believes the cost of the settlement of the wetlands litigation, as discussed above, not including the cost of remediation, will not exceed the $1.4 million currently reserved. The settlement of the wetlands litigation has freed up approximately 80 acres of land in St. Charles for commercial development.

Sewer and Water Litigation

St. Charles has been zoned as a planned unit development that allows construction of approximately 24,730 housing units and 1,390 acres of commercial and industrial development. Charles County has agreed to provide sufficient sewer and water connections for all housing units remaining to be developed in St. Charles. IGC and St. Charles Associates Limited Partnership ("SCA") (through its successor, St. Charles Community, LLC) are involved in litigation with the County regarding (1) the level of sewer and water fees that may be imposed and (2) the level of school construction impact fees that may be imposed. In addition, IGC and SCA are asserting claims against the County for repayment of excessive sewer and water fees and school construction impact fees paid by them in the past.

The sewer and water litigation entitled St. Charles Associates Limited Partnership, et al. v. County Commissioners of Charles County, et al., No. 89-720, Circuit Court of Charles County, Maryland, was filed in June 1989 and is continuing. The complaint originally sought a court ruling that the County was not entitled to impose sewer and water fees at the then existing level upon residential units in the St. Charles Communities. That aspect of the litigation was settled by a Settlement Agreement dated November 1989, which was confirmed in a Consent Decree entered in March 1990. Subsequent aspects of the litigation have resulted from disputes over the interpretation of the Settlement Agreement and Consent Decree. The principal issues that are presently being contested between the County, IGC and SCA are (1) whether a study procured by the County in 1996 justifies the level of sewer and water connection fees which it imposes upon St. Charles Communities and (2) whether SCA and IGC are entitled to recover what they regard as excessive sewer and water fees that they paid in the past. The Circuit Court ruled that the County's 1996 study did not comply with the applicable restrictions and that SCA and IGC are entitled to an injunction against future excessive sewer and water fees. The Court further ruled, however, that SCA and IGC must pursue claims for excess sewer and water fees paid in the past in Maryland's Tax Court.

The Court's rulings were appealed to Maryland's Court of Special Appeals, which affirmed for the most part, but modified in part, the Circuit Court's rulings. Specifically relating to IGC, it held that IGC's claims for refunds of excessive fees paid before June 1992 are barred by "accord and satisfaction". Both parties are seeking further review in Maryland's Court of Appeals.

SCA and IGC commenced actions in Maryland Tax Court, which is a state administrative agency, to recover excessive school impact fees paid in the past. These cases are entitled St. Charles Associates Limited Partnership, et al. v. Charles County, et al., Case Nos. 961 (filed March 1994), 1038 (files October 1994), and 99-MI-0083 (filed February 6, 1998). In those cases SCA and IGC are seeking both repayment of past excessive school impact fees paid to the County and a credit against school impact fees for the value of school sites donated to the County. On December 15, 1998, the Maryland Court of Special Appeals ruled that SCA's and IGC's refund claims were not timely filed. No further appellate review of this decision is contemplated. IGC and SCA intend to continue to pursue their remaining refund claims.

Lead-Based Paint Litigation

On February 9, 1999, American Rental Management Company ("ARMC"), a subsidiary of ACPT, Chastleton Apartments Associates ("Chastleton Associates") (a housing partnership in which IGC is the general partner), and Capitol Park Apartments Associates (the owner of an apartment complex managed by ARMC) received notification from the U.S. Department of Justice (the "Department") that they were in violation of the Residential Lead-Based Paint Hazard Reduction Act of 1992 (the "Act"). These allegations were based on a finding by the Department of Housing and Urban Development ("HUD") that the owners and/or management had failed to make required disclosures regarding lead-based paint in two apartment projects, Chastleton and Capitol Park. The Act authorizes HUD to assess administrative penalties for such failures.

The original Department notification was addressed to ARMC, the current managing agent, however, most of the alleged violations occurred during IGC's previous tenure as management agent. IGC has agreed to indemnify ACPT against any potential penalties that might be assessed against ARMC.

On February 9, 1999, HUD issued a letter to the Company alleging that it was in violation of certain regulations regarding lead-based paint. The letter threatened penalties against the Company of $1,511,943. On June 9, 1999, HUD issued an administrative complaint seeking penalties. On September 9, 1999, HUD amended the complaint to include ARMC and IGC in addition to the Company and to seek $6.7 million in penalties from the group of defendants. HUD reduced the amount of the proposed penalty to $619,100 in its Penalty Brief dated November 24, 1999. Trial before an administrative law judge occurred on December 8-9, 1999 and post-hearing briefs were submitted on February 1, 2000. Further briefing was requested by order dated March 10, 2000. Accordingly, a ruling is not expected for at least another 60 days. Management believes they have submitted sufficient evidence in their favor; however, no determination can be made at this time as to the ruling or any imposed penalties. Since the effect, if any, on the financial statements cannot be determined at this time, no adjustments have been made in the accompanying financial statements regarding this matter.

In addition, on July 15, 1999, HUD and the Department of Justice filed suit against ARMC and the Company in the U.S. District Court for the District of Columbia seeking declaratory and injunctive relief based upon the alleged violations. The action does not seek monetary damages but does seek remediation. Both parties to the litigation have filed motions for summary judgment; however, the U.S. District Court has not yet acted on the motions. Management had decided they will undertake some remediation of the property regardless of the outcome of this litigation.

On February 24, 2000 the Company and an officer of the Company were named as defendants in a claim alleging destruction and defacement of property in relation to the construction of a county road in Charles County. The claim consists of three counts. Counts one and two seek judgment rulings for $10,000,000 in compensatory and $10,000,000 in punitive damages from each defendant and count three seeks an easement and right of way to the county road. The actions performed, directly related to the filing of this claim, were completed by St. Charles Community LLC, a subsidiary of ACPT. As part of the restructure, any liability suffered by IGC or previous officers that result from actions undertaken by ACPT will be covered by an indemnification from ACPT. Management of both companies intends to vigorously defend itself against these allegations, however, there can be no guarantee they will be successful.

On October 5, 1998, in conjunction with the Distribution of assets, the Company issued ACPT shares to its unit holders. On that date, each unit holder received one share of ACPT for every two units of IGC owned.

At close of business on March 21, 2000, there were 107 unit holders of record. As of March 24, 2000, the closing price reported by the American Stock Exchange was $6.50 per unit.

IGC is required by its Third Amended and Restated Limited Partnership Agreement, as amended, to make cash distributions to limited partners of not less than 55% of taxable income calculated for public IGC unit holders. During the years ended December 31, 1999 and 1998, IGC had taxable (loss) of $(1,695) and $(5,736) respectively, or $(.82) and $(2.79) respectively, per unit.

Certain matters discussed and statements made within this Annual Report on Form 10-K are forward-looking statements within the meaning of the Private Litigation Reform Act of 1995 and as such may involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance or achievements of the Company to be different from future results, performance or achievements expressed or implied by such 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. These risks are detailed from time to time in the Company's filings with the Securities and Exchange Commission or other public statements.

Effective October 5, 1998, the Company distributed the majority of its real estate development business to ACPT. As a result, the Company's historical results of operations for 1999 are not comparable with the results of operations for 1998 and 1997. Accordingly, the unaudited pro forma results for 1998 and 1997 have also been presented as if the Distribution had been completed on January 1, 1997. This information is provided for purposes of completing the Management's Discussion and Analysis and should be read in conjunction with the Company's consolidated financial statements and notes thereto included in Part II, Item 8 which show the historical operations of the Company.

Community development land sales revenue increased 130% to $1,132,000 during the twelve months ended December 31, 1999, compared to sales of $492,000 during the twelve months ended December 31, 1998. Single-family lot sales totaled 24 in 1999 compared to 4 in 1998. The gross profit margin on sales of these lots was 26%. Nineteen town home lots were sold in 1999 compared to 11 during 1998. The increased sales were the result of several contracts the Company entered into with homebuilders in order to expedite development. Eleven of these sales occurred in the Westbury project and the remainder in Prince William County, Virginia. The town home lot sales had negative margins for 1999, primarily due to a lack of volume and the carrying costs associated with the extended period these lots remained in inventory. The carrying value of the remaining Westbury town home lots was written down to reflect current market value. At December 31, 1999, 19 town home lots remain in the Westbury project. They are under contract to be sold during 2000.

Revenues from home sales increased 34% to $9,864,000 during the twelve months ended December 31, 1999 compared to $7,379,000 during the twelve months ended December 31, 1998. The 1999 revenues were a result of increased home sales. In 1999 the Company sold 82 scatter-site homes as compared to 1998 scatter-site sales of 67. There was a slight 1% decrease in construction gross profit margin for 1999.

Equity in earnings increased $42,000 to $188,000 during the twelve months ended December 31, 1999, compared to $146,000 during 1998. This increase was primarily due to an increase in occupancy at one of the investment properties, from 83% in 1998 to 92% in 1999.

Interest expense increased $150,000 to $402,000 during 1999, compared to $252,000 in 1998. The increase is a result of continued borrowings as well as higher interest rates.

General and administrative expenses increased 230% to $2,768,000 during the twelve months ended December 31, 1999, compared to $839,000 during the same period of 1998. This increase is a result of multiple factors. As part of the restructuring with ACPT, most of the Company's internal support personnel transferred to ACPT. As a result, significant outsourcing costs were incurred while a new management team was assembled. In addition, accounting and consulting costs were higher than normal due to issues relating to the restructuring. Included in the increase is approximately $285,000 of additional expense associated with stock appreciation rights (see Option, Appreciation Right and Warrants discussion beginning on page 46) held by various members of management brought on by a 40% increase in IGC's unit price and the issuance of 100,000 units in connection with the Employee's Unit Incentive Plan. In addition, American Family Homes accounted for $340,000 of the increase due to reorganizing and the hiring of a new president.

Expenses related to the environmental legal proceedings increased to $934,000 in 1999 from $26,000 in 1998. The Company revised its reserve to $1,400,000 during 1999, which reflects the fines associated with the wetland's litigation settlement. The company has accrued $125,000 in legal fees to resolve the lead based paint litigation. In 1999 the company incurred $295,000 of legal fees associated with lead-based paint matters.

In 1999, management wrote off $1,180,000 of deferred project costs related to various waste technology projects. In determining the amount of the reserve, management elected to write off projects where it believes there is a less than 50% probability of obtaining a waste disposal contract. In 1998, management wrote off $1,191,000 of deferred project costs related to the waste technology project in Bridgeport, Connecticut.

Community development land sales revenue increased 66% to $492,000 during the pro forma twelve months ended December 31, 1998, compared to sales of $297,000 during the pro forma twelve months ended December 31, 1997. The 1998 pro forma period reflects sales of approximately 15 single family home lots as well as a commercial site with a sales price of approximately $90,000, while the 1997 pro forma period reflects sales of approximately 22 town home lots. The Company had negative margins on land sales primarily due to a lack of volume on land sales not covering related period costs being included in cost of sales.

Revenues from home sales decreased 6% to $7,379,000 for the pro forma twelve-month period ending December 31, 1998, compared to $7,805,000 during the pro forma twelve-month period ending December 31, 1997. The 1997 revenues were a result of 69 scatter-site sales, as well as five tract sales, while 1998 revenues were a result of only 67 scatter-site sales. Although revenues from homes sales decreased, the gross profit margin increased to 9% in 1998 due to increases in sales prices, compared to 4% for the same period of 1997.

Equity in earnings from gaming properties increased from $0 during the pro forma twelve-month period ended December 31, 1997 to $549,000 for the same pro forma period for 1998. The increase is a one-time recognition of equity in gaming properties as a result of recovering negative basis.

Interest and other income increased 70% to $1,388,000 for the pro forma twelve-month period ending December 31, 1998 compared to $817,000 for the pro forma twelve months period ending December 31, 1997. The increase is primarily due to gain on sale of equity securities.

General and administrative expenses increased 97% from $427,000 during the pro forma twelve months ending December 31, 1997 to $839,000 during the same pro forma period for 1998. This increase is a result of additional salaries and office expenses incurred upon opening new corporate headquarters in Chantilly, Virginia.

Interest expense increased 327% to $252,000 in the pro forma twelve months ending December 31, 1998, compared to $59,000 for the same pro forma period in 1997. The increase is primarily due to an increase in the pro forma debt outstanding during 1998.

Expenses related to the wetlands litigation as discussed in Item 3, decreased to $26,000 in 1998 from $1,772,000 in 1997. The Company established a reserve of $1,500,000 in 1997 to cover additional costs in the event of a retrial.

In 1998, management wrote off $1,191,000 of deferred project costs related to the waste technology project in Bridgeport, Connecticut. The construction of the project became economically unfeasible due to the decision of municipalities surrounding Bridgeport to have waste materials disposed of through landfill operations.

In conjunction with the Company's reorganization plan, management wrote off $1,843,000 of goodwill in 1997 related to the purchase of AFH. There was no similar transaction in 1998.

Cash and Cash equivalents were $367,000 and $33,000 respectively at December 31, 1999 and December 31, 1998.

IGC historically has met its liquidity requirements principally from cash flow generated from home and land sales, property management fees, distributions from residential rental partnerships and from bank financing providing funds for development and working capital as well as working capital loans from affiliates. As a result of the distribution and the development status of the land assets that the company retained, IGC expects to meet its liquidity requirements principally from land sales as well as bank and related party financing as discussed below.

The Company's principal demands for liquidity are expected to be ongoing debt service for existing loans, land development costs, payables and normal operating costs, the remission of the fine related to the wetland's settlement, the funding of the remediation work required under that settlement, continued funding of development costs for IWT and CWT, and operating cash requirements of AFH.

Management believes the Company's real estate assets have substantial value and that their development can be financed by conventional project financing. In July 1999, the Company closed a $10,840,000 loan with Mercantile Mortgage Corporation for the development and construction of the Brandywine project. The components of the loan are a $4,490,000 infrastructure loan, a $2,900,000 revolving line of credit for the development and construction of single family homes, as well as a $3,000,000 revolving line of credit for the development and construction of town homes. At closing, the Company received $1,000,000 to reimburse pre-development and engineering costs.

In July 1999, the Company signed a Lot Purchase Agreement with Ryan Homes for the sale of 54 lots in the Prince William County, Virginia development of Montclair. In November 1999, the Company closed an $800,000 loan with Chevy Chase Bank to finance the development of the Montclair lots.

IGC intends to continue to refinance loans as they become due in the normal course of business in 2000. These total approximately $2 million, exclusive of an operating line of credit that matures in August 2000 that AFH utilizes to fund home construction. There is no guarantee such financing will be available.

IGC holds a note for $8.154 million from an affiliate of ACPT as part of the ACPT distribution. IBC, IGC's General Partner, has signed a working capital support agreement with IGC that is secured by this note receivable. As of December 31, 1999 IBC had advanced $3,026,000 to IGC. This support agreement, along with the prospective land sales of properties released from the wetland's litigation, will provide the necessary funds to meet capital and other obligations. In addition, the Company is moving forward aggressively to sell or lease all of its property.

It is not likely that the Company will generate in the near term sufficient revenues from operations to cover its general and administrative expenses, a substantial portion of which are attributable to the operations of IWT/CWT. The proposed waste disposal plant operations of IWT/CWT are subject to municipal and other government bidding procedures, contract award, permitting and other approvals. A number of proposals by IWT/CWT to build waste disposal plants in the Caribbean and elsewhere are in various stages of the procurement process. Although management believes IWT/CWT will be successful, it cannot predict when IWT/CWT will eventually generate positive cash flow.

AFH historically has had cash needs in excess of those generated through operations and has substantial vendor payables. Management is currently concentrating its efforts to increase sales and effect closings. This effort has been substantially enhanced by the acquisition of a computerized sales and construction management system. Installation of the system was completed at the end of 1999.

The penalties relating to the wetland's settlement (see wetland litigation, page 7) total $1,400,000. The preliminary estimate is that the cost of remediation will be $1.6 million. An integral component of the wetland's settlement is that it removed all development, sale and financing restrictions on 82 acres of improved commercial land in Town Center South, the heart of St. Charles. Following the settlement, IGC closed a $4.4 million line of credit with Collateral Mortgage, Ltd. Under the loan agreement, $1.4 million is reserved to fund the penalties due under the wetland's settlement; $500,000 of the line will be used as a revolving source of financing to fund remediation costs.

IGC's liability to pay income taxes on liabilities incurred prior to the distribution to ACPT was assumed by ACPT. IGC recorded a provision for income taxes through the distribution date for all taxable income prior to October 5, 1998 and has recorded a receivable from ACPT to reflect the obligation of ACPT to pay those taxes.

As of December 31, 1999, assets with a book value of $12,584,000 were encumbered by $4,901,000 of recourse debt. The significant terms of IGC's recourse debt financing is shown below (dollars in thousands):

The Company has guaranteed loans totaling $10,840,000 related to the Brandywine project of which $1,915,123 was outstanding at December 31, 1999. Assets with a book value of $9,409,348 collateralize this debt. The Brandywine project is being developed in a partnership, the results which are included using the equity method of accounting. Accordingly, the debt is not included in these statements.

As of March 21, 2000, IGC has not experienced any material problems relating to the year 2000 (Y2K) issues nor did the preparation for Y2K have a significant impact on IGC's results of operations for the year ended December 31, 1999.

During 1999, the management of IGC evaluated its various Y2K failure scenarios for those systems used both internally and externally that may have been affected. The results of these assessments provided IGC with an acceptable level of assurance.

IGC has not incurred significant costs to achieve Y2K compliance, nor did it incur significant costs in upgrading its current applications and hardware. In addition, there have been no noticeable trends or events that have affected the company's operations. Although IGC's management believes that there are no remaining contingencies, there can be no assurance until significant time has passed.

The Company's market risks relating to its operations result primarily from changes in the prime interest rate. It is management's goal to minimize the impact of variable rate debt by pursuing equity and long-term fixed rate financings 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 including obligations, principal repayments, related weighted average interest rates by expected maturity dates, and fair values. The Company has no derivative financial instruments.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Partners of

Interstate General Company L.P.:

We have audited the accompanying consolidated balance sheets of Interstate General Company L.P. (a Delaware limited partnership) and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related consolidated statements of (loss) income, changes in partners' capital and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Interstate General Company L.P. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years then ended in conformity with accounting principles generally accepted in the United States.

Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The financial statement schedule included on pages 53 through 56 of the Form 10-K is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole.

Vienna, Virginia

March 24, 2000

Interstate General Company L.P. (the "Company" or "IGC") was formed as a Delaware limited partnership in 1986. Directly and through predecessors, the Company has been engaged in business since 1957. IGC's headquarters are located in Chantilly, Virginia. IGC has traded publicly as a master limited partnership since February 1987 on the American Stock Exchange ("AMEX") and Pacific Stock Exchange ("PSE"). During 1998, the Company's management and the Board of Directors of the Company's Managing General Partner restructured IGC and transferred the primary real estate operations to American Community Properties Trust ("ACPT") and distributed, as a dividend, the common shares of ACPT to its unit holders (the "Distribution").

IGC owns the following assets: Towne Center land in St. Charles, Maryland, which had been the subject of wetlands litigation; certain single-family home lots in the Dorchester neighborhood, also in St. Charles, Maryland; certain land in Pomfret, Maryland, St. Mary's County, Maryland, and Prince William County, Virginia; a 50% interest in a partnership that owns land under development in Brandywine, Maryland; 100% of the membership interest in American Family Homes, LLC ("AFH"); a note in the amount of $8.154 million payable by a subsidiary of ACPT; as well as fractional partnership interests in Chastleton Apartment Associates, Coachman's Limited Partnership, Headen House Associates Limited Partnership, Palmer Apartments Associates Limited Partnership, Wakefield Terrace Associates Limited Partnership and Wakefield Third Age Associates Limited Partnership. To avoid termination of the partnerships for tax purposes, 60% of the general partner interest in the latter four partnerships was not transferred from IGC to ACPT with the other assets in 1998. These interests were subsequently transferred in February 2000.

All of the outstanding stock of Interstate Waste Technologies ("IWT") and Caribe Waste Technologies ("CWT") (excluding shares issued as incentive compensation for employees) are held in a trust (the "CWT Trust") for the benefit of IGC Unit holders.

Consolidation and Presentation

The accompanying consolidated financial statements include the accounts of Interstate General Company L.P. and its majority owned partnerships and subsidiaries, after eliminating all intercompany transactions. All of the entities included in the consolidated financial statements are hereinafter referred to collectively as the "Company" or "IGC". As of December 31, 1999, the consolidated group includes Interstate General Company L.P., St. Charles Associates Limited Partnership, American Family Homes, LLC, St. Charles Operating Company LLC, Interstate Waste Technologies, Inc., Caribe Waste Technologies, Inc., Pomfret LLC, and various inactive entities. The Company's investments in its non-majority owned partnerships that it does not control are recorded using the equity method of accounting. However, the recognition of losses is limited to the amount of direct or implied financial support.

The accompanying consolidated financial statements reflect the consolidated operations of IGC. No adjustments have been made to these statements to remove, for periods prior to the distribution, any of the activities transferred to ACPT.

Sales and Profit Recognition and Cost Capitalization

Sales revenues and profits from community development and home building activities 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 IGC has no significant continuing involvement.

The costs of acquiring and developing land and home building construction are allocated to these assets and charged to cost of sales as the related inventories are sold. IGC's interest costs related to home building and land assets are allocated to these assets based on their development stage and relative book value. The portion of interest allocated to land, finished building lots and home building construction during the development and construction period is capitalized. Remaining interest costs are expensed. IGC carries land, development and home building costs at the lower of cost or net realizable value.

Quarterly, IGC evaluates the carrying value of its long-lived assets in accordance with Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." In cases where management is holding for sale particular properties, the Company assesses impairment based 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. A property is considered to be held for sale when the Company has made the decision to dispose of the property. Otherwise, the Company 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.

Selling and Marketing Expenses

Selling and marketing expenses consist primarily of advertising costs, which include costs of printed materials, signs, displays, general marketing costs and costs associated with model homes. Advertising costs are expensed as incurred except for capitalized model home costs that are depreciated over their estimated useful lives.

Management Fees

IGC records management fees in the period in which services are rendered.

Deferred Project Costs

Pre-construction costs are capitalized. Upon completion of construction, the deferred charges are amortized as a component of the assets' depreciation charge. Deferred project costs determined to be unrecoverable are written off.

Depreciation and Amortization

Buildings are depreciated over 35 to 40 years using the straight-line method. Furniture, fixtures and equipment are depreciated over five to seven years using the straight-line method. Deferred expenses are amortized over the period of estimated benefit using the straight-line method of depreciation.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, unrestricted deposits with financial institutions and short-term investments with original maturities of three months or less.

Income Taxes

IGC is not subject to U.S. taxes as a partnership. These financial statements do not contain any provision for Federal or state income taxes. All Federal and state income tax liability and/or tax benefits are passed through to the individual partners in accordance with the Internal Revenue Code.

Comprehensive Income

IGC has no items that would be considered comprehensive income that would require separate reporting in the accompanying consolidated statements of income.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Stock-Based Compensation

The Company adopted Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation" during 1996. The Company has elected to continue to measure compensation costs using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and therefore the adoption of this statement did not have any effect on the financial results of the Company (see Note 8).

Compensation expense related to Unit options issued to directors and employees is recognized at the time the options are granted in an amount equal to the excess of the currently calculated trading value of the Units over the option exercise price. Compensation expense related to Unit Appreciation Rights is recognized quarterly on a cumulative basis since the issuance of the Rights is based on changes in unit prices compared to the "strike" price of the Rights.

Earnings Per Unit

In the fourth quarter of 1997, IGC adopted SFAS No. 128, "Earnings per Share." This statement requires the computation and reporting of both "basic" and "diluted" earnings per unit.

"Basic earnings per unit" is computed as net income multiplied by the limited partner ownership interest, 99%, divided by the weighted average units outstanding.

The following table provides a reconciliation between weighted average units outstanding-basic and weighted average units outstanding-diluted.

The effect of dilutive equivalent units was not applicable in 1999 or 1997 because the Company recorded a net loss for that year. Potentially dilutive options and warrants are described in Note 7.

Impact of Recently Issued Accounting Standards

In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure to a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. Due to the issuance of SFAS No. 137, this statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Although currently IGC has no derivative instruments, this statement would apply to derivative instruments acquired in future periods.

As part of the distribution to ACPT that occurred in October 1998, IGC had a contingent obligation to transfer four of its partnership interests and fourteen acres of land in St. Charles, Maryland. The distribution requirement for the land was completed in December 1999, and the four partnership interests were subsequently transferred in February 2000.

Housing Partnerships

The following information summarizes financial data and principal activities of unconsolidated housing partnerships that the Company accounts for under the equity method (in thousands):