Edgar Filing: AMERICAN REAL ESTATE PARTNERS L P

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

(MARK ONE)

[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________ TO __________

COMMISSION FILE NUMBER 1-9516
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AMERICAN REAL ESTATE PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 13-3398766
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

100 SOUTH BEDFORD ROAD, MT. KISCO, NEW YORK 10549
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(914) 242-7700
(AREP'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

NAME OF EACH EXCHANGE
ON WHICH REGISTERED
TITLE OF EACH CLASS -------------------

Depositary Units Representing Limited Partner Interests New York Stock Exchange
5% Cumulative Pay-in-Kind Redeemable Preferred Units
Representing Limited Partner Interests New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None

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

Based upon the closing price of Depositary Units on March 1, 2002, as
reported on the New York Stock Exchange Composite Tape (as reported by The Wall
Street Journal), the aggregate market value of AREP's Depositary Units held by
nonaffiliates of AREP as of such date was $57,203,460.

Based upon the closing price of Preferred Units on March 1, 2002, as
reported on the New York Stock Exchange Composite Tape (as reported by The Wall
Street Journal), the aggregate market value of AREP's Preferred Units held by
nonaffiliates of AREP as of such date was $8,838,399.

Number of Depositary Units outstanding as of March 1,
2002:.................................................... 46,098,284
Number of Preferred Units outstanding as of March 1,
2002:.................................................... 8,886,631

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PART I

ITEM 1. BUSINESS.

INTRODUCTION

American Real Estate Partners, L.P. ('AREP' or the 'Company') was formed in
Delaware on February 17, 1987. Pursuant to an exchange offer (the 'Exchange
Offer') which was consummated on July 1, 1987, AREP acquired the real estate and
other assets, subject to the liabilities, of thirteen limited partnerships (the
'Predecessor Partnerships'). The Predecessor Partnerships acquired such assets
between 1972 and 1985. A registration statement on Form S-4 relating to the
Exchange Offer (Registration No. 33-13943) was filed with the Securities and
Exchange Commission (the 'SEC') and declared effective May 18, 1987.

AREP's general partner is American Property Investors, Inc. (the 'General
Partner'), a Delaware corporation, which is a wholly owned subsidiary of Becton
Corp., a Delaware corporation. All of the outstanding capital stock of Becton
Corp. is owned by Carl C. Icahn ('Icahn'). The General Partner's principal
business address is 100 South Bedford Road, Mt. Kisco, New York 10549, and its
telephone number is (914) 242-7700. AREP's business is conducted through a
subsidiary limited partnership, American Real Estate Holdings Limited
Partnership (the 'Subsidiary' or 'AREH'), in which AREP owns a 99% limited
partnership interest. The General Partner also acts as the general partner for
the Subsidiary. The General Partner has a 1% general partnership interest in
each of AREP and the Subsidiary. References to AREP herein include the
Subsidiary, unless the context otherwise requires. As of March 1, 2002,
affiliates of Icahn owned 39,706,836 units representing limited partner
interests (the 'Depositary Units'), representing approximately 86.1% of the
outstanding Depositary Units, and 7,689,016 cumulative pay in kind redeemable
preferred units representing limited partner interests (the 'Preferred Units'),
representing approximately 86.5% of the outstanding Preferred Units. See
Item 12 -- 'Security Ownership of Certain Beneficial Owners and Management.'

As described below, AREP is primarily engaged in the business of acquiring
and managing real estate and activities related thereto. On August 16, 1996, an
amendment (the 'Amendment') to AREP's Amended and Restated Agreement of Limited
Partnership (the 'Partnership Agreement') became effective which permits AREP to
make non-real estate related investments. As described below, the Amendment
permits AREP to invest in securities issued by companies that are not
necessarily engaged as one of their primary activities in the ownership,
development or management of real estate to further diversify its investments
while remaining in the real estate business and continuing to pursue suitable
investments in the real estate markets.

GENERAL DESCRIPTION OF BUSINESS

The Company and its consolidated subsidiaries are engaged in, among other
things described elsewhere herein, rental real estate operations, hotel, casino
and resort operations, land, house and condominium development and investment in
securities, including investment in other real estate entities and marketable
equity and debt securities. As described herein, the Company continues to focus
on real estate related investments and investments the Company makes in
securities will be made in such a manner that the Company will not be deemed to
be an investment company under the Investment Company Act of 1940, as amended
(the '1940 Act').

AREP is primarily engaged in the business of acquiring and managing real
estate and activities related thereto. Such acquisitions may be accomplished by
purchasing assets outright or by acquiring securities of entities which hold
significant real estate related assets. Historically, the properties owned by
AREP have been primarily office, retail, industrial, residential and hotel
properties. Many of the real estate assets currently owned by AREP were acquired
from the Predecessor Partnerships and such assets generally are net-leased to
single, corporate tenants. As of March 1, 2002, AREP owned 144 separate real
estate assets primarily consisting of fee and leasehold interests in 31 states.
For additional information, see Item 2 -- 'Properties.'

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AREP believes that it will benefit from the diversification of its portfolio
of assets. By the end of the year 2004, net leases representing approximately
15% of AREP's net annual rentals from its real estate portfolio will be due for
renewal, and by the end of the year 2006, net leases representing approximately
35% of AREP's net annual rentals will be due for renewal. Since many of AREP's
properties are net-leased to single corporate tenants, it may be difficult and
time consuming to re-lease or sell those properties that existing tenants
decline to re-let or purchase and AREP may be required to incur expenditures to
renovate such properties for new tenants. In addition, AREP may become
responsible for the payment of certain operating expenses, including
maintenance, utilities, taxes, insurance and environmental compliance costs
associated with such properties which are presently the responsibility of the
tenant. As a result, AREP could experience an adverse impact on net cash flow
from such properties in the future.

AREP's primary investment strategy in recent periods has been to seek to
acquire undervalued assets including residential development projects, land
parcels for future residential and commercial development, commercial
properties, assets in the gaming and entertainment industries, non-performing
loans and securities of entities which own, manage or develop significant real
estate assets, including limited partnership units and securities issued by real
estate investment trusts, debt or equity securities of companies which may be
undergoing restructuring and sub-performing properties that may require active
asset management and significant capital improvements. These types of
investments may involve debt restructuring, capital improvements and active
asset management, and by their nature may not be readily financeable and may not
generate immediate positive cash flow. As such, they require AREP to maintain a
strong capital base both to react quickly to these market opportunities as well
as to allow AREP to rework the assets to enhance their turnaround performance.

In addition to holding real property, AREP may consider the acquisition or
seek effective control of land development companies and other real estate
operating companies which may have a significant inventory of assets under
development, as well as experienced personnel.

As described herein, AREP has made investments in the gaming industry, and
may consider additional gaming industry investments and investments related to
the entertainment industry. Such investments may include additional casino
properties and those in the entertainment field, such as movie theater interests
and the financing of, and investment in, the movie production and distribution
industries. With respect to gaming and entertainment industry investments, AREP
believes that there may be synergies between production companies for movies and
live entertainment and supplying entertainment content to hotels and casinos.
Such investments may be made in the form of acquisitions from, or in joint
venture or co-management with, Icahn, the General Partner or their affiliates,
provided that the terms thereof are fair and reasonable to AREP.

Furthermore, AREP may originate or purchase mortgage or mezzanine loans
including non-performing loans. AREP will often acquire non-performing loans
with a view to acquiring title to or control over the underlying properties.
AREP also may retain purchase money mortgages in connection with its sale of
portfolio properties, on such terms as the General Partner deems appropriate at
the time of sale. Certain of AREP's investments may be owned by special purpose
subsidiaries formed by AREP or by joint ventures (including joint ventures with
affiliates of the General Partner).

In August 1996, AREP amended the Partnership Agreement to permit non-real
estate investments which, while AREP continues to seek undervalued investment
opportunities in the real estate market, will permit it to take advantage of
investment opportunities it believes exist outside of the real estate market in
order to seek to maximize Unitholder value and further diversify its assets.
Investments in non-real estate assets will consist of equity and debt securities
of domestic and foreign issuers that are not necessarily engaged as one of their
primary activities in the ownership, development or management of real estate,
and may include, for example, lower rated securities which may provide the
potential for higher yields and therefore may entail higher risk. AREP will
conduct these activities in such a manner so as not to be deemed an investment
company under the 1940 Act. Generally, this means that no more than 40% of
AREP's total assets will be invested in securities. In addition, AREP will
structure its investments so as to continue to be taxed as a partnership rather
than as a corporation under the applicable publicly-traded partnership rules of
the Internal Revenue Code.

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All decisions with respect to the improvement, expansion, acquisition,
disposition, development, management, financing or refinancing of properties or
other investments are at the sole discretion of the General Partner.

PARTNERSHIP DISTRIBUTIONS

On April 1, 2002, AREP announced that no distributions on its Depositary
Units are expected to be made in 2002. AREP believes that it should continue to
hold and invest, rather than distribute, cash. No distributions were made in
2001, 2000 or 1999. In making its announcement, AREP noted that it intends
to continue to apply available cash flow toward its operations, repayment of
maturing indebtedness, tenant requirements, other capital expenditures and
cash reserves for Partnership contingencies, including environmental matters
and scheduled lease expirations. By the end of the year 2004, net leases
representing approximately 15% of AREP's net annual rentals from its
portfolio will be due for renewal, and by the end of the year 2006,
35% of such rentals will be due for renewal. In making its decision, AREP also
considered the number of properties that are leased to retail tenants
(approximately 29% of AREP's net annual rentals from its portfolio), some of
which are experiencing cash flow difficulties and restructuring. See Item 5
-- 'Market for AREP's Common Equity and Related Security Holder Matters --
Distributions' and Item 7 -- 'Management's Discussion and Analysis of the
Financial Condition and Results of Operations -- Capital Resources
and Liquidity.'

On March 31, 2001, AREP distributed to holders of record of its Preferred
Units as of March 15, 2001, 423,172 additional Preferred Units. Pursuant to the
terms of the Preferred Units, on February 22, 2002, AREP declared its scheduled
annual preferred unit distribution payable in additional Preferred Units at the
rate of 5% of the liquidation preference of $10.00. The distribution is payable
April 1, 2002 to holders of record as of March 15, 2002.

The Preferred Units are subject to redemption at the option of AREP on any
payment date, and the Preferred Units must be redeemed by AREP on or before
March 31, 2010. The redemption price is payable, at the option of AREP, either
all in cash or by the issuance of Depositary Units, in either case, in an amount
equal to the liquidation preference of the Preferred Units plus any accrued but
unpaid distributions thereon.

REAL ESTATE INVESTMENTS

As mentioned above, in selecting future real estate investments, AREP
intends to focus on assets that it believes are undervalued in the real estate
market, which investments may require substantial liquidity to maintain a
competitive advantage. Despite the substantial capital pursuing real estate
opportunities, management believes that there are still opportunities available
to acquire investments that are undervalued. This may include commercial
properties, residential and commercial development projects, land parcels for
future residential and commercial development, non-performing loans and the
securities of entities which own, manage or develop significant real estate
assets, including limited partnership units and securities issued by real estate
investment trusts ('REITS'), and debt or equity securities of companies which
may be undergoing restructuring and underperforming properties that may require
active asset management and significant capital improvements. Management
believes that, in the current market, investments requiring some degree of
active management or development activity have the greatest potential for
growth, both in terms of capital appreciation and the generation of cash flow.
In order to further these investment objectives, AREP may consider the
acquisition, or seek the effective control, of land development companies and
other real estate operating companies that may have a significant inventory of
assets under development, as well as experienced personnel. This may enhance
AREP's ability to further diversify its portfolio of properties and gain access
to additional operating and development capabilities. Such acquisitions may
include those from affiliates of the General Partner, provided the terms thereof
are fair and reasonable and are approved by the Audit

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Committee of the Board of Directors of the General Partner, which is comprised
of the General Partner's independent directors (the 'Audit Committee').

Other real estate investment opportunities AREP may pursue include entering
into joint venture arrangements or providing financing to developers for the
purpose of developing single-family homes, luxury garden apartments or
commercial properties. Such financing may provide for a contractual rate of
interest to be paid as well as providing for a participation in the profits of
the development and/or an equity participation. Additionally, AREP will seek to
acquire underperforming properties through outright purchase or the purchase of
the debt or securities of such entities. For example, AREP may elect to
establish an ownership position by first acquiring debt secured by targeted
assets and then negotiate for the ownership or effective control of some or all
of the underlying equity in such assets. AREP may also seek to establish a
favorable economic and negotiating position through the acquisition of other
rights or interests that provide it with leverage in negotiating the acquisition
of targeted assets. AREP will also seek to acquire assets that are not in
financial distress but due to the particular circumstances of their ownership,
use or location, present substantial opportunities for development or long-term
growth. AREP may also consider acquiring additional net-leased properties at
appropriate yields or to effectuate tax-free exchanges.

AREP has invested and expects to continue to invest in undeveloped land and
development properties. Undeveloped land and development properties involve more
risk than properties on which development has been completed. Undeveloped land
and development properties do not generate any operating revenue, while costs
are incurred to develop the properties. In addition, undeveloped land and
development properties incur expenditures prior to completion, including
property taxes and development costs. Also, construction may not be completed
within budget or as scheduled and projected rental levels or sales prices may
not be achieved and other unpredictable contingencies beyond the control of AREP
could occur. AREP will not be able to recoup any of such costs until such time
as these properties, or parcels thereof, are either disposed of or developed
into income-producing assets. Accordingly, the greater the length of time it
takes to develop or dispose of these properties, or such parcels, the greater
will be the costs incurred by AREP without the benefit of income from these
properties, which may adversely affect the ability of AREP to successfully
develop such properties. Furthermore, the ultimate disposition price of these
properties may be less than the costs incurred by AREP with respect thereto.

AREP has made investments in assets related to the gaming industry and will
consider additional investment opportunities in the gaming industry and
investments in the entertainment industry. AREP, the General Partner, and the
directors and officers of the General Partner obtained licenses from the Nevada
Gaming Authority and are in the process of obtaining licenses from the New
Jersey Casino Control Commission. Investments in the gaming and entertainment
industries involve significant risks, including those relating to competitive
pressures and political and regulatory considerations. Recessionary pressures
and the terrorist threat have negatively affected many casino properties. Also,
in recent years there have been several new gaming establishments opened as well
as facility expansions, providing increased supply of competitive products and
properties in the industry, which may adversely affect the operating margins and
investment returns. As new openings and expansion projects have been completed,
supply has grown more quickly than demand in some areas, and competition has
increased. Likewise, an increase in supply often leads to increases in
complimentary and promotional expenses in the industry. AREP believes that these
market conditions will lead some gaming and entertainment properties to become
available for restructuring or purchase and will create potential investments
for opportunistic buyers such as AREP, and AREP intends to pursue such
additional investments in the gaming and entertainment industries.

While the increase in supply and competition in the gaming industry may
provide additional investment opportunities for investors such as AREP, such
investments may require additional capital expenditures and restructurings and
there can be no assurance that such investments will not be adversely affected
by such pressures or prove to be successful. Furthermore, federal, state and
local jurisdictions from time to time consider legislation regarding the gaming
industry which could adversely impact gaming operations. AREP believes, however,
that investments in the gaming industry provide AREP with opportunities for long
term appreciation.

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While AREP believes opportunities in real estate related acquisitions
continue to remain available, such acquisition opportunities for value-added
investors are competitive to source and the increased competition may have some
impact on the spreads and the ability to find quality assets that provide
returns that are sought. These investments may not be readily financeable and
may not generate immediate positive cash flow for AREP. As such, they require
AREP to maintain a strong capital base in order to react quickly to these market
opportunities as well as to allow AREP the financial strength to develop or
reposition these assets. While this may impact cash flow in the near term and
there can be no assurance that any asset acquired by AREP will increase in value
or generate positive cash flow, AREP intends to focus on assets that it believes
may provide opportunities for long-term growth and further its objective to
diversify its portfolio.

NON-REAL ESTATE RELATED INVESTMENTS

In selecting future investments, AREP may, while remaining in the real
estate business and continuing to pursue suitable investments for AREP in the
real estate markets, invest a portion of its funds available for investment in
securities of issuers that are not necessarily engaged as one of their primary
activities in the ownership, development or management of real estate. Such
investments may include equity and debt securities of domestic and foreign
issuers. The investment objective of AREP with respect to such investments will
be to purchase undervalued securities, so as to maximize total returns
consisting of current income and/or capital appreciation. Undervalued securities
are those which AREP believes may have greater inherent value than indicated by
their then current trading price and/or may lend themselves to 'activist'
shareholder involvement. These securities may be undervalued due to market
inefficiencies, may relate to opportunities wherein economic or market trends
have not been identified and reflected in market value, or may include those in
complex or not readily followed securities. Less favorable financial reports,
lowered credit ratings, revised industry forecasts or sudden legal complications
may result in market inefficiencies and undervalued situations. As is the case
with real estate related investments, with regard to non-real estate related
investments, AREP may determine to establish an ownership position through the
purchase of debt or equity securities of such entities and then negotiate for
the ownership or effective control of some or all of the underlying equity in
such assets.

The equity securities in which AREP may invest may include common stocks,
preferred stocks and securities convertible into common stocks, as well as
warrants to purchase such securities. The debt securities in which AREP may
invest may include bonds, debentures, notes, mortgage-related securities and
municipal obligations. Certain of such securities may include lower rated
securities which may provide the potential for higher yields and therefore may
entail higher risk. In addition, AREP may engage in various investment
techniques, such as options and futures transactions, foreign currency
transactions and leveraging for either hedging or other purposes.

AREP will conduct its investment activities in such a manner so as not to be
deemed an investment company under the 1940 Act. Generally, this means that AREP
does not intend to enter the business of investing in securities and that no
more than 40% of AREP's total assets will be invested in securities. The portion
of AREP's assets invested in each type of security or any single issuer or
industry will not be limited. Investments may be made directly by AREP or
indirectly through entities in which it has an interest.

RECENT DEVELOPMENTS

The September 11, 2001, terrorist attacks shut down the nation's air traffic
and severely limited all modes of travel on the east coast. These events had an
immediate negative impact on AREP's hotel, resort and casino properties. The
terrorist attacks pushed the nation's economy into a recession. Although the
economy in general has shown some signs of improvement, recessionary pressures
remain.

AREP's earnings from hotel, casino and resort properties are expected to
remain under pressure due to decreased air travel and general economic
conditions. The economic recession may increase tenant defaults thereby
decreasing rental income and increasing property expenses. Also, the Company may
be required to renovate vacant properties for new tenants. However, there can be
no assurance that the Company will be able to re-let the property at an
equivalent rental.

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AREP has adequate cash reserves and a strong capital base which, in a slower
economy, may provide for additional acquisition opportunities.

RECENT ACQUISITIONS/INVESTMENTS

NOTE RECEIVABLE -- AFFILIATE

On December 27, 2001, AREP entered into a transaction with Carl C. Icahn,
Chairman of the Board of the General Partner, pursuant to which AREP made a
two-year $250 million loan to Mr. Icahn, secured by securities consisting of
(i) $250 million aggregate market value of AREP's units owned by Mr. Icahn
(approximately 21.1 million depositary units and 7.7 million preferred units)
and (ii) shares of a private company owned by Mr. Icahn, which shares were
represented to have an aggregate book value of at least $250 million, together
with an irrevocable proxy on sufficient additional shares of the private company
so that the pledged shares and the shares covered by the proxy equal in excess
of 50% of the private company's shares. The private company owns other Icahn
investments and does not own AREP units. The loan bears interest, payable
semi-annually, at a per annum rate equal to the greater of (i) 3.9% and
(ii) 200 basis points over 90 day LIBOR to be reset each calendar quarter. The
loan must be prepaid in an amount of up to $125 million to the extent that AREP
requests such funds for an investment opportunity and may be prepaid at any time
by Mr. Icahn. AREP entered into this transaction to earn interest income on a
secured investment. In the event of a loan default, AREP would, at its option,
liquidate the shares of the private company or reacquire its own units, or both,
to satisfy the loan.

DEVELOPMENT PROPERTIES

In March 2000, AREP acquired Bayswater from Icahn for approximately $84.35
million. Bayswater, a real estate investment, management and development
company, focuses primarily on the construction and sale of single-family homes,
multi-family homes and residential lots in subdivisions and in planned
communities. Bayswater is being operated as a subsidiary of AREP. Bayswater is
currently developing ten residential subdivisions in New York and Florida. In
New York, Bayswater has four residential subdivisions under development with
approximately 54 units remaining to be constructed and sold. Bayswater also has
two subdivisions in New York that are in the approval process, one for 50
townhouse units and the other for 35 single family homes. In Naples, Florida,
Bayswater owns three properties comprising land zoned for 330 residential
condominium units. Bayswater also owns a golf course community in San Antonio,
Florida which includes a 27-hole golf course, approximately seven acres of
commercially zoned land and land that is zoned for 923 residential lots. These
lots are subject to a purchase agreement with a local builder who also has an
interest in the golf course. AREP's land, house and condominium sales accounted
for approximately 19% and 24% of AREP's gross revenues in 2001 and 2000,
respectively.

In addition, AREP expects to continue to pursue the approval and development
of its New Seabury property in Cape Cod Massachusetts. The proposed residential
and commercial development is allowed under a special permit issued for the
property in 1964. However, a regional planning body created in 1989, the Cape
Cod Commission, concluded in January 2002, that the New Seabury development is
within its jurisdiction. In February 2002, New Seabury Properties LLC, an AREP
subsidiary and owner of the property, filed a civil complaint in Barnstable
County Massachusetts Superior Court appealing the administrative decision by the
Cape Cod Commission. The Court has not yet rendered its decision. AREP cannot
predict the effect on the development process if it loses the appeal.

HOTEL AND CASINO PROPERTIES

a. Stratosphere Tower Casino and Hotel

AREP owns approximately 51% of Stratosphere Corporation
('Stratosphere') and consolidates Stratosphere in its financial
statements. Stratosphere owns and operates an integrated casino, hotel
and entertainment facility located in Las Vegas, Nevada.

The ownership and operation of Stratosphere are subject to the Nevada
Gaming Control Act and regulations promulgated thereunder, various local
ordinances and regulations, and are

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subject to the licensing and regulatory control of the Nevada Gaming
Commission, the Nevada State Gaming Control Board, and various other
county and city regulatory agencies, including the City of Las Vegas.
Stratosphere's revenues and expenses primarily consist of casino, hotel,
food and beverage, tower and retail revenues and expenses. Stratosphere
accounted for approximately 49% and 42% of AREP's gross revenues in 2001
and 2000, respectively.

In 2000 and 2001 AREP funded approximately $85 million to
Stratosphere for construction of its 1,000 room expansion and related
amenities.

On February 1, 2001 AREP entered into a merger agreement with
Stratosphere under which AREP will acquire the remaining shares of
Stratosphere that AREP does not currently own. AREP currently owns
approximately 51% of Stratosphere and Carl C. Icahn owns approximately
38.6%. The initial determination to engage in the transaction at the
prices set forth below was previously announced by AREP in September
2000.

Under the agreement the stockholders who are unaffiliated with Mr.
Icahn will receive a cash price of $45.32 per share (approximately $9.6
million) and the Icahn related stockholders (other than AREP) will
receive a cash price of $44.33 per share (approximately $34.7 million).
AREP will pay an aggregate of approximately $44.3 million for the
Stratosphere shares. Stratosphere filed a Preliminary Proxy Statement
with the Securities and Exchange Commisssion on March 14, 2002 and
expects this transaction to be completed in the second quarter of 2002.

b. Sands Hotel and Casino

In March 2000, in accordance with a prior agreement, AREP transferred
its First Mortgage Notes ('Notes') in the Sands Hotel and Casino ('Sands')
and the Claridge Hotel and Casino ('Claridge') to an affiliate of the
General Partner in order to facilitate the bankruptcy reorganizations of the
two Atlantic City casinos. AREP was paid $40.5 million, its cost for such
notes. However, the affiliate of the General Partner is obligated to sell
back to AREP and AREP is obligated to repurchase its interest in the Sands
and/or Claridge, as the case may be, at the same price increased by Icahn
advances, decreased by distributions and/or interest payments received
(together with interest at an annual rate of 1 1/2% over the prime rate)
when the appropriate licenses are obtained by AREP.

Regarding the Sands, subsequent to such transfer of interests, in July
2000, the U.S. Bankruptcy Court ruled in favor of the reorganization plan
proposed by affiliates of Icahn which provided for an additional investment
of $65 million by the Icahn affiliates in exchange for a 46% equity
interest, with bondholders (which also include Icahn affiliates) receiving
$110 million in new notes and a 54% ownership position. The plan, which
became effective September 29, 2000, provided the Icahn affiliates with a
controlling interest. In February 2001, the Icahn affiliates sold their
entire Claridge portfolio (including AREP's interests therein), $37.1
million face amount of Claridge Notes, for the following additional
interests in the Sands: (i) 779,861 common shares of GB Holdings Inc.
('GB Holdings'), the parent company of the Sands) and (ii) $15.96 million
face amount of GB Property First Mortgage Notes, plus $21.56 million in
cash. As a result, Icahn affiliates are, in effect, holding on behalf of
AREP (x) approximately 3.6 million common shares of GB Holdings
(representing approximately 36% of the common shares outstanding) and
(y) $26.9 million face amount of GB Property First Mortgage Notes, to which
AREP will become entitled and obligated to repurchase, when it is fully
licensed, for approximately $69 million. AREP no longer has any interests in
the Claridge.

For accounting purposes AREP reflects its liability to repurchase its
Sands interest as 'Due to affiliates' in the Consolidated Balance Sheets.
AREP includes its new Sands notes in 'Debt and Equity Securities' and its
equity interest as 'Equity interest in GB Holdings Inc.' in the Consolidated
Balance Sheets.

FINANCING ACTIVITIES

During 2001, AREP repaid approximately $1.8 million of maturing debt
obligations and prepaid $5.7 million of higher interest rate mortgages. In
addition, AREP repaid a mortgage of $707,000 in connection with a lease
termination.

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No refinancings were completed in 2001.

LEASING ACTIVITIES

In 2001, ten leases covering ten properties and representing approximately
$1.0 million in annual rentals expired. Nine of these leases, originally
representing approximately $967,000 in annual rental income, have been renewed
for approximately $675,000 in annual rentals. Such renewals are generally for a
term of five years. One property, with an approximate annual rental income of
$33,000 was sold.

In 2002, fourteen leases covering fourteen properties and representing
approximately $2.1 million in annual rentals are scheduled to expire. Four
leases originally representing approximately $735,000 in annual rental income
were renewed for approximately $444,000 in annual rentals. Such renewals are
generally for a term of five years. Five properties with annual rental income of
approximately $836,000 were not renewed and are currently being marketed for
sale or lease. The status of the remaining five properties with annual rentals
of $538,000 has not yet been determined.

By the end of the year 2004, net leases representing approximately 15% of
AREP's net annual rentals from its portfolio will be due for renewal, and by the
end of the year 2006, net leases representing approximately 35% of AREP's net
annual rentals will be due for renewal. In many of these leases, the tenant has
an option to renew at the same rents they are currently paying and in many of
the leases the tenant also has an option to purchase the property. AREP believes
that tenants acting in their best interests will renew those leases which are at
below market rents, and permit leases for properties that are less marketable
(either as a result of the condition of the property or its location) or are at
above-market rents to expire. AREP expects that it may be difficult and time
consuming to re-lease or sell those properties that existing tenants decline to
re-let or purchase and that AREP may be required to incur expenditures to
renovate such properties for new tenants. AREP also may become responsible for
the payment of certain operating expenses, including maintenance, utilities,
taxes, insurance and environmental compliance costs associated with such
properties which are presently the responsibility of the tenant. In addition,
net leases representing approximately 29% of AREP's net annual rentals from its
portfolio are with tenants in the retail sector, many of which are currently
experiencing cash flow difficulties and a number of which are in bankruptcy. As
a result, operating expenses may be incurred with respect to the properties
underlying any such leases rejected in bankruptcy and those expenses, coupled
with the effects of a downturn in the retail markets, could have an adverse
impact on AREP's net cash flow.

BANKRUPTCIES AND DEFAULTS

AREP is aware that 18 of its present and former tenants have been or are
currently involved in some type of bankruptcy or reorganization. Under the
Bankruptcy Code, a tenant may assume or reject its unexpired lease. In the event
a tenant rejects its lease, the Bankruptcy Code limits the amount of damages a
landlord, such as AREP, is permitted to claim in the bankruptcy proceeding as a
result of the lease termination. Generally, a claim resulting from a rejection
of an unexpired lease is a general unsecured claim. When a tenant rejects a
lease, there can be no assurance that AREP will be able to re-let the property
at an equivalent rental. As a result of tenant bankruptcies, AREP has incurred
and expects, at least in the near term, to continue to incur certain property
expenses and other related costs. Thus far, these costs have consisted largely
of legal fees, real estate taxes and property operating expenses. Of AREP's 18
present and former tenants involved in bankruptcy proceedings or reorganization,
14 have rejected their leases, affecting 36 properties, all of which have been
vacated. These rejections have had an adverse impact on annual net cash flow
(including both the decrease in revenues from lost rents, as well as increased
operating expenses). Active bankruptcy matters are as follows:

In April 2001, WR Grace, the tenant of an office building owned by AREP,
filed a voluntary petition for Chapter 11 Bankruptcy protection. The tenant
rejected the lease effective December 15, 2001. The annual rent for the property
was approximately $988,000. At December 31, 2001, the carrying value of this
property was approximately $5,113,000.

In January 2002, Kmart Corp., a tenant leasing seven properties owned by
AREP which represent approximately $1,374,000 in annual rentals, filed a
voluntary petition for reorganization under

I-8

Chapter 11 of the Federal Bankruptcy Code. Pursuant to an order of the
Bankruptcy Court, four leases have been rejected representing approximately
$713,000 in annual rents. The rejected properties are being held for sale and
AREP has recorded a provision for loss of approximately $1.9 million on such
properties for the year ended December 31, 2001. As of March 1, 2002 AREP has
not been notified regarding the three remaining leases representing
approximately $661,000 in annual rents. At December 31, 2001, the carrying value
of the seven properties was $6,863,000.

In September 2001, Ames Department Stores, a tenant in a property owned by
AREP, filed a voluntary petition for reorganization under Chapter 11 of the
Bankruptcy Code. The annual rent for this property is approximately $327,000. As
of March 1, 2002 the tenant has not exercised its right to affirm or reject the
lease. At December 31, 2001, the carrying value of this property was
approximately $2,232,000.

The General Partner monitors all tenant bankruptcies and defaults and may,
when it deems it necessary or appropriate, establish additional reserves for
such contingencies.

INSURANCE

AREP carries customary insurance for its properties and business segments.
However AREP does not insure net lease properties where the tenant provides
appropriate amounts of insurance.

ENVIRONMENTAL MATTERS

Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real property may become liable for the costs of removal or
remediation of certain hazardous substances released on or in its property. Such
laws often impose such liability without regard to whether the owner or operator
knew of, or was responsible for, the release of such hazardous substances. If
any such substances were found in or on any property invested in by AREP, AREP
could be exposed to liability and be required to incur substantial remediation
costs. The presence of such substances or the failure to undertake proper
remediation may adversely affect the ability to finance, refinance or dispose of
such property. AREP will generally require that properties in which AREP invests
have been subject to a Phase I environmental site assessment, which involves
record review, visual site assessment and personnel interviews, but does not
involve invasive procedures such as air and soil sampling or groundwater
analysis. There can be no assurance, however, that these evaluations will reveal
all potential liabilities or that future property uses or conditions or changes
in applicable environmental laws and regulations or activities at nearby
properties will not result in the creation of environmental liabilities with
respect to a property.

Additionally, pursuant to the Resource Conservation and Recovery Act 42
U.S.C. 'SS'SS' 9601, et seq. and the regulations promulgated thereunder ('RCRA')
certain owners, operators and other parties in control of a property that has a
non-exempt underground storage tank ('UST') were required to remove, replace,
retrofit or take such tanks out of service by December 22, 1998. AREP notified
its tenants of the RCRA requirements. AREP believes that under the terms of its
net leases with its tenants, the cost of, and obligation to comply with, this
RCRA requirement generally would be the responsibility of its tenant.
Furthermore, with respect to vacated properties and prior lease terminations,
there cannot be any assurance that AREP would not be deemed responsible for this
RCRA requirement. However, there also can be no assurance that a tenant will
bear the costs of, or undertake compliance with, this RCRA requirement.

Most of AREP's properties continue to be net-leased to single corporate
tenants, and AREP believes these tenants would be responsible for any
environmental conditions existing on the properties they lease. Normally,
therefore, such conditions should not have a material adverse effect on the
financial statements or competitive position of AREP. Many of the properties
acquired by AREP in connection with the Exchange Offer were not subjected to any
type of environmental site assessment at the time of the acquisition.
Consequently, AREP undertook to have Phase I Environmental Site Assessments
completed on most of its properties. AREP believes that under the terms of its
net leases with its tenants, the costs of any environmental problems would be
the responsibility of such tenants. While most tenants have assumed
responsibility for the environmental conditions existing on their leased
property, there can be no assurance that AREP will not be deemed to be a
responsible party or

I-9

that the tenant will bear the cost of remediation. Also as AREP acquires more
operating properties, its exposure to environmental cleanup costs may increase.

The Phase I Environmental Assessments received on these properties
inconclusively indicate that certain sites may have environmental conditions
that should be further reviewed. AREP has notified the responsible tenants to
attempt to ensure that they cause any required investigation and/or remediation
to be performed and most tenants continue to take appropriate action. However,
if the tenants fail to perform responsibilities under their leases in respect of
such sites, based solely upon the consultant's preliminary estimates resulting
from its Phase I Environmental Site Assessments referred to above, it is
presently estimated that AREP's exposure could amount to approximately $2-3
million. However, as no Phase II Environmental Site Investigations have been
conducted by AREP, there can be no accurate estimation of the need for or extent
of any required remediation. AREP is in the process of updating its Phase I Site
Assessments for certain of its environmentally sensitive properties including
properties with open RCRA requirements. Approximately 40 updates are expected to
be completed in 2002 with another 35 scheduled for the year 2003.

In addition to conducting such Phase I Environmental Site Assessments, AREP
has developed a site inspection program. This program is being conducted by two
AREP employees (both of whom are experienced construction managers and
registered architects) who visit AREP's properties and visually inspect the
premises to assess the physical condition of the properties in an effort to
determine whether there are any obvious indications of environmental conditions
which would potentially expose AREP to liability and to ensure that the physical
condition of the property is being maintained properly. There is no assurance,
however, that this program will in fact minimize any potential environmental or
other cost exposure to AREP.

AREP could also become liable for environmental clean-up costs if a bankrupt
or insolvent tenant were unable to pay such costs. Environmental problems may
also delay or impair AREP's ability to sell, refinance or re-lease particular
properties, resulting in decreased income and increased cost to AREP.

OTHER PROPERTY MATTERS

Under Title III of the Americans with Disabilities Act of 1990 and the rules
promulgated thereunder (collectively, the 'ADA'), in order to protect
individuals with disabilities, owners and certain tenants of public
accommodations (such as hotels, casinos, resorts, offices and shopping centers)
must remove architectural and communication barriers which are structural in
nature from existing places of public accommodation to the extent 'readily
achievable' (as defined in the ADA). In addition, under the ADA, alterations to
a place of public accommodation or a commercial facility are to be made so that,
to the maximum extent feasible, such altered portions are readily accessible to
and usable by disabled individuals.

Except for certain properties operated by AREP, the General Partner believes
that the existing net leases require the tenants of many of AREP's properties to
comply with the ADA. If a tenant does not comply with the ADA or rejects its
lease in bankruptcy without complying with the ADA, AREP may ultimately have to
bear the expense of complying with the ADA.

As AREP acquires more operating properties, it may be required to make
expenditures to bring such properties into compliance with the ADA and other
applicable laws.

EMPLOYEES

AREP and its consolidated subsidiaries have approximately 2,700 full and
part-time employees, which number of employees fluctuates due to the seasonal
nature of certain of its businesses. Most of the employees are employed by
AREP's consolidated subsidiaries. Approximately 1,200 employees of Stratosphere
are covered by three collective bargaining agreements, two of which expire in
2002. Nineteen people, including two who are officers of the General Partner,
presently perform services for AREP on a full-time basis. These people perform
administrative services for AREP, including accounting, legal, financial,
investor services and secretarial, as well as real estate and management and
other services. Management believes it currently has sufficient staffing to
operate effectively the day-to-day business of AREP. Approximately seventy-five
people are employed by Bayswater who perform

I-10

real estate development, construction, sales and supervisory and administrative
functions. Also, a third officer of the General Partner devotes a substantial
portion of his time to the AREP and Bayswater businesses.

Regarding Stratosphere, on January 27, 2001, a representation election was
conducted by the National Labor Relations Board, which determined that a
majority of the dealers wanted to be represented by the Transport Workers Union
of America. Negotiations are continuing and a final agreement has not yet been
reached.

Stratosphere has historically had good relationships with unions
representing its employees and the Company does not anticipate any business
disruption as a result of these elections.

COMPETITION

Competition in leasing and buying and selling remains strong. As previously
discussed, many of AREP's tenants have rights to renew at prior rental rates.
AREP's experience is that tenants will renew below market leases and permit
leases that are less marketable or at above market rents to expire, making it
difficult for AREP to re-let or sell on favorable terms properties vacated by
tenants. The real estate market continues to be weak in certain areas of the
country, particularly in the retail category. The impact on the retail markets
and ongoing corporate consolidations have contributed to increasing vacancy
rates and oversupply for retail tenants. AREP believes it is one of the largest
real estate entities of its kind and that it will continue to compete
effectively with other similar real estate companies, although there are real
estate entities with greater financial resources than AREP.

Investments in the gaming and entertainment industries involve significant
competitive pressures and political and regulatory considerations. In recent
years, there have been several new gaming establishments opened as well as
facility expansions, providing increased supply of competitive products and
properties in the industry, which may adversely affect the operating margins and
investment returns.

Competition for the acquisition of desirable land for development, and for
the sale of developed land, houses and condominiums is also strong. AREP and its
consolidated subsidiaries compete in these areas with many real estate
developers, some of which have greater financial resources than AREP.

Competition for investments of the types AREP intends to pursue has been
increasing in recent years, including that from a number of investment funds and
REITS that have raised capital for such investments, resulting in, among other
things, higher prices for such investments. Such investments have become
competitive to source and the increased competition may have an adverse impact
on the spreads and AREP's ability to find quality assets at appropriate yields.
While AREP believes its capital base may enable it to gain a competitive
advantage over certain other purchasers of real estate by allowing it to respond
quickly and make all cash transactions without financing contingencies where
appropriate, there can be no assurance that this will be the case.

ITEM 2. PROPERTIES.

As of March 1, 2002, AREP owned 144 separate real estate assets (excluding
Stratosphere, Bayswater and the Sands). These primarily consist of fee and
leasehold interests and, to a limited extent, interests in real estate mortgages
in 31 states. Most of these properties are net-leased to single corporate
tenants. Approximately 83% of these properties are currently net-leased, 7% are
operating properties and 10% are vacant and being marketed for sale or lease.

The following table summarizes the type, number per type and average net
effective rent per square foot of such properties:

NUMBER AVERAGE NET EFFECTIVE
TYPE OF PROPERTY OF PROPERTIES RENT PER SQUARE FOOT(1)
---------------- ------------- -----------------------

Retail.................................. 60 $4.71
Industrial.............................. 18 $2.01
Office.................................. 30 $7.65
Supermarkets............................ 15 $3.33
Banks................................... 5 $3.90
Other................................... 16 N/A

---------
(1) Based on net-lease rentals.

I-11

The following table summarizes the number of such properties in each region
specified below:

NUMBER
LOCATION OF PROPERTY OF PROPERTIES
-------------------- -------------

United States:
Southeast............................................... 62
Northeast............................................... 31
South Central........................................... 7
Southwest............................................... 6
North Central........................................... 34
Northwest............................................... 4

From January 1, 2001 through March 1, 2002, AREP sold or otherwise disposed
of 7 properties. In connection with such sales and dispositions, AREP received
an aggregate of approximately $7,000,000 in cash, net of closing costs and
amounts utilized to satisfy mortgage indebtedness which encumbered such
properties. As of December 31, 2001, AREP owned 16 properties that were being
marketed for sale. The aggregate net realizable value of such properties is
estimated to be approximately $12,435,000.

For each of the years ended December 31, 2001, 2000, and 1999, no single
real estate asset or series of assets leased to the same lessee accounted for
more than 10% of the gross revenues of AREP. However, at December 31, 2001,
2000, and 1999, Portland General Electric Company ('PGEC') occupied a property,
which represented approximately 12% of the carrying value of AREP's total real
estate assets. PGEC is an electric utility engaged in the generation, purchase,
transmission, distribution and sale of electricity. All of PGEC's common stock
is owned by Enron Corp. which has filed for bankruptcy under Chapter 11 of the
Federal Bankruptcy Code. PGEC is not included in the filing. PGEC's management
has stated that it cannot predict with certainty what impact the Enron
bankruptcy may have on PGEC. However, PGEC does not believe that the assets and
liabilities of PGEC will become part of the Enron bankruptcy estate and
therefore does not expect the Enron bankruptcy proceedings to have a material
effect on PGEC's operations. At December 31, 2001 and March 31, 2002, PGEC is
current in its rents.

The PGEC Property is an office complex consisting of three buildings
containing an aggregate of approximately 803,000 square feet on an approximate
2.7 acre parcel of land located in Portland, Oregon.

The PGEC Property is net-leased to a wholly owned subsidiary of PGEC through
September 30, 2018, with two ten-year and one five-year renewal options. The
annual rental is $5,137,309 until 2003, $4,973,098 until 2018 and $2,486,549
during each renewal option. PGEC has guaranteed the performance of its
subsidiary's obligations under the lease. The lessee has an option to purchase
the PGEC Property in September of 2003, 2008, 2013 and 2018 at a price equal to
the fair market value of the PGEC Property determined in accordance with the
lease and is required to make a rejectable offer to purchase the PGEC Property
in September 2018 for a price of $15,000,000. A rejection of such offer will
have no effect on the lease obligations or the renewal and purchase options.

AREP owns 51% of Stratosphere and has entered into a merger agreement under
which it will acquire the remaining shares of Stratosphere. Stratosphere owns
and operates the Stratosphere Tower, Casino & Hotel; located in Las Vegas,
Nevada, which is centered around the Stratosphere Tower, the tallest
free-standing observation tower in the United States. The hotel and
entertainment facility has 2,444 rooms and suites, a 97,000 square foot casion
and related amenities. See Item 1 -- 'Recent Acquisitions/Investments.'

AREP owns, primarily through its Bayswater subsidiary, residential
development properties. Bayswater, a real estate investment, management and
development company, focuses primarily on the construction and sale of
single-family houses, multi-family homes and residential lots in subdivisions
and in planned communities. See Item 1 -- 'Recent Acquisitions/Investments.'

Upon obtaining licenses from the New Jersey Casino Control Commission, AREP,
in accordance with a prior agreement, will acquire a 36% equity interest in
GB Holdings, the parent company of the Sands. The Sands owns and operates the
Sands Hotel and Casino, located in Atlantic City, New Jersey,

I-12

containing 532 rooms and suites, a 77,000 square foot casino and related
amenities. See Item 1 -- 'Recent Acquisitions/Investments.'

AREP owns a resort property in New Seabury, Massachusetts. The New Seabury
site is comprised of two golf courses, other recreational facilities,
condominium and time share units and land for future development. Golf course
and clubhouse improvements were made totalling $13.4 million and $5.8 million in
2001 and 2000, respectively.

ITEM 3. LEGAL PROCEEDINGS.

UNITHOLDER LITIGATION

On November 18, 1998, Ruth Ellen Miller filed a Class Action Complaint
bearing the caption Ruth Ellen Miller, on behalf of herself and all others
similarly situated v. American Real Estate Partners, L.P., High Coast Limited
Partnership, American Property Investors, Inc., Carl C. Icahn, Alfred Kingsley,
Mark H. Rachesky, William A. Leidesdorf, Jack G. Wasserman and John P.
Saldarelli in the Delaware Chancery Court in New Castle County (Civil Action No.
16788NC). On September 21, 2000, Ruth Ellen Miller, Charles and Lydia Hoffman,
and Joy Lazarus, claiming as plaintiffs on behalf of themselves and all others
similarly situated, filed an amended complaint (the 'Complaint') and a motion
for class certification.

Plaintiffs alleged that defendants, breached their fiduciary or contractual
duties to AREP, by (i) using the General Partner to make a Rights Offering in
February 1995 that enabled High Coast to acquire a majority of the Partnership
units and insulated the General Partner from removal, (ii) cutting off
distributions in order to devote all available cash to investments in which
other Icahn entities were invested and to put pressure on the Unitholders to
sell out, (iii) amending the Partnership Agreement in 1996 to broaden the
purposes of the Partnership to allow investment in any securities and
(iv) bought out certain Unitholders at an allegedly unfair price through a 1998
Tender Offer. The Complaint sought class certification, an unspecified amount in
damages, injunctive relief, costs and attorneys' fees. On September 6, 2001,
pursuant to Defendants' motion the Complaint was dismissed.

On January 31, 2001, Stratosphere was named in an action styled Disabled
Rights Action Committee v. Stratosphere Gaming Corp., Case No A430070, in the
Eighth Judicial District Court of the State of Nevada. The complaint alleges a
number of violations of the Americans with Disabilities Act ('ADA'), including
inadequate room selection, door widths and other similar items. Simultaneously
with the complaint, plaintiffs filed a Motion for Preliminary Injunction,
seeking to have construction halted on the new hotel tower until the property
fully complies with the ADA. Stratosphere removed the action to the United
States District Court in Nevada, and it is now styled Disabled Rights Action
Committee v. Stratosphere Gaming Corp., Case No. CV-S-01-0162-RLH (PAL). The
federal district court held a hearing on plaintiffs' Motion for Preliminary
Injunction and denied the motion, focusing upon what the Court believed to be
the plaintiffs' lack of irreparable injury. The federal district court also
granted Stratosphere's Motion to Dismiss the plaintiffs' state law claims,
leaving in place only the ADA claims. Stratosphere and the Plaintiffs then filed
Motions for Summary Judgment. The District Court granted and denied in part each
of the parties' respective motions. The Court ordered that Stratosphere must
make certain renovations to 532 rooms that were opened in 1996. The Court issued
an injunction requiring that these renovations be completed by August 9, 2002.
Stratosphere had already commenced these renovations prior to the Court Order
and expects to meet the Court deadline. Stratosphere believes the costs of these
renovations will be approximately $450,000.

In addition, in the ordinary course of business, AREP, its subsidiaries and
other companies in which AREP has invested are parties to various legal actions.
In management's opinion, the ultimate outcome of such legal actions will not
have a material effect on the results of operations or the financial position of
AREP.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of Unitholders during 2001.

I-13

PART II

ITEM 5. MARKET FOR AREP'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS.

MARKET INFORMATION

AREP's Depositary Units are traded on the New York Stock Exchange ('NYSE')
under the symbol 'ACP.' Trading on the NYSE commenced July 23, 1987, and the
range of high and low market prices for the Depositary Units on the New York
Stock Exchange Composite Tape (as reported by The Wall Street Journal) from
January 1, 2000 through December 31, 2001 is as follows:

QUARTER ENDED: HIGH LOW
-------------- ---- ---

March 31, 2001.............................................. $10.3125 $8.9375
June 30, 2001............................................... 10.75 9.04
September 30, 2001.......................................... 10.25 8.75
December 31, 2001........................................... 9.95 8.80

March 31, 2000.............................................. $ 8.25 $ 7.50
June 30, 2000............................................... 9.75 7.625
September 30, 2000.......................................... 9.875 8.50
December 31, 2000........................................... 9.1875 8.6875

On March 1, 2002, the last sales price of the Depositary Units, as reported
by the New York Stock Exchange Composite Tape (as reported by The Wall Street
Journal) was $8.95.

As of March 1, 2002, there were approximately 9,000 record holders of the
Depositary Units.

Since January 1, 1994, AREP has made no cash distributions with respect to
the Depositary Units.

DISTRIBUTIONS

On April 1, 2002, the Board of Directors of the General Partner announced
that no distributions on its Depositary Units are expected to be made in 2002.
AREP believes that it should continue to hold and invest, rather than
distribute, cash. In making its announcement, AREP noted it plans to continue
to apply available cash flow toward its operations, repayment of maturing
indebtedness, tenant requirements, other capital expenditures and cash reserves
for Partnership contingencies, including environmental matters and scheduled
lease expirations. By the end of the year 2004 net leases representing
approximately 15% of AREP's net annual rentals from its portfolio will be due
for renewal, and by the end of the year 2006, 35% of such rentals will be due
for renewal. Another factor that AREP took into consideration was that net
leases representing approximately 29% of AREP's net annual rentals from its
portfolio are with tenants in the retail sector, some of which are currently
experiencing cash flow difficulties and restructurings. See Item 7 --
'Management's Discussion and Analysis of the Financial Condition and Results
of Operations -- Capital Resources and Liquidity.'

As of March 1, 2002, there were 46,098,284 Depositary Units and 8,886,631
Preferred Units outstanding. Trading in the Preferred Units commenced March 31,
1995 on the NYSE under the symbol 'ACP PR.' The Preferred Units represent
limited partner interests in AREP and have certain rights

II-1

and designations, generally as follows. Each Preferred Unit has a liquidation
preference of $10.00 and entitles the holder thereof to receive distributions
thereon, payable solely in additional Preferred Units, at a rate of 5% of the
liquidation preference thereof, payable annually on March 31, or the next
succeeding business day thereafter, of each year (each, a 'Payment Date'),
commencing March 31, 1996. On any Payment Date commencing with the Payment Date
on March 31, 2000, AREP, with the approval of the Audit Committee, may opt to
redeem all, but not less than all, of the Preferred Units for a price, payable
either in all cash or by issuance of additional Depositary Units, equal to the
liquidation preference of the Preferred Units, plus any accrued but unpaid
distributions thereon. On or before March 31, 2010, AREP must redeem all, but
not less than all, of the Preferred Units on the same terms as any optional
redemption. Holders of Preferred Units will have no voting rights except as
mentioned in Item 10 -- 'Directors and Executive Officers of AREP,' below.

Each Depositary Unitholder will be taxed on the Unitholder's allocable share
of AREP's taxable income and gains and, with respect to Preferred Unitholders,
accrued guaranteed payments, whether or not any cash is distributed to the
Unitholder.

REPURCHASE OF DEPOSITARY UNITS

AREP announced in 1987 its intention to purchase up to 1,000,000 Depositary
Units. On June 16, 1993, AREP increased the amount of shares authorized to be
repurchased to 1,250,000 Depositary Units. As of March 1, 2002, AREP had
purchased 1,137,200 Depositary Units at an aggregate cost of approximately
$11,921,000. Management recently has not been acquiring Depositary Units for
AREP, although AREP may from time to time acquire additional Depositary Units.

ITEM 6. SELECTED FINANCIAL DATA

(IN $000'S EXCEPT PER UNIT AMOUNTS)
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------

Total revenues. $ 297,323 $ 312,877 $ 295,004 $ 173,241 $ 104,667
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Earnings before property and securities
transactions and minority interest... $ 62,682 $ 69,024 $ 68,116 $ 68,707 $ 45,607
Other gains and (losses) and minority
interest:
Gain on sales and disposition of
real estate...................... 1,737 6,763 13,971 9,065 16,051
Gain on sale of limited partnership
interests........................ -- 3,461 -- 5,562 --
Gain on sale of marketable equity
and debt securities.............. 6,749 -- 28,590 -- 29,188
Provision for loss on mortgages
receivable....................... -- -- -- -- (9,790)
Provision for loss on real
estate........................... (3,184) (1,351) (1,946) (1,180) (1,085)
Minority interest in net
(earnings)/loss of Stratosphere
Corporation.................... (450) (2,747) (1,002) 95 --
---------- ---------- ---------- ---------- ----------
Net earnings........................... $ 67,534 $ 75,150 $ 107,729 $ 82,249 $ 79,971
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------

(table continued on next page)

II-2

(table continued from previous page)

Net earnings per limited partnership
unit:
Basic:
Earnings before property and
securities transactions...... $ 1.23 $ 1.30 $ 1.09 $ 1.16 $ 1.19
Net gain from property and
securities transactions...... .11 .18 .86 .26 1.08
---------- ---------- ---------- ---------- ----------
Net earnings....................... $ 1.34 $ 1.48 $ 1.95 $ 1.42 $ 2.27
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted average limited partnership
units outstanding.................... 46,098,284 46,098,284 46,098,284 46,173,284 31,179,246
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Diluted:
Earnings before property and
securities transactions...... $ 1.10 $ 1.14 $ .96 $ 1.06 $ 1.16
Net gain from property and
securities transactions...... .09 .15 .71 .22 .97
---------- ---------- ---------- ---------- ----------
Net earnings....................... $ 1.19 $ 1.29 $ 1.67 $ 1.28 $ 2.13
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted average limited partnership
units and equivalent partnership
units outstanding.................... 55,599,112 56,157,079 56,078,394 54,215,339 34,655,395
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Distributions to partners.............. $ -- $ -- $ -- $ -- $ --
At year end:
Real estate leased to others........... $ 358,597 $ 379,396 $ 375,268 $ 381,554 $ 383,392
Hotel, casino and resort operating
properties........................... $ 228,181 $ 185,253 $ 141,829 $ 137,706 $ 5,002
U.S. Government and agency
obligations.......................... $ 313,641 $ 475,267 $ 468,529 $ 363,884 $ 372,165
Note receivable due from affiliate..... $ 250,000 $ -- $ -- $ -- $ --
Marketable equity and debt
securities........................... $ 35,253 $ 54,736 $ 67,397 $ 248,455 $ --
Mortgages and notes receivable......... $ 35,529 $ 19,946 $ 10,955 $ 9,933 $ 59,970
Equity interest in GB Holdings Inc. ... $ 39,936 $ 38,359 $ -- $ -- $ --
Land and construction in-progress...... $ 69,429 $ 75,952 $ 99,252 $ 91,836 $ 68,644
Total assets........................... $1,451,642 $1,422,987 $1,364,861 $1,317,318 $1,064,448
Mortgages payable...................... $ 166,808 $ 182,049 $ 179,387 $ 173,559 $ 165,048
Due to affiliate....................... $ 68,805 $ 77,521 $ -- $ 60,750 $ --
Partners' equity....................... $1,100,629 $1,042,725 $1,029,308 $ 943,528 $ 858,893

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature, are
intended to be, and are hereby identified as, 'forward looking statements' for
purposes of the safe harbor provided by Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934, as amended by
Public Law 104-67.

Forward-looking statements regarding management's present plans or
expectations involve risks and uncertainties and changing economic or
competitive conditions, as well as the negotiation of agreements with third
parties, which could cause actual results to differ from present plans or
expectations, and such differences could be material. Readers should consider
that such statements speak only as to the date hereof.

GENERAL

AREP believes that it will benefit from diversification of its portfolio of
assets. To further its investment objectives, AREP may consider the acquisition
or seek effective control of land development companies and other real estate
operating companies which may have a significant

II-3

inventory of quality assets under development, as well as experienced personnel.
Additionally, in selecting future real estate investments, AREP intends to focus
on assets that it believes are undervalued in the real estate market, which
investments may require substantial liquidity to maintain a competitive
advantage. From time to time AREP has discussed and in the future may discuss
and may make such acquisitions from Icahn, the General Partner or their
affiliates, provided the terms thereof are fair and reasonable to AREP. Despite
the substantial capital pursuing real estate opportunities, AREP believes that
there are still opportunities available to acquire investments that are
undervalued. These may include commercial properties, residential and commercial
development projects, land, assets in the gaming and entertainment industries,
non-performing loans, the securities of entities which own, manage or develop
significant real estate assets, including limited partnership units and
securities issued by real estate investment trusts and the acquisition of debt
or equity securities of companies which may be undergoing restructuring and
underperforming properties that may require active asset management and
significant capital improvements. As noted above, AREP has made investments in
the gaming industry, and may consider additional gaming industry investments and
investments related to the entertainment industry. Such investments may include
additional casino properties and those in the entertainment field, such as movie
theater interests and the financing of, and investment in, the movie production
and distribution industries. With respect to gaming and entertainment industry
investments, AREP believes that there may be synergies between production
companies for movies and live entertainment and supplying entertainment content
to hotels and casinos. Such investments may be made in the form of acquisitions
from, or in joint venture or co-management with, Icahn, the General Partner or
their affiliates, provided that the terms thereof are fair and reasonable to
AREP.

AREP notes that while there are still opportunities available to acquire
investments that are undervalued, acquisition opportunities in the real estate
market for value-added investors have become competitive to source and the
increased competition may have some impact on the spreads and the ability to
find quality assets that provide returns that are sought. These investments may
not be readily financeable and may not generate immediate positive cash flow for
AREP. As such, they require AREP to maintain a strong capital base in order to
react quickly to these market opportunities as well as to allow AREP the
financial strength to develop or reposition these assets. While this may impact
cash flow in the near term and there can be no assurance that any asset acquired
by AREP will increase in value or generate positive cash flow, AREP intends to
focus on assets that it believes may provide opportunities for long-term growth
and further its objective to diversify its portfolio.

Historically, substantially all of AREP's real estate assets have been
net-leased to single corporate tenants under long-term leases. With certain
exceptions, these tenants are required to pay all expenses relating to the
leased property and therefore AREP is not typically responsible for payment of
expenses, such as maintenance, utilities, taxes and insurance associated with
such properties.

The Amendment, which became effective in August, 1996, permits AREP to
invest in securities issued by companies that are not necessarily engaged as one
of their primary activities in the ownership, development or management of real
estate while remaining in the real estate business and continuing to pursue
suitable investments for AREP in the real estate market.

AREP raised funds through a rights offering in September 1997 (the '1997
Offering') to increase its assets available for investment, take advantage of
investment opportunities, further diversify its portfolio of assets and mitigate
against the impact of potential lease expirations. The 1997 Offering was

II-4

successfully completed in September 1997 and net proceeds of approximately $267
million were raised for investment purposes.

Expenses relating to environmental clean-up have not had a material effect
on the earnings, capital expenditures, or competitive position of AREP.
Management believes that substantially all such costs would be the
responsibility of the tenants pursuant to lease terms. While most tenants have
assumed responsibility for the environmental conditions existing on their leased
property, there can be no assurance that AREP will not be deemed to be a
responsible party or that the tenant will bear the costs of remediation. Also,
as AREP acquires more operating properties, its exposure to environmental
clean-up costs may increase. AREP completed Phase I Environmental Site
Assessments on most of its properties by third-party consultants. Based on the
results of these Phase I Environmental Site Assessments, the environmental
consultant has recommended that certain sites may have environmental conditions
that should be further reviewed.

AREP has notified each of the responsible tenants to attempt to ensure that
they cause any required investigation and/or remediation to be performed and
most tenants continue to take appropriate action. However, if the tenants fail
to perform responsibilities under their leases referred to above, based solely
upon the consultant's estimates resulting from its Phase I Environmental Site
Assessments referred to above, it is presently estimated that AREP's exposure
could amount to $2-3 million, however, as no Phase II Environmental Site
Assessments have been conducted by the consultants, there can be no accurate
estimation of the need for or extent of any required remediation, or the costs
thereof. In addition, AREP notified all tenants of the Resource Conservation and
Recovery Act's ('RCRA') December 22, 1998 requirements for regulated underground
storage tanks. AREP may, at its own cost, have to cause compliance with RCRA's
requirements in connection with vacated properties, bankrupt tenants and new
acquisitions. Phase I Environmental Site Assessments will also be performed in
connection with new acquisitions and with such property refinancings as AREP may
deem necessary and appropriate. AREP is in the process of updating its Phase I
Site Assessments for certain of its environmentally sensitive properties
including properties with open RCRA requirements. Approximately 40 updates are
expected to be completed in 2002 with another 35 scheduled for the year 2003.

RESULTS OF OPERATIONS

CALENDAR YEAR 2001 COMPARED TO CALENDAR YEAR 2000

Gross revenues decreased by $15,554,000, or 5.0%, during the year ended
December 31, 2001 as compared to the same period in 2000. This decrease reflects
decreases of $20,614,000 in land, house and condominium sales, $5,841,000 in
interest income on U.S. Government and Agency obligations and other investments,
$5,199,000 in hotel and resort operating income and $2,717,000 in financing
lease income partially offset by increases of $11,592,000 in hotel and casino
operating income, $3,910,000 in equity in earnings of GB Holdings, Inc.,
$3,271,000 in rental income and $44,000 in dividend and other income. The
decrease in land, house and condominium sales is primarily due to a decline in
inventory of completed units available for sale. The decrease in interest income
on U.S. Government and Agency obligations and other investments is primarily
attributable to a decrease in interest rates on short-term investments. The
decrease in hotel and resort operating income is primarily attributable to New
Seabury resort operations, including membership initiation fees, which were
negatively impacted by the construction of a new club house and golf course
improvements. The decrease in financing lease income is the result of lease
expirations and normal financing lease amortization. The increase in hotel and
casino operating income is primarily attributable to an increase in gaming and
hotel revenues. The equity in earnings of GB Holdings, Inc. is the result of
accounting for the Company's interest under the equity method effective
October 1, 2000. In 2001, the Company included a full year of GB Holdings,
Inc.'s operations, whereas in 2000 only the fourth quarter of operations was
included, historically a seasonably weak quarter. The increase in rental income
is primarily attributable to operating lease rentals.

Expenses decreased by $9,212,000, or 3.8%, during the year ended
December 31, 2001 as compared to the same period in 2000. This decrease reflects
decreases of $15,894,000 in the cost of land, house and

II-5

condominium sales, $6,056,000 in hotel and resort operating expenses, $1,750,000
in Bayswater acquisition costs and $395,000 in general and administrative
expenses partially offset by increases of $9,472,000 in hotel and casino
operating expenses, $2,936,000 in depreciation and amortization $1,320,000 in
interest expense and $1,155,000 in rental property expenses. The decrease in
cost of land, house and condominium sales is due to decreased sales as explained
above. The decrease in hotel and resort operating expenses is primarily
attributable to cost controls at the New Seabury resort to offset decreased
revenues as explained above. The increase in hotel and casino operating expenses
is primarily attributable to increased costs associated with increased revenues.
The increase in interest expense is primarily attributable to increased interest
due affiliates in connection with repurchase obligations.

As a result of the completion of Stratosphere's additional 1,000 rooms and
related amenities in June 2001, hotel and casino operating revenues and expenses
have increased. Increased room capacity provided more hotel guests thereby
increasing revenues. These increases were partially offset by a $3 decrease in
the average daily rate per room and a 2.6% decrease in percentage occupancy.
Hotel and casino operating expenses increased due to additional operating costs
and increased marketing and advertising expenses.

The increase in hotel and casino revenues were muted by the September 11,
2001 terrorist attack. Management anticipates increased hotel and casino
operating revenues and expenses through the second quarter of 2002. However,
these increases are expected to be tempered by decreased air travel to Las Vegas
as a result of the terrorist threat, increased competition and the recent
economic recession.

Earnings before property and securities transactions and minority interest
decreased during the year ended December 31, 2001 by $6,342,000 as compared to
the same period in 2000.

Gain on property transactions decreased by $5,026,000 during the year ended
December 31, 2001 as compared to the same period in 2000 due to the size and
number of transactions.

During the year ended December 31, 2001, AREP recorded a provision for loss
on real estate of $3,184,000 as compared to $1,351,000 in the same period in
2000. A substantial portion of the 2001 provision resulted from tenant
bankruptcies.

Gain on sale of marketable equity and debt securities was $6,749,000 in the
year ended December 31, 2001. There was no such income in 2000.

In the year ended December 31, 2000, AREP recorded a gain on sale of limited
partnership units of $3,461,000. There was no such income in 2001.

Minority interest in the net earnings of Stratosphere Corporation decreased
by $2,297,000 during the year ended December 31, 2001 as compared to the same
period in 2000 due to a decrease in Stratosphere's net hotel and casino
operating income.

Net earnings for the year ended December 31, 2001 decreased by $7,616,000 as
compared to the year ended December 31, 2000 primarily due to decreased interest
income ($5.8 million), decreased earnings from land, house and condominium
operations ($4.7 million) and decreased gain on property and securities
transactions ($3.3 million) partially offset by increased equity in earnings of
GB Holdings, Inc. ($3.9 million) and decreased minority interest in earnings of
Stratosphere ($2.3 million). Interest income declined due to lower short-term
rates. Earnings from land, house and condominium operations decreased due to a
decline in inventory of completed units available for sale. Based on existing
contracts, sales may increase during the first half of 2002 compared to 2001.
However, the decrease in land inventory in approved sub-divisions is expected to
negatively impact earnings from this business segment in the longer term unless
mitigated by the purchase of land, development and sale of units in approved
sub-divisions.

Diluted earnings per weighted average limited partnership unit outstanding
before property and securities transactions were $1.10 in the year ended
December 31, 2001 compared to $1.14 in the comparable period of 2000, and net
gain from property and securities transactions was $.09 in the year ended
December 31, 2001 compared to $.15 in the comparable period of 2000. Diluted net
earnings per weighted average limited partnership unit outstanding totalled
$1.19 in the year ended December 31, 2001 compared to $1.29 in the comparable
period of 2000.

II-6

For accounting purposes Bayswater's earnings prior to the date of
acquisition (March 23, 2000) were allocated to the General Partner and therefore
excluded from the computation of basic and diluted earnings per limited
partnership unit.

CALENDAR YEAR 2000 COMPARED TO CALENDAR YEAR 1999

Gross revenues increased by $17,873,000, or 6.1%, during the year ended
December 31, 2000 as compared to the same period in 1999. This increase reflects
increases of $10,694,000 in interest income on U.S. Government and Agency
obligations and other investments, $9,535,000 in Stratosphere Corporation hotel
and casino operating income, $4,956,000 in land, house and condominium sales,
$2,824,000 in rental income and $525,000 in hotel and resort operating income
partially offset by decreases of $5,846,000 in dividend and other income,
$2,712,000 in financing lease income and $2,103,000 in equity in losses of GB
Holdings, Inc. The increase in interest income on U.S. Government and Agency
obligations and other investments is primarily attributable to an increase in
short-term investments as well as an increase in interest rates. The increase in
Stratosphere Corporation hotel and casino operating income is primarily
attributable to construction that was in progress in 1999, and increased hotel
occupancy in 2000 resulting in increased casino revenues and food and beverage
income. The increase in land, house and condominium sales is primarily due to
differences in the size and number of transactions. The increase in rental
income is primarily attributable to newly acquired properties. The decrease in
dividend and other income is primarily due to the disposition of the RJR common
stock in June of 1999. The decrease in financing lease income is the result of
property sales and normal financing lease amortization. The increase in equity
in losses of GB Holdings, Inc. is the result of accounting for AREP's interest
under the equity method.

Expenses increased by $16,965,000, or 7.5%, during the year ended
December 31, 2000 as compared to the same period in 1999. This increase reflects
increases of $6,054,000 in Stratosphere Corporation hotel and casino operating
expenses, $5,149,000 in the cost of land, house and condominium sales,
$3,122,000 in hotel and resort operating expenses, $1,750,000 in Bayswater
acquisition costs, $1,077,000 in rental property expenses and $1,054,000 in
depreciation and amortization partially offset by decreases of $1,190,000 in
interest expense and $51,000 in general and administrative expenses. The
increase in Stratosphere Corporation hotel and casino operating expenses is
primarily attributable to increased costs associated with increased revenue. The
increase in the cost of land, house and condominium sales is due to the
differences in size and number of transactions. The increase in hotel and resort
operating expenses is primarily attributable to the Bayswater and New Seabury
resort operations. The increase in rental property expenses is primarily
attributable to newly acquired and off-lease properties. The decrease in
interest expense is primarily due to decreased interest due affiliates in
connection with repurchase obligations.

Earnings before property and securities transactions and minority interest
increased during the year ended December 31, 2000 by $908,000 as compared to the
same period in 1999.

Gain on property transactions decreased by $7,208,000 during the year ended
December 31, 2000 as compared to the same period in 1999 due to differences in
the size and number of transactions.

During the year ended December 31, 2000, AREP recorded a provision for loss
on real estate of $1,351,000 as compared to $1,946,000 in the same period in
1999.

In the year ended December 31, 1999, AREP recorded a non-recurring gain on
sale of marketable equity securities of $28,590,000 related to the sale of its
RJR common stock. There was no such income in 2000.

In the year ended December 31, 2000, AREP recorded a non-recurring gain on
sale of limited partnership units of $3,461,000. There was no such income in
1999.

Minority interest in the net earnings of Stratosphere Corporation increased
by $1,745,000 during the year ended December 31, 2000 as compared to the same
period in 1999.

Net earnings for the year ended December 31, 2000 decreased by $32,579,000
as compared to the year ended December 31, 1999 primarily due to the
non-recurring gain on the sale of AREP'S RJR common stock in 1999 and decreased
gain on property transactions partially offset by the gain on sale of limited
partnership interests.

II-7

Diluted earnings per weighted average limited partnership unit outstanding
before property and securities transactions were $1.14 in the year ended
December 31, 2000 compared to $.96 in the comparable period of 1999, and net
gain from property and securities transactions was $.15 in the year ended
December 31, 2000 compared to $.71 in the comparable period of 1999. Diluted net
earnings per weighted average limited partnership unit outstanding totaled $1.29
in the year ended December 31, 2000 compared to $1.67 in the comparable period
of 1999.

CAPITAL RESOURCES AND LIQUIDITY

Generally, the cash needs of AREP for day-to-day operations have been
satisfied from cash flow generated from current operations. Cash flow from
day-to-day operations represents net cash provided by operating activities
(excluding working capital changes, non-recurring other income and the cash
flows from the operations of Bayswater and Stratosphere which are being retained
for their operations) plus principal payments received on financing leases as
well as principal receipts on certain mortgages receivable reduced by periodic
principal payments on mortgage debt.

The following table reflects the Company's contractual cash obligations due
over the indicated periods and when they expire (in $millions):

LESS THAN 1-3 4-5 AFTER
1 YEAR YEARS YEARS 5YEARS TOTAL
------ ----- ----- ------ -----

Mortgages payable............................ $ 7.4 $23.4 $20.6 $115.4 $166.8
Capital lease obligation..................... 3.1 -- -- -- 3.1
Construction and development obligations..... 23.3 -- -- -- 23.3
----- ----- ----- ------ ------
Total.................................... $33.8 $23.4 $20.6 $115.4 $193.2
----- ----- ----- ------ ------
----- ----- ----- ------ ------

In 2001, ten leases covering ten properties and representing approximately
$1.0 million in annual rentals were scheduled to expire. Nine of these leases,
originally representing approximately $967,000 in annual rental income, have
been renewed for approximately $675,000 in annual rentals. Such renewals are
generally for a term of five years. One property with an approximate annual
rental income of approximately $33,000 was sold.

In 2002, fourteen leases covering fourteen properties and representing
approximately $2.1 million in annual rentals are scheduled to expire. Four
leases originally representing approximately $735,000 in annual rental income
were renewed for approximately $444,000 in annual rentals. Such renewals are
generally for a term of five years. Five properties with annual rental income of
approximately $836,000 were not renewed, and are currently being marketed for
sale or lease. The status of five properties with annual rentals of $538,000 has
not yet been determined.

On April 1, 2002, the Board of Directors of the General Partner announced
that no distributions on its Depositary Units are expected to be made in 2002.
AREP believes that it should continue to hold and invest, rather than
distribute, cash. In making its announcement, AREP noted it plans to continue to
apply available cash flow toward its operations, repayment of maturing
indebtedness, tenant requirements, other capital expenditures and cash
reserves for Partnership contingencies including environmental matters and
scheduled lease expirations. By the end of the year 2004, net leases
representing approximately 15% of AREP's net annual rentals will be due for
renewal, and by the end of the year 2006, 35% of such rentals will be due for
renewal. Another factor that AREP took into consideration was that net leases
representing approximately 29% of AREP's annual rentals from its portfolio are
with tenants in the retail sector, some of which are currently experiencing cash
flow difficulties and restructurings.

The types of investments AREP is pursuing, including assets that may not be
readily financeable or generating positive cash flow, such as development
properties, non-performing mortgage loans or securities of companies which
may be undergoing restructuring or require significant capital investments,
require AREP to maintain a strong capital base in order to own, develop and
reposition these assets.

During the year ended December 31, 2001, AREP (excluding Stratosphere and
Bayswater) generated approximately $54 million in cash flow from day-to-day
operations which excludes approximately $4.5 million in interest earned on the
proceeds from 1997 Rights Offering which will be retained for future
acquisitions. During the year ended December 31, 2000, AREP generated

II-8

approximately $47.8 million in such cash flow from day-to-day operations which
excluded approximately $8.7 million in interest earned on the 1997 Offering
proceeds.

Capital expenditures for real estate were approximately $14.8 million during
2001. During 2000, such expenditures totaled approximately $8.5 million.

During the year ended December 31, 2001, approximately $1.8 million of
maturing debt obligations and $6.5 million of other principal payments were
repaid out of AREP's cash flow. During the year ended December 31, 2000,
approximately $7.6 million of maturing debt obligations were repaid out of
AREP's cash flow.

During 2001, net cash flow after payment of maturing debt obligations and
capital expenditures was approximately $30.9 million which was added to AREP's
operating cash reserves. During 2000, net cash flow after payment of maturing
debt obligations and capital expenditures was approximately $31.7 million which
was added to AREP's operating cash reserves. AREP's operating cash reserves are
approximately $172 million at December 31, 2001 (which does not include the cash
from capital transactions or the 1997 Rights Offering which is being retained
for investment), which are being retained to meet maturing debt obligations,
capital expenditures and certain contingencies facing AREP. AREP from time to
time may increase its cash reserves to meet its maturing debt obligations,
tenant requirements and other capital expenditures and to guard against
scheduled lease expirations and other contingencies including environmental
matters.

Sales proceeds from the sale or disposal of portfolio properties totaled
approximately $3.7 million in 2001. During 2000, such sales proceeds totaled
approximately $20.1 million. There were no refinancings in 2001. AREP received
approximately $19.6 million of net proceeds from refinancings in 2000. AREP
intends to use asset sales, financing and refinancing proceeds for new
investments.

On December 27, 2001, AREP entered into a transaction with Carl C. Icahn,
pursuant to which AREP made a two-year $250 million loan to Mr. Icahn, secured
by securities consisting of (i) $250 million aggregate market value of AREP's
depositary and preferred units owned by Mr. Icahn and (ii) shares of a private
company owned by Mr. Icahn, which shares were represented to have an aggregate
book value of at least $250 million, together with an irrevocable proxy on
sufficient additional shares of the private company so that the pledged shares
and the shares covered by the proxy equal in excess of 50% of the private
company's shares. The loan bears interest at a per annum rate equal to the
greater of (i) 3.9% and (ii) 200 basis points over 90 day LIBOR to be reset each
calendar quarter. The loan must be prepaid in an amount of up to $125 million to
the extent that AREP requests such funds for an investment opportunity and may
be prepaid at any time by Mr. Icahn.

In March 2000, AREP transferred its interests in the Sands and the Claridge
Hotel to an affiliate of the General Partner and received approximately $40.5
million therefor, however, as noted above, the transfer is subject to AREP's
right and obligation to repurchase such interests at the same price (plus a
commercially reasonable interest factor), upon obtaining the proper gaming
license in New Jersey. In September, 2000, affiliates of the General Partner
paid $65 million for a 46% equity interest in the Sands. AREP's pro rata share
of this advance is $32.5 million, representing an equity interest of
approximately 23% in the Sands, which AREP will be required to pay when it
receives its gaming license and reacquires its interest in the Sands. At
December 31, 2001, AREP's obligation to affiliates of the General Partner for
interests held in the Sands on AREP's behalf was approximately $68.8 million,
including accrued interest.

In March, 2000, AREP acquired approximately an additional 2% interest in
Stratosphere from affiliates of Mr. Icahn for approximately $2 million, thereby
providing AREP with an aggregate interest in Stratosphere of approximately 51%.
In February 2002, AREP entered into a merger agreement with Stratosphere under
which AREP will acquire the remaining shares of Stratosphere that it does not
currently own from affiliates of Icahn and public shareholders for approximately
$44.3 million. Under the terms of the proposal, subject to certain conditions,
AREP will pay $44.33 per share to affiliates of Icahn, and $45.32 per share to
shareholders unaffiliated with Icahn. This transaction is expected to be
completed in the second quarter of 2002. In 2001 AREP funded approximately $45
million to Stratosphere for the completion of its expansion.

AREP may consider possible tender offers for real estate operating companies
and real estate limited partnership units. AREP may also consider indirect
investments in real estate by making loans secured by the indirect ownership
interests of certain real properties.

II-9

To further its investment objectives, AREP may consider the acquisition or
seek effective control of other land development companies and other real estate
operating companies which may have a significant inventory of quality assets
under development. This may enhance its ability to further diversify its
portfolio of properties and gain access to additional operating and development
capabilities.

Pursuant to the 1997 Rights Offering, which closed in September 1997, AREP
raised approximately $267 million to increase its available liquidity so that it
will be in a better position to take advantage of investment opportunities and
to further diversify its portfolio. Additionally, AREP may determine to reduce
debt of certain properties where the interest rate is considered to be in excess
of current market rates.

AREP's cash and cash equivalents and investment in U.S. Government and
Agency obligations decreased by approximately $248.3 million during the calendar
year 2001 primarily attributable to the note receivable due from affiliate ($250
million), additions to hotel and casino ($50.5 million) and miscellaneous other
($6.7 million), partially offset by net cash flow from operations ($30.9
million) and net cash flow from Bayswater and Stratosphere ($28.0 million).

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

The United States Securities and Exchange Commission requires that
registrants include information about primary market risk exposures relating to
financial instruments. Through its operating and investment activities, AREP is
exposed to market, credit and related risks, including those described elsewhere
herein. As AREP may invest in debt or equity securities of companies undergoing
restructuring or undervalued by the market, these securities are subject to
inherent risks due to price fluctuations, and risks relating to the issuer and
its industry, and the market for these securities may be less liquid and more
volatile than that of higher rated or more widely followed securities.

Other related risks include liquidity risks, which arise in the course of
AREP's general funding activities and the management of its balance sheet. This
includes both risks relating to the raising of funding with appropriate maturity
and interest rate characteristics and the risk of being unable to liquidate an
asset in a timely manner at an acceptable price. Real estate investments by
their nature are often difficult or time-consuming to liquidate. Also, buyers of
minority interests may be difficult to secure, while transfers of large block
positions may be subject to legal, contractual or market restrictions. Other
operating risks for AREP include lease terminations, whether scheduled
terminations or due to tenant defaults or bankruptcies, development risks, and
environmental and capital expenditure matters, as described elsewhere herein.
AREP's mortgages payable are primarily fixed-rate debt and, therefore, are not
subject to market risk.

AREP invests in U.S. Government and Agency obligations which are subject to
interest rate risk. As interest rates fluctuate, the Company will experience
changes in the fair value of these investments with maturities greater than one
year. If interest rates increased 100 basis points, the fair value of these
investments at December 31, 2001, would decline by approximately $3.4 million.

Whenever practical, AREP employs internal strategies to mitigate exposure to
these and other risks. AREP's management, on a case by case basis with respect
to new investments, performs internal analyses of risk identification,
assessment and control. AREP reviews credit exposures, and seeks to mitigate
counterparty credit exposure through various techniques, including obtaining and
maintaining collateral, and assessing the creditworthiness of counterparties and
issuers. Where appropriate, an analysis is made of political, economic and
financial conditions, including those of foreign countries. Operating risk is
managed through the use of experienced personnel. AREP seeks to achieve adequate
returns commensurate with the risk it assumes. AREP utilizes qualitative as well
as quantitative information in managing risk.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Response to this item is included in Item 7. 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' above.

II-10

ITEM 8. FINANCIAL STATEMENTS.

INDEPENDENT AUDITORS' REPORT

The Partners
AMERICAN REAL ESTATE PARTNERS, L.P.:

We have audited the accompanying consolidated balance sheets of American
Real Estate Partners, L.P. and subsidiaries as of December 31, 2001 and 2000,
and the related consolidated statements of earnings, changes in partners' equity
and comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2001. In connection with our audits of the
consolidated financial statements, we also have audited the 2001 financial
statement schedule as listed in the Index at Item 14(a)2. These consolidated
financial statements and the financial statement schedule are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these consolidated financial statements and the financial statement schedule
based on our audits. We did not audit the consolidated financial statements of
Stratosphere Corporation and its subsidiaries, a majority owned subsidiary, for
the year ended December 31, 1999 which statements reflect total revenues
constituting 42 percent of the related consolidated total. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Stratosphere
Corporation, is based solely on the report of the other auditors.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 disclosure 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 and the report of
the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of American Real Estate Partners, L.P.
and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

/s/ KPMG LLP

New York, New York
March 20, 2002

II-11

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders
of STRATOSPHERE CORPORATION:

We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of Stratosphere Corporation (a Delaware
corporation) and subsidiaries ('Stratosphere') for the year ended December 26
1999. These financial statements (not presented herein) are the responsibility
of Stratosphere's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit 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 audit provides a reasonable basis
for our opinion.

As more fully described in Note 2 to Stratosphere's consolidated financial
statements, effective October 14, 1998, Stratosphere emerged from protection
under Chapter 11 of the U.S. Bankruptcy Code pursuant to a Reorganization Plan
which was confirmed by the Bankruptcy Court on June 9, 1998. In accordance with
AICPA Statement of Position 90-7, Stratosphere adopted 'Fresh Start Reporting'
whereby its assets, liabilities and new capital structure were adjusted to
reflect estimated fair values as of September 27, 1998. As a result,
Stratosphere's financial statements for the periods subsequent to September 27,
1998 reflect Stratosphere's new basis of accounting and are not comparable to
the predecessor company's pre-reorganization consolidated financial statements.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of Stratosphere
Corporations' operations and their cash flows for the year ended December 26,
1999, in conformity with accounting principles generally accepted in the United
States.

/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
February 11, 2000

II-11a

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000

2001 2000
---- ----
(IN $000'S EXCEPT
PER UNIT AMOUNTS)

ASSETS
Real estate leased to others:
Accounted for under the financing method (Notes 4 and
13)................................................... $ 176,757 $ 193,428
Accounted for under the operating method, net of
accumulated depreciation (Notes 5 and 13)............. 181,840 185,968
Investment in U.S. Government and Agency obligations
(Note 6).................................................. 313,641 475,267
Note receivable due from affiliate (Note 11)................ 250,000 --
Cash and cash equivalents (Note 2).......................... 61,015 147,705
Marketable equity and debt securities (Note 7).............. 35,253 54,736
Mortgages and notes receivable (Note 10).................... 35,529 19,946
Equity interest in GB Holdings, Inc. (Note 8)............... 39,936 38,359
Hotel, casino and resort operating properties net of
accumulated depreciation:
Stratosphere Corporation hotel and casino (Note 9)...... 184,191 152,335
Hotel and resort (Notes 5 and 12)....................... 43,990 32,918
Land and construction-in-progress........................... 69,429 75,952
Receivables and other assets................................ 60,061 46,373
---------- ----------
Total............................................... $1,451,642 $1,422,987
---------- ----------
---------- ----------

LIABILITIES AND PARTNERS' EQUITY
Mortgages payable (Notes 4, 5 and 14)....................... $ 166,808 $ 182,049
Due to affiliate (Note 7)................................... 68,805 77,521
Accounts payable, accrued expenses and other liabilities.... 47,967 55,785
---------- ----------
283,580 315,355
---------- ----------
Minority interest in Stratosphere Corporation hotel and
casino.................................................... 67,433 64,907
---------- ----------
Commitments and contingencies (Notes 3 and 19)
Limited partners:
Preferred units, $10 liquidation preference, 5%
cumulative pay-in-kind redeemable; 9,400,000
authorized; 8,886,631 and 8,463,459 issued and
outstanding as of December 31, 2001 and 2000.......... 92,198 87,808
Depositary units; 47,850,000 authorized; 47,235,484
outstanding........................................... 996,701 944,340
General partner............................................. 23,651 22,498
Treasury units at cost:
1,137,200 depositary units (Note 22).................... (11,921) (11,921)
---------- ----------
Partners' equity (Notes 2, 3, 15 and 23).................... 1,100,629 1,042,725
---------- ----------
Total............................................... $1,451,642 $1,422,987
---------- ----------
---------- ----------

See notes to consolidated financial statements.

II-12

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

2001 2000 1999
---- ---- ----

Revenues:
Hotel and casino operating income (Note 9)............ $144,354 $132,762 $123,227
Land, house and condominium sales..................... 55,566 76,180 71,224
Interest income on financing leases................... 16,935 19,652 22,364
Interest income on U.S. Government and Agency
obligations and other investments................... 30,367 36,208 25,514
Rental income......................................... 26,887 23,616 20,792
Hotel and resort operating income (Note 12)........... 16,418 21,617 21,092
Dividend and other income (Notes 7 and 10)............ 4,989 4,945 10,791
Equity in earnings (loss) of GB Holdings, Inc.
(Note 8)............................................ 1,807 (2,103) --
-------- -------- --------
297,323 312,877 295,004
-------- -------- --------
Expenses:
Hotel and casino operating expenses (Note 9).......... 128,469 118,997 112,943
Cost of land, house and condominium sales............. 42,599 58,493 53,344
Hotel and resort operating expenses (Note 12)......... 14,164 20,220 17,098
Interest expense (Notes 7, 13 and 14)................. 19,140 17,820 19,010
Depreciation and amortization......................... 18,034 15,098 14,044
General and administrative expenses (Note 3).......... 7,080 7,475 7,526
Property expenses..................................... 5,155 4,000 2,923
Bayswater acquisition costs (Note 1).................. -- 1,750 --
-------- -------- --------
234,641 243,853 226,888
-------- -------- --------
Earnings before property and securities transactions and
minority interest....................................... 62,682 69,024 68,116
Other gains and (losses) and minority interest:
Provision for loss on real estate..................... (3,184) (1,351) (1,946)
Gain on sale of marketable equity and debt securities
(Note 7)............................................ 6,749 -- 28,590
Gain on sales and disposition of real estate
(Note 13)........................................... 1,737 6,763 13,971
Gain on sale of limited partnership interests......... -- 3,461 --
Minority interest in net earnings of Stratosphere
Corporation (Note 9)................................ (450) (2,747) (1,002)
-------- -------- --------
Net earnings.............................................. $ 67,534 $ 75,150 $107,729
-------- -------- --------
-------- -------- --------

Net earnings attributable to (Note 3):
Limited partners...................................... $ 66,190 $ 72,225 $ 93,909
General partner....................................... 1,344 2,925 13,820
-------- -------- --------
$ 67,534 $ 75,150 $107,729
-------- -------- --------
-------- -------- --------
Net earnings per limited partnership unit (Note 2):
Basic earnings........................................ $ 1.34 $ 1.48 $ 1.95
-------- -------- --------
-------- -------- --------

Weighted average limited partnership units outstanding.... 46,098,284 46,098,284 46,098,284
-------- -------- --------
-------- -------- --------

Diluted earnings...................................... $ 1.19 $ 1.29 $ 1.67
-------- -------- --------
-------- -------- --------

Weighted average limited partnership units and equivalent
partnership units outstanding........................... 55,599,112 56,157,079 56,078,394
-------- -------- --------
-------- -------- --------

See notes to consolidated financial statements.

II-13

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS'
EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN $000'S)

LIMITED PARTNERS' EQUITY
GENERAL ------------------------ HELD IN TREASURY TOTAL
PARTNER'S DEPOSITARY PREFERRED ---------------- PARTNERS'
EQUITY UNITS UNITS AMOUNTS UNITS EQUITY
------ ----- ----- ------- ----- ------

Balance, December 31, 1998....... $ 72,948 $ 802,856 $79,645 $(11,921) 1,137 $ 943,528
Comprehensive income:
Net earnings................. 13,820 93,909 -- -- -- 107,729
Sale of marketable equity
securities available for
sale....................... (320) (15,738) -- -- -- (16,058)
Net unrealized losses on
securities available for
sale....................... (6) (285) -- -- -- (291)
-------- ---------- ------- -------- ----- ----------
Comprehensive income............. 13,494 77,886 -- -- -- 91,380
Net capital distributions........ (5,600) -- -- -- -- (5,600)
Pay-in-kind distribution
(Note 15)...................... -- (3,982) 3,982 -- -- --
-------- ---------- ------- -------- ----- ----------

Balance, December 31, 1999....... 80,842 876,760 83,627 (11,921) 1,137 1,029,308
Comprehensive income:
Net earnings................. $ 2,925 $ 72,225 $-- $ -- -- $ 75,150
Net unrealized losses on
securities available for
sale....................... (9) (464) (473)
-------- ---------- ------- -------- ----- ----------
Comprehensive income......... 2,916 71,761 -- -- -- 74,677
Net adjustment for Bayswater
acquisition (Note 1)........... (62,801) -- -- -- -- (62,801)
Capital contribution (Note 1).... 1,541 -- -- -- -- 1,541
Pay-in-kind distribution
(Note 15)...................... -- (4,181) 4,181 -- -- --
-------- ---------- ------- -------- ----- ----------

Balance, December 31, 2000....... $ 22,498 $ 944,340 $87,808 $(11,921) 1,137 $1,042,725
Comprehensive income:
Net earnings................. 1,344 66,190 -- -- -- 67,534
Reversal of unrealized loss
on sale of debt securities
available for sale......... 78 3,818 -- -- -- 3,896
Net unrealized losses on
securities available for
sale....................... (269) (13,257) -- -- -- (13,526)
-------- ---------- ------- -------- ----- ----------
Comprehensive income......... 1,153 56,751 -- -- -- 57,904
Pay-in-kind distribution
(Note 15)...................... -- (4,390) 4,390 -- -- --
-------- ---------- ------- -------- ----- ----------
Balance, December 31, 2001....... $ 23,651 $ 996,701 $92,198 $(11,921) 1,137 $1,100,629
-------- ---------- ------- -------- ----- ----------
-------- ---------- ------- -------- ----- ----------

Accumulated other comprehensive income (loss) at December 31, 2001, 2000 and
1999 was ($17,178), ($7,548), and ($7,075), respectively.

See notes to consolidated financial statements.

II-14

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN $000'S)

2001 2000 1999
---- ---- ----

Cash flows from operating activities:
Net earnings.............................................. $ 67,534 $ 75,150 $ 107,729
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization.......................... 18,034 15,098 14,044
Gain on sale of marketable equity & debt securities.... (6,749) -- (28,590)
Gain on sales and disposition of real estate........... (1,737) (6,759) (16,041)
Gain on sale of limited partnership interests.......... -- (3,461) --
Minority interest in net earnings of Stratosphere
Corporation.......................................... 450 2,747 1,002
Provision for loss on real estate...................... 3,184 1,351 1,946
Equity in (earnings) losses of GB Holdings, Inc. ...... (1,807) 2,103 --
Changes in operating assets and liabilities:
Decrease (increase) in land and construction-in
progress........................................... 7,753 (7,863) (7,734)
(Decrease) increase in accounts payable, accrued
expenses and other liabilities..................... (641) (6,478) 8,176
(Increase) decrease in receivables and other
assets............................................. (4,266) 4,550 (13,559)
--------- -------- ---------
Net cash provided by operating activities........ 81,755 76,438 66,973
--------- -------- ---------
Cash flows from investing activities:
Increase in mortgages and notes receivable................ (15,583) (9,502) (8,222)
Net proceeds from the sales and disposition of real
estate.................................................. 3,656 20,060 29,735
Principal payments received on leases accounted for under
the financing method.................................... 6,858 7,560 7,938
Increase in equity interest in GB Holdings, Inc. ......... -- (32,500) --
Acquisition of Bayswater's net assets..................... -- (84,352) --
Additions to hotel, casino and resort operating
property................................................ (62,662) (22,703) (14,287)
Acquisitions of rental real estate........................ -- (27,326) (23,954)
Additions to rental real estate........................... (1,064) (2,760) (564)
Decrease (increase) in investment in U.S. Government and
Agency Obligations...................................... 162,046 (6,738) (104,645)
Disposition of marketable equity & debt securities........ 17,929 4,297 203,917
Increase in note receivable from affiliate................ (250,000) -- --
Decrease in minority interest in Stratosphere Corp. ...... -- (1,970) --
Increase (decrease) in due to affiliate................... (8,716) 77,530 (50,000)
Increase in investment in joint ventures.................. (5,856) -- --
Net disposition of limited partnership interests.......... -- 7,805 1,206
--------- -------- ---------
Net cash (used in) provided by investing
activities...................................... (153,392) (70,599) 41,124
--------- -------- ---------
Cash flows from financing activities:
Partners' equity:
Net capital distributions.............................. -- (4,100) (5,600)
Debt:
Proceeds from mortgages payable........................ -- 19,600 22,400
Payments on mortgages payable.......................... (6,457) -- --
Periodic principal payments............................ (6,840) (8,699) (9,208)
Balloon payments....................................... (1,756) (7,632) (7,006)
--------- -------- ---------
Net cash (used in) provided by financing
activities...................................... (15,053) (831) 586
--------- -------- ---------
Net (decrease) increase in cash and cash equivalents........ $ (86,690) $ 5,008 $ 108,683
Cash and cash equivalents, beginning of year................ 147,705 142,697 34,014
--------- -------- ---------
Cash and cash equivalents at end of year.................... $ 61,015 $147,705 $ 142,697
--------- -------- ---------
--------- -------- ---------
Supplemental information:
Cash payments for interest, net of amounts capitalized.... $ 20,786 $ 14,980 $ 19,818
--------- -------- ---------
--------- -------- ---------
Cash payments for income taxes............................ -- $ 1,200 $ 400
--------- -------- ---------
--------- -------- ---------
Supplemental schedule of noncash investing and financing
activities:
Reclassification of real estate to operating lease........ $ 3,082 $ 17,274 $ 2,461
Reclassification of real estate from operating lease...... -- (6,781) (1,116)
Reclassification to development properties................ -- -- 763
Reclassification of real estate from development
properties.............................................. -- -- (138)
Reclassifications from hotel and resort operating
properties.............................................. (1,167) -- (763)
Reclassification of real estate from financing lease...... (9,754) (18,560) (4,887)
Reclassification to hotel and resort operating
properties.............................................. -- -- 180
Reclassifications from receivables and other assets....... -- -- (2,169)
Reclassifaction to due to affiliate....................... -- -- 3,221
Reclassifications from accounts payable, accrued expenses
and other liabilities................................... -- -- (1,232)
Reclassification of real estate to property held for
sale.................................................... 6,672 8,067 3,879
Reclassification of real estate to (from) land and
construction-in-progress................................ 1,167 -- (199)
--------- -------- ---------
$ -- $ -- $ --
--------- -------- ---------
--------- -------- ---------
Net unrealized losses on securities available for
sale....................................................... $ (17,178) $ (473) $ (291)
--------- -------- ---------
--------- -------- ---------
Sale of marketable equity securities available for sale..... $ -- $ -- $ (16,058)
--------- -------- ---------
--------- -------- ---------
Increase in equity and debt securities...................... $ 2,500 $ -- $ --
--------- -------- ---------
--------- -------- ---------

See notes to consolidated financial statements.

II-15

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

On July 1, 1987, American Real Estate Holdings Limited Partnership (the
'Subsidiary'), in connection with an exchange offer (the 'Exchange'), entered
into merger agreements with American Real Estate Partners, L.P. (the 'Company')
and each of thirteen separate limited partnerships (collectively, the
'Predecessor Partnerships'), pursuant to which the Subsidiary acquired all the
assets, subject to the liabilities of the Predecessor Partnerships.

By virtue of the Exchange, the Subsidiary owns the assets, subject to the
liabilities, of the Predecessor Partnerships. The Company owns a 99% limited
partner interest in the Subsidiary. American Property Investors, Inc. (the
'General Partner') owns a 1% general partner interest in both the Subsidiary and
the Company representing an aggregate 1.99% general partner interest in the
Company and the Subsidiary.

An amendment (the 'Amendment') to the Company's Partnership Agreement became
effective on August 16, 1996, which permits the Company to make non-real estate
investments. The Amendment permits the Company to invest in securities issued by
companies that are not necessarily engaged as one of their primary activities in
the ownership, development or management of real estate to further diversify its
investments while remaining in the real estate business and continuing to pursue
suitable investments in the real estate markets. Under the Amendment,
investments may include equity and debt securities of domestic and foreign
issuers. The proportion of the Company's assets invested in any one type of
security or any single issuer will not be limited. The investment objective of
the Company with respect to such investments will be to purchase undervalued
securities so as to maximize total returns consisting of current income and/or
capital appreciation.

The Company will conduct its activities in such a manner so as not to be
deemed an investment company under the Investment Company Act of 1940.
Generally, this means that no more than 40% of the Company's total assets will
be invested in securities. In addition, the Company will structure its
investments to continue to be taxed as a partnership rather than as a
corporation under the applicable publicly traded partnership rules of the
Internal Revenue Code.

The Company and its consolidated subsidiaries are engaged in the following
operating businesses: (i) rental real estate, (ii) hotel, casino and resort
operations, (iii) land, house and condominium development and (iv) investment in
securities including investment in other limited partnerships and marketable
equity and debt securities.

In March 2000, the Company acquired from affiliates of the General Partner
the assets of Bayswater Realty & Capital Corp. and the ownership interests of
its affiliated entities ('Bayswater') for approximately $84.35 million.
Bayswater, a real estate investment, management and development company has
focused primarily on the construction and sale of single-family homes. The
assets acquired included interests in ten residential subdivisions in New York
and Florida.

In accordance with generally accepted accounting principles, assets and
liabilities transferred between entities under common control were accounted for
at historical costs similar to a pooling of interests, and the financial
statements of previously separate companies for periods prior to the acquisition
were restated on a combined basis.

The Bayswater assets acquired and the liabilities assumed have been
accounted for at historical cost. The excess of the historical cost of the net
assets over the amount of cash disbursed, which amounted to $1,541,000, has been
accounted for as a capital contribution by the General Partner. The Company's
costs of $1.75 million related to the Bayswater transaction have been included
as 'Bayswater acquisition costs' in the Consolidated Statements of Earnings in
the year ended December 31, 2000. Previously an increase of $49,568,000 was made
to the General Partner's equity at December 31, 1997 as a result of the
Bayswater acquisition. A reduction of $62,801,000 has been made to the General

II-16

Partner's equity as an adjustment for the Bayswater acquisition in the year
ended December 31, 2000. See Consolidated Statements of Changes in Partners'
Equity and Comprehensive Income.

In March 2000, the Company purchased an additional 50,000 shares of the
Stratosphere Corporation ('Stratosphere') from an affiliate of the General
Partner resulting in the Company owning approximately 51% of Stratosphere and
has included its accounts on a consolidated basis.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Statements and Principles of Consolidation -- The consolidated
financial statements are prepared in accordance with generally accepted
accounting principles and include only those assets, liabilities and results of
operations, which relate to the Company and its wholly owned and majority owned
subsidiaries. All material intercompany accounts and transactions have been
eliminated in consolidation. The Company accounts for its investments for
subsidiaries that are less than 50% owned under the equity method of accounting.

Net Earnings Per Limited Partnership Unit -- Basic earnings per share are
based on earnings after the preferred pay-in-kind distribution to Preferred
Unitholders. The resulting net earnings available for limited partners are
divided by the weighted average number of shares of limited partnership units
outstanding.

Diluted earnings per share uses net earnings attributable to limited partner
interests as the numerator with the denominator based on the weighted average
number of units and equivalent units outstanding. The Preferred units are
considered to be unit equivalents. The number of limited partnership units used
in the calculation of diluted income per limited partnership unit increased as
follows: 9,500,828; 10,058,795; and 9,980,110 limited partnership units for the
years ended December 31, 2001, 2000 and 1999, respectively, to reflect the
effects of the conversion of preferred units.

For accounting purposes, Bayswater's earnings and distributions/dividends
prior to the Bayswater acquisition in March 2000 have been allocated to the
General Partner and therefore excluded from the computation of basic and diluted
earnings per limited partnership unit.

For the years ended December 31, 2001, 2000 and 1999, basic and diluted
earnings per weighted average limited partnership unit are detailed as follows:

2001 2000 1999
---- ---- ----

Basic:
Earnings before property and securities transactions.... $1.23 $1.30 $1.09
Net gain from property and securities transactions...... .11 .18 .86
----- ----- -----
Net earnings............................................ $1.34 $1.48 $1.95
----- ----- -----
----- ----- -----
Diluted:
Earnings before property and securities transactions.... $1.10 $1.14 $ .96
Net gain from property and securities transactions...... .09 .15 .71
----- ----- -----
Net earnings............................................ $1.19 $1.29 $1.67
----- ----- -----
----- ----- -----

Cash and Cash Equivalents -- The Company considers short-term investments,
which are highly liquid with original maturities of three months or less at date
of purchase, to be cash equivalents. Included in cash and cash equivalents at
December 31, 2001 and 2000 are investments in government backed securities of
approximately $5,967,000 and $29,057,000, respectively.

Marketable Equity and Debt Securities and Investment in U.S. Government and
Agency Obligations -- Investments in equity and debt securities are classified
as either held-to-maturity or available for sale for accounting purposes.
Investment in U.S. Government and Agency Obligations are classified as available
for sale. Available for sale securities are carried at fair value on the balance
sheet of the Company. Unrealized holding gains and losses are excluded from
earnings and reported as a separate component of Partners' Equity.
Held-to-maturity securities are recorded at amortized cost.

A decline in the market value of any held-to-maturity security below cost
that is deemed to be other than temporary results in a reduction in carrying
amount to fair value. The impairment is charged

II-17

to earnings and a new cost basis for the security is established. Dividend
income is recorded when declared and interest income is recognized when earned.

Mortgages and Notes Receivable -- The Company has generally not recognized
any profit in connection with the property sales in which certain purchase money
mortgages receivable were taken back. Such profits are being deferred and will
be recognized when the principal balances on the purchase money mortgages are
received.

Income Taxes -- No provision has been made for Federal, state or local
income taxes on the results of operations generated by partnership activities as
such taxes are the responsibility of the partners. Stratosphere accounts for its
income taxes under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carry forwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Stratosphere has made an
insignificant provision for income taxes which is included in 'Hotel and casino
operating expenses' in the Consolidated Statements of Earnings.

Leases -- The Company leases to others substantially all its real property
under long-term net leases and accounts for these leases in accordance with the
provisions of Financial Accounting Standards Board Statement No. 13, 'Accounting
for Leases,' as amended. This Statement sets forth specific criteria for
determining whether a lease is to be accounted for as a financing lease or an
operating lease.

a. Financing Method -- Under this method, minimum lease payments to be
received plus the estimated value of the property at the end of the lease are
considered the gross investment in the lease. Unearned income, representing the
difference between gross investment and actual cost of the leased property, is
amortized to income over the lease term so as to produce a constant periodic
rate of return on the net investment in the lease.

b. Operating Method -- Under this method, revenue is recognized as rentals
become due and expenses (including depreciation) are charged to operations as
incurred.

Properties -- Properties held for investment, other than those accounted for
under the financing method, are carried at cost less accumulated depreciation
unless declines in the values of the properties are considered other than
temporary at which time the property is written down to net realizable value.
Properties held for sale are included in 'Receivables and other assets' in the
consolidated financial statements and are carried at the lower of cost or net
realizable value.

Depreciation -- Depreciation is computed using the straight-line method over
the estimated useful life of the particular property or property components,
which range from 3 to 45 years.

Use of Estimates -- Management has made a number of estimates and
assumptions relating to the reporting of assets and liabilities, revenues and
expenses and the disclosure of contingent assets and liabilities to prepare
these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.

Revenue Recognition

1. Revenue from real estate sales and related costs are recognized at the
time of closing primarily by specific identification. The Company follows the
guidelines for profit recognition set forth by Financial Accounting Standards
Board (FASB) Statement No. 66, 'Accounting for Sales of Real Estate.'

2. Casino revenues and promotional allowances -- The Company recognizes
revenues in accordance with industry practice. Casino revenue is the net win
from gaming activities (the difference between gaming wins and losses). Casino
revenues are net of accruals for anticipated payouts of progressive and certain
other slot machine jackpots. Revenues include the retail value of rooms, food
and beverage and other items that are provided to customers on a complimentary
basis. A corresponding amount is deducted as promotional allowances. The cost of
such complimentaries is included in 'Hotel and casino operating expenses'.

II-18

3. Sales, advertising and promotion -- These costs are expensed as incurred.

Land and Construction-in-Progress -- These costs are stated at the lower of
cost or net realizable value. Interest is capitalized on expenditures for
long-term projects until a salable condition is reached. The capitalization rate
is based on the interest rate on specific borrowings to fund the projects.

Accounting for Impairment of a Loan -- If it is probable that based upon
current information the Company will be unable to collect all amounts due
according to the contractual terms of a loan agreement, the Company considers
the asset to be 'impaired'. Reserves are established against impaired loans in
amounts equal to the difference between the recorded investment in the asset and
either the present value of the cash flows expected to be received, or the fair
value of the underlying collateral if foreclosure is deemed probable or if the
loan is considered collateral dependent.

Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of -- Long-lived assets held and used by the Company and
long-lived assets to be disposed of, are reviewed for impairment whenever events
or changes in circumstances, such as vacancies and rejected leases, indicate
that the carrying amount of an asset may not be recoverable.

In performing the review for recoverability, the Company estimates the
future cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset an
impairment loss is recognized. Measurement of an impairment loss for long-lived
assets that the Company expects to hold and use is based on the fair value of
the asset. Long-lived assets to be disposed of are reported at the lower of
carrying amount or fair value less cost to sell.

Recent Accounting Standards:

1. The Company has adopted Statement of Financial Accounting Standards
No. 133 -- Accounting for Derivative Instruments and Hedging Activities
('SFAS 133') as of January 1, 2001. The adoption of SFAS 133 has not had any
impact in the Company's financial statements.

2. In July 2001, the Financial Accounting Standards Board (FASB) issued FASB
Statements Nos. 141 and 142 (SFAS 141 and SFAS 142): 'Business Combinations' and
'Goodwill and Other Intangible Assets.' SFAS 141 replaces APB 16 and eliminates
pooling-of-interests accounting prospectively. It also provides guidance on
purchase accounting related to the recognition of intangible assets and
accounting for negative goodwill. SFAS 142 changes the accounting for goodwill
from an amortization method to an impairment-only approach. Under SFAS 142,
goodwill will be tested annually and whenever events or circumstances occur
indicating that goodwill might be impaired. SFAS 141 and SFAS 142 are effective
for all business combinations completed after June 30, 2001. Upon adoption of
SFAS 142, amortization of goodwill recorded for business combinations
consummated prior to July 1, 2001 will cease, and intangible assets acquired
prior to July 1, 2001 that do not meet the criteria for recognition under SFAS
141 will be reclassified to goodwill. Companies are required to adopt SFAS 142
for fiscal years beginning after December 15, 2001. The Company is evaluating
the impact of the adoption of these standards but does not expect them to have
any material effect on the Company's consolidated financial statements.

3. In August 2001, the FASB issued SFAS No 144, 'Accounting for the
Impairment or Disposal of Long-Lived Assets.' SFAS No. 144 will become effective
for fiscal years beginning after December 15, 2001. This statement supersedes
SFAS No. 121 'Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of.' SFAS No. 144 retains the fundamental
provisions of SFAS No. 121 for (a) recognition and measurement of the impairment
of long-lived assets to be held and used and (b) measurement of long-lived
assets to be disposed of by sale. The Company is currently evaluating the
impact, if any, of adopting SFAS No. 144, but does not expect it to have any
material effect on the Company's financial statements.

3. RELATED PARTY TRANSACTIONS

a. The Company has a $250 million note receivable from Carl C. Icahn,
Chairman of the General Partner (See Note 11).

II-19

b. The Company had a lease for 7,920 square feet of office space, at an
annual rental of approximately $153,000. The Company had sublet to certain
affiliates 3,205 square feet at an annual rental of approximately $62,000,
resulting in a net annual rental of approximately $91,000. In March 2000, in
connection with the Bayswater acquisition, the subleases were cancelled.

c. In addition, in 1997 the Company entered into a license agreement for a
portion of office space from an affiliate. The license agreement dated as of
February 1, 1997 expires May 22, 2004 unless sooner terminated in accordance
with the agreement. Pursuant to the license agreement, the Company has the
non-exclusive use of 3,547 square feet of office space and common areas (of an
aggregate 21,123 rentable square feet sublet by such affiliate) for which it
pays $17,068 per month, together with 16.79% of certain 'additional rent'. In
November 2000, the Company reduced its office size to approximately 2,275 square
feet, which decreased its monthly rental to $11,185 plus 10.77% of certain
additional rent. In 2001, 2000 and 1999, the Company paid such affiliate
approximately $147,000, $206,000, and $218,000 of rent, respectively, in
connection with this licensing agreement. The terms of such sublease were
reviewed and approved by the Audit Committee.

d. Stratosphere received as reimbursement from affiliates of the General
Partner approximately $1,343,000 in the year ended December 31, 2001, and
approximately $240,000 in each of the years ended December 31, 2000, and 1999
for administrative services performed by Stratosphere personnel.

e. The General Partner and its affiliates may realize substantial fees,
commissions and other income from transactions involving the purchase,
operation, management, financing and sale of the Company's properties, subject
to certain limitations relating to properties acquired from the Predecessor
Partnerships in the Exchange. Some of such amounts may be paid regardless of the
overall profitability of the Company and whether any distributions have been
made to Unitholders. As new properties are acquired, developed, constructed,
operated, leased, financed and sold, the General Partner or its affiliates may
perform acquisition functions, development and construction oversight and other
land development services, property management and leasing services, either on a
day-to-day basis or on an asset management basis, and other services and be
entitled to fees and reimbursement of expenses relating thereto, including
property management fees, real estate brokerage and leasing commissions, fees
for financing either provided or arranged by the General Partner and its
affiliates, development fees, general contracting fees and construction
management fees. The terms of any transactions between the Company and the
General Partner or its affiliates must be fair and reasonable to the Company and
customary to the industry. There were no significant fees paid in the years
ended December 31, 2001, 2000, and 1999.

Stratosphere also received hotel revenue of approximately $600,000 in the
year ended December 31, 2001 and $500,000 in each of the years ended
December 31, 2000 and 1999 in connection with a tour and travel agreement
entered into with an affiliate of the General Partner.

4. REAL ESTATE LEASED TO OTHERS ACCOUNTED FOR UNDER THE FINANCING METHOD

Real estate leased to others accounted for under the financing method is
summarized as follows (in $000's):

DECEMBER 31,
-------------------
2001 2000
---- ----

Minimum lease payments receivable....................... $204,176 $231,621
Unguaranteed residual value............................. 101,329 109,642
-------- --------
305,505 341,263
Less unearned income.................................... 128,748 147,835
-------- --------
$176,757 $193,428
-------- --------
-------- --------

II-20

The following is a summary of the anticipated future receipts of the minimum
lease payments receivable at December 31, 2001 in ($000's):

YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------

2002.................................................... $ 21,234
2003.................................................... 20,000
2004.................................................... 18,504
2005.................................................... 16,327
2006.................................................... 15,491
Thereafter.............................................. 112,620
--------
$204,176
--------
--------

At December 31, 2001, approximately $122,775,000 of the net investment in
financing leases was pledged to collateralize the payment of nonrecourse
mortgages payable.

5. REAL ESTATE LEASED TO OTHERS ACCOUNTED FOR UNDER THE OPERATING METHOD

Real estate leased to others accounted for under the operating method is
summarized as follows (in $000's):

DECEMBER 31,
-------------------
2001 2000
---- ----

Land.................................................... $ 53,702 $ 53,807
Commercial buildings.................................... 168,757 169,675
-------- --------
222,459 223,482
Less accumulated depreciation........................... 40,619 37,514
-------- --------
$181,840 $185,968
-------- --------
-------- --------

As of December 31, 2001 and 2000, accumulated depreciation on the hotel and
resort operating properties (not included above) amounted to approximately
$7,438,000 and $5,957,000, respectively (See Note 12).

The following is a summary of the anticipated future receipts of minimum
lease payments under noncancelable leases at December 31, 2001 (in $000's):

YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------

2002.................................................... $ 18,128
2003.................................................... 18,251
2004.................................................... 18,586
2005.................................................... 16,442
2006.................................................... 11,596
Thereafter.............................................. 44,980
--------
$127,983
--------
--------

At December 31, 2001, approximately $109,273,000 of real estate leased to
others was pledged to collateralize the payment of nonrecourse mortgages
payable.

6. INVESTMENT IN U.S. GOVERNMENT AND AGENCY OBLIGATIONS

The Company has investments in U.S. Government and Agency Obligations whose
maturities range from February 2002 to January 2019 as follows (in $ millions):

II-21

DECEMBER 31,
-------------------------------------
2001 2000
----------------- -----------------
COST CARRYING COST CARRYING
BASIS VALUE BASIS VALUE
----- ----- ----- -----

Available for Sale:
Matures in:
less than 1 year..................................... $129.2 $129.2 $475.3 $475.3
2 - 5 years.......................................... 160.0 157.0 -- --
6 - 10 years......................................... 25.0 24.3 -- --
Thereafter........................................... 3.2 3.1 -- --
------ ------ ------ ------
$317.4 $313.6 $475.3 $475.3
------ ------ ------ ------
------ ------ ------ ------

7. MARKETABLE EQUITY AND DEBT SECURITIES (IN $ MILLIONS)

DECEMBER 31,
-------------------------------------
2001 2000
----------------- -----------------
COST CARRYING COST CARRYING
BASIS VALUE BASIS VALUE
----- ----- ----- -----

Available for Sale:
Claridge Notes(b).................................... $ -- $ -- $ 10.8 $ 12.2
Philips Service Corporation debt & equity(c)......... 27.3 14.0 28.8 25.2
------ ------ ------ ------
27.3 14.0 39.6 37.4
------ ------ ------ ------

Held-to-maturity:
GB Notes(b).......................................... 21.3 21.3 17.3 17.3
------ ------ ------ ------
Total............................................ $ 48.6 $ 35.3 $ 56.9 $ 54.7
------ ------ ------ ------
------ ------ ------ ------

a. In 1998 and 1999, the Company purchased 6,448,200 shares of RJR Nabisco
Holdings Corp. ('RJR') common stock at a cost of approximately $175.3 million.
Carl C. Icahn, the Chairman of the Board of the General Partner, owned (through
affiliates) an additional 19,277,500 shares of RJR, as of June 14, 1999,
representing approximately 5.9% of the total outstanding RJR common shares. On
June 14, 1999, the Company sold its entire interest in RJR for net proceeds of
approximately $203.9 million realizing a gain of approximately $28.6 million.

The Company recorded 'Dividend income' of approximately $6.6 million for the
year ended December 31, 1999, from its holding of RJR common stock.

Unrealized holding gains of approximately $16,058,000 had previously been
recorded as a separate component of Partners' Equity at December 31, 1998.

b. In 1998 and 1999, the Company acquired an interest in the Sands Hotel and
Casino (the 'Sands') located in Atlantic City, New Jersey by purchasing the
principal amount of approximately $31.4 million of First Mortgage Notes
('Notes') issued by GB Property Funding Corp. ('GB Property'). GB Property was
organized as a special purpose entity for the borrowing of funds by Greate Bay
Hotel and Casino, Inc. ('Greate Bay'). The purchase price for such notes was
approximately $25.3 million. An affiliate of the General Partner also made an
investment in the Notes of GB Property. A total of $185 million of such Notes
were issued.

Greate Bay owned and operated the Sands, a destination resort complex,
located in Atlantic City, New Jersey. On January 5, 1998, GB Property and Greate
Bay filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code to
restructure its long term debt.

Furthermore, in 1998 and 1999, the Company acquired an interest in the
Claridge Hotel and Casino (the 'Claridge Hotel') located in Atlantic City, New
Jersey by purchasing the principal amount of $16.7 million of First Mortgage
Notes of the Claridge Hotel and Casino Corporation (the 'Claridge Corporation').
The purchase price of such notes was approximately $15.1 million. A total of $85
million of such notes were issued. An affiliate of the General Partner also made
an investment in the Notes of the Claridge Corporation. In August 1999, the
Claridge Corporation announced that it had filed a voluntary petition under
Chapter 11 of the U.S. Bankruptcy Code to facilitate a financial restructuring.

II-22

The Company, the General Partner, and the directors and officers of the
General Partner are in the process of pursuing gaming applications to obtain
licenses from the New Jersey Casino Control Commission. In March 2000, in an
effort to facilitate the consummation of the reorganization process of Greate
Bay and Claridge Hotel, the Company entered into separate agreements to transfer
its interests in such entities to an affiliate of the General Partner for $40.5
million, which is equal to the Company's cost for such Notes. The affiliate of
the General Partner is obligated to sell back to the Company, and the Company is
obligated to repurchase such interests at the same price (together with a
commercially reasonable interest factor), when the appropriate licenses are
obtained by the Company. The Company will also acquire its proportionate share
of all sale proceeds, stock rights, acquired shares and other benefits, if any,
that may have accreted to or obtained in connection with such interests while
held by the affiliate of the General Partner. Subsequent to the transfer, the
affiliate of the General Partner purchased $1.7 million of the Claridge Notes
for approximately $.9 million on the Company's behalf.

In July 2000, the U.S. Bankruptcy Court ruled in favor of the reorganization
plan proposed by affiliates of the General Partner which provided for an
additional investment of $65 million by the Icahn affiliates in exchange for a
46% equity interest, with bondholders (which also includes the Icahn affiliates)
to receive $110 million in new notes and a 54% ownership position. The plan
which became effective September 29, 2000, provided the Icahn affiliates with a
controlling interest.

In February 2001, the Icahn affiliates sold their entire Claridge
Corporation portfolio ($37.1 million face amount of Claridge Notes) for the
following additional interest in GB Holdings, Inc. ('GB Holdings'): (i) 779,861
common shares of GB Holdings and (ii) $15.96 million face amount of GB Property
First Mortgage Notes ('GB Notes'), plus $21.56 million in cash. The Company has
recognized a gain of approximately $1.3 million as a result of this sale in the
year ended December 31, 2001. As a result, affiliates of the General Partner
are, in effect, holding on behalf of the Company (i) approximately 3.6 million
common shares of GB Holdings and (ii) $26.9 million face amount of GB Notes, to
which the Company will become entitled and obligated to purchase for
approximately $59 million, as of December 31, 2001, when it is fully licensed.
As of February 2001 the Company no longer has any interests in the Claridge.

For accounting purposes, the Company reflects its interest in the GB Notes
as held to maturity and has recorded its corresponding liability to repurchase
such interests from the affiliate of the General Partner. The Company's
corresponding obligations to repurchase its interests in the GB Property,
including interest, is included in 'Due to Affiliates' in the Consolidated
Balance Sheets and totals $68.8 million at December 31, 2001.

Interest expense, which is at the annual rate of 1 1/2% over the prime
interest rate, due to the affiliate for the years ended December 31, 2001, and
2000 of $5,306,000 and $3,595,000, respectively, for the previously transferred
GB Property and Claridge Corporation interests has been included in 'Interest
expense' in the Consolidated Statements of Earnings.

The Company reflects it pro rata equity interest in Greate Bay as 'Equity
interest in GB Holdings, Inc.' in the Consolidated Balance Sheets (see Note 8).

c. The Company owns approximately: (i) 1.8 million shares of Philip Service
Corporation ('Philips'), (ii) $14.2 million in secured term debt, and
(iii) $8.3 million in secured convertible payment-in-kind debt. The Company
presently has an approximate 8% interest in Philips and an Icahn affiliate has
an approximate 33% interest.

The secured term debt matures March 31, 2005 and bears interest at 9% per
annum. Interest is payable quarterly, in arrears, beginning July 1, 2000.

The secured convertible payment-in-kind debt matures March 31, 2005 and
bears interest at 10% per annum. Interest is accreted quarterly with interest on
the accreted interest also calculated at the rate of 10% per annum.

For accounting purposes, the Company classifies its interest in Philips
stock and debt securities as available for sale. These investments are carried
at fair market value in the Consolidated Balance Sheets. Principal payments of
$1.5 million were received in the year ended December 31, 2001. At December 31,
2001, unrealized holding losses of $13.3 million have been recorded in Partners'
Equity and the carrying value of the investments was approximately $14.0
million.

II-23

8. EQUITY INTEREST IN GB HOLDINGS, INC.

The Company reflects its pro rata equity interest in GB Holdings, Inc.,
which is approximately 36%, under this caption in the Consolidated Balance
Sheets. 'Equity in the earnings (losses) of GB Holdings, Inc.' of $1.8 million
and ($2.1 million) have been recorded in the Consolidated Statements of Earnings
in the years ended December 31, 2001 and 2000, respectively (see Note 7).

9. HOTEL AND CASINO OPERATING PROPERTY

In 1997 and 1998, the Company invested approximately $60.7 million to
purchase approximately $98.5 million face value of 14 1/4% First Mortgage Notes,
due May 15, 2002, issued by the Stratosphere Corporation ('Stratosphere'), which
had approximately $203 million of such notes outstanding. An affiliate of the
General Partner owned approximately $83.3 million face value of such Notes.
Stratosphere owned and operated the Stratosphere Tower, Casino & Hotel, a
destination resort complex located in Las Vegas, Nevada, containing a 97,000
square foot casino and 1,444 hotel rooms and suites and other attractions.

Stratosphere and its wholly owned subsidiary Stratosphere Gaming Corp. filed
voluntary petitions on January 27, 1997, for Chapter 11 Reorganization pursuant
to the United States Bankruptcy Code. Stratosphere filed a Second Amended Plan
of Reorganization which provided for the holders of the First Mortgage Notes to
receive 100% of the equity in the reorganized entity and therefore provided the
Company and its affiliate with a controlling interest. Such plan was approved by
the Bankruptcy Court on June 9, 1998 but was not effective until certain
governmental approvals were obtained including, among other things, gaming
licenses from the Nevada Gaming Authority.

The Company, the General Partner, and the directors and officers of the
General Partner pursued gaming applications to obtain licenses from the Nevada
Gaming Authority. The Company understood that the application process could take
a number of months. The Company had no reason to believe it would not obtain its
necessary license; however, the licensing application of the affiliate of the
General Partner was reviewed by the authorities earlier than the Company's
application. In an effort to facilitate the consummation of the Stratosphere
reorganization process, the Company entered into an agreement to transfer its
interest (the 'Transfer Agreement') in Stratosphere to an affiliate of the
General Partner at a price equal to the Company's cost for such Stratosphere
First Mortgage Notes. However, the affiliate of the General Partner would be
obligated to sell back to the Company and the Company would be obligated to
repurchase such interest in Stratosphere at the same price (together with a
commercially reasonable interest factor), when the appropriate licenses are
obtained by the Company.

In October 1998, the affiliate of the General Partner obtained its licenses
and in accordance with the Transfer Agreement the Company received approximately
$60.7 million for its Stratosphere interests. Stratosphere's Second Amended Plan
of Reorganization became effective on October 14, 1998.

In October 1999, the Company obtained its Nevada Gaming Authority approvals
and repurchased its Stratosphere interests for approximately $64.3 million
representing the original purchase price plus accrued interest less a
Stratosphere bankruptcy distribution.

On March 24, 2000, the Company purchased an additional 50,000 shares of the
common stock of Stratosphere from the affiliate of the General Partner for
approximately $2 million, increasing its ownership interest to approximately
51%.

In September 2000, Stratosphere's Board of Directors approved a going
private transaction proposed by the Company and an affiliate of Icahn. On
February 1, 2001 the Company entered into a merger agreement with Stratosphere
under which the Company will acquire the remaining shares of Stratosphere that
it does not currently own. The Company currently owns approximately 51% of
Stratosphere and Carl C. Icahn owns approximately 38.6%. The Company subject to
certain conditions, will pay approximately $44.3 million for the outstanding
shares of Stratosphere not currently owned by it. Stratosphere stockholders not
affiliated with Icahn will receive a cash price of $45.32 per share and Icahn
related stockholders will receive a cash price of $44.33 per share.

This transaction is expected to be completed in the second quarter of 2002.
Stratosphere has invested approximately $95 million for the construction of an
additional 1,000 hotel rooms and related amenities and to purchase the leasehold
interest in the shopping center located on its premises. The

II-24

improvements were substantially completed in June 2001. The Company has advanced
approximately $85 million to Stratosphere as of December 31, 2000. The advances
and related interest expense have been eliminated in consolidation.

In the year ended December 31, 1999 approximately $4.3 million of interest
expense, in connection with repurchase obligations, due to an affiliate has been
recorded in 'Interest expense' in the Consolidated Statements of Earnings.

Stratosphere's property and equipment consist of the following as of
December 31, 2001 and 2000 (in $000's):

2001 2000
---- ----

Land and improvements, including land held for
development............................................... $ 20,824 $ 18,672
Building and improvements................................... 138,981 71,966
Furniture, fixtures and equipment........................... 52,865 27,757
Construction in progress.................................... 697 52,520
-------- --------
213,367 170,915
Less accumulated depreciation and amortization.............. (29,176) (18,580)
-------- --------
$184,191 $152,335
-------- --------
-------- --------

Included in property and equipment at December 31, 2001 and 2000 are assets
recorded under capital leases of $17.2 million.

Stratosphere's operations for the years ended December 31, 2001, 2000 and
1999 have been included in 'Hotel and casino operating income and expenses' in
the consolidated Statements of Earnings. Hotel and casino operating expenses
include all expenses except for approximately $11,257,000, $8,582,000 and
$8,337,000 of depreciation and amortization for the years ended December 31,
2001, 2000 and 1999, respectively. Such amounts have been included in
'Depreciation and amortization expense' in the Consolidated Statements of
Earnings.

10. MORTGAGES AND NOTES RECEIVABLE

BALANCE AT
DECEMBER 31,
COLLATERALIZED BY BALANCE MONTHLY (IN $000'S)
PROPERTY TENANTED INTEREST MATURITY AT PAYMENT -----------------
BY OR DEBTOR RATE DATE MATURITY AMOUNT 2001 2000
------------------------------------- -------- -------- -------- ------- ------- -------

931 First Avenue................. Various Various -- -- $23,000 $13,657
Other............................ -- -- -- -- 12,529 6,289
------- -------
$35,529 $19,946
------- -------
------- -------

On November 30, 2000, the Company entered into a mezzanine loan agreement to
fund $23 million in two tranches to an unaffiliated borrower. The funds are to
be used for certain initial development costs associated with a 65 unit
condominium property located at 931 1st Avenue in New York City. The first
tranche of $10 million was funded on November 30, 2000 and provides for interest
accruing at a rate of 25% per annum, with principal and interest due at
maturity, May 29, 2003. Also, in November 2000, approximately $3.7 million of
the second tranche of the loan was funded. The balance of approximately $9.3
million was funded in installments during 2001. The second tranche provides for
interest accruing at a rate of 21.5% per annum with principal and interest due
at maturity, November 29, 2002. The loans may be prepaid at anytime from the
proceeds of unit sales after satisfaction of senior debt of approximately $45
million. The loans are secured by the pledge of membership interests in the
entity that owns the real estate.

11. NOTE RECEIVABLE DUE FROM AFFILIATE

On December 27, 2001, the Company entered into a transaction with Carl C.
Icahn, Chairman of the Board of the General Partner, pursuant to which the
Company made a two-year $250 million loan to Mr. Icahn, secured by securities
consisting of (i) 21,136,044 and 7,689,016 of the Company's depositary units and
preferred units, respectively, owned by Mr. Icahn, such units having an
aggregate market value on that date of $250 million and (ii) shares of a private
company owned by Mr. Icahn,

II-25

which shares were represented to have an aggregate book value of at least
$250 million, together with an irrevocable proxy on sufficient additional shares
of the private company so that the pledged shares and the shares covered by the
proxy equal in excess of 50% of the private company's shares. The loan bears
interest at a per annum rate equal to the greater of (i) 3.9% and (ii) 200 basis
points over 90 LIBOR to be reset each calendar quarter. The loan must be prepaid
in an amount of up to $125 million to the extent that the Company needs such
funds for an investment opportunity and may be prepaid at any time by Mr. Icahn.
In the event of a loan default, the Company would, at its option, liquidate the
shares of the private company or reacquire its own units, or both, to satisfy
the loan. The terms of this transaction were reviewed and approved by the Audit
Committee. Approximately $135,000 of interest income was accrued in the year
ended December 31, 2001 and is included in 'Interest income on U.S. Government
and Agency Obligations and other investments' in the Consolidated Statements of
Earnings.

12. HOTEL AND RESORT OPERATING PROPERTIES

a. The Company owns a hotel and resort property that is part of a master
planned community situated in the town of Mashpee located on Cape Cod in
Massachusetts. This property includes two golf courses, other recreational
facilities, condominium and time share units and land for future development.

Total initial costs of approximately $28 million were classified as follows:
approximately $17.4 million as 'Hotel and resort properties', $8.9 million as
'Land and construction-in-progress' and $1.7 million as 'Other assets' on the
Consolidated Balance Sheet.

Resort operations have been included in the 'Hotel and resort operating
income and expenses' in the Consolidated Statements of Earnings. Net hotel and
resort operations ('hotel and resort operating income' less 'hotel and resort
operating expenses') resulted in income of approximately $712,000, $907,000, and
$3,654,000 for the years ended December 31, 2001, 2000, and 1999, respectively.
Hotel and resort operating expenses include all expenses except for
approximately $970,000, $931,000, and $704,000 of depreciation and amortization
for each of the years ended December 31, 2001, 2000 and 1999, respectively,
which is included in its respective captions in the Consolidated Statements of
Earnings.

In the year ended December 31, 2001, the Company made improvements to the
golf course and built a new clubhouse that totalled approximately $13.4 million.

Resort operations are highly seasonal in nature with peak activity occurring
from June to September.

b. The Company owns a hotel located in Miami, Florida which has a carrying
value of approximately $5.4 million at December 31, 2001 and 2000 and is
unencumbered by any mortgages.

The Company has a management agreement for the operation of the hotel with a
national management organization. Net hotel and resort operations ('hotel and
resort operating revenues' less 'hotel and resort operating expenses') totaled
approximately $770,000, $614,000, and $800,000 for the years ended December 31,
2001, 2000 and 1999, respectively. Hotel and resort operating expenses include
all expenses except for approximately $512,000, $602,000, and $628,000 of
depreciation for the years ended December 31, 2001, 2000 and 1999, respectively.
These amounts are included in their respective caption in the Consolidated
Statements of Earnings.

13. SIGNIFICANT PROPERTY TRANSACTIONS

Information on significant property transactions during the three-year
period ended December 31, 2001 is as follows:

a. In July 1999, the Company sold a property located in Burbank,
California to its tenant, Lockheed Missile and Space Company, Inc., for a
selling price of $9.8 million. A gain of approximately $3.4 million was
recorded in the year ended December 31, 1999.

b. In July 1999, the Company purchased an office and industrial facility
located in Madison, Wisconsin. The property is net leased to Rayovac
Corporation. The purchase price was $22,000,000 (see Note 14b. for mortgage
details). The lease term, which commenced December 15, 1985, is for
twenty-eight years with rent currently at approximately $1,641,000 per year
until December 31,

II-26

1999. In 2000, a scheduled cumulative consumer price index ('CPI') rent
adjustment occurred with a new rent of approximately $2 million per year.
There are several additional CPI adjustments over the initial term of the
lease which are based on the increase in the CPI since base year 1987. There
is one ten year renewal period with rent based on additional CPI
adjustments.

c. In November 1999, the Company sold a property located in Santa Clara,
California, tenanted by Wickes, for a selling price of $5.9 million. As a
result, the Company recognized a gain of approximately $5.1 million in the
year ended December 31, 1999.

d. On March 30, 2000, the Company acquired a five-story multi-tenant
office building located in Alexandria, VA for approximately $27.5 million
cash. The building, which was recently renovated, has approximately 140,000
square feet of rentable space and is 96% occupied. Lease terms range from
5-12 years with lease expirations ranging from December 2004 to March 2011.
Annual net operating income is anticipated to be approximately $2.7 million.
See Note 14c for mortgage details.

e. On March 31, 2000, the Company entered into a lease cancellation and
termination agreement with the Grand Union Company, a tenant in a Mt. Kisco,
N.Y. distribution center owned by the Company. In accordance with the
agreement, the Company paid $1.15 million to the tenant to cancel the lease
(which had an annual rental of approximately $900,000) to obtain control of
the property. The lease cancellation payment has been capitalized in 'Real
estate leases accounted for under the operating method' in the Consolidated
Balance Sheets.

At December 31, 2001, the property had a carrying value of approximately
$7,934,000. The mortgage balance of approximately $4,137,000 was repaid in
August 2000.

14. MORTGAGES PAYABLE

Mortgages payable, all of which are nonrecourse to the Company, are
summarized as follows (in $000's):

ANNUAL
PRINCIPAL BALANCE AT
AND DECEMBER 31,
RANGE OF RANGE OF INTEREST -------------------
INTEREST RATES MATURITIES PAYMENT 2001 2000
-------------- ---------- ------- -------- --------

7.080% - 8.750%....................... 1/31/03 - 12/31/18 $17,100 $159,088 $164,635
9.000 - 9.500......................... 5/31/02 - 11/30/09 1,239 7,720 17,414
------- -------- --------
$18,339 $166,808 $182,049
------- -------- --------
------- -------- --------

The following is a summary of the anticipated future principal payments of
the mortgages:

YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------

2002...................................................... $ 7,419
2003...................................................... 7,755
2004...................................................... 8,051
2005...................................................... 7,610
2006...................................................... 6,941
2007 - 2011............................................... 87,371
2012 - 2016............................................... 35,037
2017 - 2018............................................... 6,624
--------
$166,808
--------
--------

a. On June 30, 1999, the Company executed a mortgage loan and obtained
funding in the principal amount of approximately $6.3 million, which is secured
by a mortgage on an industrial building tenanted by Stone Container Corporation,
located in Germantown, Wisconsin. The loan bears interest at 7.25% per annum and
matures July 1, 2009, at which time the remaining principal balance of
approximately $5 million will be due. Annual debt service is approximately
$546,000.

b. On September 15, 1999, the Company executed a mortgage loan and obtained
funding in the principal amount of $16.1 million, which is secured by a mortgage
on an office and industrial facility

II-27

tenanted by Rayovac Corporation, located in Madison, Wisconsin. The loan bears
interest at 7.99% per annum and matures September 2014, at which time the
remaining principal balance of approximately $6.3 million will be due. Annual
debt service is approximately $1,416,000 through December 2003 and approximately
$1,772,000 thereafter.

c. On August 22, 2000, the Company executed a mortgage loan and obtained
funding in the principal amount of $19.6 million, which is secured by a mortgage
on a five story multi-tenant office building located in Alexandria, VA. The loan
bears interest at 8.43% per annum and matures September 2012, at which time the
remaining principal balance of approximately $14.9 million will be due. Annual
debt service is approximately $1,883,000.

15. RIGHTS OFFERINGS

a. A registration statement relating to the 1995 Rights Offering (the '1995
Offering') was filed with the Securities and Exchange Commission and declared
effective February 23, 1995.

On March 1, 1995, the Company issued to record holders of its Depositary
Units one transferable subscription right (a 'Right'), for each seven Depositary
Units of the Company held on February 24, 1995, the record date. The Rights
entitled the holders thereof (the 'Rights Holders') to acquire during the
subscription period at a subscription price of $55, six Depositary Units and one
5% cumulative pay-in-kind redeemable preferred unit representing a limited
partner interest ('Preferred Units'). The subscription period commenced on
March 1, 1995 and expired at the close of business on March 30, 1995.

The Preferred Units have certain rights and designations, generally as
follows. Each Preferred Unit has a liquidation preference of $10.00 and entitles
the holder thereof to receive distributions thereon, payable solely in
additional Preferred Units, at the rate of $.50 per Preferred Unit per annum
(which is equal to a rate of 5% of the liquidation preference thereof), payable
annually on March 31 of each year (each, a 'Payment Date'). On any Payment Date
commencing with the Payment Date on March 31, 2000, the Company with the
approval of the Audit Committee of the Board of Directors of the General Partner
may opt to redeem all, but not less than all, of the Preferred Units for a
price, payable either in all cash or by issuance of additional Depositary Units,
equal to the liquidation preference of the Preferred Units, plus any accrued but
unpaid distributions thereon. On March 31, 2010, the Company must redeem all,
but not less than all, of the Preferred Units on the same terms as any optional
redemption.

On April 12, 1995, the Company received approximately $108.7 million, the
gross proceeds of the 1995 Offering, from its subscription agent and a capital
contribution of approximately $2.2 million from its General Partner. The Company
issued 1,975,640 Preferred Units and an additional 11,853,840 Depositary Units.
Trading in the Preferred Units commenced March 31, 1995 on the New York Stock
Exchange ('NYSE') under the symbol 'ACP PR'. The Depositary Units trade on the
NYSE under the symbol 'ACP'.

b. In September 1997, the Company completed its 1997 Rights Offering (the
'1997 Offering') to holders of its Depositary Units. The aggregate amount raised
in the 1997 Rights Offering was approximately $267 million, which is expected to
be used primarily for additional investment opportunities. The Preferred and
Depositary Units issued under the 1997 Rights Offering carry the same rights and
designations as those issued in 1995.

On September 25, 1997 the Company received approximately $267 million, the
gross proceeds of the 1997 Offering, from its subscription agent and a capital
contribution of approximately $5.4 million from its General Partner. Expenses
incurred in connection with the 1997 Offering were approximately $400,000. The
Company issued an additional 5,132,911 Preferred Units and 20,531,644 Depositary
Units. The Preferred and Depositary Units trade on the New York Stock Exchange
under the symbols 'ACP PR' and 'ACP', respectively.

On March 31, 2001, the Company distributed 423,172 Preferred Units to
holders of record as of March 15, 2001. On March 31, 2000, the Company
distributed 403,022 Preferred Units to holders of record as of March 15, 2000.
As of December 31, 2001 and 2000, 8,886,631 and 8,463,459 Preferred Units,
respectively, are issued and outstanding.

II-28

At December 31, 2001, affiliates of the General Partner owned 7,689,016
Preferred Units and 39,706,836 Depositary Units.

16. INCOME TAXES (IN $000'S)

DECEMBER 31,
-----------------------
2001 2000
---- ----

The difference between the book basis and the tax basis of
the net assets of the Company, not directly subject to
income taxes is as follows:
a. Book basis of American Real Estate Partner's net
assets excluding Stratosphere Corp. ................. $1,103,050 $1,042,945
Excess of book over tax basis......................... (18,307) (44,319)
---------- ----------
Tax basis of net assets............................... $1,084,743 $ 998,626
---------- ----------
---------- ----------

b. Stratosphere Corporation --

Stratosphere recorded a provision for income taxes of $378, $2,772 and
$1,048 in the years ended December 31, 2001, 2000 and 1999, respectively,
which has been included in 'Hotel and casino operating expenses' in the
Consolidated Statements of Earnings.

The tax effect of significant differences representing deferred tax
assets and liabilities (the difference between financial statement carrying
values and the tax basis of assets and liabilities) for the Company is as
follows at December 31:

2001 2000
---- ----

Excess of tax over book basis of assets due
primarily to write-down of assets............. $ 70,760 $ 74,162
Other........................................... 10,611 7,702
-------- --------
Total temporary differences and carry forwards.. 81,371 81,864
Valuation allowance............................. (81,371) (81,864)
-------- --------
Total deferred tax assets (liabilities)......... $ -- $ --
-------- --------
-------- --------

Stratosphere recorded a valuation allowance at December 31, 2001 and
2000, relating to recorded tax benefits because of the significant
uncertainty as to whether such benefits will ever be realized.

SFAS 109 requires a 'more likely than not' criterion be applied when
evaluating the realizability of a deferred tax asset. Given Stratosphere's
history of losses for income tax purposes, the volatility of the industry
within which Stratosphere operates, and certain other factors, Stratosphere
has established a valuation allowance principally for the deductible
temporary differences, including the excess of the tax basis of
Stratosphere's assets over the basis of such assets for financial purposes,
which may not be realizable in future periods. After application of the
valuation allowance, Stratosphere's net deferred tax assets and liabilities
are zero. In the event that Stratosphere recognizes, in subsequent years,
the tax benefit of any deferred tax asset that existed on the date the
reorganization became effective, such tax benefit will be reported as a
direct addition to contributed capital.

II-29

17. QUARTERLY FINANCIAL DATA (UNAUDITED) (IN $000'S, EXCEPT PER UNIT DATA)

THREE MONTHS ENDED
-----------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------------- ----------------- ----------------- -----------------
2001 2000 2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ---- ---- ----

Revenues................... $66,907 $75,367 $69,182 $82,315 $84,280 $78,604 $76,954 $76,591
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Earnings before property
and securities
transactions and minority
interest................. $15,178 $14,674 $14,969 $20,296 $17,785 $18,935 $14,750 $15,119
Gains on property
transactions............. -- 997 1,362 1,109 -- 357 375 4,300
Gain on sale of marketable
equity securities........ 1,334 -- -- -- -- -- 5,415 3,461
Provision for loss on real
estate................... -- -- -- (232) -- (259) (3,184) (860)
Minority interest in net
earnings of Stratosphere
Corp..................... (681) (973) (116) (566) (14) (564) 361 (644)
------- ------- ------- ------- ------- ------- ------- -------
Net earnings............... $15,831 $14,698 $16,215 $20,607 $17,771 $18,469 $17,717 $21,376
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Net earnings per limited
Partnership unit:
Basic earnings......... $ .31 $ .26 $ .32 $ .42 $ .35 $ .37 $ .35 $ .44
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Diluted earnings....... $ .28 $ .23 $ .29 $ .36 $ .31 $ .33 $ .31 $ .38
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------

Net earnings per unit is computed separately for each period and, therefore,
the sum of such quarterly per unit amounts may differ from the total for the
year.

18. SEGMENT REPORTING

The Company is engaged in five operating segments consisting of the
ownership and operation of (i) rental real estate (ii) hotel and resort
operating properties (iii) hotel and casino operating property (iv) property
development, and (v) investment in securities including investment in other
limited partnerships and marketable equity and debt securities. The Company's
reportable segments offer different services and require different operating
strategies and management expertise.

Non-segment revenue to reconcile to total revenue consists primarily of
interest income on treasury bills and other investments. Non-segment assets to
reconcile to total assets includes investment in U.S. Government and Agency
Obligations, cash and cash equivalents, receivables and other assets.

The accounting policies of the segments are the same as those described in
Note 2.

The Company assesses and measures segment operating results based on segment
earnings from operations as disclosed below. Segment earnings from operations is
not necessarily indicative of cash available to fund cash requirements nor
synonymous with cash flow from operations.

The revenues, net earnings, assets and real estate investment capital
expenditures for each of the reportable segments are summarized as follows for
the years ended and as of December 31, 2001, 2000, and 1999 (in $000's):

2001 2000 1999
---- ---- ----

Revenues:
Hotel & casino operating property............ $144,354 $132,762 $123,227
Land, house and condominium sales............ 55,566 76,180 71,224
Rental real estate........................... 43,822 43,268 43,156
Hotel & resort operating properties.......... 16,418 21,617 21,092
Other investments............................ 7,209 5,740 12,203
-------- -------- --------
Subtotal................................. 267,369 279,567 270,902

Reconciling items................................ 29,954(1) 33,310(1) 24,102(1)
-------- -------- --------
Total revenues........................... $297,323 $312,877 $295,004
-------- -------- --------
-------- -------- --------

---------

(1) Primarily interest income on T-bills and other short-term investments and
other income.

II-30

2001 2000 1999
---- ---- ----

Net earnings:
Segment earnings:
Land, house and condominium sales.................... $ 12,967 $ 17,687 $ 17,880
Hotel & casino operating property.................... 15,885 13,765 10,284
Rental real estate................................... 38,667 39,268 40,233
Hotel and resort operating properties................ 2,254 1,397 3,994
Other investments.................................... 7,209 5,740 12,203
---------- ---------- ----------
Total segment earnings........................... 76,982 77,857 84,594

Interest income.......................................... 29,954 33,310 24,102
Interest expense......................................... (19,140) (17,820) (19,010)
General and administrative expenses...................... (7,080) (7,475) (7,526)
Depreciation and amortization............................ (18,034) (15,098) (14,044)
Bayswater acquisition costs.............................. -- (1,750) --
---------- ---------- ----------
Earnings before property and securities transactions
and minority interest.............................. 62,682 69,024 68,116
Gain on sales and disposition of real estate............. 1,737 6,763 13,971
Gain on sale of limited partnership interests............ -- 3,461 --
Provision for loss on real estate........................ (3,184) (1,351) (1,946)
Gain on sale of marketable equity securities............. 6,749 -- 28,590
Minority interest in net earnings of Stratosphere
Corp................................................... (450) (2,747) (1,002)

General partner's share of net income.................... (1,344) (2,925) (13,820)
---------- ---------- ----------
Net earnings-limited partners' unitholders............... $ 66,190 $ 72,225 $ 93,909
---------- ---------- ----------
---------- ---------- ----------

Assets:
Rental real estate................................... $ 358,597 $ 379,396 $ 375,268
Hotel and casino operating property.................. 184,191 152,335 111,151
Land and construction-in-progress.................... 69,429 75,952 99,252
Hotel and resort operating properties................ 43,990 32,918 30,678
Other investments.................................... 360,718 113,041 78,352
---------- ---------- ----------
1,016,925 753,642 694,701
Reconciling items.................................... 434,717 669,345 670,160
---------- ---------- ----------
Total............................................ $1,451,642 $1,422,987 $1,364,861
---------- ---------- ----------
---------- ---------- ----------

Real estate investment capital expenditures:
Acquisitions:
Rental real estate................................... $ -- $ 27,326 $ 23,954
Land and construction-in-progress.................... -- -- --
Hotel and casino operating property.................. -- 16,666 6,045
Hotel and resort operating properties................ -- -- 3,870
---------- ---------- ----------
$ -- $ 43,992 $ 33,869
---------- ---------- ----------
---------- ---------- ----------

Developments:
Rental real estate................................... $ 1,064 $ 2,760 $ 177
Land and construction-in-progress.................... 3,804 847 1,504
Hotel and casino operating property.................. 48,909 28,135 --
Hotel and resort operating properties................ 13,753 6,091 3,872
---------- ---------- ----------
$ 67,530 $ 37,833 $ 5,553
---------- ---------- ----------
---------- ---------- ----------

II-31

19. COMMITMENTS AND CONTINGENCIES

a. In October 2000, Stratosphere Corp. settled the litigation regarding
rental of its retail space and acquired the leasehold interest to the shopping
center located on its premises for approximately $12.5 million.

b. On November 18, 1998, Ruth Ellen Miller filed a Class Action Complaint
bearing the caption Ruth Ellen Miller, on behalf of herself and all others
similarly situated v. American Real Estate Partners, L.P., High Coast Limited
Partnership, American Property Investors, Inc., Carl C. Icahn, Alfred Kinglsey,
Mark H. Rachesky, William A. Leidesdorf, Jack G. Wasserman and John P.
Saldarelli in the Delaware Chancery Court in New Castle County (Civil Action No.
16788NC). On September 21, 2000, Ruth Ellen Miller, Charles and Lydia Hoffman,
and Joy Lazarus, claiming as plaintiffs on behalf of themselves and all others
similarly situated, filed an amended complaint (the 'Complaint') and a motion
for class certification.

Plaintiffs alleged that defendants breached their fiduciary or contractual
duties to the Company by (i) using the General Partner to make a Rights Offering
in February 1995 that enabled High Coast to acquire a majority of the
Partnership Units and insulated the General Partner from removal, (ii) cutting
off distributions in order to devote all available cash to investments in which
other Icahn entities were invested and to put pressure on the Unitholders to
sell out, (iii) amended the Partnership Agreement in 1996 to broaden the
purposes of the Partnership to allow investment in any securities, and
(iv) bought out certain Unitholders at an allegedly unfair price through a 1998
Tender Offer.

The Complaint sought class certification, an unspecified amount in damages,
injunctive relief, costs and attorneys' fees.

On September 6, 2001, pursuant to Defendants' motion the Complaint was
dismissed.

c. In January 2001, Stratosphere Gaming Corp. ('Stratosphere Gaming'), a
wholly-owned subsidiary of Stratosphere, was named in an action styled Disabled
Rights Action Committee v. Stratosphere Gaming Corp., Case No. A430070, in the
Eighth Judicial District Court of the State of Nevada. The complaint alleges a
number of violations of the Americans with Disabilities Act ('ADA'), including
inadequate room selection, door widths and other similar items. Simultaneously
with the complaint, plaintiffs filed a Motion for Preliminary Injunction,
seeking to have construction halted on the new tower until the property fully
complies with the ADA. Stratosphere Gaming removed the action to the United
States District Court in Nevada and it is now styled as Disabled Rights Action
Committee v. Stratosphere Gaming Corp., Case No. CV-S-01-0162-RLH (PAL).

The federal district court held a hearing on plaintiffs' Motion for
Preliminary Injunction and denied the motion, focusing upon what the Court
believed to be the plaintiffs' lack of irreparable injury. The federal district
court also granted Stratosphere Gaming's Motion to Dismiss the plaintiffs' state
law claims, leaving in place only the ADA claims. Stratosphere Gaming and the
plaintiffs then filed Motions for Summary Judgement. The District Court granted
and denied in part each of the parties' respective motions. The Court ordered
that Stratosphere must make certain renovations to 532 rooms that were opened in
1996. The Court issued an injunction requiring that these renovations be
completed by August 9, 2002. Stratosphere had already commenced these
renovations prior to the Court Order and expects to meet the Court deadline.
Stratosphere believes the costs of these renovations will be approximately
$450,000.

Stratosphere's management intends to vigorously defend itself against the
above action which is in the early stages of the litigation process. However,
the Company does not believe that they will have a material effect on the
consolidated results of operations or financial position of the Company.

In May, 2001, Stratosphere was named in an action brought by Harrah's
Entertainment, Inc. alleging infringement of a purported patent covering a
business method allegedly developed by Harrah's. The use of an allegedly similar
business method by Stratosphere in its advertising and promotions is said by
plaintiff to infringe upon its patent rights. In January 2002, the parties
entered into a sealed Consent Judgement resolving the dispute which was the
subject matter of this action.

d. In April 2001, WR Grace, the tenant of an office building owned by the
Company, filed a voluntary petition for Chapter 11 Bankruptcy protection. The
tenant rejected the lease effective

II-32

December 15, 2001. The annual rent for the property was approximately $988,000.
At December 31, 2001, the carrying value of this property was $5,113,000.

e. In January 2002, Kmart Corp., a tenant leasing seven properties owned by
the Company which represent approximately $1,374,000 in annual rentals, filed a
voluntary petition for reorganization under Chapter 11 of the Federal Bankruptcy
Code. Pursuant to an order of the Bankruptcy Court, four leases have been
rejected representing approximately $713,000 in annual rents. The rejected
properties have been classified as available for sale and the Company has
recorded a provision for loss of approximately $1.9 million on such properties
for the year ended December 31, 2001. The Company has not been notified
regarding the three remaining leases representing approximately $661,000 in
annual rents. At December 31, 2001, the carrying value of the seven properties
was $6,863,000.

In addition, in the ordinary course of business, the Company is party to
various legal actions. In management's opinion, the ultimate outcome of such
legal actions will not have a material effect on the Company's consolidated
financial statements taken as a whole.

20. FAIR VALUE OF FINANCIAL INSTRUMENTS

CASH AND CASH EQUIVALENTS, RECEIVABLES, NOTE RECEIVABLE DUE FROM AFFILIATE,
MORTGAGES PAYABLE AND ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES

The carrying amount of cash and cash equivalents, receivables, note
receivable due from affiliate, mortgages payable and accounts payable, accrued
expenses and other liabilities are carried at cost, which approximates their
fair value.

MORTGAGES AND NOTES RECEIVABLE

The fair values of the mortgages and notes receivable past due, in process
of foreclosure, or for which foreclosure proceedings are pending, are based on
the discounted cash flows of the underlying lease. The fair values of the
mortgages and notes receivable satisfied after year end are based on the amount
of the net proceeds received.

The fair values of the mortgages and notes receivable which are current are
based on the discounted cash flows of their respective payment streams.

The approximate estimated fair values of the mortgages and notes receivable
held as of December 31, 2001 and 2000 are summarized as follows (in $000's):

AT DECEMBER 31, 2001 AT DECEMBER 31, 2000
----------------------- -----------------------
NET ESTIMATED NET ESTIMATED
INVESTMENT FAIR VALUE INVESTMENT FAIR VALUE
---------- ---------- ---------- ----------

Total........................... $30,862 $33,286 $15,279 $17,757

The net investment at December 31, 2001 and 2000 is equal to the carrying
amount of the mortgage receivable less any deferred income recorded.

LIMITATIONS

Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.

21. EMPLOYEE BENEFIT PLANS

a. Employees of the Company who are members of various unions are covered by
union-sponsored, collectively bargained, multi-employer health and welfare and
defined benefit pension plans. The Company recorded expenses for such plans of
approximately $4,900,000, $4,600,000 and $4,300,000 for the years ended
December 31, 2001, 2000 and 1999, respectively. Sufficient information is not
available

II-33

from the plans' sponsors to permit the Company to determine its share of
unfunded vested benefits, if any.

b. The Company has retirement savings plans under Section 401(k) of the
Internal Revenue Code covering its non-union employees. The plans allow
employees to defer, within prescribed limits, up to 15% of their income on a
pre-tax basis through contributions to the plans. The Company currently matches,
within prescribed limits, up to 6% of eligible employees' compensation at rates
ranging from 33 1/3% to 50%. The Company recorded charges for matching
contributions of approximately $231,000, $159,000 and $147,000 for the years
ended December 31, 2001, 2000 and 1999, respectively.

22. REPURCHASE OF DEPOSITARY UNITS

The Company has previously been authorized to repurchase up to 1,250,000
Depositary Units. As of December 31, 2001, the Company has purchased 1,137,200
Depositary Units at an aggregate cost of approximately $11,921,000.

23. SUBSEQUENT EVENTS

Pursuant to the terms of the Preferred Units, on February 22, 2002, the
Company declared its scheduled annual preferred unit distribution payable in
additional Preferred Units at the rate of 5% of the liquidation preference of
$10. The distribution is payable April 1, 2002 to holders of record as of
March 15, 2002.

II-34

ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.

None

II-35

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF AREP.

The names, offices held and the ages of the directors and executive officers
of the General Partner are as follows:

NAME AGE OFFICE
---- --- ------

Carl C. Icahn................................ 66 Chairman of the Board
William A. Leidesdorf........................ 56 Director
James L. Nelson.............................. 52 Director
Jack G. Wasserman............................ 65 Director
Albo J. Antenucci, Jr........................ 45 Executive Vice President and Chief
Operating Officer
Martin L. Hirsch............................. 47 Executive Vice President and Director of
Acquisitions and Development
John P. Saldarelli........................... 60 Vice President, Chief Financial Officer,
Secretary and Treasurer

Carl C. Icahn has been Chairman of the Board of the General Partner since
November 15, 1990. He is also President and a Director of Starfire Holding
Corporation (formerly Icahn Holding Corporation), a Delaware corporation ('SHC')
and Chairman of the Board and a Director of various of SHC's subsidiaries,
including ACF Industries, Inc., a New Jersey corporation ('ACF'). SHC is
primarily engaged in the business of holding, either directly or through
subsidiaries, a majority of the common stock of ACF and its address is 100 South
Bedford Road, Mount Kisco, New York 10549. Mr. Icahn has also been Chairman of
the Board of Directors of ACF since October 29, 1984 and a Director of ACF since
June 29, 1984. ACF is a railroad freight and tank car leasing, sales and
manufacturing company. He has also been Chairman of the Board of Directors and
President of Icahn & Co., Inc. since 1968. Icahn & Co., Inc. is a registered
broker-dealer and a member of the National Association of Securities Dealers.
ACF and Icahn & Co., Inc. are deemed to be directly or indirectly owned and
controlled by Carl C. Icahn. Mr. Icahn has been a Director of Cadus
Pharmaceutical Corporation, a firm which holds various biotechnology patents,
since 1993. Since August 1998 he has also served as Chairman of the Board of
Lowestfare.com, LLC, an internet travel reservations company. Since October
1998, Mr. Icahn has been the President and a Director of Stratosphere
Corporation which operates the Stratosphere Hotel and Casino. Since
September 29, 2000, Mr. Icahn has also served as the Chairman of the Board of GB
Holdings, Inc., GB Property Funding, Inc. and Greate Bay Hotel & Casino, Inc.
which owns and operates the Sands Hotel. Mr. Icahn also has substantial equity
interests in and controls various partnerships and corporations that invest in
publicly traded securities.

William A. Leidesdorf has served as Director of the General Partner since
March 26, 1991. Since June 1997, Mr. Leidesdorf has been an owner and a managing
director of Renaissance Housing, LLC, a company primarily engaged in acquiring
multifamily residential properties. From April 1995 through December 1997,
Mr. Leidesdorf acted as an independent real estate investment banker. From
January 1, 1994 through April 1995, Mr. Leidesdorf was Managing Director of RFG
Financial, Inc., a commercial mortgage company. From September 30, 1991 to
December 31, 1993, Mr. Leidesdorf was Senior Vice President of Palmieri Asset
Management Group. From May 1, 1990 to September 30, 1991, Mr. Leidesdorf was
Senior Vice President of Lowe Associates, Inc., a real estate development
company, where he was involved in the acquisition of real estate and the asset
management workout and disposition of business areas. He also acted as the
Northeast Regional Director for Lowe Associates, Inc. From June 1985 to
January 30, 1990, Mr. Leidesdorf was Senior Vice President and stockholder of
Eastdil Realty, Inc., a real estate company, where he was involved in the asset
management workout, disposition of business and financing areas. During the
interim period from January 30, 1990 through May 1, 1990, Mr. Leidesdorf was an
independent contractor for Eastdil Realty, Inc. on real estate matters.

On June 12, 2001, James L. Nelson, was elected to the Board of Directors of
the General Partner. Since March 1998, Mr. Nelson has been Chairman and Chief
Executive Officer of Orbit Aviation, Inc., a

III-1

company engaged in the acquisition and completion of Boeing 737 Business Jets
for private and corporate clients. From 1986 until the present, Mr. Nelson has
been Chairman and Chief Executive Officer of Eaglescliff Corporation, a
specialty investment banking, consulting and wealth management company. From
August 1995 until July 1999 he was Chief Executive Officer and Co-Chairman of
Orbitex Management, Inc. and until March 2001 he was on the Board of Orbitex
Financial Services Group, a financial services company in the mutual fund
sector. From January 1994 until August 1995 Mr. Nelson and Eaglescliff
Corporation were affiliated with Rosecliff Inc., a leveraged buyout firm. From
January 1992 until August 1994 Mr. Nelson was President of AVIC, Inc., a company
involved in financing and building telecom systems in China and creating network
connectivity devices.

Jack G. Wasserman has served as a Director of the General Partner since
December 3, 1993. Mr. Wasserman is an attorney and a member of the New York
State Bar and has been with the New York based law firm of Wasserman, Schneider
& Babb since 1966, where he is currently a senior partner. Mr. Wasserman also
serves as a director of Cadus Pharmaceutical Corporation, a public biotechnology
company. In addition, in 1998 Mr. Wasserman was appointed to the Board of
Directors of National Energy Group, Inc., an independent public energy company
primarily engaged in the acquisition, exploitation, development, exploration and
production of oil and natural gas. In addition, at the direction of the Nevada
State Gaming Control Board, Mr. Wasserman sits as a member of the Compliance
Committee of the Stratosphere Hotel and Casino, Inc. Mr. Wasserman is not a
member of the Board of Directors of Stratosphere Hotel and Casino, Inc.

Albo J. Antenucci, Jr. has served as Executive Vice President of Bayswater
Realty & Capital Corp. since January, 1996. Mr. Antenucci was also Vice
President of Bayswater from June, 1989 until January, 1996. On March 23, 2000,
Mr. Antenucci was elected to serve as Executive Vice President and Chief
Operating Officer of the General Partner.

Martin L. Hirsch has served as a Vice President of the General Partner since
1991, focusing on investment, management and disposition of real estate
properties and other assets. From January, 1986 to January, 1991, Mr. Hirsch was
a Vice President of Integrated Resources, Inc. where he was involved in the
acquisition of commercial real estate properties and asset management. In 1985
and 1986, Mr. Hirsch was a Vice President of Hall Financial Group where he was
involved in acquiring and financing commercial and residential properties. In
1998, Mr. Hirsch was appointed to the Board of Directors of National Energy
Group, Inc., an independent public energy company primarily engaged in the
acquisition, exploitation, development, exploration and production of oil and
natural gas. Also in 1998, Mr. Hirsch was appointed to the Board of Directors of
Stratosphere Corporation. On March 23, 2000, Mr. Hirsch was elected to serve as
Executive Vice President and Director of Acquisitions and Development of the
General Partner.

John P. Saldarelli has served as Vice President, Secretary and Treasurer of
the General Partner since March 18, 1991. Mr. Saldarelli was also President of
Bayswater Realty Brokerage Corp. from June 1987 until November 19, 1993 and Vice
President of Bayswater Realty & Capital Corp. from September 1979 until
April 15, 1993. In October 1998, Mr. Saldarelli was appointed to the Board of
Directors of Stratosphere. In June 2000, Mr. Saldarelli was given the additional
title of Chief Financial Officer. In February 2001, Mr. Saldarelli was elected
to the Board of Directors of GB Holdings, Inc.

James L. Nelson, William A. Leidesdorf and Jack G. Wasserman are on the
Audit Committee of the Board of Directors of the General Partner. AREP believes
that the Audit Committee members are 'independent' as defined in the applicable
listing standards of the New York Stock Exchange.

Each executive officer and director will hold office until the next annual
meeting of the General Partner and until his or her successor is elected and
qualified. Directors who are also Audit Committee members receive quarterly fees
of $6,250. Mr. Leidesdorf and Mr. Wasserman each received $25,000 of such fees
in 2001. Mr. Nelson received $12,500 in 2001.

Each of the executive officers of the General Partner may perform services
for other affiliates of the General Partner.

There are no family relationships between or among any of the directors
and/or executive officers of the General Partner.

III-2

If distributions (which are payable in kind) are not made to the holders of
Preferred Units on any two Payment Dates (which need not be consecutive), the
holders of more than 50% of all outstanding Preferred Units, including the
General Partner and its affiliates, voting as a class, will be entitled to
appoint two nominees for the Board of Directors of the General Partner. Holders
of Preferred Units owning at least 10% of all outstanding Preferred Units,
including the General Partner and its affiliates to the extent that they are
holders of Preferred Units, may call a meeting of the holders of Preferred Units
to elect such nominees. Once elected, the nominees will be appointed to the
Board of Directors of the General Partner by Icahn. As directors, the nominees
will, in addition to their other duties as directors, be specifically charged
with reviewing all future distributions to the holders of the Preferred Units.
Such additional directors shall serve until the full distributions accumulated
on all outstanding Preferred Units have been declared and paid or set apart for
payment. If and when all accumulated distributions on the Preferred Units have
been declared and paid or set aside for payment in full, the holders of
Preferred Units shall be divested of the special voting rights provided by the
failure to pay such distributions, subject to revesting in the event of each and
every subsequent default. Upon termination of such special voting rights
attributable to all holders of Preferred Units with respect to payment of
distributions, the term of office of each director nominated by the holders of
Preferred Units (the 'Preferred Unit Directors') pursuant to such special voting
rights shall terminate and the number of directors constituting the entire Board
of Directors shall be reduced by the number of Preferred Unit Directors. The
holders of the Preferred Units have no other rights to participate in the
management of AREP and are not entitled to vote on any matters submitted to a
vote of the holders of Depositary Units.

FILING OF REPORTS

To the best of AREP's knowledge, no director, executive officer or
beneficial owner of more than 10% of AREP's Depositary Units failed to file on a
timely basis reports required by 'SS'16(a) of the Securities Exchange Act of
1934, as amended, during the year ended December 31, 2001.

ITEM 11. EXECUTIVE COMPENSATION.(1)

The following table sets forth information in respect of the compensation of
the Chief Executive Officer and each of the other most highly compensated
executive officers of AREP for services in all capacities to AREP for the fiscal
years ended December 31, 2001, 2000 and 1999.(2)

SUMMARY COMPENSATION TABLE

ANNUAL
COMPENSATION
-----------------
(A) (B) (C)
NAME AND PRINCIPAL POSITION YEAR SALARY ($)
--------------------------- ---- ----------

Albo J. Antenucci, Jr.(3) .................................. 2001 323,750
Executive Vice President and Chief Operating Officer 2000 274,808
John P. Saldarelli(3) ...................................... 2001 182,000
Vice President, Chief Financial Officer, Secretary and 2000 170,000
Treasurer 1999 164,092
Martin L. Hirsch(3) ........................................ 2001 255,000
Executive Vice President and Director of Acquisitions and 2000 290,000
Development 1999 237,692

---------

(1) Pursuant to applicable regulations, certain columns of the Summary
Compensation Table and each of the remaining tables have been omitted, as
there has been no compensation awarded to, earned by or paid to any of the
named executive officers by AREP or by the General Partner, which was
subsequently reimbursed by AREP, required to be reported in those columns or
tables.

(2) Carl C. Icahn, the Chief Executive Officer, received no compensation as such
for the periods indicated. In addition, other than Albo J. Antenucci, Jr.,
Martin L. Hirsch and John P. Saldarelli, no
(footnotes continued on next page)

III-3

(footnotes continued from previous page)
other executive officer received compensation in excess of $100,000 from
AREP for the applicable period.

(3) On March 18, 1991, Mr. Saldarelli was elected Vice President, Secretary and
Treasurer of the General Partner, and in June 2000, Mr. Saldarelli was given
the additional title of Chief Financial Officer. On March 23, 2000, Martin
L. Hirsch was elected Executive Vice President and Director of Acquisitions
and Development of the General Partner and Albo J. Antenucci, Jr. was
elected Executive Vice President and Chief Operating Officer of the General
Partner. Messrs. Saldarelli and Hirsch devote substantially all of their
time to the performance of services for AREP and its investments and the
General Partner. Mr. Antenucci devotes a substantial portion of his time to
the performance of services for AREP and Bayswater and received a portion of
his compensation in 2000 from Stratosphere. The other executive officer and
directors of the General Partner devote only a portion of their time to
performance of service for AREP. In February 1993, AREP adopted a 401K plan
pursuant to which AREP will make a matching contribution to an employee's
individual plan account in the amount of one-third (1/3) of the first six
(6%) percent of gross salary contributed by the employee.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

As of March 1, 2002, affiliates of Icahn, including High Coast Limited
Partnership, a Delaware limited partnership, owned 39,706,836 Depositary Units,
or approximately 86.1% of the outstanding Depositary Units, and 7,689,016
Preferred Units, or approximately 86.5% of the outstanding Preferred Units.

The affirmative vote of Unitholders holding more than 75% of the total
number of all Depositary Units then outstanding, including Depositary Units held
by the General Partner and its affiliates, is required to remove the General
Partner. Thus, since Icahn, through affiliates, holds approximately 86.1% of the
Depositary Units outstanding, the General Partner will not be able to be removed
pursuant to the terms of the Partnership Agreement without Icahn's consent.
Moreover, under the Partnership Agreement, the affirmative vote of the General
Partner and Unitholders owning more than 50% of the total number of all
outstanding Depositary Units then held by Unitholders, including affiliates of
Icahn, is required to approve, among other things, selling or otherwise
disposing of all or substantially all of AREP's assets in a single sale or in a
related series of multiple sales, dissolving AREP or electing to continue AREP
in certain instances, electing a successor general partner, making certain
amendments to the Partnership Agreement or causing AREP, in its capacity as sole
limited partner of the Subsidiary, to consent to certain proposals submitted for
the approval of the limited partners of the Subsidiary. Accordingly, as
affiliates of Icahn hold in excess of 50% of the Depositary Units outstanding,
Icahn, through affiliates, will have effective control over such approval
rights.

The following table provides information, as of March 1, 2002, as to the
beneficial ownership of the Depositary Units and Preferred Units of AREP for
each director of the General Partner, and all directors and executive officers
of the General Partner as a group.

BENEFICIAL BENEFICIAL
OWNERSHIP OF PERCENT OWNERSHIP OF PERCENT
NAME OF BENEFICIAL OWNER DEPOSITARY UNITS OF CLASS PREFERRED UNITS OF CLASS
------------------------ ---------------- -------- --------------- --------

Carl C. Icahn(1)............................... 39,706,836 86.1% 7,689,016 86.5%
All directors and executive officers as a group
(7 persons).................................. 39,706,836 86.1% 7,689,016 86.5%

---------

(1) Carl C. Icahn, through affiliates, is the beneficial owner of the 39,706,836
Depositary Units set forth above and may also be deemed to be the beneficial
owner of the 5,899 Depositary Units owned of record by API Nominee Corp.,
which in accordance with state law are in the process of being turned over
to the relevant state authorities as unclaimed property; however, Mr. Icahn
disclaims such beneficial ownership. The foregoing is exclusive of a 1.99%
ownership interest in AREP which the
(footnote continued on next page)

III-4

(footnote continued from previous page)
General Partner holds by virtue of its 1% General Partner interest in each
of AREP and the Subsidiary. Furthermore, pursuant to a registration rights
agreement entered into by affiliates of Icahn in connection with the 1997
Offering, AREP has agreed to pay any expenses incurred in connection with
two demand and unlimited piggy-back registrations requested by affiliates of
Icahn.

-------------------

As described above, affiliates of Icahn hold 86.1% of the Depositary Units
and 86.5% of the outstanding Preferred Units. Entities directly or indirectly
owned by Icahn that are members of a controlled group for purposes of the
Employee Retirement Income Security Act of 1974, as amended ('ERISA') and
Section 414 of the Internal Revenue Code of 1986, as amended (the 'Code'), which
in general terms includes entities in which there is at least 80% common
ownership, may have joint and several responsibility for various
benefits-related liabilities arising under ERISA and the Code. As a result of
the more than 80% ownership interest in AREP of Icahn and his affiliates, AREP
will be deemed to be included in the same controlled group that includes ACF and
Pichin Corp. ('Pichin'), an affiliate of ACF (the 'Controlled Group').

ERISA and the Code require, among other things, that a contributing sponsor
of a defined benefit pension plan make certain minimum funding contributions to
fund the benefits that participants accrue under the pension plan and make the
sponsor liable for any unfunded benefit liabilities that may exist at
termination. As a member of the Controlled Group, AREP would be jointly and
severally liable with the other members of the Controlled Group for such
potential pension plan minimum funding and termination liabilities. In addition,
upon the failure to make minimum funding contributions in excess of $1 million
when due or pay termination liabilities after demand by the Pension Benefit
Guaranty Corporation (the 'PBGC'), liens in favor of the relevant pension plans
or the PBGC, respectively, would attach to the assets of all members of the
sponsor's controlled group.

ACF and other members of the Controlled Group sponsor several pension plans
(the 'ACF Pension Plans') which (not including the 'TWA Plans,' as defined
below) are underfunded in the aggregate by approximately $26 million on an
ongoing actuarial basis and by approximately $91 million on a termination basis,
in each case as most recently determined by the plans' actuaries. The liability
upon plan termination could be more or less than this amount depending on future
changes in promised benefits, investment returns, the assumptions used to
calculate the liability and the outcome of any litigation relating to the amount
of liability. As a member of the Controlled Group, AREP is jointly and severally
liable for any failure of ACF or any other member of the Controlled Group to
make minimum funding contributions or pay termination liabilities with respect
to the ACF Pension Plans.

Pursuant to a settlement (the 'Settlement') entered into in 1993 by the PBGC
and Trans World Airlines, Inc. ('TWA'), among others, in connection with the
Chapter 11 bankruptcy case of TWA, as amended and revised to date, Pichin became
the sponsor directly liable for minimum funding obligations of the pension plans
for TWA employees (the 'TWA Plans'), which TWA Plans had theretofore been
frozen. As a member of the Controlled Group (which includes Pichin), AREP would
be jointly and severally liable, together with all the other entities in the
Controlled Group, for minimum funding obligations applicable with respect to the
TWA Plans. Effective as of January 1, 2001, pursuant to the Settlement, the
PBGC, at Pichin's request, terminated the TWA Plans. Upon termination of the TWA
Plans, the Settlement provides that termination payments are limited to $30
million per year for eight years commencing eighteen months after the
termination and the PBGC's recourse for those termination payments is limited to
collateral pledged to secure those payments.

The current underfunded status of the ACF Pension Plans requires ACF and
Pichin to notify the PBGC of certain corporate transactions that are deemed to
be 'reportable events' under ERISA. Such reportable events include, among other
things, any transaction which would result in a Controlled Group member's
leaving the Controlled Group, and certain extraordinary dividends and stock
redemptions. Thus, any transaction in which AREP would cease to be a member of
the Controlled Group and certain extraordinary distributions and redemptions
with respect to the Units would be among those that would have to be reported to
the PBGC.

III-5

Starfire Holding Corporation, a Delaware corporation ('Starfire'), which is
directly 100% owned by Icahn, has undertaken to indemnify AREP from losses
resulting from any imposition of termination or minimum funding liabilities on
AREP or its assets. The Starfire indemnity provides, among other things, that so
long as such contingent liabilities exist and could be imposed on AREP, Starfire
will not make any distributions to its stockholders that would reduce its net
worth to below $250 million.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

RELATED TRANSACTIONS WITH THE GENERAL PARTNER AND ITS AFFILIATES

On December 27, 2001, AREP entered into a transaction with Carl C. Icahn,
Chairman of the Board of the General Partner, pursuant to which AREP made a
two-year $250 million loan to Mr. Icahn, secured by securities consisting of
(i) $250 million aggregate market value of AREP's units owned by Mr. Icahn
(approximately 21.1 million depositary units and 7.7 million preferred units)
and (ii) shares of a private company owned by Mr. Icahn, which shares were
represented to have an aggregate book value of at least $250 million, together
with an irrevocable proxy on sufficient additional shares of the private company
so that the pledged shares and the shares covered by the proxy equal in excess
of 50% of the private company's shares. The private company owns other Icahn
investments and does not own AREP units. The loan bears interest at a per annum
rate equal to the greater of (i) 3.9% and (ii) 200 basis points over 90 day
LIBOR to be reset each calendar quarter. Accrued interest income of
approximately $135,000 has been recorded on this loan at December 31, 2001. The
loan must be prepaid in an amount of up to $125 million to the extent that AREP
requests such funds for an investment opportunity and may be prepaid at any time
by Mr. Icahn. The terms of this transaction were reviewed and approved by the
Audit Committee. See Item 1 -- 'Recent Acquisitions/Investments' for a
discussion of this investment.

In March 2000, AREP acquired approximately an additional 2% interest in the
Stratosphere Tower, Casino and Hotel ('Stratosphere') from affiliates of
Mr. Icahn for approximately $2 million, giving it an aggregate interest in
Stratosphere of approximately 51%. In February 2002 AREP entered into a merger
agreement with Stratosphere whereby AREP would purchase all of the remaining
interests in Stratosphere that it does not currently own from affiliates of
Icahn and public shareholders for approximately $44.3 million. In addition, AREP
has provided, approximately $85 million in secured financing to Stratosphere.
The terms of each of the Stratosphere purchases and the Stratosphere financing
were reviewed and approved by the Audit Committee. See Item 1. 'Recent
Acquisitions/Investments' for a discussion of AREP's investments in
Stratosphere.

In accordance with a prior agreement, in March, 2000, AREP transferred its
interests in the Sands Hotel and Casino and the Claridge Hotel and Casino to an
affiliate of the General Partner and received approximately $40.5 million
therefore, however, as noted above, the transfer is subject to AREP's right and
obligation to repurchase such interests in the event that it obtains the proper
gaming license in New Jersey. At December 31, 2001, this obligation is
approximately $68.8 million representing the initial receipt ($40.5 million),
net advances ($18.5 million) and accrued interest ($9.8 million). This
transaction was reviewed and approved by the Audit Committee. See Item
1 -- 'Recent Acquisitions/Investments' for a discussion of AREP's investments in
the Sands Hotel and Casino and its previous investment in the Claridge Hotel and
Casino.

Icahn, in his capacity as majority Unitholder, will not receive any
additional benefit with respect to distributions and allocations of profits and
losses not shared on a pro rata basis by all other Unitholders. In addition,
Icahn has confirmed to AREP that neither he nor any of his affiliates will
receive any fees from AREP in consideration for services rendered in connection
with non-real estate related investments by AREP such as advice to purchase and
sell RJR shares which generated approximately $29 million of profits for AREP in
each of 1997 and 1999. AREP may determine to make investments in which Icahn or
his affiliates have independent investments in such assets; in addition, AREP
may enter into other transactions with the General Partner and its affiliates,
including, without limitation, buying and selling assets from or to the General
Partner or its affiliates and participating in joint venture investments in
assets with the General Partner or its affiliates, whether real estate or
non-real estate related, provided the terms of all such transactions are fair
and reasonable to AREP. Furthermore, it should be noted that the Partnership
Agreement provides that the General Partner and its affiliates are permitted to
have other business interests and may engage in other business ventures of any
nature

III-6

whatsoever, and may compete directly or indirectly with the business of AREP.
Icahn and his affiliates currently invest in and perform investment management
services with respect to assets that may be similar to those AREP may invest in
and intend to continue to do so; pursuant to the Partnership Agreement, however,
AREP shall not have any right to participate therein or receive or share in any
income or profits derived therefrom.

For the years ended December 31, 2001 and 2000, AREP made no payments with
respect to the Depositary Units owned by the General Partner. However, in 2000
and 2001 the General Partner was allocated approximately $1,475,000 and
approximately $1,344,000 respectively, of the net earnings of AREP as a result
of its 1.99% general partner interest in AREP.

On March 31, 2001, Icahn received 366,143 Preferred Units as part of AREP's
scheduled annual preferred unit distribution and is expected to receive an
additional 384,450 Preferred Units in March 2002 as part of such scheduled
annual preferred unit distribution.

In 1997 AREP entered into a license agreement for a portion of office space
from an affiliate of the General Partner. The license agreement dated as of
February 1, 1997 expires May 22, 2004 unless sooner terminated in accordance
with the agreement. Pursuant to the license agreement, AREP has the
non-exclusive use of approximately 3,547 square feet of office space and common
areas (of an aggregate 21,123 rentable square feet sublet by such affiliate) for
which it pays $17,436.20 per month, together with 16.79% of certain 'additional
rent.' In November, 2000, AREP reduced its office size to approximately 2,275
square feet, which decreased its monthly rental to $11,185 plus 10.77% of
certain 'additional rent.' In 2001, AREP paid an affiliate of the General
Partner $147,120 of rent in connection with this licensing agreement. The terms
of such license agreement were reviewed and approved by the Audit Committee.

For the year ended December 31, 2001, Stratosphere billed affiliates of the
General Partner approximately $1,343,000 for administrative services performed
by Stratosphere personnel.

Also in 2001, Stratosphere received hotel revenue of approximately $600,000
in connection with a tour and travel agreement entered into with an affiliate of
the General Partner.

PROPERTY MANAGEMENT AND OTHER RELATED TRANSACTIONS

The General Partner and its affiliates may receive fees in connection with
the acquisition, sale, financing, development, construction, marketing and
management of new properties acquired by AREP. As development and other new
properties are acquired, developed, constructed, operated, leased and financed,
the General Partner or its affiliates may perform acquisition functions,
including the review, verification and analysis of data and documentation with
respect to potential acquisitions, and perform development and construction
oversight and other land development services, property management and leasing
services, either on a day-to-day basis or on an asset management basis, and may
perform other services and be entitled to fees and reimbursement of expenses
relating thereto, provided the terms of such transactions are fair and
reasonable to AREP in accordance with the Partnership Agreement and customary to
the industry. It is not possible to state precisely what role, if any, the
General Partner or any of its affiliates may have in the acquisition,
development or management of any new investments. Consequently, it is not
possible to state the amount of the income, fees or commissions the General
Partner or its affiliates might be paid in connection therewith since the amount
thereof is dependent upon the specific circumstances of each investment,
including the nature of the services provided, the location of the investment
and the amount customarily paid in such locality for such services. However,
Unitholders may expect that, subject to the specific circumstances surrounding
each transaction and the overall fairness and reasonableness thereof to AREP,
the fees charged by the General Partner and its affiliates for the services
described below generally will be within the ranges set forth below:

Property Management and Asset Management Services. To the extent that AREP
acquires any properties requiring active management (e.g., operating
properties that are not net-leased) or asset management services, including
on site services, it may enter into management or other arrangements with
the General Partner or its affiliates. Generally, it is contemplated that
under property management arrangements, the entity managing the property
would receive a property management fee (generally 3% to 6% of gross
rentals for direct management, depending upon the location) and under asset
management arrangements, the entity managing the asset would

III-7

receive an asset management fee (generally .5% to 1% of the appraised value
of the asset for asset management services, depending upon the location) in
payment for its services and reimbursement for costs incurred.

Brokerage and Leasing Commissions. AREP also may pay affiliates of the
General Partner real estate brokerage and leasing commissions (which
generally may range from 2% to 6% of the purchase price or rentals
depending on location; this range may be somewhat higher for problem
properties or lesser-valued properties).

Lending Arrangements. The General Partner or its affiliates may lend money
to, or arrange loans for, AREP. Fees payable to the General Partner or its
affiliates in connection with such activities include mortgage brokerage
fees (generally .5% to 3% of the loan amount), mortgage origination fees
(generally .5% to 1.5% of the loan amount) and loan servicing fees
(generally .10% to .12% of the loan amount), as well as interest on any
amounts loaned by the General Partner or its affiliates to AREP.

Development and Construction Services. The General Partner or its
affiliates may also receive fees for development services, generally 1% to
4% of development costs, and general contracting services or construction
management services, generally 4% to 6% of construction costs.

AREP may also enter into other transactions with the General Partner and its
affiliates, including, without limitation, buying and selling properties and
borrowing and lending funds from or to the General Partner or its affiliates,
joint venture developments and issuing securities to the General Partner or its
affiliates in exchange for, among other things, assets that they now own or may
acquire in the future, provided the terms of such transactions are fair and
reasonable to AREP. The General Partner is also entitled to reimbursement by
AREP for all allocable direct and indirect overhead expenses (including, but not
limited to, salaries and rent) incurred in connection with the conduct of AREP's
business.

In addition, employees of AREP may, from time to time, provide services to
affiliates of the General Partner, with AREP being reimbursed therefor.
Reimbursement to AREP by such affiliates in respect of such services is subject
to review and approval by the Audit Committee. In 2001, there were no such
amounts. Finally, an affiliate of the General Partner provided certain
administrative services to AREP in the amount of approximately $73,300 in 2001.

The Audit Committee meets on an annual basis, or more often if necessary, to
review any conflicts of interest which may arise, including the payment by AREP
of any fees to the General Partner or any of its affiliates. The General Partner
and its affiliates may not receive duplicative fees.

The functions of AREP's Audit Committee as set forth in the Partnership
Agreement include (i) the review of AREP's financial and accounting policies and
procedures, (ii) the review of the results of audits of the books and records of
AREP made by AREP's outside auditors, (iii) the review of allocations of
overhead expenses in connection with the reimbursement of expenses to the
General Partner and its affiliates, and (iv) the review and approval of related
party transactions and conflicts of interest in accordance with the terms of the
Partnership Agreement.

Pursuant to the Rules of the New York Stock Exchange ('NYSE'), on June 14,
2001, AREP approved and adopted its Audit Committee Charter. On June 12, 2001,
AREP appointed James L. Nelson as the independent director to the Board of
Directors of the General Partner who, along with Messrs. Leidesdorf and
Wasserman, comprise the Audit Committee.

The Audit Committee, has confirmed that: (i) the Audit Committee reviewed
and discussed AREP's 2001 audited financial statements with management,
(ii) the Audit Committee has discussed with AREP's independent auditors the
matters required to be discussed by SAS 61 (Codification of Statements on
Auditing Standards, AU 'SS'380), (iii) the Audit Committee has received the
written disclosures and the letter from the independent accountants required by
Independence Standards Board Standard No. 1, and (iv) based on the review and
discussions referred to in clauses (i), (ii) and (iii) above, the Audit
Committee recommended to the Board of Directors that AREP's 2001 audited
financial statements be included in this Annual Report on Form 10-K.

III-8

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)(1) Financial Statements:

The following financial statements of American Real Estate Partners, L.P.
are included in Part II, Item 8:

PAGE
NUMBER
------

Independent Auditors' Reports............................... II-11-11a
Consolidated Balance Sheets -- December 31, 2001 and 2000... II-12
Consolidated Statements of Earnings -- Years ended
December 31, 2001, 2000, and 1999......................... II-13
Consolidated Statements of Changes in Partners' Equity and
Comprehensive Income -- Years ended December 31, 2001,
2000, and 1999............................................ II-14
Consolidated Statements of Cash Flows -- Years ended
December 31, 2001, 2000 and 1999.......................... II-15
Notes to Consolidated Financial Statements.................. II-16 - 34

(a)(2) Financial Statement Schedules:

Schedule III--Real Estate Owned and Revenues Earned (by tenant or
guarantor, as applicable) ........................... IV-15

All other Financial Statement schedules have been omitted because the
required financial information is not applicable or the information is shown in
the Financial Statements or Notes thereto.

(a)(3) Exhibits:

1.3 -- Certificate of Limited Partnership of AREP, dated February 17, 1987 (filed as Exhibit
No. 3.1 to AREP's Annual Report on Form 10-K for the year ended December 31, 1987
and incorporated herein by reference).

3.2 -- Amended and Restated Agreement of Limited Partnership of AREP, dated as of May 12,
1987 (filed as Exhibit No. 3.2 to AREP's Annual Report on Form 10-K for the year ended
December 31, 1987 and incorporated herein by reference).
3.3 -- Amendment No. 1 to the Amended and Restated Agreement of Limited Partnership of AREP
(filed as Exhibit 3.3 to AREP's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference).
3.4 -- Certificate of Limited Partnership of American Real Estate Holdings Limited
Partnership (the 'Subsidiary'), dated February 17, 1987, and amendment thereto, dated
March 12, 1987 (filed as Exhibit No. 3.3 to AREP's Annual Report on Form 10-K for the
year ended December 31, 1987 and incorporated herein by reference).
3.5 -- Amended and Restated Agreement of Limited Partnership of the Subsidiary, dated as of
July 1, 1987 (filed as Exhibit No. 3.4 to AREP's Annual Report on Form 10-K for the
year ended December 31, 1987 and incorporated herein by reference).
4.1 -- Depositary Agreement among AREP, the General Partner and Registrar and Transfer
Company, dated as of July 1, 1987 (filed as Exhibit No. 4.1 to AREP's Annual Report on
Form 10-K for the year ended December 31, 1987 and incorporated herein by reference).
4.2 -- Amendment No. 1 to the Depositary Agreement (filed as Exhibit 4.2 to AREP's Annual
Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by
reference).
4.3 -- Specimen Depositary Receipt (filed as Exhibit No. 4.2 to AREP's Annual Report on
Form 10-K for the year ended December 31, 1987 and incorporated herein by reference).
4.4 -- Form of Transfer Application (filed as Exhibit No. 4.3 to AREP's Annual Report on
Form 10-K for the year ended December 31, 1987 and incorporated herein by reference).

IV-1

4.5 -- Specimen Certificate representing Preferred Units (filed
as Exhibit No. 4.9 to AREP's Registration Statement on
Form S-3 (Registration No. 33-54767) and incorporated
herein by reference).
10.1 -- Nonqualified Unit Option Plan (filed as Exhibit No. 10.1
to AREP's Annual Report on Form 10-K for the year ended
December 31, 1987 and incorporated herein by reference).
10.2 -- Distribution Reinvestment Plan (filed as Exhibit
No. 10.3 to AREP's Annual Report on Form 10-K for the year
ended December 31, 1987 and incorporated herein by
reference).
10.10 -- Subscription Guaranty Agreement between AREP and High
Coast Limited Partnership (the 'Guarantor') (filed as
Exhibit 4.10 to AREP's Registration Statement on Form S-3
(Registration No. 33-54767) and incorporated herein by
reference).
10.11 -- Registration Rights Agreement between AREP and the
Guarantor (filed as Exhibit 4.11 to AREP's Registration
Statement on Form S-3 (Registration No. 33-54767) and
incorporated herein by reference).
10.12 -- Amended and Restated Agency Agreement (filed as Exhibit
10.12 to AREP's Annual Report on Form 10-K for the year
ended December 31, 1994 and incorporated herein by
reference).
10.13 -- Subscription Agent Agreement (filed as Exhibit 10.13 to
AREP's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference).
10.14 -- Subscription Guaranty Agreement between AREP and the
Guarantor (filed as Exhibit 4.10 to Amendment No. 1 to
AREP's Registration Statement on Form S-3 (Registration
No. 333-31561) and incorporated herein by reference).
10.15 -- Registration Rights Agreement between AREP and the
Guarantor (filed as Exhibit 4.11 to Amendment No. 1 to
AREP's Registration Statement on Form S-3 (Registration
No. 333-31561) and incorporated herein by reference).
10.16 -- Subscription Agent Agreement filed as Exhibit 99.1 to
AREP's Registration Statement on Form S-3 (Registration
No. 333-31561) and incorporated herein by reference).
10.17 -- Note dated December 27, 2001 from Carl Icahn to American
Real Estate Holdings, L.P. in the amount of $250 million
(attached hereto).
10.18 -- Pledge Agreement dated December 27, 2001 between American
Real Estate Holdings, L.P. and Carl Icahn (attached
hereto).
10.19 -- Accommodation Pledge Agreement dated December 27, 2001,
between American Real Estate Holdings, L.P. and various
pledgors (attached hereto).
16 -- Letter dated September 27, 1991 of Deloitte & Touche
regarding change in accountants (filed as Exhibit No. A to
AREP's Current Report on Form 8-K dated October 3, 1991
and incorporated herein by reference).
22 -- List of Subsidiaries (filed as Exhibit No. 22 to AREP's
Annual Report on Form 10-K for the year ended
December 31, 1987 and incorporated herein by reference).
99.1 -- Audit Committee Charter filed with the NYSE on June 14,
2000.

(b) Reports on Form 8-K:

(1) A Form 8-K was filed on December 28, 2001 regarding a $250 million
secured loan to Carl C. Icahn.

IV-2

SIGNATURES

Pursuant to the requirements of Section 13 or 15(a) of the Securities
Exchange Act of 1934, AREP has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 29th day of March,
2002.

AMERICAN REAL ESTATE PARTNERS, L.P.

By: AMERICAN PROPERTY INVESTORS, INC.
General Partner

By: /S/ CARL C. ICAHN
..................................
CARL C. ICAHN
CHAIRMAN OF THE BOARD

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of AREP and in
the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

March 29, 2002
/S/ CARL C. ICAHN Chairman of the Board (Principal
........................................... Executive Officer)
(CARL C. ICAHN)

/S/ WILLIAM A. LEIDESDORF Director March 29, 2002
.........................................
(WILLIAM A. LEIDESDORF)

/S/ JAMES L. NELSON Director March 29, 2002
.........................................
(JAMES L. NELSON)

/S/ JACK G. WASSERMAN Director March 29, 2002
.........................................
(JACK G. WASSERMAN)

/S/ JOHN P. SALDARELLI Treasurer (Principal Financial March 29, 2002
......................................... Officer and Principal Accounting
(JOHN P. SALDARELLI) Officer)

AMERICAN REAL ESTATE PARTNERS, L.P.
FORM 10K SIGNATURE PAGE

IV-3

SCHEDULE III

IV-4

AMERICAN REAL ESTATE PARTNERS, LP
A LIMITED PARTNERSHIP
SCHEDULE III
PAGE 1
REAL ESTATE OWNED AND REVENUES EARNED

NO. OF AMOUNT OF
STATE LOCATIONS ENCUMBRANCES
----- --------- ------------

COMMERCIAL PROPERTY LAND AND BUILDING:
Acme Markets, Inc.
and FPBT of Penn. PA 1
Alabama Power Company AL 5
Amer Stores, Eckerd &
Marburn NJ 1
Atrium VA 1 $19,275,886
Best Products Co.,
Inc. VA 1
Caldor, Inc. MA 1
Chesebrough-Pond's
Inc. CN 1
Chomerics, Inc. MA 1
Collins Foods Inter-
national, Inc. OR 3
Collins Foods Inter-
national, Inc. CA 1
Dillon Companies,
Inc. MO 1
Duke Power Co. NC 1
European American
Bank and Trust Co. NY 1
Farwell Bldg. MN 1
Federated Department
Stores, Inc. CA 1
First National Su-
permarkets, Inc. CT 1 5,824,581
First Union National
Bank NC 1
Fisher Scientific
Company IL 1
Forte Hotels Interna-
tional, Inc. NJ 1
Fox Grocery Company WV 1
Gino's, Inc. MO 1
Gino's, Inc. OH 1
Golf Road IL 1 6,869,831
Grand Union Co. MD 1
Grand Union Co. NY 1
Grand Union Co. VA 1
Whalen NY 1
Gunite IN 1
G.D. Searle & Co. IL 1
G.D. Searle & Co. MN 1
G.D. Searle & Co. IL 1
G.D. Searle & Co. TN 1
Integra A Hotel and
Restaurant Co. AL 2
Integra A Hotel and
Restaurant Co. IL 1
Integra A Hotel and
Restaurant Co. IN 1
Integra A Hotel and
Restaurant Co. OH 1

PART 1 -- REAL ESTATE OWNED AT DECEMBER 31, 2001 -- ACCOUNTED FOR UNDER THE:
--------------------------------------------------------------------------------------------------------
OPERATING METHOD FINANCING METHOD
------------------------------------------------------------------------- ----------------------------
RENT DUE MINIMUM
AND ACCRUED LEASE PAYMENTS
AMOUNT OR RECEIVED DUE AND
CARRIED AT IN ADVANCE ACCRUED AT
INITIAL COST COST OF IM- CLOSE OF RESERVE FOR AT END OF NET END OF
TO COMPANY PROVEMENTS PERIOD DEPRECIATION PERIOD INVESTMENT PERIOD
-------------- ------------ ------------ ------------ ----------- ------------ -------------

COMMERCIAL PROPERTY LAND AND BUILDING:
Acme Markets, Inc.
and FPBT of Penn. $ 2,004,393 $ 2,004,393 $1,539,446 $ 0
Alabama Power Company $ 5,910,867
Amer Stores, Eckerd &
Marburn 2,045,641 2,045,641 1,596,687
Atrium 27,573,079 $152,842 27,725,921 1,060,099
Best Products Co.,
Inc. 3,303,553 3,303,553
Caldor, Inc.
Chesebrough-Pond's
Inc. 1,549,805 1,549,805 1,173,088
Chomerics, Inc. 5,112,503 $ 174,371
Collins Foods Inter-
national, Inc. 250,812 250,812 8,176
Collins Foods Inter-
national, Inc. 134,253 134,253 4,644
Dillon Companies,
Inc. 546,681 546,681 361,222
Duke Power Co. 3,464,225 3,464,225 114,705
European American
Bank and Trust Co. 1,355,210 1,355,210 1,284,888
Farwell Bldg. 5,081,105 5,081,105 2,092,609
Federated Department
Stores, Inc.
First National Su-
permarkets, Inc. 21,347,372
First Union National
Bank

Fisher Scientific
Company 597,806 597,806 232,149
Forte Hotels Interna-
tional, Inc. 5,770,976
Fox Grocery Company 2,572,570
Gino's, Inc.
Gino's, Inc. 314,012 314,012 11,207
Golf Road 9,288,263 9,288,263 948,428
Grand Union Co.
Grand Union Co. 874,765 874,765 41,636
Grand Union Co. 266,468 266,468 193,314
Whalen 7,934,020 7,934,020
Gunite 1,134,565 1,134,565 1,065,034
G.D. Searle & Co.
G.D. Searle & Co. 339,358 339,358 164,814
G.D. Searle & Co. 323,559 323,559 241,548
G.D. Searle & Co.
Integra A Hotel and
Restaurant Co. 245,625 245,625 818,115
Integra A Hotel and
Restaurant Co. 198,392 198,392 182,694
Integra A Hotel and
Restaurant Co. 231,513 231,513 346,301
Integra A Hotel and
Restaurant Co. 249,139

PART 2 -- REVENUES EARNED FOR THE
YEAR ENDED DECEMBER 31, 2001
------------------------------------------
EXPENDED
TOTAL FOR
REVENUE INTEREST,
APPLICABLE TAXES, NET INCOME
TO REPAIRS AND APPLICABLE
PERIOD EXPENSES TO PERIOD
------------ ------------- -----------

COMMERCIAL PROPERTY LAND AND BUILDING:
Acme Markets, Inc.
and FPBT of Penn. $ 255,510 $ 145,286 $ 110,224
Alabama Power Company 653,186 896 652,290
Amer Stores, Eckerd &
Marburn 558,873 40,292 518,581
Atrium 3,903,214 3,134,227 768,987
Best Products Co.,
Inc. 175,956 (175,956)
Caldor, Inc. (101) 101
Chesebrough-Pond's
Inc. 141,236 9,134 132,102
Chomerics, Inc. 665,398 37,741 627,657
Collins Foods Inter-
national, Inc. 32,489 4,713 27,776
Collins Foods Inter-
national, Inc. 17,646 2,717 14,929
Dillon Companies,
Inc. 41,555 12,756 28,799
Duke Power Co. 686,781 143,778 543,003
European American
Bank and Trust Co. 175,000 175,000
Farwell Bldg. 1,117,476 290,301 827,175
Federated Department
Stores, Inc. 433 (433)
First National Su-
permarkets, Inc. 1,990,390 1,038,525 951,865
First Union National
Bank 0 71,060 (71,060)
Fisher Scientific
Company 163,000 22,527 140,473
Forte Hotels Interna-
tional, Inc. 530,582 51 530,531
Fox Grocery Company 246,966 38,959 208,007
Gino's, Inc. 23,762 (23,762)
Gino's, Inc. 51,733 5,604 46,129
Golf Road 945,083 749,565 195,518
Grand Union Co. 5,625 3,874 1,751
Grand Union Co. 108,000 21,760 86,240
Grand Union Co. 24,150 3,768 20,382
Whalen 28,200 506,426 (478,226)
Gunite 242,486 1,254 241,232
G.D. Searle & Co. 0 7,764 (7,764)
G.D. Searle & Co. 37,000 2,562 34,438
G.D. Searle & Co. 45,310 4,757 40,553
G.D. Searle & Co. 0 322 (322)
Integra A Hotel and
Restaurant Co. 177,243 3,151 174,092
Integra A Hotel and
Restaurant Co. 86,878 241 86,637
Integra A Hotel and
Restaurant Co. 97,045 252 96,793
Integra A Hotel and
Restaurant Co. 43,789 266 43,523

NO. OF AMOUNT OF
STATE LOCATIONS ENCUMBRANCES
----- --------- ------------

Integra A Hotel and
Restaurant Co. MO 1
Integra A Hotel and
Restaurant Co. TX 1
Integra A Hotel and
Restaurant Co. MI 1
Intermountain Color KY 1
J.C. Penney Company,
Inc. MA 1
K-Mart Corporation LA 1
K-Mart Corporation WI 1
K-Mart Corporation MN 1 345,000
K-Mart Corporation FL 1
K-Mart Corporation IA 1
K-Mart Corporation FL 2
K-Mart Corporation IL 1 70,364
Kobacker Stores, Inc. MI 2
Kobacker Stores, Inc. KY 1
Kobacker Stores, Inc. OH 4
Landmark Bancshares
Corporation MO 1
Levitz Furniture Cor-
poration NY 1
Louisiana Power and
Light Company LA 6
Louisiana Power and
Light Company LA 7
Marsh Supermarkets,
Inc. IN 1
Montgomery Ward, Inc. PA 1
Montgomery Ward, Inc. NJ 1
Morrison, Inc. AL 1
Morrison, Inc. GA 1
Morrison, Inc. FL 1
Morrison, Inc. VA 2
North Carolina
National Bank SC 2
Occidental Petroleum
Corp. CA 1
Ohio Power Co. Inc. OH 1
Park West KY 1 12,076,815
Park West UPS KY 1 18,382,280

Integra A Hotel and
Restaurant Co. 224,837 224,837 190,051
Integra A Hotel and
Restaurant Co. 228,793 228,793 251,207
Integra A Hotel and
Restaurant Co. 234,464 234,464 307,841
Intermountain Color 560,444 560,444 518,438
J.C. Penney Company,
Inc. 2,484,262 2,484,262 1,906,311
K-Mart Corporation
K-Mart Corporation
K-Mart Corporation
K-Mart Corporation
K-Mart Corporation 1,173,939
K-Mart Corporation 2,636,000 2,636,000 1,873,515 1,526,653
K-Mart Corporation
Kobacker Stores, Inc. 112,225 112,225 154,580
Kobacker Stores, Inc. 88,364 88,364 82,551
Kobacker Stores, Inc. 298,496 298,496 367,114
Landmark Bancshares
Corporation 4,060,518
Levitz Furniture Cor-
poration 988,463 988,463 1,559,685
Louisiana Power and
Light Company 5,485,848 5,485,848 177,499
Louisiana Power and
Light Company 6,984,806 6,984,806 203,780
Marsh Supermarkets,
Inc. 5,001,933 5,001,933 2,834,601
Montgomery Ward, Inc. 3,289,166 3,289,166 2,261,797
Montgomery Ward, Inc. 1,309,134
Morrison, Inc. 324,288 324,288 543,330
Morrison, Inc. 347,404 347,404 514,015
Morrison, Inc. 375,392 375,392 553,892
Morrison, Inc. 363,059 363,059 1,431,228
North Carolina
National Bank 1,450,047 1,450,047 596,860
Occidental Petroleum
Corp.
Ohio Power Co. Inc. 3,514,744
Park West 19,099,418 99,878 19,199,296 1,858,333
Park West UPS 21,109,367 21,109,367 1,561,935

Integra A Hotel and
Restaurant Co. 81,763 432 81,331
Integra A Hotel and
Restaurant Co. 102,353 128 102,225
Integra A Hotel and
Restaurant Co. 109,430 109,430
Intermountain Color 91,948 53,277 38,671
J.C. Penney Company,
Inc. 250,244 79,496 170,748
K-Mart Corporation 125,363 125,363
K-Mart Corporation 151,850 129,675 22,175
K-Mart Corporation 128,357 30,112 98,245
K-Mart Corporation 98,046 70,640 27,406
K-Mart Corporation 111,678 209 111,469
K-Mart Corporation 475,637 13,226 462,411
K-Mart Corporation 64,592 8,880 55,712
Kobacker Stores, Inc. 18,311 1,932 16,379
Kobacker Stores, Inc. 17,564 6,638 10,926
Kobacker Stores, Inc. 37,806 37,806
Landmark Bancshares
Corporation 576,513 433 576,080
Levitz Furniture Cor-
poration 281,725 1,800 279,925
Louisiana Power and
Light Company 1,199,124 157,213 1,041,911
Louisiana Power and
Light Company 1,299,275 179,791 1,119,484
Marsh Supermarkets,
Inc. 525,823 131,732 394,091
Montgomery Ward, Inc. 314,280 16,989 297,291
Montgomery Ward, Inc. 165,835 3,865 161,970
Morrison, Inc. 113,634 100 113,534
Morrison, Inc. 114,238 114,238
Morrison, Inc. 121,556 342 121,214
Morrison, Inc. 234,349 1,082 233,267
North Carolina
National Bank 107,801 37,520 70,281
Occidental Petroleum
Corp. 47,774 (47,774)
Ohio Power Co. Inc. 330,951 330,951
Park West 1,783,989 1,425,784 358,205
Park West UPS 1,861,248 1,783,323 77,925

IV-5

AMERICAN REAL ESTATE PARTNERS, LP
A LIMITED PARTNERSHIP
SCHEDULE III
PAGE 2

REAL ESTATE OWNED AND REVENUES EARNED

NO. OF AMOUNT OF
STATE LOCATIONS ENCUMBRANCES
----- --------- ------------

Penske
Corp. OH
Pneumo Corp. OH 1 $ 94,156
Portland General
Electric Company OR 1 38,422,016
Rayovac WI 1 15,780,970
Rouse Company MD 1 1,459,386
Safeway Stores, Inc. LA 1
Sams MI 1
Smith's Management
Corp. NV 1 220,035
Southland Corporation FL 5
Staples NY 1
Stone Container WI 1 6,055,019
Stop & Shop NY 1
Stop & Shop NJ 1
Stop 'N Shop Co.,
Inc. VA 1 121,830
Super Foods Services,
Inc. MI 1 5,226,113
SuperValu Stores,
Inc. MN 1
SuperValu Stores,
Inc. OH 1
SuperValu Stores,
Inc. GA 1
SuperValu Stores,
Inc. IN 1
Telecom Properties,
Inc. OK 1
Telecom Properties,
Inc. KY 1
The A&P Company MI 1
The TJX Companies,
Inc. IL 1
Tire Distribution
Systems Inc. TN 1
Tops Market NY 1
Toys 'R' Us, Inc. TX 1
USA Petroleum
Corporation GA 1
Waban NY 1
Watkins MO 1
Webcraft Technologies MD 1
Wetterau, Inc. PA 1
Wetterau, Inc. NJ 1
Wickes Companies,
Inc. CA 1
RESIDENTIAL PROPERTY
LAND AND BUILDING:
Crown Cliffs AL 1 7,623,317
COMMERCIAL PROPERTY -- LAND:
Easco Corp. NC 1
Foodarama
supermarkets, Inc. NY 1

Penske
Corp. $ 524,956
Pneumo Corp. 1,702,570
Portland General
Electric Company 48,947,214
Rayovac $22,065,852 $ 22,065,852 $ 1,227,380
Rouse Company 5,446,685
Safeway Stores, Inc. 1,782,885 1,782,885 1,110,946
Sams 8,844,225 8,844,225 2,017,312
Smith's Management
Corp. 719,582
Southland Corporation 1,162,971 1,162,971 708,092
Staples 2,486,744 2,486,744 190,915
Stone Container 9,028,574 9,028,574 807,740
Stop & Shop 900,865 900,865 41,636
Stop & Shop 800,770 800,770 37,011
Stop 'N Shop Co.,
Inc. 2,231,589
Super Foods Services,
Inc. 9,296,554
SuperValu Stores,
Inc. $ 17,519
SuperValu Stores,
Inc.
SuperValu Stores,
Inc. 56,054
SuperValu Stores,
Inc. 70,360
Telecom Properties,
Inc. 90,257 $ 800

Telecom Properties,
Inc. 281,253 281,253 72,164
The A&P Company 1,401,741
The TJX Companies,
Inc. 2,207,366
Tire Distribution
Systems Inc. 120,946 120,946 75,200
Tops Market 262,357 262,357 12,125
Toys 'R' Us, Inc. 1,519,018 1,519,018
USA Petroleum
Corporation
Waban 8,478,012 8,478,012 945,808
Watkins 993,689 993,689 167,044
Webcraft Technologies
Wetterau, Inc.
Wetterau, Inc. 747,116
Wickes Companies,
Inc. 700,333 700,333 152,987
RESIDENTIAL PROPERTY
LAND AND BUILDING:
Crown Cliffs 11,188,905 $227,806 11,416,711(1) 2,851,163
COMMERCIAL PROPERTY -
Easco Corp. 157,560 157,560 35,394
Foodarama
supermarkets, Inc. 140,619 140,619

Penske
Corp. $ 106,644 $ 266 $ 106,378
Pneumo Corp. 171,588 20,086 151,502
Portland General
Electric Company 4,237,114 3,074,193 1,162,921
Rayovac 1,996,567 1,800,496 196,071
Rouse Company 487,652 179,350 308,302
Safeway Stores, Inc. 85,150 11,974 73,176
Sams 1,150,715 161,385 989,330
Smith's Management
Corp. 65,398 22,819 42,579
Southland Corporation 140,331 5,277 135,054
Staples 332,438 102,244 230,194
Stone Container 850,955 694,625 156,330
Stop & Shop 101,250 22,180 79,070
Stop & Shop 96,000 18,967 77,033
Stop 'N Shop Co.,
Inc. 273,298 49,464 223,834
Super Foods Services,
Inc. 995,097 467,642 527,455
SuperValu Stores,
Inc. 114,885 29,389 85,496
SuperValu Stores,
Inc. (222,359) 66,693 (289,052)
SuperValu Stores,
Inc. 224,215 48,769 175,446
SuperValu Stores,
Inc. 198,814 46,790 152,024
Telecom Properties,
Inc. 2,254 3,078 (824)
Telecom Properties,
Inc. 34,920 11,325 23,595
The A&P Company 149,671 149,671
The TJX Companies,
Inc. 189,189 241 188,948
Tire Distribution
Systems Inc. 12,100 143 11,957
Tops Market 31,453 6,524 24,929
Toys 'R' Us, Inc. 44,878 100,882 (56,004)
USA Petroleum
Corporation 2,117 2,553 (436)
Waban 733,424 117,864 615,560
Watkins 121,800 22,693 99,107
Webcraft Technologies 0 89,296 (89,296)
Wetterau, Inc. 0 76,603 (76,603)
Wetterau, Inc. 150,800 50 150,750
Wickes Companies,
Inc. 145,451 34,024 111,427
RESIDENTIAL PROPERTY
LAND AND BUILDING:
Crown Cliffs 1,849,667 1,817,672 31,995
COMMERCIAL PROPERTY -
Easco Corp. 0 3,488 (3,488)
Foodarama
supermarkets, Inc. 16,800 16,800

NO. OF AMOUNT OF
STATE LOCATIONS ENCUMBRANCES
----- --------- ------------

Foodarama
supermarkets, Inc. PA 1
Gino's, Inc. PA 1
Gino's, Inc. MA 1
Gino's, Inc. NJ 1
J.C. Penney Company,
Inc. NY 1
COMMERCIAL PROPERTY -- BUILDING:
AT&T CA 1
Bank South GA 1
Baptist Hospital 1 TN 1 21,121,545
Baptist Hospital 2 TN 1 7,839,353
Harwood Square IL 1
Safeway Stores, Inc. CA 1
Toys 'R' Us, Inc. RI 1
United Life &
Accident Ins. Co. NH 1
Wickes Companies,
Inc. PA 1
-----------
166,808,497
-----------

Foodarama
supermarkets, Inc. 112,554 112,554
Gino's, Inc. 36,271 36,271
Gino's, Inc. 50,904 50,904
Gino's, Inc. 61,050 61,050
J.C. Penney Company,
Inc. 51,009 51,009
COMMERCIAL PROPERTY -
AT&T 2,362,828 175,684 2,538,512
Bank South 3,186,478
Baptist Hospital 1 24,108,201 1,105,517
Baptist Hospital 2 8,974,982 410,319
Harwood Square 6,909,821 6,909,821 3,788,495
Safeway Stores, Inc. 558,652 558,652 558,652
Toys 'R' Us, Inc. 889,483
United Life &
Accident Ins. Co. 3,645,959
Wickes Companies,
Inc. 2,713,432
----------- -------- ------------ ----------- -------- ------------ ----------
221,802,846 656,210 222,459,056 40,619,269 143,933 176,757,348 1,726,401
----------- -------- ------------ ----------- -------- ------------ ----------

Penske
Foodarama
supermarkets, Inc. 14,400 103 14,297
Gino's, Inc. 8,571 473 8,098
Gino's, Inc. 8,571 8,571
Gino's, Inc. 8,571 8,571
J.C. Penney Company,
Inc. 5,500 5,500
COMMERCIAL PROPERTY -
AT&T 333,948 316,009 17,939
Bank South 328,628 94,075 234,553
Baptist Hospital 1 1,913,647 1,666,919 246,728
Baptist Hospital 2 710,257 618,685 91,572
Harwood Square 771,525 291,624 479,901
Safeway Stores, Inc. 26,900 64 26,836
Toys 'R' Us, Inc. 85,473 85,473
United Life &
Accident Ins. Co. 312,272 312,272
Wickes Companies,
Inc. 506,262 506,262
----------- ----------- -----------
43,891,928 22,783,969 21,107,959
----------- ----------- -----------

IV-6

AMERICAN REAL ESTATE PARTNERS, LP
A LIMITED PARTNERSHIP
SCHEDULE III
PAGE 3
REAL ESTATE OWNED AND REVENUES EARNED

NO. OF AMOUNT OF
STATE LOCATIONS ENCUMBRANCES
----- --------- ------------

HOTEL AND RESORT OPERATING PROPERTIES:
New Seabury MA
Holiday Inn FL
Bayswater FL
-----------
0
-----------
$166,808,497
-----------
-----------

OPERATING METHOD FINANCING METHOD
------------------------------------------------------------------------- ---------------------------
HOTEL AND RESORT OPERATING
PROPERTIES:
New Seabury $23,704,000 $12,134,000 $ 35,838,000 $ 2,620,901
Holiday Inn 9,581,736 341,695 9,923,431 4,520,297
Bayswater 5,587,885 78,480 5,666,365 296,795
------------ ----------- ------------ ----------- -------- ------------ ----------
38,873,621 12,554,175 51,427,796 7,437,993 0 0 0
------------ ----------- ------------ ----------- -------- ------------ ----------
$260,676,467 $13,210,385 $273,886,852 $48,057,262 $143,933 $176,757,348 $1,726,401
------------ ----------- ------------ ----------- -------- ------------ ----------
------------ ----------- ------------ ----------- -------- ------------ ----------

HOTEL AND RESORT OPERATING PROPERTIES:
New Seabury $ 9,796,905 $10,055,464 $ (258,559)
Holiday Inn 4,142,204 3,914,311 227,893
Bayswater 2,479,000 1,706,000 773,000
----------- ----------- -----------
16,418,109 15,675,775 742,334
----------- ----------- -----------
$60,310,037 $38,459,744 $21,850,293
----------- ----------- -----------
----------- ----------- -----------

IV-7

SCHEDULE III
PAGE 4

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
REAL ESTATE OWNED AND REVENUES EARNED
YEAR ENDED DECEMBER 31, 2001 (IN $000'S)

1a. A reconciliation of the total amount at which real estate owned,
accounted for under the operating method and hotel and resort
operating properties and development properties, was carried at the
beginning of the period, with the total at the close of the period, is
shown below:

Balance -- January 1, 2001.............................. $262,356
Additions during period................................. 14,586
Reclassifications during period from financing leases... 9,755
Write downs............................................. (3,184)
Reclassifications during period to assets held for
sale.................................................... (8,072)
Other reclassifications................................. (1,130)
Disposals during period................................. (424)
--------
Balance -- December 31, 2001............................ $273,887
--------
--------
b. A reconciliation of the total amount of accumulated depreciation at
the beginning of the period, with the total at the close of the
period, is shown below:
Balance -- January 1, 2001.............................. $ 43,471
Depreciation during period.............................. 6,252
Disposals during period................................. (266)
Reclassifications during period to assets held for
sale.................................................... (1,400)
--------
Balance -- December 31, 2001............................ $ 48,057
--------
--------
Depreciation on properties accounted for under the operating method is
computed using the straight-line method over the estimated life of the
particular property or property components, which range from 5 to 45
years.

2. A reconciliation of the total amount at which real estate owned,
accounted for under the financing method, was carried at the beginning
of the period, with the total at the close of the period, is shown
below:
Balance -- January 1, 2001.............................. $193,428
Reclassifications during period to operating
properties.............................................. (9,755)
Disposals during period................................. (71)
Amortization of unearned income......................... 16,935
Minimum lease rentals received.......................... (23,780)
--------
Balance -- December 31, 2001............................ $176,757
--------
--------
3. The aggregate cost of real estate owned for Federal income tax
purposes is $399,813 before accumulated depreciation.

IV-8

SCHEDULE III
PAGE 5

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
REAL ESTATE OWNED AND REVENUES EARNED -- (CONTINUED)
YEAR ENDED DECEMBER 31, 2001 (IN $000'S)

4. Net income applicable to the period in Schedule III is
reconciled with net earnings as follows:
Net income applicable to financing and operating leases
and hotel and resort operating properties............. $ 21,850
Net income applicable to Stratosphere hotel and
casino................................................ 4,628(1)
Net income applicable to land, house and condominium
sales................................................. 12,967
Add:
Interest income on U.S. Government and Agency
Obligations and other investments................. 30,367
Dividend and unallocated other income............... 4,989
Equity in earnings of GB Holdings, Inc.............. 1,807
--------
76,608
--------
Deduct expenses not allocated:
General and administrative expenses................. 7,080
Non-mortgage interest expense....................... 6,227
Other............................................... 619
--------
13,926
--------
Earnings before gain on property and securities transactions
and minority interest....................................... 62,682

Provision for loss on real estate........................... (3,184)
Gain on sale of marketable equity and debt securities....... 6,749
Gain on sale of real estate................................. 1,737
Minority interest in net earnings of Stratosphere
Corporation................................................. (450)
--------
Net earnings................................................ $ 67,534
--------
--------
---------------------------------------------------------------------------

------
(1) Includes depreciation expense

IV-9

SCHEDULE III
PAGE 6

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
REAL ESTATE OWNED AND REVENUES EARNED
YEAR ENDED DECEMBER 31, 2000 (IN $000'S)

Balance -- January 1, 2000.............................. $239,237
Additions during period................................. 32,782
Reclassifications during period from financing leases... 17,274
Less development properties............................. (11,942)
Reclassifications during period to assets held for
sale.................................................... (6,781)
Disposals during period................................. (8,214)
--------
Balance -- December 31, 2000............................ $262,356
--------
--------
b. A reconciliation of the total amount of accumulated depreciation at
the beginning of the period, with the total at the close of the
period, is shown below:
Balance -- January 1, 2000.............................. $ 44,740
Depreciation during period.............................. 6,137
Disposals during period................................. (4,636)
Reclassifications during period to assets held for
sale.................................................... (2,770)
--------
Balance -- December 31, 2000............................ $ 43,471
--------
--------

Depreciation on properties accounted for under the operating method is
computed using the straight-line method over the estimated useful life
of the particular property or property components, which range from 5
to 45 years.

2. A reconciliation of the total amount at which real estate owned,
accounted for under the financing method, was carried at the beginning
of the period, with the total close of the period, is shown below:
Balance -- January 1, 2000.............................. $223,391
Reclassifications during period to operating
properties.............................................. (17,274)
Write downs............................................. (232)
Disposals during period................................. (3,647)
Amortization of unearned income......................... 19,652
Minimum lease rentals received.......................... (27,212)
Reclassifications during period to assets held for
sale.................................................... (1,286)
Additions during period................................. 36
--------
Balance -- December 31, 2000............................ $193,428
--------
--------
3. The aggregate cost of real estate owned for Federal income tax
purposes is $371,227 before accumulated depreciation.

IV-10

SCHEDULE III
PAGE 7

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
REAL ESTATE OWNED AND REVENUES EARNED -- (CONTINUED)
YEAR ENDED DECEMBER 31, 2000 (IN $000'S)

Deduct expenses not allocated:
General and administrative expenses................. 7,475
Nonmortgage interest expense........................ 3,792
Bayswater acquisition costs......................... 1,750
Equity in losses of GB Holdings, Inc................ 2,103
Other............................................... 788
--------
15,908
--------
Earnings before property and securities transactions and
minority interest........................................... 69,024
Provision for loss on real estate........................... (1,351)
Gain on sale of real estate................................. 6,763
Gain on sale of limited partnership interests............... 3,461
Minority interest in net earnings of Stratosphere
Corporation................................................. (2,747)
--------
Net earnings................................................ $ 75,150
--------
--------
---------------------------------------------------------------------------

------
(1) Includes depreciation expense

IV-11

SCHEDULE III
PAGE 8

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
REAL ESTATE OWNED AND REVENUES EARNED
YEAR ENDED DECEMBER 31, 1999 (IN $000'S)

Balance -- January 1, 1999.............................. $212,921
Additions during period................................. 31,602
Reclassifications during period from financing leases... 4,884
Reclassifications during period to construction in
progress................................................ (500)
Reclassifications during period to assets held for
sale.................................................... (3,017)
Disposals during period................................. (6,653)
--------
Balance -- December 31, 1999............................ $239,237
--------
--------
b. A reconciliation of the total amount of accumulated depreciation at
the beginning of the period, with the total at the close of the
period, is shown below:

Balance -- January 1, 1999.............................. $ 41,444
Depreciation during period.............................. 4,982
Disposals during period................................. (1,535)
Reclassifications during period to assets held for
sale.................................................... (151)
--------
Balance -- December 31, 1999............................ $ 44,740
--------
--------

2. A reconciliation of the total amount at which real estate owned,
accounted for under the financing method, was carried at the beginning
of the period, with the total close of the period, is shown below:
Balance -- January 1, 1999.............................. $245,920
Reclassifications during period......................... (4,884)
Write downs............................................. (1,856)
Disposals during period................................. (7,762)
Amortization of unearned income......................... 22,364
Minimum lease rentals received.......................... (30,301)
Other................................................... (90)
--------
Balance -- December 31, 1999............................ $223,391
--------
--------
3. The aggregate cost of real estate owned for Federal income tax
purposes is $364,162 before accumulated depreciation.

IV-12

SCHEDULE III
PAGE 9

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
REAL ESTATE OWNED AND REVENUES EARNED -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 (IN $000'S)

4. Net income applicable to the period in Schedule III is reconciled with
net earnings as follows:
Net income applicable to financing and operating
leases.................................................. $ 25,457
Net income applicable to Stratosphere hotel and
casino.................................................. 1,947(1)
Net income applicable to land, house and condominium
sales................................................... 17,880
Net loss applicable to Bayswater's hotel and resort
operations.............................................. (591)(1)
Add:
Interest income on U.S. Government and Agency
Obligations and other investments................... 25,514
Dividend and unallocated other income............... 10,791
--------
80,998
--------
Deduct expenses not allocated:
General and administrative expenses................. 7,526
Nonmortgage interest expense........................ 5,003
Other............................................... 353
--------
12,882
--------
Earnings before property and securities transactions and
minority interest........................................... 68,116
Provision for loss on real estate........................... (1,946)
Gain on sale of real estate................................. 13,971
Gain on sale of marketable equity securities................ 28,590
Minority interest in net earnings of Stratosphere
Corporation................................................. (1,002)
--------
Net earnings................................................ $107,729
--------
--------

------
(1) Includes depreciation expense

IV-13

SCHEDULE III
PAGE 10

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
REAL ESTATE OWNED AND RESERVE FOR DEPRECIATION BY STATE
(ACCOUNTED FOR UNDER THE OPERATING METHOD)
DECEMBER 31, 2001 (IN $000'S)

AMOUNT AT WHICH
CARRIED AT RESERVE FOR
STATE CLOSE OF YEAR DEPRECIATION
----- ------------- ------------

Alabama..................................................... $ 11,987 $ 2,851
California.................................................. 3,932 716
Connecticut................................................. 1,550 1,173
Florida..................................................... 19,764 7,399
Georgia..................................................... 347 --
Illinois.................................................... 17,318 5,211
Indiana..................................................... 6,368 3,900
Kentucky.................................................... 41,239 3,939
Louisiana................................................... 14,254 1,492
Maryland.................................................... -- --
Massachusetts............................................... 38,373 4,527
Michigan.................................................... 9,191 2,017
Minnesota................................................... 5,420 2,258
Missouri.................................................... 1,765 528
New Jersey.................................................. 2,907 1,634
New York.................................................... 23,472 2,517
North Carolina.............................................. 3,622 115
Ohio........................................................ 613 11
Oregon...................................................... 251 8
Pennsylvania................................................ 5,442 3,801
South Carolina.............................................. 1,450 597
Tennessee................................................... 121 75
Texas....................................................... 1,748 --
Virginia.................................................... 31,659 1,253
Wisconsin................................................... 31,094 2,035
-------- -------
$273,887 $48,057
-------- -------
-------- -------

IV-14

SCHEDULE III
PAGE 11

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
REAL ESTATE OWNED BY STATE
(ACCOUNTED FOR UNDER THE FINANCING METHOD)
DECEMBER 31, 2001 (IN $000'S)

NET
STATE INVESTMENT
----- ----------

Alabama..................................................... $ 7,272
Connecticut................................................. 21,347
Florida..................................................... 2,081
Georgia..................................................... 3,700
Illinois.................................................... 2,390
Indiana..................................................... 346
Iowa........................................................ 1,174
Kentucky.................................................... 155
Louisiana................................................... --
Maryland.................................................... 5,447
Massachusetts............................................... 5,112
Michigan.................................................... 11,161
Minnesota................................................... --
Missouri.................................................... 4,251
Nevada...................................................... 720
New Hampshire............................................... 3,646
New Jersey.................................................. 7,827
New York.................................................... 1,560
North Carolina.............................................. --
Ohio........................................................ 6,359
Oklahoma.................................................... 90
Oregon...................................................... 48,947
Pennsylvania................................................ 2,713
Rhode Island................................................ 889
Tennessee................................................... 33,083
Texas....................................................... 251
Virginia.................................................... 3,663
West Virginia............................................... 2,573
Wisconsin................................................... --
--------
$176,757
--------
--------

IV-15

STATEMENT OF DIFFERENCES
------------------------

The section symbol shall be expressed as............................... 'SS'