On August 23, 1996, at about 1330 eastern daylight time, an American AA-5, N9525L, sustained substantial damage when it collided with terrain and a pier shortly after takeoff from Lee Airport in Annapolis, Maryland. The certificated commercial pilot and the one passenger received minor injuries. Visual meteorological conditions prevailed at the time of the accident, no flight plan was filed. The flight was conducted under 14 CFR 91. The pleasure flight originated at Lee Airport, at approximately 1330, with an intended destination of Martin State Airport, in Baltimore, Maryland. The pilot reported that the " ...Takeoff roll was normal. Aircraft climb-out was normal with no difficulties noted until 700 feet. I started a left hand turn and the engine failed. I continued to execute a left hand turn to return to the airport. All efforts to restart the engine were to no avail. At this time the aircraft was too low to return to the airport." The pilot stated that Warehouse Creek was the only forced landing area available to him. The airplane came to rest in the water, with the tail section supported by the pier. One witness reported that he saw the airplane "...climbing really steeply off the runway, stopped climbing, stayed at same angle still going forward, then ... plane banked sharply to the left. Plane then seemed to flip, [and] engine sputtered, went straight down." During a telephone interview, the same witness stated that "..the plane was going real steep angle up - at least 45 degrees - looked strange to me ... I thought he was going too slow for the angle he was ... looked like a man running up a mountainside." A second witness reported that he "... observed a Grumman AA5 pass the front of the hanger on takeoff to the east. At that time the engine sounded normal. The only unusual thing I noticed was a longer than normal ground run and a higher than average climb angle." A third witness stated that he "...noticed what appeared to be a Piper Archer taking off. I thought he was taking off at too steep an angle of climb when I noticed he appeared to stall out and started to side slip to port and lose altitude rapidly." The witness stated that when he arrived at the accident scene to render assistance, he "...asked if they were OK and the pilot responded, 'I just [expletive]ed up a little bit, and think [my] leg or foot is broken'." A post accident inspection of the airframe and powerplant of N9525L with a Federal Aviation Administration Airworthiness Inspector revealed no pre-impact anomalies.