AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 2004

Registration No. 333-

UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
-----------------------------        
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

AMERICAN REAL ESTATE PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE                           6512                      13-3398766
(STATE OR OTHER JURISDICTION OF   (PRIMARY STANDARD INDUSTRIAL       (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)     CLASSIFICATION CODE NUMBER)    IDENTIFICATION NUMBER)

AMERICAN REAL ESTATE FINANCE CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE                           6512                     20-1059842
(STATE OR OTHER JURISDICTION OF   (PRIMARY STANDARD INDUSTRIAL      (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)     CLASSIFICATION CODE NUMBER)   IDENTIFICATION NUMBER)

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

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE                            6512                       13-3398767
(STATE OR OTHER JURISDICTION OF    (PRIMARY STANDARD INDUSTRIAL        (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)      CLASSIFICATION CODE NUMBER)     IDENTIFICATION NUMBER)

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

100 SOUTH BEDFORD ROAD
MT. KISCO, NEW YORK 10549
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)

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

JOHN SALDARELLI
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
100 SOUTH BEDFORD ROAD
MT. KISCO, NEW YORK 10549
TELEPHONE: (914) 242-7700
FACSIMILE: (914) 242-9282
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

COPIES TO:
STEVEN L. WASSERMAN, ESQ.
JAMES T. SEERY, ESQ.
PIPER RUDNICK LLP
1251 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
TELEPHONE: (212) 835-6000
FACSIMILE: (212) 835-6001
-----------------------------

APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement.

If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

CALCULATION OF REGISTRATION FEE

PROPOSED MAXIMUM          PROPOSED MAXIMUM
TITLE OF EACH CLASS OF        AMOUNT TO BE       OFFERING PRICE PER        AGGREGATE OFFERING          AMOUNT OF
SECURITIES TO BE REGISTERED     REGISTERED (1)           UNIT (1)                 PRICE (1)          REGISTRATION FEE(2)

8-1/8% Senior Notes due 2012     $353,000,000              100%                  $353,000,000            $44,725.10
Guarantees (3)                              -                -                              -                     -

(1)  Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.

(2)  Pursuant to Rule 457(f)(2) of the Securities Act of 1933, as amended, the
registration fee has been estimated based on the book value of the
securities to be received by the registrant in exchange for the securities
to be issued hereunder in the exchange offer described herein.

(3)  Pursuant to Rule 457(n) under the Securities Act, no separate fee is
payable with respect to the guarantees.

THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

ii

The information in this Preliminary Prospectus is not complete and may be
changed. We may not exchange these securities until the Registration Statement
filed with the Securities and Exchange Commission is effective. This Preliminary
Prospectus is not an offer to exchange these securities and is not soliciting
offers to exchange these securities in any State where the exchange is not
permitted.

PROSPECTUS        SUBJECT TO COMPLETION DATED AUGUST 6, 2004 

$353,000,000

AMERICAN REAL ESTATE PARTNERS, L.P.

AMERICAN REAL ESTATE FINANCE CORP.

OFFER TO EXCHANGE OUR 8-1/8% SENIOR NOTES DUE
2012, WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, FOR ANY AND ALL OF OUR
OUTSTANDING 8-1/8% SENIOR NOTES DUE 2012

MATERIAL TERMS OF THE EXCHANGE OFFER

-   The terms of the new notes are substantially identical to the
outstanding notes, except that the transfer restrictions and
registration rights relating to the outstanding notes will not apply
to the new notes and the new notes will not provide for the payment
of liquidated damages under circumstances related to the timing and
completion of the exchange offer.

-   Expires 5:00 p.m., New York City time, on ______________________,
2004, unless extended.

-   We will exchange your validly tendered unregistered notes for an
equal principal amount of a new series of notes which have been
registered under the Securities Act of 1933.

-   The exchange offer is not subject to any condition other than that
the exchange offer not violate applicable law or any applicable
interpretation of the staff of the Securities and Exchange
Commission and other customary conditions.

-   You may withdraw your tender of notes at any time before the
exchange offer expires.

-   The exchange of notes should not be a taxable exchange for U.S.
federal income tax purposes.

-   We will not receive any proceeds from the exchange offer.

-   The new notes will not be traded on any national securities exchange
and, therefore, we do not anticipate that an active public market in
the new notes will develop.

PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS DOCUMENT FOR CERTAIN
IMPORTANT INFORMATION.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NOTES TO BE ISSUED IN THE EXCHANGE
OFFER OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE DATE OF THIS PROSPECTUS -, 2004

TABLE OF CONTENTS

Page
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PROSPECTUS.................................................................................................       1
RISK FACTORS...............................................................................................      10
FORWARD-LOOKING STATEMENTS.................................................................................      22
INDUSTRY DATA..............................................................................................      22
USE OF PROCEEDS............................................................................................      23
THE EXCHANGE OFFER.........................................................................................      24
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA OF AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES....      33
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA............................................................      38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................      39
BUSINESS...................................................................................................      51
REGULATION.................................................................................................      64
MANAGEMENT.................................................................................................      75
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................................................      81
DESCRIPTION OF PREFERRED UNITS AND OF CERTAIN INDEBTEDNESS AND OTHER OBLIGATIONS...........................      84
DESCRIPTION OF NOTES.......................................................................................      86
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES...............................................................     119
PLAN OF DISTRIBUTION.......................................................................................     124
LEGAL MATTERS..............................................................................................     125
EXPERTS....................................................................................................     125
WHERE YOU CAN FIND MORE INFORMATION........................................................................     125
INCORPORATION OF DOCUMENTS BY REFERENCE....................................................................     126
INDEX TO FINANCIAL STATEMENTS..............................................................................     F-1

-i-

We have not authorized any dealer, salesperson or other person to give
any information or to make any representations to you other than the information
contained in this prospectus. You must not rely on any information or
representations not contained in this prospectus as if we had authorized it.
This prospectus does not offer to sell or solicit any offer to buy any
securities other than the registered notes to which it relates, nor does it
offer to buy any of these notes in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.

The information contained in this prospectus is current only as of the
date on the cover page of this prospectus, and may change after that date. We do
not imply that there has been no change in the information contained in this
prospectus or in our affairs since that date by delivering this prospectus.

-ii-

PROSPECTUS

You should read the entire prospectus, including "Risk Factors" and the
financial statements and related notes, before making an investment decision.
Unless the context indicates otherwise, all references to "American Real Estate
Partners, L.P.," "AREP," "we," "our," "ours" and "us" refer to American Real
Estate Partners, L.P. and, unless the context otherwise indicates, include our
subsidiaries. Our general partner is American Property Investors, Inc., or API.
Carl C. Icahn, through affiliates, owns approximately 86.5% of our depositary
units and preferred units and all of the capital stock of API. Substantially all
of our businesses and assets are held through a limited partnership, American
Real Estate Holdings Limited Partnership, or AREH, in which we own a 99% limited
partnership interest. API also acts as the general partner for AREH. API has a
1% general partnership interest in each of us and AREH.

OUR COMPANY

We are a diversified holding company engaged in a variety of businesses. Our
primary business strategy is to seek to acquire undervalued assets and companies
that are distressed or out of favor. Our businesses currently include rental
real estate; real estate development; hotel and resort operations; hotel and
casino operations; investments in equity and debt securities; and oil and gas
exploration and production. We intend to continue to invest in our core
businesses, including real estate, gaming and entertainment, and oil and gas. We
may also seek opportunities in other sectors, including energy, industrial
manufacturing and insurance and asset management.

RENTAL REAL ESTATE. Our rental real estate operations consist primarily of
retail, office and industrial properties leased to single corporate tenants. As
of December 31, 2003, we owned 128 rental properties with a book value of
approximately $340 million, individually encumbered by mortgage debt which, in
the aggregate, was approximately $181 million. To capitalize on favorable real
estate market conditions and the mature nature of our commercial real estate
portfolio, we are offering for sale our rental real estate portfolio. As of
March 31, 2004, we had sold eight properties for an aggregate sales price of
approximately $18.7 million.

REAL ESTATE DEVELOPMENT. Our real estate development operations focus
primarily on the acquisition, development, construction and sale of
single-family homes, custom-built homes, multi-family homes and lots in
subdivisions and planned communities. We currently are developing five
residential subdivisions, of which two are in Westchester County, New York, one
in Putnam County, New York and one in Naples, Florida. In addition, we are
pursuing the development of our New Seabury property, a luxury second-home
waterfront community in Cape Cod, Massachusetts.

HOTEL AND RESORT OPERATIONS. Our hotel and resort operations primarily
consist of the New Seabury resort located in Cape Cod, Massachusetts. The
property currently includes a golf club with two 18 hole championship golf
courses, the Popponesset Inn, a casual waterfront dining and wedding facility, a
villa rental program, a waterfront freshwater swimming pool, a private beach, a
fitness center and a 16 court tennis facility.

HOTEL AND CASINO OPERATIONS. Our hotel and casino operations currently
consist of the Stratosphere Casino Hotel & Tower, Arizona Charlie's Decatur and
Arizona Charlie's Boulder, all in Las Vegas, Nevada. We also own approximately
36.3% of the common stock and approximately 40.6% of the public debt of the
holding company that owns and operates the Sands Hotel and Casino in Atlantic
City, New Jersey and its financing affiliate, respectively. Other affiliates of
Mr. Icahn own approximately 41.2% of the common stock and approximately 55.9% of
the public debt of the holding company that owns and operates the Sands Hotel
and Casino and its financing affiliate, respectively.

INVESTMENTS. We seek to purchase undervalued securities. Undervalued
securities are those which we believe may have greater inherent value than
indicated by their then current trading price and may present the opportunity
for "activist" bondholders or shareholders to act as catalysts to realize value.
Additionally, we engage in real estate lending, including making second mortgage
or secured mezzanine loans to developers for the purpose of developing
single-family homes, luxury garden apartments or commercial properties. These
loans are subordinate to construction financing and we target an interest rate
in excess of 20% per annum. As of March 31, 2004, we had approximately $42
million principal amount of these loans outstanding and commitments to fund
additional loans of approximately $15 million, subject to the satisfaction of
certain conditions. We also purchase mortgage loans, including non-performing
loans.

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OIL AND GAS. Our oil and gas operations involve the exploration,
development, production and acquisition of oil and gas properties. We own, as of
March 31, 2004, 50.01% of the outstanding equity of National Energy Group, Inc.,
or NEG, and all of its approximately $148.6 million principal amount of 10 3/4%
senior notes due 2006. NEG currently manages 700 properties in Arkansas,
Louisiana, Oklahoma and Texas. TransTexas Gas Corporation, an affiliate of Mr.
Icahn, is also managed by NEG.

BUSINESS STRATEGY

We believe that our core strengths include:

-   identifying and acquiring undervalued assets and businesses, often
through the purchase of distressed securities;

-   increasing value through management, financial or other operational
changes;

-   and managing complex legal, regulatory or financial issues which may
include bankruptcy or insolvency, environmental, zoning, permitting
and licensing issues.

We also believe that we have developed significant management strength,
industry relationships and expertise in our core real estate, gaming and
entertainment and oil and gas businesses. The key elements of our business
strategy include the following.

CONTINUE TO INVEST IN AND GROW OUR EXISTING OPERATING BUSINESSES. We believe
that we have developed a strong portfolio of businesses with experienced
management teams. We may expand our existing businesses if appropriate
opportunities are identified as well as use our established businesses as a
platform for additional acquisitions in the same or other areas.

SEEK TO ACQUIRE UNDERVALUED ASSETS. We intend to continue to make
investments in real estate and in companies or their securities which are
undervalued. These may be undervalued due to market inefficiencies, may relate
to opportunities in which economic or market trends have not been identified and
reflected in market value, or may include investments in complex or not readily
followed businesses or securities. Market inefficiencies and undervalued
situations may arise from disappointing financial results, liquidity or capital
needs, lowered credit ratings, revised industry forecasts or legal
complications. We may acquire businesses or assets directly or we may establish
an ownership position through the purchase of debt or equity securities of
troubled entities and may then negotiate for the ownership or effective control
of their assets.

ACTIVELY MANAGE OUR INVESTMENTS AND BUSINESSES. We seek investments for
which we can identify specific areas for financial or operational improvement
and where we can act as a catalyst for change. Change may include, but not be
limited to, replacing or supplementing management, restructuring the balance
sheet, increasing liquidity, disposing assets or cutting costs. We believe that
we can leverage off of our core businesses to better assess and increase the
value of our acquisitions. For instance, our homebuilding expertise allows us to
appropriately assess the risks of a real estate development prior to making a
mezzanine loan and also to complete a development if it is necessary or
profitable to do so.

DEPLOY OPERATING AND TRANSACTION STRUCTURING EXPERTISE OF EXISTING
MANAGEMENT TEAM INTO RELATED FIELDS. Our senior management team has extensive
experience in real estate and in identifying undervalued assets in general. We
believe there is significant opportunity to use this experience by acquiring or
starting businesses in asset-intensive sectors, including other real estate
development activities, industrial manufacturing, energy and insurance and asset
management, in which we have had no or limited experience to date, but which may
be undervalued and have potential for growth.

2

SUMMARY OF THE EXCHANGE OFFER

The Offering of the Private Notes.......         On May 12, 2004, we issued $353 million aggregate principal amount
of our private notes in an offering not registered under the
Securities Act of 1933.  At the time we issued the private notes,
we entered into a registration rights agreement in which we agreed
to offer to exchange the private notes for new notes which have
been registered under the Securities Act of 1933.  This exchange
offer is intended to satisfy that obligation.

The Exchange Offer......................         We are offering to exchange the new notes which have been
registered under the Securities Act of 1933 for the private notes.

As of this date, there is $353 million aggregate principal amount
of private notes outstanding.

Required Representations................         In order to participate in this exchange offer, you will be
required to make certain representations to us in a letter of
transmittal, including that:

-   any new notes will be acquired by you in the ordinary
course of your business;

-   you have not engaged in, do not intend to engage in, and
do not have an arrangement or understanding with any person to
participate in a distribution of the new notes; and

-   you are not an affiliate of our company.

Resale of New Notes.....................         We believe that, subject to limited exceptions, the new notes may
be freely traded by you without compliance with the registration
and prospectus delivery provisions of the Securities Act of 1933,
provided that:

-   you are acquiring new notes in the ordinary course of your
business;

-   you are not participating, do not intend to participate
and have no arrangement or understanding with any person to
participate in the distribution of the new notes; and

-   you are not an affiliate of our company.

If our belief is inaccurate and you transfer any new note issued to
you in the exchange offer without delivering a prospectus meeting
the requirements of the Securities Act of 1933 or
without an exemption from registration of your new notes
from such requirements, you may incur liability under the
Securities Act of We do not assume, or indemnify you against, such liability.

Each broker-dealer that is issued new notes for its own account
in exchange for private notes which were acquired by such
broker-dealer as a result of market-making or other trading
activities also must acknowledge that it has not entered into
any arrangement or understanding with us or any of our
affiliates to distribute the new notes and will deliver a
prospectus meeting the requirements of the Securities Act of
1933 in connection with any resale of the new notes issued in
the exchange offer.

-3-

We have agreed in the registration rights agreement that a
broker-dealer may use this prospectus for an offer to resell,
resale or other retransfer of the new notes issued to it in the
exchange offer.

Expiration Date.........................         The exchange offer will expire at 5:00 p.m., New York City time, on
__________, 2004, unless extended, in which case the term
"expiration date" shall mean the latest date and time to which we
extend the exchange offer.

Conditions to the Exchange Offer........         The exchange offer is subject to certain customary conditions,
which may be waived by us.  The exchange offer is not conditioned
upon any minimum principal amount of private notes being tendered.

Procedures for Tendering
Private Notes...........................         If you wish to tender your private notes for exchange, you must
transmit to Wilmington Trust Company, as exchange agent, at the
address set forth in this prospectus under the heading "The
Exchange Offer - Exchange Agent," and on the front cover of the
letter of transmittal, on or before the expiration date, a
properly completed and duly executed letter of transmittal,
which accompanies this prospectus, or a facsimile of the letter
of transmittal and either:

the private notes and any other required documentation, to the
exchange agent; or

a computer generated message transmitted by means of The
Depository Trust Company's Automated Tender Offer Program system
and received by the exchange agent and forming a part of a
confirmation of book entry transfer in which you acknowledge and
agree to be bound by the terms of the letter of transmittal.

If either of these procedures cannot be satisfied on a timely basis,
then you should comply with the guaranteed delivery procedures
described below. By executing the letter of transmittal, each holder
of private notes will make certain representations to us described
under "The Exchange Offer - Procedures for Tendering."

Special Procedures for Beneficial
Owners..................................         If you are a beneficial owner whose private notes are registered in
the name of a broker, dealer, commercial bank, trust company or
other nominee and you wish to tender your private notes in the
exchange offer, you should contact such registered holder promptly
and instruct such registered holder to tender on your behalf.  If
you wish to tender on your own behalf, you must, prior to
completing and executing the letter of transmittal and delivering
your private notes, either make appropriate arrangements to
register ownership of the private notes in your name or obtain a
properly completed bond power from the registered holder.  The
transfer of registered ownership may take considerable time and may
not be able to be completed prior to the expiration date.

4

Guaranteed Delivery Procedures..........         If you wish to tender private notes and time will not permit the
documents required by the letter of transmittal to reach the
exchange agent prior to the expiration date, or the procedure for
book-entry transfer cannot be completed on a timely basis, you must
tender your private notes according to the guaranteed delivery
procedures described under "The Exchange Offer - Guaranteed
Delivery Procedures."

Acceptance of Private Notes and
Delivery of New Notes...................         Subject to the conditions described under "The Exchange Offer -
Conditions," we will accept for exchange any and all private notes
which are validly tendered in the exchange offer and not withdrawn,
prior to 5:00 p.m., New York City time, on the expiration date.

Withdrawal Rights.......................         You may withdraw your tender of private notes at any time prior to
5:00 p.m., New York City time, on the expiration date, subject to
compliance with the procedures for withdrawal described in this
prospectus under heading "The Exchange Offer - Withdrawal of
Tenders."

Federal Income Tax Considerations.......         For a discussion of the material federal income tax considerations
relating to the exchange of private notes for the new notes as well
as the ownership of the new notes, see "Certain U.S. Federal Income
Tax Consequences."

Exchange Agent..........................         The Wilmington Trust Company is serving as the exchange agent.  The
address, telephone number and facsimile number of the exchange
agent are set forth in this prospectus under the heading "The
Exchange Offer - Exchange Agent."

Consequences of Failure to Exchange
Private Notes...........................         If you do not exchange private notes for new notes, you will
continue to be subject to the restrictions on transfer provided in
the private notes and in the indenture governing the private
notes. In general, the unregistered private notes may not be offered
or sold, unless they are registered under the Securities Act of
1933, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act of 1933 and applicable state
securities laws.

5

THE NEW NOTES

The terms of the new notes we are issuing in this exchange offer and the
private notes that are outstanding are identical in all material respects
except:

-   The new notes will be registered under the Securities Act of 1933;

-   The new notes will not contain transfer restrictions and registration
rights that relate to the private notes.

The new notes will evidence the same debt as the old notes and will be
governed by the same indenture. References to notes include both private notes
and new notes.

Issuer..................................    American Real Estate Partners, L.P. is a holding company.  Its operations
are conducted through its subsidiaries and substantially all of its assets
consist of a 99% limited partnership interest in its subsidiary, American
Real Estate Holdings Limited Partnership, or AREH, which is a holding
company for its operating subsidiaries and investments. The new notes will
be guaranteed by AREH.

Co-Issuer...............................    American Real Estate Finance Corp. is a wholly-owned subsidiary of
American Real Estate Partners, L.P. It was formed solely for the purpose
of serving as a co-issuer of debt securities of American Real Estate
Partners, L.P. in order to facilitate offerings of the debt securities.
Other than as a co-issuer of the notes, American Real Estate Finance Corp.
does not and will not have any operations or assets and will not have any
revenues. As a result, holders of the notes should not expect American
Real Estate Finance Corp. to participate in servicing any obligations on
the new notes.

Notes Offered...........................    $353.0 million in aggregate principal amount of 8-1/8% senior notes due
2012.

Maturity................................    June 1, 2012.

Interest Payment Dates..................    June 1 and December 1 of each year, commencing December 1, 2004.

Ranking.................................    The new notes and the guarantee will rank equally with all of
our and the guarantor's existing and future senior unsecured
indebtedness, and will rank senior to all of our and the
guarantor's existing and future subordinated indebtedness. The
new notes and the guarantee will be effectively subordinated to
all of our and the guarantor's existing and future secured
indebtedness, to the extent of the collateral securing such
indebtedness. The new notes and the guarantee also will be
effectively subordinated to all indebtedness and other
liabilities, including trade payables, of all our subsidiaries
other than AREH. As of March 31, 2004, the new notes and the
guarantee would have been effectively subordinated to an
aggregate of $394.3 million of AREH's secured debt and our
subsidiaries' debt, excluding trade payables.

Guarantee...............................    If we cannot make payments on the new notes when they are due,
AREH must make them instead. Other than AREH, none of our
subsidiaries will guarantee payments on the new notes.

Optional Redemption.....................    We may, at our option, redeem some or all of the new notes at
any time on or after June 1, 2008, at the redemption prices
listed under "Description of Notes -- Optional Redemption."

In addition, prior to June 1, 2007, we may, at our option,
redeem up to 35% of the new notes with the proceeds of certain
sales of our equity at the redemption price listed under
"Description of Notes -- Optional

-6-

Redemption." We may make the redemption only if, after the
redemption, at least 65% of the aggregate principal amount of
the notes issued remains outstanding.

Redemption Based on Gaming Laws.........   The new notes are subject to mandatory disposition and
redemption requirements following certain determinations by
applicable gaming authorities.

Certain Covenants.......................   We will issue the new notes under an indenture with AREH and
Wilmington Trust Company, as trustee acting on your behalf. The
indenture will, among other things, restrict our and AREH's
ability to:

-   Incur additional debt;

-   Pay dividends and make distributions;

-   Repurchase equity securities;

-   Create liens;

-   Enter into transactions with affiliates; and

-   Merge or consolidate.

Our subsidiaries other than AREH will not be restricted in their
ability to incur debt, create liens or merge or consolidate.

Absence of Established
Market for Notes........................   The new notes will be new securities for which there is
currently no market. We cannot assure you that a liquid market
for the new notes will develop or be maintained.

7

AREP INFORMATION

American Real Estate Partners, L.P. is a publicly traded master limited
partnership formed in Delaware on February 17, 1987. Carl C. Icahn, through
affiliates, owns approximately 86.5% of our depositary units and preferred
units. Our general partner is American Property Investors, Inc., a Delaware
corporation, which is a wholly-owned subsidiary of Beckton Corp., a Delaware
corporation. All of the outstanding capital stock of Beckton is owned by Mr.
Icahn. Affiliates of Mr. Icahn acquired API in 1990. Substantially all of our
businesses and assets are held through a limited partnership, American Real
Estate Holdings Limited Partnership, or AREH, in which we own a 99% limited
partnership interest. API also acts as the general partner for AREH. API has a
1% general partnership interest in each of us and AREH. Our, AREH's and API's
principal business address is 100 South Bedford Road, Mt. Kisco, New York 10549,
and our, AREH's and API's telephone number is (914) 242-7700.

American Real Estate Finance Corp., a Delaware corporation, is a
wholly-owned subsidiary of AREP. American Real Estate Finance Corp. was
incorporated on April 19, 2004 and was formed solely for the purpose of serving
as a co-issuer of debt securities of American Real Estate Partners, L.P. in
order to facilitate offerings of the debt securities. Other than as a co-issuer
of the notes, American Real Estate Finance Corp. will not have any operations or
assets and will not have any revenues. As a result, prospective holders of the
notes should not expect American Real Estate Finance Corp. to participate in
servicing any obligations on the notes. American Real Estate Finance Corp.'s
principal business address is 100 South Bedford Road, Mt. Kisco, New York 10549
and its telephone number is (914) 242-7700.

STRUCTURE CHART

The following is a chart of our ownership and the structure of the entities
through which we conduct our operations.

[STRUCTURE CHART]

8

----------

(1)  Our partnership units consist of depositary units, representing limited
partnership interests, and preferred units, representing preferred limited
partnership interests. Mr. Icahn owns approximately 86.5% of each class of
these units. As of March 31, 2004, there were 46,098,284 depositary units
and 10,286,264 preferred units outstanding.

(2)  National Energy Group, Inc. is a publicly held company, the stock of which
currently trades on the OTC Bulletin Board. National Energy Group, Inc.'s
assets principally consist of a 50% membership interest in NEG Holding LLC.
The other 50% membership interest in NEG Holding LLC is held by Gascon
Partners, an affiliate of Mr. Icahn, which is the managing member of NEG
Holding LLC. The assets of NEG Holding LLC consist of the membership
interests of National Energy Group, Inc. Operating LLC, which owns oil and
natural gas assets. The operating agreement of NEG Operating LLC provides
for its management by Gascon Partners, which engaged National Energy Group,
Inc. to manage the operations.

(3)  New Seabury Properties L.L.C., directly and through its single purpose
subsidiaries, owns a 381 acre resort community in Cape Cod, Massachusetts.

(4)  On May 26, 2004, American Casino & Entertainment Properties LLC acquired
Arizona Charlie's Decatur and Arizona Charlie's Boulder from Mr. Icahn and
one of his affiliates. On May 26, 2004, AREH transferred 100% of the common
stock of Stratosphere Corporation to ACEP.

(5)  The Bayswater Group, LLC, directly and through its and AREH's single
purpose subsidiaries, is engaged in real estate investment, management and
development, focused primarily on the acquisition, development,
construction and sale of single-family homes, custom-built homes,
multi-family homes and lots in subdivisions and planned communities.

(6)  As of July 22, 2004, we own approximately 36.3% of the common stock of GB
Holdings, Inc. and approximately 40.6% of the public debt of Atlantic Coast
Entertainment Holdings, Inc. which owns the entity which operates the
Sands Hotel and Casino. Mr. Icahn and his affiliates hold approximately an
additional 41.2% of GB Holdings common stock and 55.9% of the debt of
Atlantic Coast.

9

RISK FACTORS

You should consider carefully each of the following risks and all other
information contained in this prospectus before deciding to invest in the notes.

RISKS RELATING TO OUR STRUCTURE AND INDEBTEDNESS

WE AND AREH ARE HOLDING COMPANIES AND WILL DEPEND ON THE BUSINESSES OF OUR
SUBSIDIARIES TO SATISFY OUR OBLIGATIONS UNDER THE NOTES.

We and AREH are holding companies. In addition to cash and cash
equivalents, U.S. government and agency obligations and marketable equity and
debt securities, our assets consist primarily of investments in our
subsidiaries. Moreover, if we make significant investments in operating
businesses, it is likely that we will reduce the liquid assets at AREP and AREH
in order to fund those investments and ongoing operations. Consequently, our
cash flow and our ability to meet our debt service obligations likely will
depend on the cash flow of our subsidiaries and the payment of funds to us by
our subsidiaries in the form of loans, dividends, distributions or otherwise. If
we invest our cash, we may become dependent on our subsidiaries to provide cash
to us to service our debt.

The operating results of our subsidiaries may not be sufficient to make
distributions to us. In addition, our subsidiaries are not obligated to make
funds available to us for payment on the notes or otherwise, and distributions
and intercompany transfers from our subsidiaries to us may be restricted by
applicable law or covenants contained in debt agreements and other agreements to
which these subsidiaries may be subject or enter into in the future. The terms
of any borrowings of our subsidiaries or other entities in which we own equity
may restrict dividends, distributions or loans to us. For example, the ACEP
notes contain restrictions on dividends and distributions and loans to us, as
well as other transactions with us. These likely will preclude our receiving
payments from the operations of our principal hotel and gaming properties. To
the degree any distributions and transfers are impaired or prohibited, our
ability to make payments on the notes will be limited.

WE, AREH OR OUR SUBSIDIARIES MAY BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT.

We, AREH or our subsidiaries may be able to incur substantial additional
indebtedness in the future. The terms of the indenture do not prohibit us or our
subsidiaries from doing so. We and AREH may incur additional pari passu
indebtedness if we comply with certain financial tests contained in the
indenture. As of March 31, 2004, based upon these tests, we and AREH could have
incurred up to approximately $1.6 billion of additional indebtedness. Our
subsidiaries other than AREH are not subject to the covenant restricting debt
incurrence contained in the indenture. If new debt is added to our, AREH's and
our subsidiaries' current debt levels, the related risks that we, AREH and they
now face could intensify. In addition, certain important corporate events, such
as leveraged recapitalizations that would increase the level of our
indebtedness, would not constitute a "Change of Control" under the indenture.

THE NOTES WILL BE EFFECTIVELY SUBORDINATED TO ANY SECURED INDEBTEDNESS, AND THE
INDEBTEDNESS AND LIABILITIES OF OUR SUBSIDIARIES OTHER THAN AREH.

The notes also will be effectively subordinated to any of our and AREH's
indebtedness secured by our or AREH's assets. We and AREH may be able to incur
substantial additional secured indebtedness in the future. The terms of the
indenture permit us and AREH to do so. The notes will be effectively
subordinated to our and AREH's existing and future secured indebtedness to the
extent of the collateral securing such indebtedness. The notes will also be
effectively subordinated to all the indebtedness and liabilities, including
trade payables, of all of our subsidiaries, other than AREH. In the event of a
bankruptcy, liquidation or reorganization of any of our subsidiaries, other than
AREH, holders of their indebtedness and their trade creditors will generally be
entitled to payment of their claims from the assets of those subsidiaries before
any assets are made available for distribution to us.

10

OUR SUBSIDIARIES, OTHER THAN AREH, WILL NOT BE SUBJECT TO ANY OF THE COVENANTS
IN THE INDENTURE FOR THE NOTES AND ONLY AREH WILL GUARANTEE THE NOTES. WE MAY
NOT BE ABLE TO RELY ON THE CASH FLOW OR ASSETS OF OUR SUBSIDIARIES TO PAY OUR
INDEBTEDNESS.

Our subsidiaries, other than AREH, will not be subject to the covenants
under the indenture for the notes. We may form additional subsidiaries in the
future which will not be subject to the covenants under the indenture for the
notes. Of our existing and future subsidiaries, only AREH is required to
guarantee the notes. Our existing and future non-guarantor subsidiaries may
enter into financing arrangements that limit their ability to make dividends,
distributions, loans or other payments to fund payments in respect of the notes.
Accordingly, we may not be able to rely on the cash flow or assets of our
subsidiaries to pay the notes.

RISKS RELATING TO THE NOTES

OUR FAILURE TO COMPLY WITH THE COVENANTS CONTAINED UNDER ONE OF OUR DEBT
INSTRUMENTS OR THE INDENTURE GOVERNING THE NOTES, INCLUDING OUR FAILURE AS A
RESULT OF EVENTS BEYOND OUR CONTROL, COULD RESULT IN AN EVENT OF DEFAULT WHICH
WOULD MATERIALLY AND ADVERSELY AFFECT OUR FINANCIAL CONDITION.

If there were an event of default under one of our debt instruments, the
holders of the defaulted debt could cause all amounts outstanding with respect
to that debt to be due and payable immediately. In addition, any event of
default or declaration of acceleration under one debt instrument could result in
an event of default under one or more of our other debt instruments, including
the notes. It is possible that, if the defaulted debt is accelerated, our assets
and cash flow may not be sufficient to fully repay borrowings under our
outstanding debt instruments and we cannot assure you that we would be able to
refinance or restructure the payments on those debt securities.

TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR
ABILITY TO MAINTAIN OUR CURRENT CASH POSITION OR GENERATE CASH DEPENDS ON MANY
FACTORS BEYOND OUR CONTROL.

Our ability to make payments on and to refinance our indebtedness,
including these notes, and to fund operations will depend on existing cash
balances and our ability to generate cash in the future. This, to a certain
extent, is subject to general economic, financial, competitive, regulatory and
other factors that are beyond our control.

We may use our cash and the proceeds of the offering of the private notes
in our business activities. The businesses or assets we acquire may not generate
sufficient cash to service our debt, including the notes. In addition, we may
not generate sufficient cash flow from operations or investments and future
borrowings may not be available to us in an amount sufficient to enable us to
service our indebtedness, including these notes, or to fund our other liquidity
needs. We may need to refinance all or a portion of our indebtedness, including
these notes, on or before maturity. We cannot assure you that we will be able to
refinance any of our indebtedness, including these notes, on commercially
reasonable terms or at all.

THE INDENTURE DOES NOT RESTRICT OUR ABILITY TO CHANGE OUR LINES OF BUSINESS OR
INVEST THE PROCEEDS OF ASSET SALES AND ALLOWS FOR THE SALE OF ALL OR
SUBSTANTIALLY ALL OF OUR AND AREH'S ASSETS WITHOUT THE NOTES BEING ASSUMED BY
THE ACQUIRERS.

The indenture does not restrict in any way the businesses in which we may
engage and if we were to change our current lines of business, in whole or in
part, you would not be entitled to accelerated repayment of the notes. We also
are not required to offer to purchase notes with the proceeds from asset sales,
including in the event of the sale of all or substantially all of our assets or
AREH's assets, and may reinvest the proceeds without the approval of
noteholders. In addition, we and AREH may sell all or substantially all of our
and its assets without the notes being assumed by the acquirers.

WE MAY NOT HAVE SUFFICIENT FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL
OFFER REQUIRED BY THE INDENTURE.

Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all outstanding notes at 101% of
their principal amount plus accrued and unpaid interest and liquidated damages,
if any, to the date of repurchase. Mr. Icahn, through affiliates, currently owns
100% of API and

11

approximately 86.5% of our outstanding depositary units and preferred units, and
if he were to sell or otherwise transfer some or all of his interests in us to
unrelated parties, a change of control could be deemed to have occurred under
the terms of the indenture governing the notes. However, it is possible that we
will not have sufficient funds at the time of the change of control to make the
required repurchase of notes.

FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM THE
GUARANTOR.

Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of a
guarantee could be subordinated to all other debts of that guarantor if, among
other things, the guarantor, at the time it incurred the indebtedness evidenced
by its guarantee:

-     received less than reasonably equivalent value or fair consideration
for the incurrence of such guarantee; and

-     was insolvent or rendered insolvent by reason of such incurrence; or

-     was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or

-     intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.

In addition, any payment by that guarantor pursuant to its guarantee could
be voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor.

The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:

-     the sum of its debts, including contingent liabilities, was greater
than the fair saleable value of all of its assets; or

-     if the present fair saleable value of its assets was less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become
absolute and mature; or

-     it could not pay its debts as they become due.

On the basis of historical financial information, recent operating history
and other factors, we believe that AREH, after giving effect to its guarantee of
these notes, will not be insolvent, will not have unreasonably small capital for
the business in which it is engaged and will not have incurred debts beyond its
ability to pay such debts as they mature. We cannot assure you, however, as to
what standard a court would apply in making these determinations or that a court
would agree with our conclusions in this regard.

AS A NOTEHOLDER YOU MAY BE REQUIRED TO COMPLY WITH LICENSING, QUALIFICATION OR
OTHER REQUIREMENTS UNDER GAMING LAWS AND COULD BE REQUIRED TO DISPOSE OF THE
NOTES.

We may be required to disclose the identities of the holders of the notes
to the New Jersey and Nevada gaming authorities upon request. The New Jersey
Casino Control Act, or NJCCA, imposes substantial restrictions on the ownership
of securities of AREP and its subsidiaries. A holder of the notes may be
required to meet the qualification provisions of the NJCCA relating to financial
sources and/or security holders. The indenture governing the notes provide that
if the New Jersey Casino Control Commission, or New Jersey Commission, requires
a holder of the notes (whether the record or beneficial owner) to qualify under
the NJCCA and the holder does not so qualify, then the holder must dispose of
his interest in the notes within 30 days after receipt by AREP of notice of the
finding that the holder does not so qualify, or AREP may redeem the notes at the
lower of the outstanding principal amount or the notes' value calculated as if
the investment had been made on the date of disqualification of the holder (or
the

12

lesser amount as may be required by the New Jersey Commission). If a holder is
found unqualified by the New Jersey Commission, it is unlawful for the holder:

-     to exercise, directly or through any trustee or nominee, any right
conferred by such securities or

-     to receive any dividends or interest upon such securities or any
remuneration, in any form, from its affiliated casino licensee for
services rendered or otherwise.

The Nevada Gaming Commission may, in its discretion, require a holder of
the notes to file an application, be investigated and be found suitable to hold
the notes. In addition, the Nevada Gaming Commission may, in its discretion,
require the holder of any debt security of a company registered by the Nevada
Gaming Commission as a publicly-traded corporation to file an application, be
investigated and be found suitable to own such debt security.

If a record or beneficial holder of a note is required by the Nevada
Gaming Commission to be found suitable, such owner will be required to apply for
a finding of suitability within 30 days after request of such gaming authority
or within such earlier time prescribed by such gaming authority. The applicant
for a finding of suitability must pay all costs of the application and
investigation for such finding of suitability. If the Nevada Gaming Commission
determines that a person is unsuitable to own such security, then, pursuant to
the Nevada Gaming Control Act, we can be sanctioned, including the loss of our
approvals, if, without the prior approval of the Nevada Gaming Commission, we:

-     pay to the unsuitable person any dividend, interest, or any
distribution whatsoever;

-     recognize any voting right of the unsuitable person with respect to
such securities;

-     pay the unsuitable person remuneration in any form; or

-     make any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation or similar
transaction.

Each holder of the notes will be deemed to have agreed, to the extent
permitted by law, that if the Nevada gaming authorities determine that a holder
or beneficial owner of the notes must be found suitable, and if that holder or
beneficial owner either refuses to file an application or is found unsuitable,
that holder shall, upon our request, dispose of its notes within 30 days after
receipt of our request, or earlier as may be ordered by the Nevada gaming
authorities. We will also have the right to call for the redemption of notes of
any holder at any time to prevent the loss or material impairment of a gaming
license or an application for a gaming license at a redemption price equal to:

-     the lesser of the cost paid by the holder or the fair market value
of the notes, in each case, plus accrued and unpaid interest and
liquidated damages, if any, to the earlier of the date of
redemption, or earlier as may be required by the Nevada gaming
authorities or the finding of unsuitability by the Nevada gaming
authorities; or

-     such other lesser amount as may be ordered by the Nevada gaming
authorities.

We will notify the trustee under the indenture in writing of any
redemption as soon as practicable. We will not be responsible for any costs or
expenses you may incur in connection with your application for a license,
qualification or a finding of suitability, or your compliance with any other
requirement of a gaming authority. The indenture also provides that as soon as a
gaming authority requires you to sell your notes, you will, to the extent
required by applicable gaming laws, have no further right:

-     to exercise, directly or indirectly, any right conferred by the
notes or the indenture; or

-     to receive from us any interest, dividends or any other
distributions or payments, or any remuneration in any form, relating
to the notes, except the redemption price we refer to above.

13

OUR GENERAL PARTNER AND ITS CONTROL PERSON COULD EXERCISE THEIR INFLUENCE OVER
US TO YOUR DETRIMENT.

Mr. Icahn, through affiliates, currently owns 100% of API, our general partner,
and approximately 86.5% of our outstanding depositary units and preferred units
and, as a result, has and will have the ability to influence many aspects of our
operations and affairs. API also is the general partner of AREH. In addition, an
affiliate of Mr. Icahn owns a 50% interest and is the managing member of NEG
Holding LLC. The other 50% interest is owned by National Energy Group, Inc., of
which we own a majority of the common stock. Mr. Icahn and affiliates, including
AREP, own approximately 77.5% of the stock of GB Holdings, Inc., the sole
shareholder of Atlantic Coast Entertainment Holdings, Inc. or Atlantic Holdings,
which owns and operates the Sands Hotel and Casino. Mr. Icahn and affiliates,
including AREP, own approximately 96.5% of the debt of Atlantic Holdings. Mr.
Icahn and his affiliates, other than AREP, own approximately 41.2% of the common
stock of GB Holdings and 55.9% of the debt of Atlantic Coast, AREP owns
approximately 36.3% of the common stock of GB Holdings and 40.6% of the debt of
Atlantic Coast. We may invest in entities in which Mr. Icahn also invests or
purchase investments from him or his affiliates. Although API has never received
fees in connection with our investments, our partnership agreement allows for
the payment of these fees. Mr. Icahn may pursue other business opportunities in
the real estate or other industries in which we compete and there is no
requirement that any additional business opportunities be presented to us.

The interests of Mr. Icahn, including his interests in entities in which
he and we have invested or may invest in the future, may differ from your
interests as a noteholder and, as such, he may take actions that may not be in
your interest. For example, if we encounter financial difficulties or are unable
to pay our debts as they mature, Mr. Icahn's interests might conflict with your
interests as a noteholder.

In addition, if Mr. Icahn were to sell, or otherwise transfer, some or all
of his interests in us to an unrelated party or group, a change of control could
be deemed to have occurred under the terms of the indenture governing the notes
which would require us to offer to repurchase all outstanding notes at 101% of
their principal amount plus accrued and unpaid interest and liquidated damages,
if any, to the date of repurchase. However, it is possible that we will not have
sufficient funds at the time of the change of control to make the required
repurchase of notes.

CERTAIN OF OUR MANAGEMENT ARE COMMITTED TO THE MANAGEMENT OF OTHER BUSINESSES.

Certain of the individuals who conduct the affairs of API are and will in
the future be committed to the management of other businesses owned by Mr. Icahn
and his affiliates. Accordingly, these individuals will not be devoting all of
their professional time to the management of us, and conflicts may arise between
our interests and the other entities or business activities in which such
individuals are involved. Conflicts of interest may arise in the future as such
affiliates and we may compete for the same assets, purchasers and sellers of
assets, lessees or financings.

SINCE WE ARE A LIMITED PARTNERSHIP, YOU MAY NOT BE ABLE TO PURSUE LEGAL CLAIMS
AGAINST US IN U.S. FEDERAL COURTS.

We are a limited partnership organized under the laws of the state of
Delaware. Under the rules of federal civil procedure, you may not be able to sue
us in federal court on claims other than those based solely on federal law,
because of lack of complete diversity. Case law applying diversity jurisdiction
deems us to have the citizenship of each of our limited partners. Because we are
a publicly traded limited partnership, it may not be possible for you to attempt
to sue us in a federal court because we have citizenship in all 50 U.S. states
and operations in many states. Accordingly, you will be limited to bring any
claims in state court. Furthermore, American Real Estate Finance Corp., our
corporate co-issuer for the notes, has only nominal assets and no operations.
While you may be able to sue the corporate co-issuer in federal court, you are
not likely to be able to realize on any judgment rendered against it.

WE MAY BE SUBJECT TO THE PENSION LIABILITIES OF OUR AFFILIATES.

Mr. Icahn, through certain affiliates, currently owns 100% of API and
approximately 86% of our outstanding depositary units and preferred units.
Applicable pension and tax laws make each member of a "controlled group" of
entities, generally defined as entities in which there is at least an 80% common
ownership interest, jointly and severally liable for certain pension plan
obligations of any member of the controlled group. These pension obligations
include ongoing contributions to fund the plan, as well as liability for any
unfunded liabilities that may exist at the time the plan is terminated. In
addition, the failure to pay these pension obligations when due may result in
the creation of liens in favor of the pension plan or the Pension Benefit
Guaranty Corporation, or the PBGC,

14

against the assets of each member of the controlled group.

As a result of the more than 80% ownership interest in us by Mr. Icahn's
affiliates, we and our subsidiaries, are subject to the pension liabilities of
all entities in which Mr. Icahn has a direct or indirect ownership interest of
at least 80%. One such entity, ACF Industries LLC, or ACF, is the sponsor of
several pension plans which are underfunded by a total of approximately $28
million on an ongoing actuarial basis and $131 million if those plans were
terminated, as most recently reported for the 2003 plan year by the plans'
actuaries. These liabilities could increase or decrease, depending on a number
of factors, including future changes in promised benefits, investment returns,
and the assumptions used to calculate the liability. As members of the ACF
controlled group, we would be liable for any failure of ACF to make ongoing
pension contributions or to pay the unfunded liabilities upon a termination of
the ACF pension plans. In addition, other entities now or in the future within
the controlled group that includes us may have pension plan obligations that
are, or may become, underfunded and we would be liable for any failure of such
entities to make ongoing pension contributions or to pay the unfunded
liabilities upon a termination of such plans.

The current underfunded status of the ACF pension plans requires ACF to
notify the PBGC of certain "reportable events," such as if we cease to be a
member of the ACF controlled group, or if we make certain extraordinary
dividends or stock redemptions. The obligation to report could cause us to seek
to delay or reconsider the occurrence of such reportable events.

Starfire, which is 100% owned by Mr. Icahn, has undertaken to indemnify us
and our subsidiaries from losses resulting from any imposition of pension
funding or termination liabilities that may be imposed on us and our
subsidiaries or our assets as a result of being a member of the Icahn controlled
group. The Starfire indemnity provides, among other things, that so long as such
contingent liabilities exist and could be imposed on us, Starfire will not make
any distributions to its stockholders that would reduce its net worth to below
$250 million. Nonetheless, Starfire may not be able to fund its indemnification
obligations to us.

WE ARE SUBJECT TO THE RISK OF POSSIBLY BECOMING AN INVESTMENT COMPANY.

Because we are a holding company and a significant portion of our assets
consists of investments in companies in which we own less than a 50% interest,
we run the risk of inadvertently becoming an investment company that is required
to register under the Investment Company Act of 1940. Registered investment
companies are subject to extensive, restrictive and potentially adverse
regulation relating to, among other things, operating methods, management,
capital structure, dividends and transactions with affiliates. Registered
investment companies are not permitted to operate their business in the manner
in which we operate our business, nor are registered investment companies
permitted to have many of the relationships that we have with our affiliated
companies.

To avoid regulation under the Investment Company Act, we monitor the value
of our investments and structure transactions with an eye toward the Investment
Company Act. As a result, we may structure transactions in a less advantageous
manner than if we did not have Investment Company Act concerns, or we may avoid
otherwise economically desirable transactions due to those concerns. In
addition, events beyond our control, including significant appreciation or
depreciation in the market value of certain of our publicly traded holdings,
could result in our inadvertently becoming an investment company.

If it were established that we were an investment company, there would be
a risk, among other material adverse consequences, that we could become subject
to monetary penalties or injunctive relief, or both, in an action brought by the
SEC, that we would be unable to enforce contracts with third parties or that
third parties could seek to obtain rescission of transactions with us undertaken
during the period it was established that we were an unregistered investment
company.

WE MAY BECOME TAXABLE AS A CORPORATION.

We operate as a partnership for federal income tax purposes. This allows
us to pass through our income and deductions to our partners. We believe that we
have been and are properly treated as a partnership for federal income tax
purposes. However, the Internal Revenue Service, or IRS, could challenge our
partnership status and we could fail to qualify as a partnership for past years
as well as future years. Qualification as a partnership involves the

15

application of highly technical and complex provisions of the Internal Revenue
Code of 1986, as amended. For example, a publicly traded partnership is
generally taxable as a corporation unless 90% or more of its gross income is
"qualifying" income, which includes interest, dividends, real property rents,
gains from the sale or other disposition of real property, gain from the sale or
other disposition of capital assets held for the production of interest or
dividends, and certain other items. We believe that in all prior years of our
existence at least 90% of our gross income was qualifying income and we intend
to structure our business in a manner such that at least 90% of our gross income
will constitute qualifying income this year and in the future. However, there
can be no assurance that such structuring will be effective in all events to
avoid the receipt of more than 10% of non-qualifying income. If less than 90% of
our gross income constitutes qualifying income, we may be subject to corporate
tax on our net income at regular corporate tax rates. Further, if less than 90%
of our gross income constituted qualifying income for past years, we may be
subject to corporate level tax plus interest and possibly penalties. In
addition, if we register under the Investment Company Act of 1940, it is likely
that we would be treated as a corporation for U.S. federal income tax purposes
and subject to corporate tax on our net income at regular corporate tax rates.
The cost of paying federal and possibly state income tax, either for past years
or going forward, would be a significant liability and would reduce our funds
available to make interest and principal payments on the notes.

RISKS RELATING TO THE EXCHANGE OFFER

HOLDERS WHO FAIL TO EXCHANGE THEIR PRIVATE NOTES WILL CONTINUE TO BE SUBJECT TO
RESTRICTIONS ON TRANSFER.

If you do not exchange your private notes for new notes in the exchange
offer, you will continue to be subject to the restrictions on transfer of your
private notes described in the legend on your private notes. The restrictions on
transfer of your private notes arise because we issued the private notes under
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act of 1933 and applicable state securities laws.
In general, you may only offer or sell the private notes if they are registered
under the Securities Act and applicable state securities laws, or are offered
and sold under an exemption from these requirements. We do not plan to register
the private notes under the Securities Act.

BROKER-DEALERS OR HOLDERS OF NOTES MAY BE COME SUBJECT TO THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT.

Any broker-dealer that:

-  exchanges its private notes in the exchange offer for the purpose of
participating in a distribution of the new notes, or

-  resells new notes that were received by it for its own account in the
exchange offer,

may be deemed to have received restricted securities and may be required to
comply with the registration and prospectus delivery requirements of the
Securities Act of 1933 in connection with any resale transaction by that
broker-dealer. Any profit on the resale of the new notes and any commission or
concessions received by a broker-dealer may be deemed to be underwriting
compensation under the Securities Act. In addition to broker-dealers, any holder
of notes that exchanges its private notes in the exchange offer for the purpose
of participating in a distribution of the new notes may be deemed to have
received restricted securities and may be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction by that holder.

WE CANNOT GUARANTEE THAT THERE WILL BE A TRADING MARKET FOR THE NEW NOTES.

The new notes are a new issue of securities and currently there is no
market for them. We do not intend to apply to have the new notes listed or
quoted on any exchange or quotation system. Accordingly, we cannot assure you
that a liquid market will develop for the new notes.

The liquidity of any market for the new notes will depend on a variety of
factors, including:

16

-  the number of holders of the new notes;

-  our performance; and

-  the market for similar securities and the interest of securities dealers
in making a market in the new notes.

A liquid trading market may not develop for the new notes.

Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the new notes. The market, if any, for the new notes may experience
similar disruptions may adversely affect the prices at which you may sell your
new notes. If our active trading market does not develop or is not maintained,
the market price and liquidity of the new notes may be adversely affected.

To the extent private notes are tendered and accepted in the exchange
offer, the trading market, if any, for the private notes that are not so
tendered would be adversely affected.

RISKS RELATING TO OUR BUSINESS

REAL ESTATE OPERATIONS

OUR INVESTMENT IN PROPERTY DEVELOPMENT MAY BE MORE COSTLY THAN ANTICIPATED.

We have invested and expect to continue to invest in unentitled land,
undeveloped land and distressed development properties. These properties involve
more risk than properties on which development has been completed. Unentitled
land may not be approved for development. Undeveloped land and distressed
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 our control could
occur. We 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.

COMPETITION FOR ACQUISITIONS COULD ADVERSELY AFFECT US AND NEW ACQUISITIONS MAY
FAIL TO PERFORM AS EXPECTED.

We seek 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 negatively impact the
spreads and the ability to find quality assets that provide returns that we
seek. These investments may not be readily financeable and may not generate
immediate positive cash flow for us. There can be no assurance that any asset we
acquire, whether in the real estate sector or otherwise, will increase in value
or generate positive cash flow.

WE MAY NOT BE ABLE TO SELL OUR RENTAL PROPERTIES, WHICH WOULD REDUCE CASH
AVAILABLE FOR OTHER PURPOSES.

We are currently marketing for sale our rental real estate portfolio.
During the three months ended March 31, 2004 we had sold eight properties for an
aggregate sale price of approximately $18.7 million. As of March 23, 2004, we
had conditional sales contracts or letters of intent for 40 additional
properties, with an aggregate book value as of March 31, 2004 of approximately
$226 million, for an aggregate sales price of approximately $323 million.
Generally, these contracts and letters of intent may be terminated by the buyer
with little or no penalty. We may not be successful in obtaining purchase offers
at acceptable prices and sales may not be consummated. If we do not sell this
real estate, we will not pay off the mortgages associated with these properties
which would reduce the amount we could borrow for other purposes under the
indenture. Many of our properties are net-leased to single corporate tenants, it
may be difficult to sell those properties that existing tenants decline to

17

re-let. Our attempt to market the real estate portfolio may not be successful.
Even if our efforts are successful, we cannot be certain that the proceeds from
the sales can be used to acquire businesses and investments at prices or at
projected returns which are deemed favorable.

WE FACE POTENTIAL ADVERSE EFFECTS FROM TENANT BANKRUPTCIES OR INSOLVENCIES.

The bankruptcy or insolvency of our tenants may adversely affect the
income produced by our properties. If a tenant defaults, we may experience
delays and incur substantial costs in enforcing our rights as landlord. If a
tenant files for bankruptcy, we cannot evict the tenant solely because of such
bankruptcy. A court, however, may authorize a tenant to reject or terminate its
lease with us.

THE DEVELOPMENT OF OUR NEW SEABURY PROPERTY MAY BE LIMITED BY GOVERNMENT
AUTHORITIES.

We continue to pursue the approval and development of our New Seabury
property in Cape Cod, Massachusetts. The development plans have been opposed by
the Cape Cod Commission. We have appealed its administrative decision asserting
jurisdiction over the development and a Massachusetts Superior Court ruled that
a development proposal for up to 278 residential units was exempt from the
Commission's jurisdiction. However, the Court has not ruled with respect to our
initial proposal to build up to 675 residential/hotel units. We cannot predict
the effect on our development of the property if we lose any appeal from the
Court's decision or if the Commission is ultimately successful in asserting
jurisdiction over any of the development proposals.

WE MAY BE SUBJECT TO ENVIRONMENTAL LIABILITY.

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, pollutants and contaminants
released on, under or in its property. These laws often impose liability without
regard to whether the owner or operator knew of, or was responsible for, the
release of such substances. To the extent any such substances are found in or on
any property invested in by us, we 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. We generally conduct a Phase I
environmental site assessment on properties in which we are considering
investing. A Phase I environmental site assessment involves record review,
visual site assessment and personnel interviews, but does not typically include
invasive testing procedures such as air, soil or groundwater sampling or other
tests performed as part of a Phase II environmental site assessment.
Accordingly, there can be no assurance that these assessments will disclose 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.

HOTEL AND CASINO OPERATIONS

THE GAMING INDUSTRY IS HIGHLY REGULATED. THE GAMING AUTHORITIES AND STATE AND
MUNICIPAL LICENSING AUTHORITIES HAVE SIGNIFICANT CONTROL OVER OUR OPERATIONS.

Our properties currently conduct licensed gaming operations in Nevada and
New Jersey. Various regulatory authorities, including the Nevada State Gaming
Control Board, Nevada Gaming Commission and the New Jersey Casino Control
Commission, require our properties to hold various licenses and registrations,
findings of suitability, permits and approvals to engage in gaming operations
and to meet requirements of suitability. These gaming authorities also control
approval of ownership interests in gaming operations. These gaming authorities
may deny, limit, condition, suspend or revoke our gaming licenses,
registrations, findings of suitability or the approval of any of our ownership
interests in any of the licensed gaming operations conducted in Nevada and New
Jersey, any of which could have a significant adverse effect on our business,
financial condition and results of operations, for any cause they may deem
reasonable. If we violate gaming laws or regulations that are applicable to us,
we may have to pay substantial fines or forfeit assets. If, in the future, we
operate or have an ownership interest in casino gaming facilities located
outside of Nevada or New Jersey, we may also be subject to the gaming laws and
regulations of those other jurisdictions.

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The sale of alcoholic beverages at our Nevada properties is subject to
licensing and regulation by the City of Las Vegas and Clark County, Nevada. The
City of Las Vegas and Clark County have full power to limit, condition, suspend
or revoke any such license, and any such disciplinary action may, and revocation
would, reduce the number of visitors to our Nevada casinos to the extent the
availability of alcoholic beverages is important to them. Changes in ownership
arising from the acquisition by ACEP of the Arizona Charlie's casinos will
require the approval of the City of Las Vegas and Clark County, Nevada in order
for the applicable alcoholic beverage license to remain in effect. The
acquisition may not receive the required approvals. If our alcohol licenses
become in any way impaired, it would reduce the number of visitors. Any
reduction in our number of visitors will reduce our revenue and cash flow.

RISING OPERATING COSTS FOR OUR GAMING AND ENTERTAINMENT PROPERTIES COULD HAVE A
NEGATIVE IMPACT ON OUR PROFITABILITY.

The operating expenses associated with our gaming and entertainment
properties could increase due to some of the following factors:

-     Potential changes in the tax or regulatory environment which impose
additional restrictions or increase operating costs;

-     Our properties use significant amounts of electricity, natural gas
and other forms of energy, and energy price increases may reduce our
working capital;

-     Our properties use significant amounts of water and a water shortage
may adversely affect our operations;

-     An increase in the cost of health care benefits for our employees
could have a negative impact on our profitability;

-     Some of our employees are covered by collective bargaining
agreements and we may incur higher costs or work slow-downs or
stoppages due to union activities;

-     Our reliance on slot machine revenues and the concentration of
manufacturing of slot machines in certain companies could impose
additional costs on us; and

-     Our insurance coverage may not be adequate to cover all possible
losses and our insurance costs may increase.

WE FACE SUBSTANTIAL COMPETITION IN THE HOTEL AND CASINO INDUSTRY.

The hotel and casino industry in general, and the markets in which we
compete in particular, are highly competitive.

-     We compete with many world class destination resorts with greater
name recognition, different attractions, amenities and entertainment
options.

-     We compete with the continued growth of gaming on Native American
tribal lands, particularly in California.

-     The existence of legalized gambling in other jurisdictions may
reduce the number of visitors to our properties.

-     Certain states have legalized, and others may legalize, casino
gaming in specific venues, including race tracks and/or in specific
areas, including metropolitan areas from which we traditionally
attract customers, including Los Angeles, San Francisco and New
York.

-     Our properties also compete and will in the future compete with all
forms of legalized gambling.

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Many of our competitors have greater financial, selling and marketing,
technical and other resources than we do. We may not be able to compete
effectively with our competitors and we may lose market share, which could
reduce our revenue and cash flow.

ECONOMIC DOWNTURNS, TERRORISM AND THE UNCERTAINTY OF WAR, AS WELL AS OTHER
FACTORS AFFECTING DISCRETIONARY CONSUMER SPENDING, COULD REDUCE THE NUMBER OF
OUR VISITORS OR THE AMOUNT OF MONEY VISITORS SPEND AT OUR CASINOS.

The strength and profitability of our business depends on consumer demand
for hotel-casino resorts and gaming in general and for the type of amenities we
offer. Changes in consumer preferences or discretionary consumer spending could
harm our business.

During periods of economic contraction, our revenues may decrease while
some of our costs remain fixed, resulting in decreased earnings. This is because
the gaming and other leisure activities we offer at our properties are
discretionary expenditures, and participation in these activities may decline
during economic downturns because consumers have less disposable income. Even an
uncertain economic outlook may adversely affect consumer spending in our gaming
operations and related facilities, as consumers spend less in anticipation of a
potential economic downturn. Additionally, rising gas prices could deter
non-local visitors from traveling to our properties.

The terrorist attacks which occurred on September 11, 2001, the potential for
future terrorist attacks and wars in Afghanistan and Iraq have had a negative
impact on travel and leisure expenditures, including lodging, gaming and
tourism. Leisure and business travel, especially travel by air, remain
particularly susceptible to global geopolitical events. Many of the customers of
our properties travel by air, and the cost and availability of air service can
affect our business. Furthermore, insurance coverage against loss or business
interruption resulting from war and some forms of terrorism may be unavailable
or not available on terms that we consider reasonable. We cannot predict the
extent to which war, future security alerts or additional terrorist attacks may
interfere with our operations.

INVESTMENTS

WE MAY NOT BE ABLE TO IDENTIFY SUITABLE INVESTMENTS.

Our partnership agreement allows us to take advantage of investment
opportunities we believe exist outside of the real estate market. The equity
securities in which we may invest may include common stocks, preferred stocks
and securities convertible into common stocks, as well as warrants to purchase
these securities. The debt securities in which we may invest may include bonds,
debentures, notes, or non-rated mortgage-related securities, municipal
obligations, bank debt and mezzanine loans. Certain of these securities may
include lower rated or non-rated securities which may provide the potential for
higher yields and therefore may entail higher risk and may include the
securities of bankrupt or distressed companies. In addition, we may engage in
various investment techniques, including derivatives, options and futures
transactions, foreign currency transactions, "short" sales and leveraging for
either hedging or other purposes. We may concentrate our activities by owning
one or a few businesses or holdings, which would increase our risk. We may not
be successful in finding suitable opportunities to invest our cash and our
strategy of investing in undervalued assets may expose us to numerous risks.

OUR INVESTMENTS MAY BE SUBJECT TO SIGNIFICANT UNCERTAINTIES.

Our investments may not be successful for many reasons including, but not
limited to:

-     Fluctuation of interest rates;

-     Lack of control in minority investments;

-     Worsening of general economic and market conditions;

-     Lack of diversification;

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-     Inexperience with non-real estate areas;

-     Fluctuation of U.S. dollar exchange rates; and

-     Adverse legal and regulatory developments that may affect particular
businesses.

OIL AND GAS

WE FACE SUBSTANTIAL RISKS IN THE OIL AND GAS INDUSTRY.

The exploration for and production of oil and gas involves numerous risks.
The cost of drilling, completing and operating wells for oil or gas is often
uncertain, and a number of factors can delay or prevent drilling operations or
production, including:

-     unexpected drilling conditions;

-     pressure or irregularities in formation;

-     equipment failures or repairs;

-     fires or other accidents;

-     adverse weather conditions;

-     pipeline ruptures or spills; and

-     shortages or delays in the availability of drilling rigs and the
delivery of equipment.

THE OIL AND GAS INDUSTRY IS HIGHLY REGULATED AND FEDERAL, STATE AND MUNICIPAL
LICENSING AUTHORITIES HAVE SIGNIFICANT CONTROL OVER OUR OPERATIONS.

The oil and gas industry is subject to extensive legislation and
regulation, which is under constant review for amendment or expansion. Any
changes may affect, among other things, the pricing or marketing of oil and gas
production. State and local authorities regulate various aspects of oil and gas
exploration and production activities, including the drilling of wells, the
spacing of wells, the unitization or pooling of oil and gas properties,
environmental matters, safety standards, market sharing and well site
restoration.

The oil and gas industry is subject to laws, regulations and other legal
requirements enacted or adopted by federal, state and local, as well as foreign,
authorities relating to protection of the environment and health and safety
matters, including those legal requirements that govern discharges of substances
into the air and water, the management and disposal of hazardous substances and
wastes, the cleanup of contaminated sites, groundwater quality and availability,
and plant and wildlife protection.

21

FORWARD-LOOKING STATEMENTS

Some statements in this prospectus and the documents incorporated by
reference are known as "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements may
relate to, among other things, future performance generally, business
development activities, future capital expenditures, financing sources and
availability and the effects of regulation and competition.

When we use the words "believe," "intend," "expect," "may," "will,"
"should," "anticipate," "could," "estimate," "plan," "predict," "project," or
their negatives, or other similar expressions, the statements which include
those words are usually forward-looking statements. When we describe strategy
that involves risks or uncertainties, we are making forward-looking statements.

We warn you that forward-looking statements are only predictions. Actual
events or results may differ as a result of risks that we face, including those
set forth in the section of this prospectus called "Risk Factors." Those risks
are representative of factors that could affect the outcome of the
forward-looking statements. These and the other factors discussed elsewhere in
this prospectus and the documents incorporated by reference herein are not
necessarily all of the important factors that could cause our results to differ
materially from those expressed in our forward-looking statements.
Forward-looking statements speak only as of the date they were made and we
undertake no obligation to update them.

INDUSTRY DATA

We refer to market and industry data throughout this prospectus that we
have obtained from publicly available information and industry publications and
other data that is based on the good faith estimates of our management, which
estimates are based upon their review of internal surveys, independent industry
publications and other publicly available information. Although we believe that
these sources are reliable, we have not verified the accuracy or completeness of
this information. We are not aware of any misstatements regarding the market and
industry data presented in this prospectus, however, our estimates involve risks
and uncertainties and are subject to change based on various factors, including
those discussed under the heading "Risk Factors."

22

USE OF PROCEEDS

We will not receive any proceeds from the exchange of the new notes for
the private notes pursuant to the exchange offer. On May 12, 2004, we issued and
sold the private notes in a private offering, receiving net proceeds of
approximately $343 million, after deducting selling and offering expenses.

We intend to use the net proceeds of the private offering for general
business purposes, including to pursue our primary business strategy of
acquiring undervalued assets in either our existing lines of business or other
businesses and to provide additional capital to grow our existing business.

We will use the net proceeds of the private offering and conduct our
activities in a manner so as not to be deemed an investment company under the
Investment Company Act. Generally this means that we do not intend to enter the
business of investing in securities and that no more than 40% of our total
assets will be invested in securities. The portion of our assets invested in
each type of security or any single issuer or industry will not be limited.

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THE EXCHANGE OFFER

PURPOSE OF THE EXCHANGE OFFER

In connection with the sale of the private notes, we and the initial
purchaser entered into a registration rights agreement in which we and AREH
agreed to:

-     file a registration statement with the Securities and Exchange
Commission with respect to the exchange of the private notes for new
notes, or the exchange offer registration statement, no later than
90 days after the date we issued the private notes;

-     use all commercially reasonable efforts to have the exchange offer
registration statement declared effective by the SEC on or prior to
180 days after the issuance date; and

-     commence the offer to exchange new notes for the private notes and
use all commercially reasonable efforts to issue on or prior to 30
business days, or longer if required by the federal securities laws,
after the date on which the exchange offer registration statement
was declared effective by the SEC, new notes in exchange for all
private notes tendered prior to that date in the exchange offer.

We are making the exchange offer to satisfy certain of our obligations
under the registration rights agreement. We filed a copy of the registration
rights agreement as an exhibit to the exchange offer registration statement.

RESALE OF EXCHANGE NOTES

Under existing interpretations of the Securities Act of 1933 by the staff
of the SEC contained in several no-action letters to third parties, we believe
that the new notes will generally be freely transferable by holders who have
validly participated in the exchange offer without further registration under
the Securities Act of 1933 (assuming the truth of certain representations
required to be made by each holder of notes, as set forth below). For additional
information on the staff's position, we refer you to the following no-action
letters: Exxon Capital Holdings Corporation, available April 13, 1988; Morgan
Stanley & Co. Incorporated, available June 5, 1991; and Shearman & Sterling,
available July 2, 1993. However, any purchaser of private notes who is one of
our "affiliates" or who intends to participate in the exchange offer for the
purpose of distributing the new notes or who is a broker-dealer who purchased
private notes from us to resell pursuant to Rule 144A or any other available
exemption under the Securities Act of 1933:

-     will not be able to tender its private notes in the exchange offer;

-     will not be able to rely on the interpretations of the staff of the
SEC; and

-     must comply with the registration and prospectus delivery
requirements of the Securities Act of 1933 in connection with any
sale or transfer of the private notes unless such sale or transfer
is made pursuant to an exemption from these requirements.

If you wish to exchange private notes for new notes in the exchange offer,
you will be required to make representations in a letter of transmittal which
accompanies this prospectus, including that:

-     you are not our "affiliate" (as defined in Rule 405 under the
Securities Act of 1933);

-     any new notes to be received by you will be acquired in the ordinary
course of your business;

-     you have no arrangement or understanding with any person to
participate in the distribution of the new notes in violation of the
provisions of the Securities Act of 1933;

24

-     if you are not a broker-dealer, you are not engaged in, and do not
intend to engage in, a distribution of new notes; and

-     if you are a broker-dealer, you acquired the private notes for your
own account as a result of market-making or other trading activities
(and as such, you are a "participating broker-dealer"), you have not
entered into any arrangement or understanding with American Real
Estate Partners, L.P. or an affiliate of American Real Estate
Partners, L.P. to distribute the new notes and you will deliver a
prospectus meeting the requirements of the Securities Act of 1933 in
connection with any resale of the new notes.

Rule 405 under the Securities Act of 1933 provides that an "affiliate" of,
or person "affiliated" with, a specified person, is a person that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with the person specified.

The SEC has taken the position that participating broker-dealers may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933,
and accordingly may fulfill their prospectus delivery requirements with respect
to the new notes, other than a resale of an unsold allotment from the original
sale of the notes, with the prospectus contained in the exchange offer
registration statement. Under the registration rights agreement, we have agreed
to use commercially reasonable efforts to allow participating broker-dealers and
other persons, if any, subject to similar prospectus delivery requirements, to
use the prospectus contained in the exchange offer registration statement in
connection with the resale of the new notes for a period of 270 days from the
issuance of the new notes.

TERMS OF THE EXCHANGE OFFER

This prospectus and the accompanying letter of transmittal contain the
terms and conditions of the exchange offer. Upon the terms and subject to the
conditions set forth in this prospectus and in the accompanying letter of
transmittal, we will accept for exchange all private notes which are properly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on the
expiration date. After authentication of the new notes by the trustee or an
authentication agent, we will issue and deliver $1,000 principal amount of new
notes in exchange for each $1,000 principal amount of outstanding private notes
accepted in the exchange offer. Holders may tender some or all of their private
notes in the exchange offer in denominations of $1,000 and integral multiples
thereof.

The form and terms of the new notes are identical in all material respects
to the form and terms of the private notes, except that:

(1) the offering of the new notes has been registered under the Securities
Act of 1933;

(2) the new notes generally will not be subject to transfer restrictions
or have registration rights; and

(3) certain provisions relating to liquidated damages on the private notes
provided for under certain circumstances will be eliminated.

The new notes will evidence the same debt as the private notes. The new
notes will be issued under and entitled to the benefits of the indenture.

As of the date of this prospectus, $353 million aggregate principal amount
of the private notes is outstanding. In connection with the issuance of the
private notes, we made arrangements for the private notes to be issued and
transferable in book-entry form through the facilities of the Depository Trust
Company acting as a depositary. The new notes will also be issuable and
transferable in book-entry form through the Depository Trust Company.

The exchange offer is not conditioned upon any minimum aggregate principal
amount of private notes being tendered. However, our obligation to accept
private notes for exchange pursuant to the exchange offer is subject to certain
customary conditions that we describe under "-- Conditions" below.

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Holders who tender private notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
private notes pursuant to the exchange offer. We will pay all charges and
expenses, other than certain applicable taxes, in connection with the exchange
offer. See "-- Solicitation of Tenders; Fees and Expenses" for more detailed
information regarding the expenses of the exchange offer.

By executing or otherwise becoming bound by the letter of transmittal, you
will be making the representations described under "--Procedures for Tendering"
below.

EXPIRATION DATE; EXTENSIONS; AMENDMENTS

The term "expiration date" will mean 5:00 p.m., New York City time, on
________, 2004, unless we, in our sole discretion, extend the exchange offer, in
which case the term "expiration date" will mean the latest date and time to
which we extend the exchange offer.

To extend the exchange offer, we will:

-     notify the exchange agent of any extension orally or in writing; and

-     notify the registered holders of the private notes by means of a
press release or other public announcement, each before 9:00 a.m.,
New York City time, on the next business day after the previously
scheduled expiration date.

We reserve the right, in our reasonable discretion:

-     to delay accepting any private notes;

-     to extend the exchange offer; or

-     if any conditions listed below under "--Conditions" are not
satisfied, to terminate the exchange offer by giving oral or written
notice of the delay, extension or termination to the exchange agent.

We will follow any delay in acceptance, extension or termination as
promptly as practicable by oral or written notice to the registered holders. If
we amend the exchange offer in a manner we determine constitutes a material
change, we will promptly disclose the amendment in a prospectus supplement that
we will distribute to the registered holders.

INTEREST ON THE NEW NOTES

Interest on the new notes will accrue from the last interest payment date
on which interest was paid on the private notes surrendered in exchange for new
notes or, if no interest has been paid on the private notes, from the issue date
of the private notes, May 12, 2004. Interest on the new notes will be payable
semi-annually on June 1 and December 1 of each year, commencing December 1,
2004.

PROCEDURES FOR TENDERING

You may tender your private notes in the exchange offer only if you are a
registered holder of private notes. To tender in the exchange offer, you must:

-     complete, sign and date the letter of transmittal or a facsimile the
letter of transmittal;

-     have the signatures thereof guaranteed if required by the letter of
transmittal; and

-     mail or otherwise deliver the letter of transmittal or such
facsimile to the exchange agent, at the

26

address listed below under " -- Exchange Agent" for receipt prior to
the expiration date.

In addition, either:

-     the exchange agent must receive certificates for the private notes
along with the letter of transmittal into its account at the
Depository Trust Company pursuant to the procedure described under "
-- Book-Entry Transfer" before the expiration date;

-     the exchange agent must receive a timely confirmation of a
book-entry transfer, if the procedure is available, into its account
at the Depository Trust Company pursuant to the procedure described
under " -- Book-Entry Transfer" before the expiration date; or

-     you must comply with the procedures described under "Guaranteed
Delivery Procedures."

Your tender, if not withdrawn before the expiration date, will constitute
an agreement between you and us in accordance with the terms and subject to the
conditions described in this prospectus and in the letter of transmittal.

The method of delivery of private notes and the letter of transmittal and
all other required documents to the exchange agent is at your election and risk.
We recommend that, instead of delivery by mail, you use an overnight or hand
delivery service. In all cases, you should allow sufficient time to ensure
delivery to the exchange agent prior to the expiration date. You should not send
letters of transmittal or private notes to us. You may request that your
respective brokers, dealers, commercial banks, trust companies or nominees
effect the transactions described above for you.

If you are a beneficial owner whose private notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
you wish to tender your private notes, you should contact such registered holder
promptly and instruct such registered holder to tender on your behalf. If you
wish to tender on your own behalf, prior to completing and executing the letter
of transmittal and delivering your private notes, you must either:

-     make appropriate arrangements to register ownership of your private
notes in your name; or

-     obtain a properly completed bond power from the registered holder.

The transfer of record ownership may take considerable time unless private
notes are tendered

-     by a registered holder who has not completed the box entitled
"Special Registration Instructions" or "Special Delivery
Instruction" on the letter of transmittal; or

-     for the account of an "Eligible Institution" which is either:

-     a member firm of a registered national securities exchange or
of the National Association of Securities Dealers, Inc.;

-     a commercial bank or trust company located or having an office
or correspondent in the United States; or

-     otherwise an "eligible guarantor institution" within meaning
of Rule 17Ad-15 under the Securities Exchange Act of 1934,

an Eligible Institution must guarantee the signatures on a letter of transmittal
or a notice of withdrawal described below under " -- Withdrawal of Tenders."

If the letter of transmittal is signed by a person other than the
registered holder, such private notes must be

27

endorsed or accompanied by appropriate bond powers which authorize such person
to tender the private notes on behalf of the registered holder, in either case
signed as the name of the registered holder or holders appears on the private
notes.

If the letter of transmittal or any private notes or bond powers are
signed or endorsed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by us, they must submit evidence satisfactory to us of their
authority to so act with the letter of transmittal.

The letter of transmittal will include representations to us as set forth
under "Resale of Exchange Notes."

You should note that:

-     All questions as to the validity, form, eligibility, including time
of receipt, acceptance and withdrawal of the tendered private notes
will be determined by us in our sole discretion, which determination
will be final and binding;

-     We reserve the absolute right to reject any and all private notes
not properly tendered or any private notes the acceptance of which
would, in our judgment or the judgment of our counsel, be unlawful;

-     We also reserve the absolute right to waive any irregularities or
conditions of tender as to particular private notes. Our
interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be
final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of private notes must be
cured within such time as we shall determine;

-     Although we intend to notify holders of defects or irregularities
with respect to any tender of private notes, neither we, the
exchange agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to tenders
of private notes, nor shall any of them incur any liability for
failure to give such notification; and

-     Tenders of private notes will not be deemed to have been made until
such irregularities have been cured or waived. Any private notes
received by the exchange agent that we determine are not properly
tendered or the tender of which is otherwise rejected by us and as
to which the defects or irregularities have not been cured or waived
by us will be returned by the exchange agent to the tendering holder
unless otherwise provided in the letter of transmittal, as soon as
practicable following the expiration date.

BOOK-ENTRY TRANSFER

The exchange agent will make a request promptly after the date of this
prospectus to establish accounts with respect to the private notes at the
Depository Trust Company for the purpose of facilitating the exchange offer. Any
financial institution that is a participant in the Depository Trust Company's
system may make book-entry delivery of private notes by causing the Depository
Trust Company to transfer such private notes into the exchange agent's account
with respect to the private notes in accordance with the Depository Trust
Company's Automated Tender Offer Program procedures for such transfer. However,
the exchange for the private notes so tendered will only be made after timely
confirmation of such book-entry transfer of private notes into the exchange
agent's account, and timely receipt by the exchange agent of an agent's message
and any other documents required by the letter of transmittal. The term "agent's
message" means a message, transmitted by the Depository Trust Company and
received by the exchange agent and forming a part of the confirmation of a
book-entry transfer, which states that the Depository Trust Company has received
an express acknowledgment from a participant that is tendering private notes
that such participant has received the letter of transmittal and agrees to be
bound by the terms of the letter of transmittal, and that we may enforce such
agreement against the participant.

28

Although delivery of private notes may be effected through book-entry
transfer into the exchange agent's account at the Depository Trust Company, you
must transmit and the exchange agent must receive, the letter of transmittal (or
facsimile thereof) properly completed and duly executed with any required
signature guarantee and all other required documents prior to the expiration
date, or you must comply with the guaranteed delivery procedures described
below. Delivery of documents to the Depository Trust Company does not constitute
delivery to the exchange agent.

GUARANTEED DELIVERY PROCEDURES

If you wish to tender your private notes but your private notes are not
immediately available, or time will not permit your private notes or other
required documents to reach the exchange agent before the expiration date, or
the procedure for book-entry transfer cannot be completed on a timely basis, you
may effect a tender if:

(1)   the tender is made through an Eligible Institution;

(2)   prior to the expiration date, the exchange agent receives from such
Eligible Institution a properly completed and duly executed notice
of guaranteed delivery, by facsimile transmittal, mail or hand
delivery

-     stating the name and address of the holder, the certificate
number or numbers of such holder's private notes and the
principal amount of such private notes tendered;

-     stating that the tender is being made thereby; and

-     guaranteeing that, within three New York Stock Exchange
trading days after the expiration date, the letter of
transmittal, or a facsimile thereof, together with the
certificate(s) representing the private notes to be tendered
in proper form for transfer, or confirmation of a book-entry
transfer into the exchange agent's account at the Depository
Trust Company of private notes delivered electronically, and
any other documents required by the letter of transmittal,
will be deposited by the Eligible Institution with the
exchange agent; and

(3)   such properly completed and executed letter of transmittal, or a
facsimile thereof, together with the certificate(s) representing all
tendered private notes in proper form for transfer, or confirmation
of a book-entry transfer into the exchange agent's account at the
Depository Trust Company of private notes delivered electronically
and all other documents required by the letter of transmittal are
received by the exchange agent within three New York Stock Exchange
trading days after the expiration date.

Upon request, the exchange agent will send to you a notice of guaranteed
delivery if you wish to tender your private notes according to the guaranteed
delivery procedures described above.

WITHDRAWAL OF TENDERS

Except as otherwise provided in this prospectus, you may withdraw tenders
of private notes at any time prior to the expiration date.

For a withdrawal to be effective, the exchange agent must receive a
written or facsimile transmission notice of withdrawal at its address set forth
this prospectus prior to the expiration date. Any such notice of withdrawal
must:

-     specify the name of the person who deposited the private notes to be
withdrawn;

-     identify the private notes to be withdrawn, including the
certificate number or number and principal amount of such private
notes or, in the case of private notes transferred by book-entry
transfer, the name and number of the account at the Depository Trust
Company to be credited; and

29

-     be signed in the same manner as the original signature on the letter
of transmittal by which such private notes were tendered, including
any required signature guarantee.

We will determine in our sole discretion all questions as to the validity,
form and eligibility, including time of receipt, of such withdrawal notices, and
our determination shall be final and binding on all parties. We will not deem
any properly withdrawn private notes to have been validly tendered for purposes
of the exchange offer, and we will not issue new notes with respect those
private notes unless you validly retender the withdrawn private notes. You may
retender properly withdrawn private notes following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
expiration date.

CONDITIONS

Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange the new notes for, any private
notes, and may terminate the exchange offer as provided in this prospectus
before the acceptance of the private notes, if:

the exchange offer violates applicable law, rules or regulations or an
applicable interpretation of the staff of the SEC;

an action or proceeding has been instituted or threatened in any court or by any
governmental agency which might materially impair our ability to proceed with
the exchange offer;

there has been proposed, adopted or enacted any law, rule or regulation that, in
our reasonable judgment would impair materially our ability to consummate the
exchange offer; or

all governmental approvals which we deem necessary for the completion of the
exchange offer have not been obtained.

If we determine in our reasonable discretion that any of these conditions
are not satisfied, we may:

-     refuse to accept any private notes and return all tendered private
notes to you;

-     extend the exchange offer and retain all private notes tendered
before the exchange offer expires, subject, however, to your rights
to withdraw the private notes; or

-     waive the unsatisfied conditions with respect to the exchange offer
and accept all properly tendered private notes that have not been
withdrawn.

If the waiver constitutes a material change to the exchange offer, we will
promptly disclose the waiver by means of a prospectus supplement that we will
distribute to the registered holders of the private notes.

EXCHANGE AGENT

We have appointed Wilmington Trust Company, the trustee under the
indenture, as exchange agent for the exchange offer. You should send all
executed letters of transmittal to the exchange agent at one of the addresses
set forth below. In such capacity, the exchange agent has no fiduciary duties
and will be acting solely on the basis of directions of our company. You should
direct questions, requests for assistance and requests for additional copies of
this prospectus or of the letter of transmittal and requests for a notice of
guaranteed delivery to the exchange agent addressed as follows:

30

BY CERTIFIED OR REGISTERED MAIL:
Wilmington Trust Company
DC-1626 Processing Unit
P.O. Box 8861
Wilmington, DE 19899-8861

BY OVERNIGHT COURIER OR HAND DELIVERY:
Wilmington Trust Company
Corporate Capital Markets
1100 North Market Street
Wilmington, DE 19890-1626

BY FACSIMILE:
(302) 636-4145

CONFIRM BY TELEPHONE:
(302) 636-6470

Delivery to an address or facsimile number other than those listed above
will not constitute a valid delivery.

The trustee does not assume any responsibility for and makes no
representation as to the validity or adequacy of this prospectus or the notes.

SOLICITATION OF TENDERS; FEES AND EXPENSES

We will pay all expenses of soliciting tenders pursuant to the exchange
offer. We are making the principal solicitation by mail. Our officers and
regular employees may make additional solicitations in person or by telephone or
telecopier.

We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We will, however, pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket costs and expenses in connection
therewith.

We also may pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this prospectus, letters of transmittal and related documents to the
beneficial owners of the private notes and in handling or forwarding tenders for
exchange.

We will pay the expenses to be incurred in connection with the exchange
offer, including fees and expenses of the exchange agent and trustee and
accounting and legal fees and printing costs.

We will pay all transfer taxes, if any, applicable to the exchange of
private notes for new notes pursuant to the exchange offer. If, however,
certificates representing new notes or private notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered holder
of the private notes tendered, or if tendered private notes are registered in
the name of any person other than the person signing the letter of transmittal,
or if a transfer tax is imposed for any reason other than the exchange of
private notes pursuant to the exchange offer, then the amount of any such
transfer taxes, whether imposed on the registered holder or any other persons,
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the letter of
transmittal, the amount of such transfer taxes will be billed by us directly to
such tendering holder.

CONSEQUENCES OF FAILURE TO EXCHANGE

Participation in the exchange offer is voluntary. We urge you to consult
your financial and tax advisors in making your decisions on what action to take.
Private notes that are not exchanged for new notes pursuant to the exchange
offer will remain restricted securities. Accordingly, those private notes may be
resold only:

31

-     to a person whom the seller reasonably believes is a qualified
institutional buyer in a transaction meeting the requirements of
Rule 144A under the Securities Act of 1933;

-     in a transaction meeting the requirements of Rule 144 under the
Securities Act of 1933;

-     outside the United States to a foreign person in a transaction
meeting the requirements of Rule 903 or 904 of Regulation S under
the Securities Act of 1933;

-     in accordance with another exemption from the registration
requirements of the Securities Act of 1933 and based upon an opinion
of counsel if we so request;

-     to us; or

-     pursuant to an effective registration statement.

In each case, the private notes may be resold only in accordance with any
applicable securities laws of any state of the United States or any other
applicable jurisdiction.

32

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA OF
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

The following unaudited pro forma consolidated balance sheet as of March 31,
2004 and the unaudited pro forma consolidated statements of earnings for the
year ended December 31, 2003 and for the quarter ended March 31, 2004 of
American Real Estate Partners, L.P. and Subsidiaries reflect an adjustment
column for the notes offering and has been prepared from the historical
consolidated financial statements of American Real Estate Partners, as adjusted
to give effect to the pro forma adjustments as if such pro forma adjustments had
occurred at the beginning of each of the periods presented for the statements of
earnings and at March 31, 2004 for the balance sheet data. The unaudited pro
forma financial data does not purport to be indicative of what the results of
American Real Estate Partners, L.P. would have been had the transaction been
completed on the dates assumed, nor is such financial data necessarily
indicative of future results of operations of American Real Estate Partners,
L.P. The unaudited pro forma financial data must be read in conjunction with the
notes thereto and the historical consolidated financial statements and the
related notes.

33

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF
MARCH 31, 2004 (IN $000'S)

PRO FORMA ADJUSTMENTS
---------------------
(1)
HISTORICAL      ---      PROFORMA
2004       OFFERING     2004
----       --------     ----
(UNAUDITED)

ASSETS
Real estate leased to others:
Accounted for under the financing
method .................................     $  131,413   $       --   $  131,413
Accounted for under the operating
method, net of accumulated
depreciation ...........................         76,127           --       76,127
Properties held for sale ..................        148,878           --      148,878
Cash and cash equivalents .................        483,872      342,505      826,377
Hotel, casino and resort operating
properties (Net of accumulated
depreciation)
Stratosphere Corporation hotel and
casino .................................        171,405           --      171,405
Hotel and resort ........................         35,358           --       35,358
Debt placement costs ......................             --        7,904        7,904
Restricted cash ...........................        219,313           --      219,313
Other assets ..............................        560,591           --      560,591
----------   ----------   ----------
TOTAL ASSETS ..............................     $1,826,957   $  350,409   $2,177,366
==========   ==========   ==========
LIABILITIES AND PARTNERS' EQUITY

Mortgages payable .......................     $  179,251   $       --   $  179,251
7.85% Senior Secured Notes payable ......        215,000           --      215,000
8.125% Senior Notes payable (net of
discount) ..............................             --      350,409      350,409
Accounts payable, accrued expenses
and other liabilities ...................        115,084           --      115,084
Liability for preferred limited
partnership units .......................        102,863           --      102,863
----------   ----------   ----------
Total liabilities ........................        612,198      350,409      962,607
Partners' equity ..........................      1,214,759           --    1,214,759
----------   ----------   ----------
TOTAL LIABILITIES AND PARTNERS' EQUITY.....     $1,826,957   $  350,409   $2,177,366
==========   ==========   ==========

See accompanying notes to unaudited proforma consolidated financial data.

34

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 2003
(IN $000'S, EXCEPT UNIT AND PER UNIT AMOUNTS)

PRO FORMA
ADJUSTMENTS
-----------  
HISTORICAL          (2)          PRO FORMA
2003           OFFERING          2003
----           --------          ----

Revenues:
Hotel and casino operating income ..................   $    163,701       $      --    $    163,701
Other ..............................................        112,855              --         112,855
------------       ---------    ------------
276,556              --         276,556
------------       ---------    ------------
Expenses:

Hotel and casino operating expenses ................        135,429              --         135,429
Interest expense ...................................         20,640          29,980          50,620
Depreciation and amortization ......................         17,773              --          17,773
General and administrative expenses ................         14,081              --          14,081
Other ..............................................         25,742              --          25,742
------------       ---------    ------------
213,665          29,980         243,645
------------       ---------    ------------
Operating income .....................................         62,891         (29,980)         32,911
Other gains and (losses):
Write-down of mortgages and notes receivable .......        (18,798)             --         (18,798)
Gain on sales and disposition of real estate .......          7,121              --           7,121
Other gains and losses (net) .......................            896              --             896
------------       ---------    ------------
Income from continuing operations before income taxes          52,110         (29,980)         22,130
Income tax benefit .................................          6,495              --           6,495
------------       ---------    ------------
Income from continuing operations ..................         58,605              --          28,625
Income from discontinued operations ..................          9,492              --           9,492
------------       ---------    ------------
Net earnings .........................................   $     68,097       $ (29,980)   $     38,117
============       =========    ============
Net earnings attributable to:
Limited partners ...................................   $     59,360       $ (29,383)   $     29,977
General partner ....................................          8,737            (597)          8,140
------------       ---------    ------------
$     68,097       $ (29,980)   $     38,117
============       =========    ============
Net earnings per limited partnership unit:
Basic earnings:
Income from continuing operations .................   $       1.03       $   (0.64)   $       0.39
Income from discontinued operations ...............           0.20              --            0.20
------------       ---------    ------------
Basic earnings per LP unit .........................   $       1.23       $   (0.64)   $       0.59
============       =========    ============
Weighted average limited partnership units outstanding   $ 46,098,284              --    $ 46,098,284
============       =========    ============
Diluted earnings:
Income from continuing operations .................   $       0.96       $   (0.54)   $       0.42 
Income from discontinued operations ...............           0.17              --            0.17
------------       ---------    ------------
Diluted earnings per LP unit .......................   $       1.13       $   (0.54)   $       0.59
============       =========    ============
Weighted average limited partnership units and
equivalent partnership units outstanding ...........     54,489,943              --      54,489,943
============       =========    ============

See accompanying notes to unaudited proforma consolidated financial data.

35

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
THREE MONTHS ENDED MARCH 31, 2004 (UNAUDITED)
(IN $000'S, EXCEPT UNIT AND PER UNIT AMOUNTS)

PRO FORMA
ADJUSTMENTS
-----------
(2)
HISTORICAL       OFFERING         PRO FORMA
----------       --------         ---------

Revenues:
Hotel and casino operating income......................   $     45,715         $    --    $     45,715
Other..................................................         29,107              --          29,107
------------    ------------    ------------
74,822              --          74,822
------------    ------------    ------------
Expenses:

Hotel and casino operating expenses....................         34,019              --          34,019
Interest expense.......................................          5,919           7,495          13,414
Depreciation and amortization..........................          5,092              --           5,092
General and administrative expenses....................          4,364              --           4,364
Other..................................................          6,639              --           6,639
------------    ------------    ------------
56,033           7,495          63,528
------------    ------------    ------------
Operating income.........................................         18,789          (7,495)         11,294
Other gains and (losses):
Gain on sale of marketable equity and debt securities..         28,857              --          28,857
Gain on sales and disposition of real estate...........          6,047              --           6,047
------------    ------------    ------------
Income from continuing operations before income taxes....         53,693          (7,495)         46,198
Income tax expense.....................................         (4,302)             --          (4,302)
------------    ------------    ------------
Income from continuing operations......................         49,391          (7,495)         41,896
Income from discontinued operations......................          9,387              --           9,387
------------    ------------    ------------
Net earnings.............................................   $     58,778    $     (7,495)   $     51,283
============    ============    ============

Net earnings attributable to:
Limited partners.......................................   $     57,608    $     (7,346)   $     50,262
General partners.......................................          1,170            (149)          1,021
------------    ------------    ------------
$     58,778    $     (7,495)   $     51,283
============    ============    ============
Net earnings per limited partnership unit:
Basic earnings:
Income from continuing operations.....................   $       1.05    $      (0.16)   $       0.89
Income from discontinued operations...................           0.20              --            0.20
------------    ------------    ------------
Basic earnings per LP unit.............................   $       1.25    $      (0.16)   $       1.09
============    ============    ============
Weighted average limited partnership units outstanding...     46,098,284              --      46,098,284
============    ============    ============
Diluted earnings:

Income from continuing operations.....................   $       0.94    $      (0.14)   $       0.80
Income from discontinued operations...................           0.18              --            0.18
------------    ------------    ------------
Diluted earnings per LP unit...........................   $       1.12    $      (0.14)   $       0.98
============    ============    ============
Weighted average limited partnership units and
equivalent partnership units outstanding...............     52,499,303              --      52,499,303
============    ============    ============

See accompanying notes to unaudited proforma consolidated financial data.

36

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

(1)   Represents the issuance of the 8 1/8% Senior Notes due 2012 in the amount
of $353 million, less discount of $2.6 million and financing costs of $7.9
million.

(2)   For the full year period:

Interest expense on $353,000,000 note payable at 8.125%  $     28,681,000
Amortization of debt placement costs                              978,000
Amortization of discount                                          321,000
----------------
Interest expense                         $     29,980,000
================

37

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following table summarizes certain selected historical consolidated
financial data of American Real Estate Partners, L.P., which you should read in
conjunction with the financial statements and the related notes contained in
this prospectus and "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The selected historical consolidated financial data
as of December 31, 2003 and 2002, and for the years ended December 31, 2003,
2002 and 2001, have each been derived from our audited consolidated financial
statements at those dates and for those periods, contained elsewhere in this
prospectus. The selected historical consolidated financial data as of December
31, 2001, 2000 and 1999, and for the years ended December 31, 2000 and 1999,
have each been derived from our audited consolidated financial statements at
those dates and for those periods, not contained in this prospectus. Certain
amounts have been reclassified as discontinued operations in accordance with
Statement of Financial Accounting Standards No. 144. The selected historical
consolidated financial data as of March 31, 2004 and for the three months ended
March 31, 2004 and 2003 are unaudited. For the three month periods ended March
31, 2004 and 2003, all adjustments, consisting only of normal recurring
adjustments, which are, in our opinion, necessary for a fair presentation of the
interim combined financial statements, have been included. Results for the three
months ended March 31, 2004 are not necessarily indicative of the results for
the full year.

THREE MONTHS
ENDED MARCH 31,                        YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------------
2004       2003         2003        2002         2001          2000         1999
----       ----         ----        ----         ----          ----         ----
(IN THOUSANDS)

OPERATING DATA:
Total revenues .............................   $   74,822  $ 69,030  $   276,556  $   346,380  $   322,322  $   294,267  $  279,489
==========  ========  ===========  ===========  ===========  ===========  ==========
Operating income ...........................   $   18,789  $ 14,524  $    62,891  $    83,730  $    63,788  $    65,802  $   65,369
Other gains and (losses):
Provision for loss on real estate .........           --      (200)        (750)      (3,212)      (3,184)      (1,351)     (1,946)
Gain on sale of marketable equity and debt
securities ..............................       28,857        --        2,607           --        6,749           --      28,590
Write-down of equity securities available
for sale .................................           --      (961)        (961)      (8,476)          --           --          --
Write-down of mortgages and notes
receivable ...............................           --        --      (18,798)          --           --           --          --
Gain on sales and disposition of real
estate ..................................        6,047     1,138        7,121        8,990        1,737        6,763      13,971
(Loss) gain on limited partnership
interests ...............................           --        --           --       (3,750)          --        3,461          --
Minority interest in net earnings of       
Stratosphere Corporation ................           --        --           --       (1,943)        (450)      (2,747)     (1,002)
----------  --------  -----------  -----------  -----------  -----------  ----------
Income from continuing operations before
income taxes .............................       53,693    14,501       52,110       75,339       68,640       71,928     104,982
Income tax benefit (expense) ...............       (4,302)   (2,878)       6,495       (7,480)      30,077       (2,533)       (775)
----------  --------  -----------  -----------  -----------  -----------  ----------
Income from continuing operations ..........       49,391    11,623       58,605       67,859       98,717       69,395     104,207
Discontinued operations:
Income from discontinued operations ......        2,458     1,629        6,139        6,007        6,117        5,755       3,522
Gain on sales and disposition of real
estate ..................................        6,929        --        3,353           --           --           --          --
----------  --------  -----------  -----------  -----------  -----------  ----------
Income from discontinued operations ........        9,387     1,629        9,492        6,007        6,117        5,755       3,522
----------  --------  -----------  -----------  -----------  -----------  ----------
Net earnings ...............................   $   58,778  $ 13,252  $    68,097  $    73,866  $   104,834  $    75,150  $  107,729
==========  ========  ===========  ===========  ===========  ===========  ==========
BALANCE SHEET DATA:
Cash and cash equivalents ..................   $  483,872            $   467,704  $    54,871  $    64,105  $   147,705  $  142,697
U.S. government and agency obligations .....      122,650                 61,573      336,051      313,641      475,267     468,529
Marketable equity and debt securities ......       47,584                 80,522       26,728       35,253       54,736      67,397
Total assets ...............................    1,826,957              1,489,930    1,560,476    1,584,351    1,422,987   1,364,861
Mortgages payable ..........................      179,251                180,989      171,848      166,808      182,049     179,387
Liability for preferred limited partnership                         
units (1) ................................      102,863                101,649           --           --           --          --
Partners' equity ...........................    1,214,759              1,153,448    1,130,176    1,018,224    1,042,725   1,029,308

----------

(1)   On July 1, 2003, we adopted Statement of Financial Accounting Standards
No. 150 (SFAS 150) "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity." SFAS 150 requires that a
financial instrument, which is an unconditional obligation, be classified
as a liability. Previous guidance required an entity to include in equity
financial instruments that the entity could redeem in either cash or
stock. Pursuant to SFAS 150, our preferred units, which are an
unconditional obligation, have been reclassified from "Partners' equity"
to a liability account in the consolidated balance sheets and the
preferred pay-in-kind distribution for the period from July 1, 2003 to
December 31, 2003 of $2.4 million and all future distributions have been
and will be recorded as "Interest expense" in the consolidated statements
of operations.

38

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

We are a diversified holding company engaged in a variety of businesses.
Our primary business strategy is to seek to acquire undervalued assets and
companies that are distressed or out of favor. Our businesses currently include
rental real estate; real estate development; hotel and resort operations; hotel
and casino operations; investments in equity and debt securities; and oil and
gas exploration and production. We intend to continue to invest in our core
businesses, including real estate, gaming and entertainment, and oil and gas. We
may also seek opportunities in other sectors, including energy, industrial
manufacturing and insurance and asset management.

Substantially all of our businesses and assets are held through AREH, in
which we own a 99% limited partnership interest. For that reason, no separate
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations for AREH is provided.

To capitalize on favorable real estate market conditions and the mature
nature of our commercial real estate portfolio, we are offering for sale our
rental real estate portfolio. As of March 31, 2004, we had sold eight properties
for an aggregate sales price of approximately $18.7 million. No assurance can be
given that either the attempt to market our real estate portfolio will be
successful or that, if successful, the proceeds thereof can be used to acquire
businesses and investments at prices or at projected returns which are deemed
favorable.

Historically, substantially all of our real estate assets leased to others
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 we are not typically responsible for payment
of expenses, such as maintenance, utilities, taxes and insurance associated with
such properties.

Expenses relating to environmental clean-up have not had a material effect
on our earnings, capital expenditures, or competitive position. We believe 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 we will not be deemed to be a responsible party or that the
tenant will bear the costs of remediation. Also, as we acquire more operating
properties, our exposure to environmental clean-up costs may increase. We have
completed Phase I environmental site assessments on most of our properties
through 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. We have 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, we could
potentially be liable for these costs. Based on the limited number of Phase II
environmental site assessments that 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, we have notified all tenants of
the Resource Conservation and Recovery Act's, or RCRA, December 22, 1998
requirements for regulated underground storage tanks. We may, at our 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 we may deem necessary and appropriate. We are in
the process of updating our Phase I site assessments for certain of our
environmentally sensitive properties including properties with open RCRA
requirements. Approximately 75 updates were completed in 2003. No additional
material environmental conditions were discovered.

39

We have in recent years made investments in the gaming industry through
our ownership of Stratosphere Casino Hotel & Tower in Las Vegas, Nevada and
through our purchase of securities of the entity which owns the Sands Hotel in
Atlantic City, New Jersey. One of our subsidiaries, formed for this purpose,
entered into an agreement in January 2004 to acquire two Las Vegas
casino/hotels, Arizona Charlie's Decatur and Arizona Charlie's Boulder from Mr.
Icahn and an entity affiliated with Mr. Icahn, for an aggregate consideration of
$125.9 million. The closing of the acquisition was subject to certain
conditions, including among other things, obtaining all approvals necessary
under the Nevada gaming laws. Our subsidiary issued and sold debt securities
aggregating $215.0 million in principal amount to finance the acquisition and
the proceeds of this sale remained in escrow pending completion of the
acquisition. The amount raised in excess of the acquisition cost and expenses
was used to repay intercompany debt and make a distribution to us. We are
considering additional gaming industry investments. These investments may
include acquisitions from, or be made in conjunction with, our affiliates,
provided that the terms thereof are fair and reasonable to us.

We recently made an investment in the oil and gas industry. In October
2003, we acquired and presently hold 50.01% of the outstanding equity and all of
the outstanding debt securities of National Energy Group, Inc. which we acquired
from an affiliate of Mr. Icahn.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED MARCH 31, 2003

Gross revenues increased by $5.8 million, or 8.4%, during the three months
ended March 31, 2004 as compared to the same period in 2003. This increase
reflects increases of $5.1 million in hotel and casino operating income, $0.7
million in NEG management fees, $0.5 million in equity in earnings of GB
Holdings, Inc., or GBH, $0.3 million in rental income, $0.3 million in interest
income on U.S. government and agency obligations and other investments, $0.2
million in land, house and condominium sales and $31,000 in hotel and resort
operating income partially offset by decreases of $0.8 million in accretion of
investment in NEG Holding LLC, $0.5 million in financing lease income and
$66,000 in dividend and other income. The increase in hotel and casino operating
income is primarily attributable to an increase in casino, hotel, food and
beverage and other revenues, NEG management fees increased primarily due to
management fees received from the TransTexas Gas Corporation. The increase in
equity in earnings of GBH is primarily due to increased casino revenue and
decreased promotional allowances. Rental income increased primarily due to a
property acquisition and rent increases from tenants. The decrease in accretion
of investment in NEG Holding LLC is primarily due to a priority distribution
amount received in 2003. The decrease in financing lease income is primarily due
to property sales and normal lease amortization.

Expenses increased by $1.5 million, or 2.8%, during the three months ended
March 31, 2004 as compared to the same period in 2003. This increase reflects
increases of $1.3 million in hotel and casino operating expenses, $1.0 million
in general and administrative expenses, $0.5 million in depreciation and
amortization and $93,000 in property expenses partially offset by decreases of
$0.7 million in cost of land, house and condominium expenses, $0.4 million in
interest expense and $0.2 million in hotel and resort operating expenses. The
increase in hotel and casino operating expenses is primarily attributable to
increased costs associated with increased revenues. Hotel and casino operating
expenses as a percentage of revenues decreased from 80% in 2003 to 74% in 2004.
The increase in general and administrative expenses is primarily due to expenses
incurred in connection with the increase in NEG management fees. The increase in
depreciation and amortization is primarily due to a property acquisition and
reclassifications of financing leases. The decrease in cost of land, house and
condominium expenses is primarily attributable to higher margin sales. Land,
house and condominium expenses as a percentage of revenues decreased from 84% in
2003 to 67% in 2004. The decrease in interest expense is primarily attributable
to the decrease in NEG interest expense partially offset by the increased
interest expense related to the preferred limited partnership units and the
senior secured notes payable of American Casino. NEG interest expense decreased
primarily due to the Company's acquisition of NEG's debt in October 2003.

Operating income increased during the three months ended March 31, 2004 by
$4.4 million as compared to the same period in 2003 as detailed above.

40

Earnings from land, house and condominium operations increased in the
three months ended March 31, 2004 compared to the same period in 2003 due to the
sale of higher margin properties. Based on current information, sales are
expected to increase moderately during 2004 as compared to 2003. However,
municipal approval of land inventory or the purchase of approved land is
required to continue this upward trend into 2005 and beyond.

Earnings from hotel, casino and resort properties increased during the
three months ended March 31, 2004 due to increased revenues throughout the
property.

Gain on property transactions from continuing operations increased by $4.9
million during the three months ended March 31, 2004 as compared to the same
period in 2003.

A provision for loss on real estate of $0.2 million was recorded in the
three months ended March 31, 2003. No such provision was recorded in 2004.

A gain on sale of marketable equity securities of $28.9 million was
recorded in the three months ended March 31, 2004. There were no such gains in
the comparable period of 2003.

A write-down of equity securities available for sale of $1.0 million was
recorded in the three months ended March 31, 2003. There was no such write-down
in 2004.

Income from continuing operations before income taxes increased by $39.2
million in the three months ended March 31, 2004 as compared to the same period
in 2003 as detailed above.

Income tax expense of $4.3 million was recorded in the three months ended
March 31, 2004 as compared to $2.9 million in 2003.

Income from continuing operations increased by $37.8 million in the three
months ended March 31, 2004 as compared to the same period in 2003 as detailed
above.

Income from discontinued operations increased by $7.8 million in the three
months ended March 31, 2004 as compared to the same period in 2003 due to gains
on property dispositions.

Net earnings for the three months ended March 31, 2004 increased by $45.5
million as compared to the three months ended March 31, 2003 primarily due to a
gain on sale of marketable equity securities ($28.9 million), increased income
from discontinued operations ($7.8 million), increased gain on property
dispositions from continuing operations ($4.9 million) and increased net hotel
and casino operating income ($3.8 million).

CALENDAR YEAR 2003 COMPARED TO CALENDAR YEAR 2002

Gross revenues decreased by $69.8 million, or 20.2%, during the year ended
December 31, 2003 as compared to the year ended December 31, 2002. This decrease
reflects decreases of (1) $62.8 million in land, house and condominium sales,
(2) $7.8 million in interest income on U.S. government and agency obligations
and other investments, (3) $3.8 million in equity in earnings of GB Holdings,
Inc., (4) $2.7 million in accretion of investment in NEG Holding LLC, (5) $1.6
million in financing lease income and (6) $0.3 million in hotel and resort
operating income, partially offset by increases of $7.4 million in hotel and
casino operating income, $1.1 million in rental income, $0.3 million in dividend
and other income and $0.3 million in NEG management fee. The decrease in land,
house and condominium sales is primarily due to a decrease in the number of
units sold, as the Grassy Hollow, Gracewood and Stone Ridge properties were
depleted by sales. During 2003, Hammond Ridge received necessary approvals and,
along with Penwood, have commenced lot sales. As a result, we expect land, house
and condominium sales to moderately increase in 2004 and additional increased
sales in 2005. The decrease in interest income on U.S. government and agency
obligations and other investments is primarily attributable to the prepayment of
the loan to Mr. Icahn in 2003 and a decline in interest rates on U.S. government
and agency obligations as higher rate bonds were called in 2002. The decrease in
equity in earnings of GB Holdings, Inc. is due to decreased casino revenue
primarily attributable to a reduction in the number of table games as new slot
machines 

41

were added in 2002. This business strategy had a negative effect on casino
operations and was changed in 2003 to focus on the mid to high-end slot customer
with a balanced table game business. The decrease in accretion of investment in
NEG Holding is primarily attributable to priority distributions received from
NEG Holding in 2003. The decrease in financing lease income is the result of
lease expirations, reclassifications of financing leases and normal financing
lease amortization. The increase in hotel and casino operating income is
primarily attributable to an increase in hotel, food and beverage revenues and a
decrease in promotional allowances. The average daily rate, or ADR, increased $3
to $51 and percentage occupancy increased approximately 0.2% to 89.8%. The
increase in rental income is primarily attributable to a property acquisition
and reclassifications of financing leases to operating leases.

Expenses decreased by $49.0 million or 18.7%, during the year ended
December 31, 2003 as compared to the same period in 2002. This decrease reflects
decreases of $45.5 million in the cost of land, house and condominium sales,
$6.7 million in interest expense, $1.4 million in hotel and resort operating
expenses and $0.1 million in general and administrative expenses partially
offset by increases of $3.8 million in hotel and casino operating expenses, $0.8
million in rental property expenses and $0.1 million in depreciation and
amortization. The decrease in the cost of land, house and condominium sales is
due to decreased sales. Costs as a percentage of sales decreased from 72% in
2002 to 69% in 2003. The decrease in interest expense is primarily due to
repayment of debt by NEG and our purchase of the NEG notes in October 2003. The
decrease in hotel and resort operating expenses is due to a decrease in payroll
and related expenses. The increase in hotel and casino operating expenses is
primarily attributable to increased costs associated with increased revenues.
Costs as a percentage of sales decreased from 84% in 2002 to 83% in 2003.

Operating income decreased during the year ended December 31, 2003 by
$20.8 million compared to the same period in 2002 as detailed above.

Earnings from land, house and condominium operations decreased
significantly in the year ended December 31, 2003 compared to the same period in
2002 due to a decline in inventory of completed units available for sale. Based
on current information, sales will increase moderately during 2004. However,
municipal approval of land inventory or the purchase of approved land is
required to continue this upward trend into 2005 and beyond.

Earnings from hotel, casino and resort properties could be constrained by
recessionary pressures, international tensions and competition.

Gain on property transactions from continuing operations decreased by $1.9
million during the year ended December 31, 2003 as compared to the same period
in 2002 due to the size and number of transactions.

A provision for loss on real estate of $0.8 million was recorded in the
year ended December 31, 2003 as compared to $3.2 million in 2002. In 2002, there
were more properties vacated due to tenant bankruptcies than in 2003.

A write-down of marketable equity securities available for sale of $1.0
million was recorded in the year ended December 31, 2003 as compared to a
write-down of $8.5 million in 2002. These write-downs relate to our investment
in Philip Services Corp. which filed for bankruptcy protection in June 2003.

A write-down of mortgages and notes receivable of $18.8 million, pertaining
to our investment in the Philip notes, was recorded in the year ended December
31, 2003. There was no such write-down in the comparable period of 2002. In
2003, we reviewed Philip's financial statements and other data and determined
this investment to be impaired.

A write-down of a limited partnership investment of $3.8 million was
recorded in the year ended December 31, 2002. There was no such write-down in
2003.

A gain on sale of marketable equity securities of $2.6 million was
recorded in the year ended December 31, 2003. There was no such gain in the
comparable period of 2002.

Minority interest in the net earnings of Stratosphere Corporation was $1.9
million during the year ended 

42

December 31, 2002. As a result of the acquisition of the minority interest in
December 2002, there was no minority interest in Stratosphere in 2003 and none
thereafter.

Income from continuing operations before income taxes decreased by $23.2
million in the year ended December 31, 2003 as compared to the same period in
2002 as detailed above.

An income tax benefit of $6.5 million was recorded in the year ended
December 31, 2003 as compared to an expense of $7.5 million in the comparable
period of 2002. The effective tax rate on earnings of taxable subsidiaries was
positively affected in 2003 by a reduction in the valuation allowance in
deferred tax assets. We expect our effective tax rate on earnings of taxable
subsidiaries to increase significantly in 2004.

Income from continuing operations decreased by $9.3 million in the year
ended December 31, 2003 as compared to the same period in 2002 primarily as
detailed above.

Income from discontinued operations increased by $3.5 million in the year
ended December 31, 2003 as compared to the same period in 2002 primarily due to
gains on property dispositions.

Net earnings for the year ended December 31, 2003 decreased by $5.8
million as compared to the year ended December 31, 2002 primarily due to a
write-down of mortgages and notes receivable of $18.8 million, decreased
earnings from land, house and condominium operations of $17.2 million, decreased
interest income of $7.8 million and decreased equity in earnings of GB Holdings
of $3.8 million, partially offset by decreased income tax expense of $14.0
million, a decrease in write-down of equity securities available for sale of
$7.5 million, decreased interest expense of $6.7 million, decreased write-down
of limited partnership interests of $3.8 million, increased earnings from hotel
and casino operations of $3.6 million, increased gain on the sale of marketable
equity securities of $2.6 million and an increase in income from discontinued
operations of $3.5 million.

CALENDAR YEAR 2002 COMPARED TO CALENDAR YEAR 2001

Gross revenues increased by $24.1 million, or 7.5%, during the year ended
December 31, 2002 as compared to the same period in 2001. This increase reflects
increases of $23.0 million in accretion of investment in NEG Holding, $20.5
million in land, house and condominium sales, $12.0 million in hotel and casino
operating income, $4.9 million in NEG management fee, $2.6 million in hotel and
resort operating income and $0.1 million in rental income partially offset by
decreases of $33.2 million in oil and gas operating income, $2.2 million in
financing lease income, $2.2 million in dividend and other income, $1.5 million
in equity in earnings of GB Holdings and $23,000 in interest income on U.S.
government and agency obligations and other investments. The increase in
accretion of investment in NEG Holding and the management fee are due to the
partial year of 2001 which began May 1 as a result of the bankruptcy
reorganization. Prior to that time, NEG directly owned and operated oil and
natural gas properties. The increase in land, house and condominium sales is
primarily attributable to higher selling prices and an increase in the number of
units sold, due to a strong residential housing market and low mortgage rates.
The increase in hotel and casino operating income is primarily attributable to
an increase in gaming and hotel revenues as a result of increased capacity
brought about by the hotel expansion. ADR remained at $48 during the years ended
December 31, 2002 and 2001; however, percentage occupancy decreased 4% to 89.6%.
The increase in hotel and resort operating income is primarily attributable to
increased revenues at New Seabury as prior year's revenues were negatively
impacted by construction activities. The decrease in financing lease income is
the result of lease expirations, reclassification of financing leases and normal
financing lease amortization. The decrease in dividend and other income is
primarily due to lease termination and deferred maintenance payments received
from tenants in 2001. The decrease in equity earnings of GB Holdings is due to
decreased casino revenue, primarily attributable to a reduction in the number of
table games as new slot machines were added in 2002, which was partially offset
by decreased promotional allowances and decreased casino expenses. In addition,
GB Holdings recorded an impairment loss on certain property expansion costs
determined to be unusable.

Expenses increased by $4.1 million, or 1.6%, during the year ended
December 31, 2002 as compared to the same period in 2001. This increase reflects
increases of $12.0 million in the cost of land, house and condominium sales,
$3.7 million in hotel and casino operating expenses, $1.7 million in rental
property expenses, $1.8 million in hotel and resort operating expenses and $1.1
million in general and administrative expenses partially offset by decreases of
$7.4 million in interest expense, $5.6 million in oil and gas operating expenses
and $3.2 million in depreciation

43

and amortization. The increase in the cost of land, house and condominium sales
is due to increased sales as explained above. Costs as a percentage of sales
declined from 77% in 2001 to 72% in 2002 primarily due to higher margin sales in
2002. The increase in hotel and casino operating expenses is primarily
attributable to increased costs associated with increased revenues. Costs as a
percentage of sales declined from 89% in 2001 to 84% in 2002 as hotel and casino
revenues increased at a greater rate than hotel and casino expenses due to the
hotel expansion. The increase in property expenses is primarily due to an
increase in expenses related to off-lease properties and expenses of the New
Seabury development litigation of approximately $1 million. The increase in
hotel and resort operating expenses is primarily attributable to increased costs
associated with increased revenues at New Seabury. Costs as a percentage of
sales decreased from 88% in 2001 to 84% in 2002. The decrease in interest
expense is primarily due to the repayment of debt to affiliates in May 2002 in
connection with the Sands repurchase obligation, as well as decreased interest
rates prior to repayment of this debt. The decrease in oil and gas operating
expenses is due to the partial year of 2001. The decrease in depreciation and
amortization expense is primarily attributable to NEG contributing its operating
properties to NEG Holding in May 2001.

Earnings from land, house and condominium operations increased in the year
ended December 31, 2002 as compared to the same period in 2001. However, the
decrease in land inventory in approved sub-divisions is expected to negatively
impact earnings from this business segment.

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. Earnings from hotel, casino and resort properties are
expected to be constrained by recessionary pressures, international tensions and
competition.

Operating income increased during the year ended December 31, 2002 by
$20.0 million as compared to the same period in 2001.

Gain on sale of real estate increased by $7.3 million, during the year
ended December 31, 2002 as compared to the same period in 2001 due to the size
and number of transactions,.

During the years ended December 31, 2002 and 2001, we recorded a provision
for loss on real estate of $3.2 million. A substantial portion of the 2002
provision resulted from vacated properties where leases were not renewed or were
rejected by tenants in bankruptcy.

A write-down of equity securities available for sale of $8.5 million was
recorded in the year ended December 31, 2002. The market value of Philip's
common stock has declined steadily since it was acquired by us. In 2002, based
on a review of Philip's financial statements, we deemed the decrease in value to
be other than temporary. As a result, we wrote down our investment in Philips'
common stock by a charge to earnings. There was no such write-down in 2001.

Gain on sale of marketable equity and debt securities was $6.8 million, in
the year ended December 31, 2001. There was no such income in 2002.

A write-down of a limited partnership investment of $3.8 million was
recorded in the year ended December 31, 2002. We invested $6.0 million in an
unaffiliated limited partnership. Upon review of this investment in 2002, we
determined that the investment was impaired and wrote down its value by a charge
to earnings. There was no such write-down in 2001.

Minority interest in the net earnings of Stratosphere increased by $1.5
million during the year ended December 31, 2002 as compared to the same period
in 2001, due to an increase in Stratosphere's net hotel and casino operating
income. As a result of the acquisition of the minority interest in December
2002, there will be no minority interest in net earnings of Stratosphere in 2003
and thereafter.

Income from operations before income taxes increased by $6.7 million in
the year ended December 31, 2002 as compared to the same period in 2001 as
detailed above.

The income tax expense was $7.5 million for the year ended December 31,
2002 as compared to an income tax 

44

benefit of $30.1 million for the comparable period of 2001.

Income from continuing operations decreased by $30.9 million in the year
ended December 31, 2002 as compared to the same period of 2001.

Income from discontinued operations decreased by $0.1 million for the year
ended December 31, 2002 as compared to the same period of 2001.

Net earnings for the year ended December 31, 2002 decreased by $31.0
million as compared to the year ended December 31, 2001 primarily due to
increased income tax expense of $37.6 million, a write-down of equity securities
available for sale of $8.5 million, decreased gain on sale of marketable equity
securities of $6.7 million and the write-down of a limited partnership
investment of $3.8 million partially offset by increased earnings from land
house and condominium operations of $8.4 million, increased earnings from hotel
and casino operations of $8.3 million and increased gain on sale of real estate
of $7.3 million.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $14.6 million for the three
months ended March 31, 2004 as compared to $21.0 million used in operating
activities in the comparable period of 2003. This increase resulted primarily
from NEG's payment of accounts payable and accrued liabilities in 2003 ($37.7
million) partially offset by a decrease in cash flow from other operations ($2.1
million).

The following table reflects our contractual cash obligations, as of March
31, 2004, due during the indicated periods (dollars in millions):

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

Mortgages payable ......................   $    6.5    $  14.4    $  72.2    $   86.2    $    179.3
Mezzanine loan commitments .............       15.0         --         --          --          15.0
Acquisition of debt securities .........       54.7         --         --          --          54.7
Senior secured notes payable 2012 ......         --         --         --       215.0         215.0
Construction and development obligations       30.0         --         --          --          30.0
--------    -------    -------    --------    ----------
Total ..................................   $  106.2    $  14.4    $  72.2    $  301.2    $    494.0
========    =======    =======    ========    ==========

(1) In addition, see note 10 of notes to AREP consolidated financial statements
for preferred limited partnership redemption.

On May 29, 2004, American Casino, our indirect wholly-owned subsidiary,
acquired two Las Vegas casino/hotels, Arizona Charlie's Decatur and Arizona
Charlie's Boulder, from Carl C. Icahn and an entity affiliated with Mr. Icahn,
for aggregate consideration of $125.9 million. At the closing of those
acquisitions, AREH transferred 100% of the common stock of Stratosphere to
American Casino. As a result, American Casino owns and operates three gaming and
entertainment properties in the Las Vegas metropolitan area.

On May 12, 2004, we issued senior notes due 2012 in a private placement
transaction. The notes, in the aggregate principal amount of $353 million, and
priced at 99.266%, bear interest at a rate of 8-1/8% per annum. Net proceeds
from the offering will be used for general business purposes, including to
pursue our primary business strategy of acquiring undervalued assets in either
our existing lines of business or other businesses and to provide additional
capital to grow our existing businesses.

During the three months ended March 31, 2004, we had sold eight rental
properties for an aggregate sales price of $18.7 million. As of March 23, 2004,
we have 40 additional properties under contract or as to which letters of intent
had been executed by the potential purchaser, all of which contracts or letters
of intent are subject to purchaser's due diligence and other closing conditions.
Selling prices for the properties covered by the contracts or letters of intent
would total approximately $323 million but the properties are encumbered by
aggregate mortgage debt of approximately $142 million which would have to be
repaid out of the proceeds of the sales or would be assumed by purchasers.

45

On March 15, 2004, we announced that no distributions on our depositary
units are expected to be made in 2004. We continue to believe that we should
continue to hold and invest, rather than distribute, cash. We intend to continue
to apply available cash flow toward its operations, repayment of maturing
indebtedness, tenant requirements, investments, acquisitions and other capital
expenditures.

In January 2004, American Casino closed on its offering of senior secured
notes due 2012. The notes, in the aggregate principal amount of $215 million,
bear interest at the rate of 7.85% per annum. American Casino used the proceeds
of the offering for the Arizona Charlie's acquisitions to repay intercompany
indebtedness and for distributions to AREH.

Net proceeds from the sale or disposal of portfolio properties totaled
approximately $18.7 million in the three months ended March 31, 2004. During the
comparable period of 2003, sales proceeds totaled approximately $3.3 million.
The Company intends to use asset sales, financing and refinancing proceeds for
new investments.

Capital expenditures for real estate, and hotel, casino and resort
operations were approximately $1.3 million and $1.2 million during the three
months ended March 31, 2004 and 2003, respectively. In 2004, capital
expenditures are currently expected to be approximately $10 million. In the
three months ended March 31, 2004, we acquired a property for approximately
$14.6 million.

During the three months ended March 31, 2004 and 2003, approximately $1.7
million and $2.0 million, respectively, of mortgage principal payments were
repaid.

Our cash and cash equivalents and investment in U.S. government and agency
obligations increased by $77.2 million during the three months ended March 31,
2004 primarily due to proceeds from the sale of marketable equity securities
($64.4 million), property sales proceeds ($18.7 million) and net cash flow from
operations ($14.6 million) partially offset by rental real estate acquisition
($14.6 million), capital expenditures ($1.3 million) and miscellaneous other
items ($4.6 million).

In 2003, 17 leases covering 17 properties and representing approximately
$2.2 million in annual rentals expired. Twelve leases originally representing
$1.6 million in annual rental income were renewed for $1.4 million in annual
rentals. Such renewals are generally for a term of five years. Five properties
with annual rental income of $0.6 million were not renewed.

In 2004, 11 leases covering 11 properties and representing approximately
$1.8 million in annual rentals are scheduled to expire. Eight leases
representing $1.5 million in annual rental income were renewed for $1.5 million
in annual rentals. Such renewals are generally for a term of five years. Three
properties with annual rentals of $0.3 million were not renewed.

On March 31, 2003, we distributed to holders of record of our preferred
units as of March 14, 2003, 466,548 additional preferred units. Pursuant to the
terms of the preferred units, on February 23, 2004, we declared our scheduled
annual preferred unit distribution payable in additional preferred units at the
rate of 5% of the liquidation preference of $10.00. The distribution of 489,657
preferred units was paid on March 31, 2004 to holders of record as of March 12,
2004. In February 2004, the number of authorized preferred units was increased
to 10,400,000.

Our preferred units are subject to redemption at our option on any payment
date, and the preferred units must be redeemed by us on or before March 31,
2010. The redemption price is payable, at our option, subject to the indenture,
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.

The types of investments we are 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
us to maintain a strong capital base in order to own, develop and reposition
these assets.

Sales proceeds from the sale or disposal of portfolio properties totaled
approximately $20.6 million in 2003. During 2002, such sales proceeds totaled
approximately $20.5 million. In May 2003, we obtained mortgage

46

financing in the principal amount of $20 million on a distribution facility
located in Windsor Locks, Connecticut. In 2002, mortgage financing proceeds were
$12.7 million.

In October 2003, pursuant to a purchase agreement dated as of May 16,
2003, we acquired all of the debt and 50% of the equity securities of NEG from
entities affiliated with Mr. Icahn for an aggregate consideration of
approximately $148.1 million plus approximately $6.7 million of accrued interest
on the debt securities.

Capital expenditures for real estate and hotel, casino and resort
operations were approximately $20.1 million during 2003. During 2002, such
expenditures totaled approximately $4.8 million. In 2004, capital expenditures
are estimated to be approximately $13 million.

During the year ended December 31, 2003, approximately $10.3 million of
principal payments were repaid. During the year ended December 31, 2002,
approximately $7.6 million of principal payments were repaid.

Our cash and cash equivalents and investment in U.S. government and agency
obligations increased by $138.3 million during the year ended December 31, 2003,
primarily due to affiliate loan repayment of $250 million, property sales and
refinancing proceeds of $40.6 million, priority distribution from NEG Holding of
$40.5 million, net cash flow from operations of $18.5 million, guaranteed
payment from NEG Holding of $18.2 million and other items of $14.9 million
partially offset by the purchase of NEG interests of $148.1 million, purchase of
debt securities of $45.1 million, increase in mezzanine loans of $31.1 million
and capital expenditures for real estate and hotel, casino and resort operating
properties of $20.1 million.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements have been prepared in accordance
with generally accepted accounting principals in the United States of America,
or GAAP. The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities. Among others, estimates are used when
accounting for valuation of investments, recognition of casino revenues and
promotional allowances and estimated costs to complete our land, house and
condominium developments. Estimates and assumptions are evaluated on an ongoing
basis and are based on historical and other factors believed to be reasonable
under the circumstances. The results of these estimates may form the basis of
the carrying value of certain assets and liabilities and may not be readily
apparent from other sources. Actual results, under conditions and circumstances
different from those assumed, may differ from estimates.

We accounted for our acquisition of NEG as assets transferred between
entities under common control which requires that they be accounted for at
historical costs similar to a pooling of interests. NEG's investment in NEG
Holding constitutes a variable interest entity. In accordance with generally
accepted accounting principles, we have determined that NEG is not the primary
beneficiary of NEG Holding and therefore we do not consolidate NEG Holding in
our consolidated financial statements.

We believe the following accounting policies are critical to our business
operations and the understanding of results of operations and affect the more
significant judgments and estimates used in the preparation of our consolidated
financial statements.

ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS 
TO BE DISPOSED OF

Long-lived assets held and used by us 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, we estimate 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 we
expect 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.

47

COMMITMENTS AND CONTINGENCIES-LITIGATION

On an ongoing basis, we assess the potential liabilities related to any
lawsuits or claims brought against us. While it is typically very difficult to
determine the timing and ultimate outcome of such actions, we use our best
judgment to determine if it is probable that we will incur an expense related to
the settlement or final adjudication of such matters and whether a reasonable
estimation of such probable loss, if any, can be made. In assessing probable
losses, we make estimates of the amount of insurance recoveries, if any. We
accrue a liability when we believe a loss is probable and the amount of loss can
be reasonably estimated. Due to the inherent uncertainties related to the
eventual outcome of litigation and potential insurance recovery, it is possible
that certain matters may be resolved for amounts materially different from any
provisions or disclosures that we have previously made.

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 our balance sheet.
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 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

We have 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.

We engage in real estate lending, including making second mortgage or
secured mezzanine loans to developers for the purpose of developing
single-family homes, luxury garden apartments or commercial properties. These
loans are subordinate to construction financing and we target an interest rate
in excess of 20% per annum. However interest is not paid periodically and is due
at maturity or earlier from unit sales or refinancing proceeds. We defer
recognition of interest income on mezzanine loans pending receipt of principal
and interest payments.

REVENUE RECOGNITION

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

CASINO REVENUES AND PROMOTIONAL ALLOWANCES

We recognize 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."

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 and NEG, our corporate

48

subsidiaries, account for their 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.

Management periodically evaluates all evidence, both positive and
negative, in determining whether a valuation allowance to reduce the carrying
value of deferred tax assets is still needed. In 2003, it concluded, based on
the projected allocations of taxable income, our corporate subsidiaries, NEG and
Stratosphere, more likely than not will realize a partial benefit from its
deferred tax assets and loss carryforwards. Ultimate realization of the deferred
tax asset is dependent upon, among other factors, their ability to generate
sufficient taxable income within the carryforward periods and is subject to
change depending on the tax laws in effect in the years in which the
carryforwards are used.

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 value of the properties are considered other than temporary at
which time the property is written down to net realizable value. A property is
classified as held for sale at the time we determine that the criteria in SFAS
144 have been met. Properties held for sale are carried at the lower of cost or
net realizable value. Such properties are no longer depreciated and their
operations are included in discontinued operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The SEC requires that registrants include information about primary market
risk exposures relating to financial instruments. Through its operating and
investment activities, we are exposed to market, credit and related risks,
including those described elsewhere in this prospectus. We 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
our general funding activities and the management of our 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 us include lease terminations, whether scheduled
terminations or due to tenant defaults or bankruptcies, development risks, and
environmental and capital expenditure matters, as described elsewhere in this
prospectus. Our mortgages payable are primarily fixed-rate debt and, therefore,
are not subject to market risk.

We invest in U.S. government and agency obligations which are subject to
interest rate risk. As interest rates fluctuate, we 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
as of December 31, 2003, would decline by approximately $200,000.

Whenever practical, we employ internal strategies to mitigate exposure to
these and other risks. We, on a case by case basis with respect to new
investments, perform internal analyses of risk identification, assessment and
control. We review credit exposures and seek 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. We seek to achieve adequate returns

49

commensurate with the risk we assume. We use qualitative as well as quantitative
information in managing risk.

50

BUSINESS

OUR COMPANY

We are a diversified holding company engaged in a variety of businesses.
Our primary business strategy is to seek to acquire undervalued assets and
companies that are distressed or out of favor. Our businesses currently include
rental real estate; real estate development; hotel and resort operations; hotel
and casino operations; investments in equity and debt securities; and oil and
gas exploration and production. We intend to continue to invest in our core
businesses, including real estate, gaming and entertainment, and oil and gas. We
may also seek opportunities in other sectors, including energy, industrial
manufacturing and insurance and asset management.

BUSINESS STRATEGY

We believe that our core strengths include: identifying and acquiring
undervalued assets and businesses, often through the purchase of distressed
securities; increasing value through management, financial or other operational
changes; and managing complex legal, regulatory or financial issues which may
include bankruptcy or insolvency, environmental, zoning, permitting and
licensing issues. We also believe that we have developed significant management
strength, industry relationships and expertise in our core real estate, gaming
and entertainment and oil and gas businesses. The key elements of our business
strategy include the following.

CONTINUE TO INVEST IN AND GROW OUR EXISTING OPERATING BUSINESSES. We
believe that we have developed a strong portfolio of businesses with experienced
management teams. We may expand our existing businesses if appropriate
opportunities are identified as well as use our established businesses as a
platform for additional acquisitions in the same or other areas.

SEEK TO ACQUIRE UNDERVALUED ASSETS. We intend to continue to make
investments in real estate and in companies or their securities which are
undervalued. These may be undervalued due to market inefficiencies, may relate
to opportunities in which economic or market trends have not been identified and
reflected in market value, or may include investments in complex or not readily
followed businesses or securities. Market inefficiencies and undervalued
situations may arise from disappointing financial results, liquidity or capital
needs, lowered credit ratings, revised industry forecasts or legal
complications. We may acquire businesses or assets directly or we may establish
an ownership position through the purchase of debt or equity securities of
troubled entities and may then negotiate for the ownership or effective control
of their assets.

ACTIVELY MANAGE OUR INVESTMENTS AND BUSINESSES. We seek investments for
which we can identify specific areas for financial or operational improvement
and where we can act as a catalyst for change. Change may include, but not be
limited to, replacing or supplementing management, restructuring the balance
sheet, increasing liquidity, disposing assets or cutting costs. We believe that
we can leverage off of our core businesses to better assess and increase the
value of our acquisitions. For instance, our homebuilding expertise allows us to
appropriately assess the risks of a real estate development prior to making a
mezzanine loan and also to complete a development if it is necessary or
profitable to do so.

DEPLOY OPERATING AND TRANSACTION STRUCTURING EXPERTISE OF EXISTING
MANAGEMENT TEAM INTO RELATED FIELDS. Our senior management team has extensive
experience in real estate and in identifying undervalued assets in general. We
believe there is significant opportunity to use this experience by acquiring or
starting businesses in asset-intensive sectors, including other real estate
development activities, industrial manufacturing, energy and insurance and asset
management, in which we have had no or limited experience to date, but which may
be undervalued and have potential for growth.

RENTAL REAL ESTATE

Our rental real estate operations consist primarily of retail, office and
industrial properties leased to single corporate tenants. As of December 31,
2003, we owned 128 separate real estate assets, primarily consisting of fee and
leasehold interests in 28 states. Historically substantially all of our real
estate assets leased to others have been net-leased under long-term leases. With
certain exceptions, these tenants are required to pay all expenses relating to

51

the leased property and, therefore, we are not typically responsible for payment
of expenses, including maintenance, utilities, taxes, insurance or any capital
items associated with such properties.

To capitalize on favorable real estate market conditions and the mature
nature of our commercial real estate portfolio, we are offering for sale our
rental real estate portfolio.

During the three months ended March 31, 2004 we had sold eight properties
for an aggregate sales price of approximately $18.7 million. As of March 23,
2004, we had 40 additional properties under conditional sales contracts or
letters of intent for an aggregate sales price of approximately $323 million.
Mortgages with respect to these properties aggregate approximately $142 million,
which we would pay from the sales proceeds or would be assumed by the
purchasers. There can be no assurances that offers satisfactory to us will be
received and if received that the properties will ultimately be sold at prices
acceptable to us.

While we believe opportunities in real estate related acquisitions
continue to remain available, there is increasing competition for these
opportunities and the increased competition affects price and the ability to
find quality assets that provide attractive returns. We will continue to invest
in real estate assets if opportunities to do so at favorable prices are found.

REAL ESTATE DEVELOPMENT

Our residential home development operations focus primarily on the
construction and sale of single-family homes, custom-built homes, multi-family
homes and residential lots in subdivisions and in planned communities. Our home
building business is managed by Bayswater Development L.L.C., our wholly owned
subsidiary. Our long-term investment horizon and operational expertise allow us
to acquire properties with limited current income and complex entitlement and
development issues. We acquired Bayswater from Mr. Icahn in March 2000 for
approximately $84.4 million. Approximately $100 million of cash has been
generated from the sale of homes and lots to date from this acquisition.

Between 1993 and 1997, we and Bayswater acquired five residential
subdivisions in New York that aggregated 864 acres and comprised 272 units. By
2003, we developed this land and built and sold 213 units. In addition, in April
1999, Bayswater acquired over 500 acres of land in San Antonio, Florida, which
consisted of a 27-hole golf course, seven acres of commercial land and 1,161
condominium unit lots. By the end of 2002, we had sold all of the residential
land we owned in San Antonio.

Bayswater is currently developing five residential subdivisions in New
York, Florida and Massachusetts. In New York, Bayswater is developing two
high-end residential subdivisions in Westchester County: Penwood, located in
Bedford, and Hammond Ridge, located in Armonk and New Castle. Bayswater is also
seeking approval to develop Pondview Estates which is located in Patterson and
Kent in Putnam County, New York. In Naples, Florida, Bayswater is building,
developing and selling Falling Waters, a condominium development. In addition,
we are pursuing the development of our New Seabury property, a proposed luxury
second-home waterfront community in Cape Cod, Massachusetts.

Penwood. Located in Bedford, New York, Penwood consists of 44 lots
situated on 297 acres. The development is approximately one hour from Manhattan.
Homes are situated on lots that range from 2.1 acres to 14.5 acres and range in
size from 5,400 square feet to 9,600 square feet. The average selling price of a
Penwood home is $2.4 million, with a range of sales prices between $2.0 million
and $3.4 million. As of April 12, 2004, we have sold 22 of the 44 units and 11
units are under contract.

Hammond Ridge. Located in Armonk and New Castle, New York, Hammond Ridge
consists of 37 single-family lots situated on 220 acres. The development is
approximately 40 minutes from Manhattan. We acquired the land through the
purchase and foreclosure of a bank loan. At the time of acquisition, the land
was unentitled. Purchasers of Hammond Ridge units are able to select one of many
home designs with the capability of adding options and upgrades, as well as
controlled customization. The average selling price of a Hammond Ridge home is
$2.1 million, with a range of prices between $1.6 million and $2.8 million. From
January 2004 when sales commenced through April 12, 2004, we have executed
contracts for eight of the 37 homes.

52

Pondview Estates. Located in Patterson and Kent, New York, Pondview
Estates is a townhouse condominium development on a 91-acre wooded hillside
overlooking an on-site pond. We expect to build a 50-townhouse condominium once
final approvals are granted. Sales are expected to begin in 2005. A two-bedroom
townhouse condominium in Pondview Estates is expected to be priced at
approximately $450,000.

Falling Waters. Located in Naples, Florida, Falling Waters is a 793 unit
condominium development on 158 acres located approximately 10 minutes from
downtown Naples, Florida. It is a gated community with 24-hour security. The
average selling price is $200,000. As of April 12, 2004, there were 192 units
remaining to be constructed, of which 69 remain to be sold, and we had pre-sold
123 units.

New Seabury. Located in Cape Cod, Massachusetts, New Seabury is a 381 acre
resort community overlooking Nantucket Sound and Martha's Vineyard. The property
originally was approved for development in the early 1960's, but development was
delayed by the inability to service its debt. We acquired all of the first
mortgages in 1998 and subsequently gained control of the property in bankruptcy,
after community members voted in favor of our involvement. We believe we have
the approval to develop up to 278 residential units and 145,000 square feet of
commercial space in New Seabury.

In January 2002, the Cape Cod Commission, a Massachusetts regional
planning body created in 1989, concluded that our New Seabury development is
within its jurisdiction for review and approval. We believe that the proposed
residential, commercial and recreational development is in substantial
compliance with a special permit issued for the property in 1964 and is
therefore exempt from the commission's jurisdiction and that the commission is
barred from exercising jurisdiction pursuant to a 1993 settlement agreement
between the commission and a prior owner of the New Seabury property.

In February 2002, New Seabury Properties L.L.C., our subsidiary and owner
of the property, filed in Barnstable County Massachusetts Superior Court, a
civil complaint appealing the decision by the commission, and a separate civil
complaint to find the commission in contempt of the settlement agreement. The
court subsequently consolidated the two complaints into one proceeding. In July
2003, New Seabury and the commission filed cross motions for summary judgment.

Also, in July 2003, in accordance with a court ruling, the commission
reconsidered the question of its jurisdiction over the initial development
proposal and over a modified development proposal that New Seabury filed in
March 2003. The commission concluded that both proposals are within its
jurisdiction. In August 2003, New Seabury filed in Barnstable County
Massachusetts Superior Court another civil complaint appealing the commission's
second decision to find the commission in contempt of the settlement agreement.

In November 2003, the court ruled in New Seabury's favor on its July 2003
motion for partial summary judgment, finding that the special permit remains
valid and that the modified development proposal is in substantial compliance
with the special permit and therefore exempt from the commission's jurisdiction;
the court has not yet ruled on the initial proposal. Under the modified
development proposal, New Seabury could potentially develop up to 278
residential units and 145,000 square feet of commercial space. In February 2004,
New Seabury and the commission jointly moved to consolidate the three complaints
into one proceeding. The court subsequently consolidated the three complaints
into one proceeding. In March 2004, New Seabury moved for summary judgment to
dispose of remaining claims under all three complaints and to obtain a final
judgment from the court. Under the initial proposal, New Seabury could
potentially build up to 675 residential/hotel units and 80,000 square feet of
commercial space. We are currently in settlement negotiations with the Cape Cod
Commission but these discussions may not be successful. We cannot predict the
effect on the development process if we lose any appeal or if the commission is
ultimately successful in asserting jurisdiction over any of the development
proposals.

We have invested and expect to continue to invest in undeveloped land and
development properties. We are highly selective in making investments in
residential home development. Currently we are reviewing a wide variety of
potential developments in New York and Florida.

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HOTEL AND RESORT OPERATIONS

NEW SEABURY

New Seabury is a resort community overlooking Nantucket Sound and Martha's
Vineyard in Cape Cod, Massachusetts. In addition to our residential development
at New Seabury, we operate a full-service resort. The property currently
includes a golf club with two 18 hole championship golf courses, the Popponesset
Inn, a well known casual waterfront dining and wedding facility, a villa rental
program, a waterfront freshwater swimming pool, a private beach, a fitness
center and a 16 court tennis facility.

We invested a total of $27 million to acquire our interest in New Seabury
and have invested an additional $30 million in improvements to date. We have
replaced an outdated clubhouse with a 42,000 square foot state of the art
facility which includes indoor and outdoor dining, a clubroom, banquet
facilities, conference capability, a pro shop, locker rooms, a snack bar and
indoor cart storage. We have constructed a 300,000 gallon per day wastewater
treatment plant for resort facilities and future development. We have built a
new 2,500 square foot state of the art poolside fitness center. We have
reconfigured and reconstructed the Dunes Golf Course. We have invested capital
to reconfigure our two championship golf courses and maintain their status as a
high-end private facility.

HOTEL AND CASINO OPERATIONS

Our primary hotel, casino and resort operations consist of our ownership
of Stratosphere Casino Hotel & Tower, Arizona Charlie's Decatur and Arizona
Charlie's Boulder in Las Vegas, Nevada. Since we acquired the Stratosphere in
1998, we have invested approximately an additional $118 million to among other
things build a 1,000-room hotel tower. We acquired Arizona Charlie's Decatur and
Arizona Charlie's Boulder from Mr. Icahn and his affiliates for approximately
$125.9 million in May 2004. We also own approximately 36.3% of the common stock
of the company that owns and operates the Sands Hotel and Casino.

STRATOSPHERE

The Stratosphere is situated on approximately 31 acres of land located at
the northern end of the Las Vegas Strip. We believe the Stratosphere is one of
the most recognized landmarks in Las Vegas. The Stratosphere offers the tallest
free-standing observation tower in the United States and, at 1,149 feet, it is
the tallest building west of the Mississippi River. The Tower boasts some of the
most unique amenities in Las Vegas, including an award-winning 380-seat
revolving restaurant with unparalleled views of Las Vegas, known as the Top of
the World, and the highest indoor/outdoor observation deck in Las Vegas. The
Tower also features the three highest amusement rides in the world, for which we
charge a price of $5 to $9 per ride. In Spring 2005, we expect to launch a
fourth thrill ride designed to spin passengers in a centrifugal motion at
40-miles per hour over the edge of the Tower. In addition, the Tower has a
175-seat cocktail lounge, a wedding chapel and event space.

The Stratosphere's casino contains approximately 80,000 square feet of
gaming space, with approximately 1,416 slot machines, 50 table games and a
125-seat race and sports book. Eight themed restaurants and four bars, two of
which feature live entertainment, are all located adjacent to the casino. These
facilities have been designed to enable convenient access to the casino. For the
years ended December 31, 2001, 2002 and 2003, approximately 71.0%, 72.4% and
70.0%, respectively, of the Stratosphere's gaming revenue was generated by slot
machine play and 26.9%, 26.8% and 27.9%, respectively, by table games. The
Stratosphere derives its other gaming revenue from the race and sports book,
which primarily serves to attract customers for slot machines and table games.

The hotel has 2,444 rooms, including 120 suites. The hotel amenities
include a 67,000 square foot pool and a recreation area with a new snack and
cocktail bar, private cabana and a fitness center with views of the Las Vegas
Strip.

The retail center, located on the second floor of the base building,
occupies approximately 110,000 square feet of developed retail space. The retail
center contains 43 shops, six of which are food venues, and 13 merchant kiosks.
Adjacent to the retail center is the 640-seat showroom that currently offers
afternoon and evening shows, which are designed to appeal to the wide spectrum
of value-minded visitors who come to Las Vegas. The Stratosphere's entertainment
includes American Superstars, a celebrity tribute featuring today's and
yesterday's hottest stars, and

54

Viva Las Vegas, Las Vegas' longest-running daytime show now in its twelfth year,
featuring singing, dancing, comedy and specialty acts. The retail center also
includes a full-service salon. The parking facility accommodates approximately
4,000 cars.

The Stratosphere utilizes the unique amenities of its Tower to attract
visitors. Gaming products, hotel rooms, entertainment and food and beverage
products are priced to appeal to the value-conscious middle- market Las Vegas
visitor. The Top of the World restaurant, however, caters to higher-end
customers. Stratosphere offers competitive payout ratios for its slot machines
and video poker machines and competitive odds for its table games and sports
book products. Stratosphere offers attractive and often unique table games,
including Single Zero Roulette and Ten Times Odds Craps, that provide patrons
with odds that are better than the standard odds at other Las Vegas casinos. The
Stratosphere participates in our Ultimate Rewards Club which provides members
with cash or complimentaries which can be used at the Stratosphere, Arizona
Charlie's Decatur or Arizona Charlie's Boulder. Advertising and promotional
campaigns are designed to maximize hotel room occupancy, visits to the Tower and
attract and retain players on property.

ARIZONA CHARLIE'S DECATUR

Arizona Charlie's Decatur opened in April 1988 as a full-service casino
and hotel geared toward residents of Las Vegas and surrounding communities.
Arizona Charlie's Decatur is located on approximately 17 acres of land four
miles west of the Las Vegas Strip in the heavily populated west Las Vegas area.
The property is easily accessible from Route 95, a major highway in Las Vegas.

Arizona Charlie's Decatur contains approximately 52,000 square feet of
gaming space with 1,516 slot machines, 14 table games, a 120-seat race and
sports book, a 486-seat 24-hour bingo parlor, a 16-seat Keno lounge and a
16-seat poker lounge. Approximately 72% of the slot machines at Arizona
Charlie's Decatur are video poker games. Arizona Charlie's Decatur emphasizes
video poker because it is popular with local players and generates, as a result,
high volumes of play and casino revenue. For the years ended December 31, 2001,
2002 and 2003, approximately 87.9%, 91.3% and 90.7%, respectively, of the
property's gaming revenue was generated by slot machine play and 6.7%, 5.7% and
5.0%, respectively, by table games. Arizona Charlie's Decatur derives its other
gaming revenue from bingo and the race and sports book, which primarily serve to
attract customers for slot machines and table games.

Arizona Charlie's Decatur currently has 258 rooms, including eight suites.
Hotel customers include local residents and their out-of-town guests, as well as
those business and leisure travelers who, because of location and cost
considerations, choose not to stay on the Las Vegas Strip or at other hotels in
Las Vegas.

Arizona Charlie's Decatur provides complimentary entertainment as a
component of its overall customer appeal. The Naughty Ladies Saloon, a 111-seat
facility, features a variety of entertainment, including live bands, musician
showcase nights and jam sessions. Arizona Charlie's Decatur has focused on the
appeal of its entertainment programming in order to retain its customers and
increase the play at its casino.

Arizona Charlie's Decatur markets its hotel and casino primarily to local
residents of Las Vegas and the surrounding communities. We believe that the
property's pricing and gaming odds make it one of the best values in the gaming
industry and that its gaming products, hotel rooms, restaurants and other
amenities attract local customers in search of reasonable prices, smaller
casinos and more attentive service. Arizona Charlie's Decatur also tailors its
selection of slot machines, including many diverse video poker machines, and
table games, including double-deck hand-dealt blackjack, to local casino
patrons. In addition, the casino features a selection of games that invite
personal interaction and which we believe are set for higher payout rates than
those at other Las Vegas casinos generally.

ARIZONA CHARLIE'S BOULDER

Arizona Charlie's Boulder opened in 1988 as a stand-alone hotel and RV
park. The full-service casino opened in May 2000. Arizona Charlie's Boulder is
situated on approximately 24 acres of land located on Boulder Highway, in an
established retail and residential neighborhood in the eastern metropolitan area
of Las Vegas. The property is easily accessible from I-515, the most heavily
traveled east/west highway in Las Vegas.

55

Arizona Charlie's Boulder contains approximately 41,000 square feet of
gaming space with 835 slot machines, 13 table games, a 43-seat race and sports
book and a 500-seat 24-hour bingo parlor. Approximately 66% of the slot machines
at Arizona Charlie's Boulder are video poker games. Arizona Charlie's Boulder
emphasizes video poker because it is popular with local players and generates,
as a result, high volumes of play and casino revenue. For the years ended
December 31, 2001, 2002 and 2003, approximately 87.2%, 92.9% and 87.2%,
respectively, of gaming revenue was generated by slot machine play and 11.4%,
10.4% and 9.2%, respectively, by table games. Arizona Charlie's Boulder derives
its other gaming revenue from bingo and the race and sports book, which
primarily serve to attract customers for slot machines and table games.

Arizona Charlie's Boulder currently has 303 rooms, including 219 suites.
Hotel customers include local residents and their out-of-town guests, as well as
those business and leisure travelers who, because of location and cost
considerations, choose not to stay on the Las Vegas Strip or at other hotels in
Las Vegas. We recently renovated our hotel room interiors.

Arizona Charlie's Boulder provides complimentary entertainment as a
component of its overall customer appeal. Palace Grand, a 112-seat facility,
features live bands at no charge.

Arizona Charlie's Boulder also has an RV park. With 30- to 70-foot pull
through stations and over 200 spaces, it is one of the largest short-term RV
parks on the Boulder Strip. The RV park offers a range of services, including
laundry facilities, game and exercise rooms, swimming pool, whirlpool and shower
facilities, which are included in the nightly, weekly or monthly rates.

Arizona Charlie's Boulder markets its hotel and casino primarily to
residents of Las Vegas and the surrounding communities. We believe that its
pricing and gaming odds make it one of the best values in the gaming industry
and that its gaming products, hotel rooms, restaurants, and other amenities
attract local customers in search of reasonable prices, smaller casinos and more
attentive service. Arizona Charlie's Boulder also tailors its selection of slot
machines, including many diverse video poker machines, and table games,
including double-deck hand-dealt blackjack, to local casino patrons. In
addition, the casino features a selection of games that invite personal
interaction and which we believe are set for higher payout rates than those at
other Las Vegas casinos generally.

SANDS HOTEL AND CASINO

We own approximately 3.6 million shares of common stock of GB Holdings,
Inc., or GBH. GBH is a holding company of the Sands Hotel and Casino.

The Sands is located in Atlantic City, New Jersey on approximately 6.1
acres of land one-half block from the Boardwalk at Brighton Park between Indiana
Avenue and Dr. Martin Luther King, Jr. Boulevard. The Sands facility currently
consists of a casino and simulcasting facility with approximately 79,000 square
feet of gaming space, a hotel with 637 rooms, and related amenities.

On July 22, 2004, GBH, along with its wholly-owned indirect subsidiary,
Atlantic Coast Entertainment Holdings, Inc., or Atlantic Holdings, consummated
an Exchange Offer in which Atlantic Holdings exchanged its secured notes due
September 2008 bearing an interest rate of 3% per annum payable at maturity, for
$110 million in 11% secured notes due September 2005 of GB Property Funding,
Inc., a wholly-owned subsidiary of GBH. In the Exchange Offer, holders of 60.2%
of the outstanding principal amount of the 11% secured notes due September 2005,
including the 58.2% held by Mr. Icahn and affiliated companies, exchanged those
notes. The 3% notes due September 2008 may be paid in full, at the option of the
holders of a majority of their principal amount, with common stock of Atlantic
Holdings. The transaction also included the following:

-     The indenture for the 11% secured notes due September 2005 was
amended to remove certain provisions and covenants and release the
liens on the Sands' assets;

-     The Sands' assets were transferred to a wholly-owned subsidiary of
Atlantic Holdings, ACE Gaming, LLC; and

56

-     The 3% notes due September 2008 are secured by a pledge of all of
the assets of ACE Gaming, LLC, including the Sands.

The GBH common stockholders received warrants (that are exercisable
following the occurrence of certain events) for 27-1/2% of the common stock of
Atlantic Holdings (on a fully diluted basis) outstanding at the date of the
issuance of the warrants.

INVESTMENTS

We also seek to purchase undervalued securities to maximize our returns.
Undervalued securities are those which we believe may have greater inherent
value than indicated by their then current trading price and may present the
opportunity for "activist" bondholders or shareholders to act as catalysts to
realize value. The equity securities in which we may invest may include common
stocks, preferred stocks and securities convertible into common stocks, as well
as warrants to purchase these securities. The debt securities and obligations in
which we may invest include bonds, debentures, notes, mortgage-related
securities and municipal obligations. Certain of these securities may include
lower rated securities which may provide the potential for higher yields and
therefore may entail higher risks. In addition, we may engage in various
investment techniques, including options and futures transactions, foreign
currency transactions and leveraging for either hedging or other purposes.

The undervalued securities in which we invest may be undervalued due to
market inefficiencies, may relate to opportunities in which economic or market
trends have not been identified and reflected in market value, or may include
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. We 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.

As of March 31, 2004, we had investments of approximately $47.6 million in
marketable equity and debt securities, including approximately $26.9 million of
$110 million principal amount Sands notes and $17.8 million of corporate debt
securities.

In April 2004, we entered into a trade confirmation to purchase
approximately $63.5 million principal amount of secured bank indebtedness of a
bankrupt company for a purchase price of approximately $54.8 million. The trade
settled on April 30, 2004.

We owned equity and debt securities of Philip Services Corp. In June 2003,
Philip announced that it and most of its wholly-owned U.S. subsidiaries filed
voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code.

In 2003, prior to the bankruptcy filing, we determined that it was
appropriate to write-off the balance of our investment in Philip common stock by
a charge to earnings of approximately $1.0 million.

We also owned Philip term and payment-in-kind notes in the principal amount
of approximately $32.7 million; the cost basis of the notes was approximately
$22.1 million. For the second quarter of 2003, we reviewed Philip's financial
statements, bankruptcy documents and the prices of recent purchases and sales of
the notes and determined this investment to be impaired. Based upon this review,
we concluded the fair value of the notes to be approximately $3.3 million;
therefore, we recorded a write-down of approximately $18.8 million by a charge
to earnings in the second quarter of 2003. In December 2003, we sold to an
unaffiliated third party approximately $20 million in principal amount of the
notes for approximately $2.6 million recognizing a gain on sale of approximately
$0.4 million. Philip emerged from bankruptcy on December 31, 2003 as a private
company controlled by an Icahn affiliate. Effective as of December 31, 2003, our
remaining interest in the notes was exchanged for approximately 443,000 common
shares representing a 4.4% equity interest in the new Philip valued at the
carrying value of the debt as of December 31, 2003 of approximately $1.1
million.

Our real estate lending operations consist of making second mortgage or
secured mezzanine loans to developers and existing property owners for the
purpose of developing single-family homes, luxury garden apartments or
commercial properties. This 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. The security for these loans is a pledge of the developers'

57

ownership interest in the properties and may also include a second mortgage on
the property. These loans are subordinate to construction financing and are
generally referred to as mezzanine loans. Our mezzanine loans accrue interest at
approximately 22% per annum. Bayswater's home building infrastructure and
expertise allow us to evaluate financing opportunities relating to residential
properties and complete developments when necessary.

As of March 31, 2004, we had second mortgage and mezzanine loans for
approximately $49 million of principal amount, consisting of $31 million,
excluding accrued interest, for a Florida condominium development, $11 million,
excluding accrued interest, for a New York City hotel with approximately 200
rooms which was completed in November 2003 and $7 million for Ocean Place Resort
and Conference Center, located in Long Branch, New Jersey. As of March 31, 2004,
accrued interest of approximately $13.9 million has been deferred for financial
statement purposes, pending receipt of principal and interest payments. These
loans mature at various dates between 2004 and 2006. In addition, we have
commitments to fund, under certain conditions, additional loans of approximately
$15 million.

On October 17, 2003, Mr. Icahn, the chairman of our board of directors,
repaid the $250 million loan which we made to him on December 27, 2001. We made
the two-year $250 million loan to Mr. Icahn, secured by securities consisting of
approximately $250 million aggregate market value of our units owned by Icahn
and shares of a private company owned by Mr. Icahn, which shares 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. We returned the collateral on October 17, 2003, the date the
loan was repaid. The interest on the loan was payable semi-annually, at a per
annum rate equal to the greater of 3.9% and 200 basis points over 90-day LIBOR
to be reset each calendar quarter. The applicable rate in 2003 was 3.9% and in
2002 ranged from 3.9% to 4.03%. Interest income of approximately $7.9 million
and $9.9 million was earned by us on this loan in 2003 and 2002, respectively.
We entered into this transaction to earn interest income on a secured
investment. The terms of this transaction were reviewed and approved by our
audit committee.

We conduct our activities in a manner so as not to be deemed an investment
company under the Investment Company Act. Generally, this means that we do not
intend to invest in securities as our primary business and that no more than 40%
of our total assets will be invested in investment securities as such term is
defined in the Investment Company Act. In addition, we intend to structure our
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 of 1986, as amended.

OIL AND GAS

In October 2003, pursuant to a purchase agreement dated as of May 16, 2003,
we acquired certain debt and equity securities of National Energy Group, Inc.,
or NEG, from entities affiliated with Mr. Icahn for an aggregate consideration
of approximately $148.1 million plus approximately $6.7 million of accrued
interest on the debt securities. The agreement was reviewed and approved by our
audit committee which was advised by its independent financial advisor and legal
counsel. The securities acquired were $148,637,000 in principal amount of
outstanding 10 3/4% senior notes due 2006 of NEG, representing all of NEG's
outstanding debt securities, and 5,584,044 shares of common stock of NEG. As a
result of the foregoing transaction and the acquisition by us of additional
securities of NEG prior to the closing, we beneficially own 50.01% of the
outstanding common stock of NEG.

NEG owns a 50% interest in NEG Holding LLC. The other 50% interest in NEG
Holding is held by Gascon Partners, an affiliate of Mr. Icahn, Gascon is the
managing member of NEG Holding. NEG Holding owns NEG Operating LLC which is
engaged in the business of oil and gas exploration and production with
properties located on-shore in Texas, Louisiana, Oklahoma and Arkansas. NEG
Operating owns operating oil and gas properties managed by NEG. Under the NEG
Holding operating agreement, NEG is to receive guaranteed payments of
approximately $47.9 million and a priority distribution of approximately $148.6
million before Gascon receives any distributions. The NEG Holding operating
agreement contains a provision that allows Gascon, or its successor, at any
time, in its sole discretion, to redeem NEG's membership interest in NEG Holding
at a price equal to the fair market value of the interest determined as if NEG
Holding had sold all of its assets for fair market values and liquidated. A
determination of the fair market value of such assets shall be made by an
independent third party jointly engaged by Gascon and NEG. Due to the
substantial uncertainty that NEG will receive any distribution 

58

above the priority and guaranteed payments amounts, NEG accounts for its
investment in NEG Holding as a preferred investment. We consolidate NEG in our
financial statements. In accordance with generally accepted accounting
principles, assets transferred between entities under common control are
accounted for at historical costs similar to a pooling of interests. In August
2003, NEG entered into an agreement to manage TransTexas Gas Corporation, an
affiliate of Mr. Icahn, for a fee of $312,500 per month.

REAL ESTATE LEASING ACTIVITIES

In 2003, 17 leases covering 17 properties and representing approximately
$2.2 million in annual rentals expired. Twelve leases originally representing
$1.6 million in annual rental income were renewed for $1.4 million in annual
rentals. Such renewals are generally for a term of five years. Five properties
with annual rental income of $0.6 million were not renewed.

In 2004, 11 leases covering 11 properties representing approximately $1.8
million in annual rentals are scheduled to expire. Eight leases representing
approximately $1.5 million in annual rentals were renewed for approximately $1.5
million. Such renewals are generally for a term of five years. Three properties
with annual rentals of approximately $0.3 million have not been renewed.

By the end of the year 2006, net leases representing approximately 22% of
our net annual rentals from our real estate portfolio, or approximately 3.2% of
our total revenues for 2003, will be due for renewal, and by the end of the year
2008, net leases representing approximately 31% of our net annual rentals, or
approximately 4.6% of our total revenues for 2003, will be due for renewal. In
many of these leases, the tenant has an option to renew at the same rents it is
currently paying and in many of the leases the tenant also has an option to
purchase the property. We believe 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. We expect 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 we may be required to
incur expenditures to renovate such properties for new tenants. We 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.

BANKRUPTCIES AND DEFAULTS

We are aware that 19 of our present and former tenants have been or are
currently involved in some type of bankruptcy or reorganization. Under the U.S.
Bankruptcy Code, a tenant may assume or reject its unexpired lease. In the event
a tenant rejects its lease, the U.S. Bankruptcy Code limits the amount of
damages a landlord 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 we will be able to relet the property at
an equivalent rental. As a result of tenant bankruptcies, we have incurred and
expect, 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 our 19
present and former tenants known to be involved in bankruptcy proceedings or
reorganization, 14 have rejected their leases, affecting 37 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.

INSURANCE

We carry customary insurance for our properties and business segments.
However, we do not insure net lease properties where the tenant provides
appropriate amounts of insurance. We determine on a property by property basis
whether or not to obtain terrorism insurance coverage.

EMPLOYEES

At December 31, 2003, we had approximately 3,000 full and part-time
employees, which number of employees fluctuates due to the seasonal nature of
certain of our businesses. Most of the employees are employed by our
consolidated subsidiaries. Approximately 1,300 employees of Stratosphere are
covered by three collective 

59

bargaining agreements. We believe we currently have sufficient staffing to
operate effectively our day-to-day business.

COMPETITION

REAL ESTATE

Competition in leasing and buying and selling real property remains strong.
Many of our tenants have rights to renew at prior rental rates. Our 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 us to
re-let or sell on favorable terms properties vacated by tenants.

Competition for the acquisition of approved land for development has
intensified and we have not been able to replenish our approved land inventory.
Competition for the sale of developed land, houses and condominiums is also
strong in certain areas of the country. We compete in these areas with national
real estate developers, some of which have greater financial resources than us.

Competition for investments of the types we intend 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 our ability to find quality assets at appropriate yields.
While we believe our capital base may enable us to gain a competitive advantage
over certain other purchasers of real estate by allowing us to respond quickly
and make all cash transactions without financing contingencies where
appropriate, there can be no assurance that this will be the case.

HOTEL, CASINO AND RESORT OPERATIONS

Investments in the gaming and entertainment industries involve significant
competitive pressures and political and regulatory considerations. In recent
years, there have been many new gaming establishments opened as well as facility
expansions, providing increased supply of competitive products and properties in
the industry, which may adversely affect our operating margins and investment
returns. The casino/hotel industry is highly competitive. Hotels located on or
near the Las Vegas Strip compete primarily with other Las Vegas Strip hotels and
with a few major hotels in downtown Las Vegas. Stratosphere also competes with a
large number of hotels and motels located in and near Las Vegas. Stratosphere's
Tower competes with all other forms of entertainment, recreational activities
and other attractions in and near Las Vegas and elsewhere. Many of our
competitors offer more products than us and have greater name recognition and
may have greater resources.

PROPERTIES

As of December 31, 2003, we owned 128 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 28 states. Most of these properties are net-leased to single corporate
tenants. Approximately 81% of these properties are currently net-leased, 9% are
operating properties and 10% are vacant.

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

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

Retail...........           51              $  4.34
Industrial.......           19              $  2.08
Office...........           28              $  7.71
Supermarkets.....           12              $  2.67
Banks............            5              $  3.20
Other............           13                  N/A

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

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

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

Southeast............         55
Northeast............         31
South Central........          4
Southwest............          4
North Central........         30
Northwest............          4

From January 1, 2004 through March 2004, we sold or otherwise disposed of
eight properties. In connection with such sales and dispositions, we received an
aggregate of approximately $18.7 million in cash, net of closing costs and
amounts used to satisfy mortgage indebtedness which encumbered such properties.

As previously discussed, we are marketing for sale our rental real estate
portfolio. As of March 23, 2004, we had 40 properties under conditional sales
contracts or letters of intent which are subject to purchaser's due diligence
and other closing conditions. Selling prices for these properties total
approximately $323 million. The properties are individually encumbered by
mortgage debt aggregating approximately $142 million which would have to be paid
by us out of the sale proceeds or would be assumed by the purchasers. In
accordance with generally accepted accounting principles, only the real estate
operating properties under contract or letter of intent, but not the financing
lease properties were reclassified to "Properties Held for Sale" and the related
income and expense reclassified to "Income from Discontinued Operations."

For each of the years ended December 31, 2003, 2002, and 2001, no single
real estate asset or series of assets leased to the same lessee accounted for
more than 10% of our gross revenues. However, as of December 31, 2003, 2002, and
2001, PGEC occupied a property, which represented approximately 14% of the
carrying value of our total real estate assets leased to others. 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 U.S. Bankruptcy Code.
PGEC is not included in the filing. In November 2003, Enron agreed to sell PGEC
to a newly created company named Oregon Electric Utility Company, LLC. In
February 2004, the Bankruptcy Court approved the sale, which will require
certain regulatory approvals. We are not aware of any conditions of the sale
that will affect PGEC's lease obligation.

PGEC's 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. PGEC's 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 $4.9
million until 2018 and $2.5 million during each renewal option. PGEC has
guaranteed the performance of its subsidiary's obligations under the lease. The
lessee has an option to purchase PGEC's property in September 2008, 2013 and
2018 at a price equal to the fair market value of PGEC's property determined in
accordance with the lease and is required to make a rejectable offer to purchase
PGEC's property in September 2018 for a price of $15 million. A rejection of
such offer will have no effect on the lease obligations or the renewal and
purchase options.

We own 100% of Stratosphere. Stratosphere owns and operates the Stratosphere
Casino Hotel & Tower, 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
80,000 square foot casino and related amenities.

As of May 26, 2004, we own Arizona Charlie's Decatur and Arizona Charlie's
Boulder. Arizona Charlie's Decatur has 258 hotel rooms and a 52,000 square foot
casino and related amenities. Arizona Charlie's Boulder has 303 hotel rooms and
a 41,000 square foot casino and related amenities.

We own, primarily through our Bayswater subsidiary, residential development
properties. Bayswater focuses primarily on the acquisition, development,
construction and sale of single-family homes, custom-built homes, multi-family

61

homes and lots in subdivisions and planned communities and entitling raw
subdivisions and planned communities.

We own a resort property in New Seabury, Massachusetts. In addition to
residential development, New Seabury currently includes a golf club with two 18
hole championship golf courses, the Popponesset Inn, a casual waterfront dining
and wedding facility, a villa rental program, a waterfront freshwater swimming
pool, a private beach, a fitness center and a 16 court tennis facility.

We own a 36.3% equity interest in GB Holdings, the parent company of the
Sands. The Sands, located in Atlantic City, New Jersey, contains 637 rooms and
suites, a 79,000 square foot casino and related amenities.

LEGAL PROCEEDINGS

We are from time to time parties to various legal proceedings arising out of
our businesses. We believe, however, that, other than the proceedings discussed
below, there are no proceedings pending or threatened against us which, if
determined adversely, would have a material adverse effect on our business,
financial condition, results of operations or liquidity.

NEW SEABURY

In January 2002, the Cape Cod Commission, a Massachusetts regional planning
body created in 1989, concluded that our New Seabury development is within its
jurisdiction for review and approval. We believe that the proposed residential,
commercial and recreational development is in substantial compliance with a
special permit issued for the property in 1964 and is therefore exempt from the
commission's jurisdiction and that the commission is barred from exercising
jurisdiction pursuant to a 1993 settlement agreement between the commission and
a prior owner of the New Seabury property.

In February 2002, New Seabury Properties L.L.C., our subsidiary and owner of
the property, filed in Barnstable County Massachusetts Superior Court, a civil
complaint appealing the decision by the commission, and a separate civil
complaint to find the commission in contempt of the settlement agreement. The
court subsequently consolidated the two complaints into one proceeding. In July
2003, New Seabury and the commission filed cross motions for summary judgment.

Also, in July 2003, in accordance with a court ruling, the commission
reconsidered the question of its jurisdiction over the initial development
proposal and over a modified development proposal that New Seabury filed in
March 2003. The commission concluded that both proposals are within its
jurisdiction. In August 2003, New Seabury filed in Barnstable County
Massachusetts Superior Court another civil complaint appealing the commission's
second decision to find the commission in contempt of the settlement agreement.

In November 2003, the court ruled in New Seabury's favor on its July 2003
motion for partial summary judgment, finding that the special permit remains
valid and that the modified development proposal is in substantial compliance
with the special permit and therefore exempt from the commission's jurisdiction;
the court has not yet ruled on the initial proposal. Under the modified
development proposal, New Seabury could potentially develop up to 278
residential units and 145,000 square feet of commercial space. In February 2004,
New Seabury and the commission jointly moved to consolidate the three complaints
into one proceeding. The court subsequently consolidated the three complaints
into one proceeding. In March 2004, New Seabury moved for summary judgment to
dispose of remaining claims under all three complaints and to obtain a final
judgment from the court. Under the initial proposal, New Seabury could
potentially build up to 675 residential/hotel units and 80,000 square feet of
commercial space. We cannot predict the effect on the development process if we
lose any appeal or if the commission is ultimately successful in asserting
jurisdiction over any of the development proposals.

STRATOSPHERE

In December 2001, Tiffiny Decorating Company, a subcontractor to Great
Western Drywall, Inc. commenced an action against Stratosphere Corporation,
Stratosphere Development, LLC, AREH, Great Western, Nevada Title and Safeco
Insurance in the Eighth Judicial District Court of the State of Nevada. The
action asserts claims that include 

62

breach of contract, unjust enrichment and foreclosure of lien. We filed a
cross-claim against Great Western in that action. Additionally, Great Western
has filed a separate legal action against the Stratosphere parties setting forth
the same disputed issues and claiming additional damages. That separate action,
has been consolidated with the case brought by Tiffiny.

The initial complaint brought by Tiffiny asserts that Tiffiny performed
certain construction services at the Stratosphere and was not fully paid for
those services. Tiffiny claims the sum of approximately $0.5 million against
Great Western, the Stratosphere parties and the other defendants, which the
Stratosphere parties contend has been paid to Great Western for payment to
Tiffiny.

Great Western is alleging that it is owed payment from the Stratosphere
parties for work performed and for delay and disruption damages. Great Western
is claiming damages in the sum of approximately $3.9 million plus interest,
costs and legal fees from the Stratosphere parties. The amount apparently
includes the Tiffiny claim.

The Stratosphere parties have evaluated the project and have determined that
the amount of approximately $1.0 million, of which approximately $0.2 million
and $0.4 million were disbursed to Tiffiny and Great Western in 2002,
respectively, is properly due and payable to satisfy all claims for the work
performed, including the claim by Tiffiny. The remaining amount has been
segregated in a separate interest bearing account. The Stratosphere parties
intend to vigorously defend the action for claims in excess of approximately
$1.0 million.

63

REGULATION

RENTAL REAL ESTATE AND REAL ESTATE DEVELOPMENT

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, pollutants and contaminants
released on, under or in its property. These laws often impose liability without
regard to whether the owner or operator knew of, or was responsible for, the
release of such substances. To the extent any such substances are found in or on
any property invested in by us, we 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. We generally conduct a Phase I
environmental site assessment on properties in which we are considering
investing. A Phase I environmental site assessment involves record review,
visual site assessment and personnel interviews, but does not typically include
invasive testing procedures such as air, soil or groundwater sampling or other
tests performed as part of a Phase II environmental site assessment.
Accordingly, there can be no assurance that these assessments will disclose 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.

Most of our properties continue to be net-leased to single corporate
tenants, and we believe that in most cases these tenants would be responsible
for the cost of any environmental conditions existing on the properties they
lease. Therefore, such conditions should not have a material adverse effect on
the financial statements or our competitive position. Many of the properties
acquired by us in connection with our initial acquisition of property in 1987
were not subjected to any type of environmental site assessment at the time of
the acquisition. Subsequently, we undertook to have Phase I environmental site
assessments completed on most of our properties. We believe that under the terms
of our net leases with our tenants, the costs of environmental problems that
occur during the tenancy would be the responsibility of such tenants, including
compliance with any obligations to perform site remediation activities or to
comply with applicable laws and regulations. While most tenants have assumed
responsibility for the environmental conditions existing on their leased
property, there can be no assurance that we will not be deemed to be a
responsible party or that the tenant will bear the cost of remediation. Also, as
we acquire more operating properties, our exposure to environmental cleanup
costs may increase.

In some cases, the Phase I environmental site assessments completed on
certain properties indicate that they may have environmental conditions that
should be further reviewed. We have 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, we may be liable for investigation or remediation costs. However, as a
limited number of Phase II environmental site assessments have been conducted by
us, there can be no accurate estimate of the need for or extent of any required
remediation. We are in the process of updating our Phase I environmental site
assessments for certain of our environmentally sensitive properties.
Approximately 75 updates were completed in 2003. No additional material
environmental conditions were discovered.

We 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 our ability to sell, refinance or re-lease particular
properties, resulting in decreased income and increased cost to us. While we
attempt to sell properties "as is" and transfer any environmental liability to
the purchaser, we could incur environmental liability based on our past
ownership or operation of divested properties.

OTHER PROPERTY MATTERS

Under Title III of the Americans with Disabilities Act of 1990 and its
rules, or ADA, in order to protect individuals with disabilities, owners and
certain tenants of public accommodations, including hotels, casinos, resorts,
offices and shopping centers, must remove architectural and communication
barriers which are structural in 

64

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 us, we believe that the existing
net leases require the tenants of many of our 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, we may ultimately have to bear the expense of
complying with the ADA.

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

HOTEL AND CASINO OPERATIONS

NEVADA

Introduction

The ownership and operation of casino gaming facilities in the State of
Nevada are subject to the Nevada Gaming Control Act and the regulations made
under such Act, as well as various local ordinances. The gaming operations of
our casinos are subject to the licensing and regulatory control of the Nevada
Gaming Commission and the Nevada State Gaming Control Board. Our casinos'
operations are also subject to regulation by the Clark County Liquor and Gaming
Licensing Board and the City of Las Vegas. These agencies are referred to herein
collectively as the Nevada Gaming Authorities.

Policy Concerns of Gaming Laws

The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy. These public policy
concerns include, among other things:

-   preventing unsavory or unsuitable persons from being directly or
indirectly involved with gaming at any time or in any capacity;

-   establishing and maintaining responsible accounting practices and
procedures;

-   maintaining effective controls over the financial practices of
licensees, including establishing minimum procedures for internal fiscal
affairs, and safeguarding assets and revenue, providing reliable
recordkeeping and requiring the filing of periodic reports with the
Nevada Gaming Authorities;

-   preventing cheating and fraudulent practices; and

-   providing a source of state and local revenue through taxation and
licensing fees.

Changes in these laws, regulations and procedures could have significant
negative effects on our gaming operations and our financial condition and
results of operations.

Owner and Operator Licensing Requirements

Our casinos are licensed by the Nevada Gaming Authorities as corporate
licensees, which we refer to herein as company licensees. Under their gaming
licenses, our casinos are required to pay periodic fees and taxes. The gaming
licenses are not transferable.

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To date, our casino properties, including the properties to be acquired by
ACEP, have obtained all gaming licenses necessary for the operation of their
existing gaming operations; however, gaming licenses and related approvals are
privileges under Nevada law, and we cannot assure you that any new gaming
license or related approvals that may be required in the future will be granted,
or that any existing gaming licenses or related approvals will not be limited,
conditioned, suspended or revoked or will be renewed.

Our Registration Requirements

We have been registered by the Nevada Gaming Commission as a publicly traded
corporation, which we refer to herein as a registered company for the purposes
of the Nevada Gaming Control Act. API, AREH and Beckton Corporation have been
registered by the Nevada Gaming Commission as holding companies. AREH's direct
and indirect subsidiaries American Entertainment Properties Corp., or AEP, ACEP
and Charlie's Holding, LLC have applied to be registered by the Nevada Gaming
Commission as holding companies.

Periodically, we will be required to submit detailed financial and operating
reports to the Nevada Gaming Commission and to provide any other information
that the Nevada Gaming Commission may require. Substantially all of our material
loans, leases, sales of securities and similar financing transactions must be
reported to, or approved by, the Nevada Gaming Commission.

Individual Licensing Requirements

No person may become a stockholder or member of, or receive any percentage
of the profits of, a non-publicly traded holding or intermediary company or
company licensee without first obtaining licenses and approvals from the Nevada
Gaming Authorities. The Nevada Gaming Authorities may investigate any individual
who has a material relationship to or material involvement with us to determine
whether the individual is suitable or should be licensed as a business associate
of a gaming licensee. Key employees of a company licensee may also be required
to file such applications. The Nevada Gaming Authorities may deny an application
for licensing for any cause which they deem reasonable. A finding of suitability
is comparable to licensing, and both require submission of detailed personal and
financial information followed by a thorough investigation. An applicant for
licensing or an applicant for a finding of suitability must pay or must cause to
be paid all the costs of the investigation. Changes in licensed positions must
be reported to the Nevada Gaming Authorities and, in addition to their authority
to deny an application for a finding of suitability or licensing, the Nevada
Gaming Authorities have the jurisdiction to disapprove a change in a corporate
position.

If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with us, we would have to sever all relationships with that person.
In addition, the Nevada Gaming Commission may require us to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or questions pertaining to licensing are not
subject to judicial review in Nevada.

Consequences of Violating Gaming Laws

If the Nevada Gaming Commission decides that we have violated the Nevada
Gaming Control Act or any of its regulations, it could limit, condition, suspend
or revoke our registrations and gaming licenses. In addition, we and the persons
involved could be subject to substantial fines for each separate violation of
the Nevada Gaming Control Act, or of the regulations of the Nevada Gaming
Commission, at the discretion of the Nevada Gaming Commission. Further, the
Nevada Gaming Commission could appoint a supervisor to conduct the operations of
our casinos and, under specified circumstances, earnings generated during the
supervisor's appointment (except for the reasonable rental value of the
premises) could be forfeited to the State of Nevada. Limitation, conditioning or
suspension of any of our gaming licenses and the appointment of a supervisor
could, and revocation of any gaming license would, have a significant negative
effect on our gaming operations.

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Requirements for Beneficial Securities Holders

Regardless of the number of shares held, any beneficial holder of our voting
securities may be required to file an application, be investigated and have that
person's suitability as a beneficial holder of voting securities determined if
the Nevada Gaming Commission has reason to believe that the ownership would
otherwise be inconsistent with the declared policies of the State of Nevada. If
the beneficial holder of the voting securities who must be found suitable is a
corporation, partnership, limited partnership, limited liability company or
trust, it must submit detailed business and financial information including a
list of its beneficial owners. The applicant must pay all costs of the
investigation incurred by the Nevada Gaming Authorities in conducting any
investigation.

The Nevada Gaming Control Act requires any person who acquires more than 5%
of the voting securities of a registered company to report the acquisition to
the Nevada Gaming Commission. The Nevada Gaming Control Act requires beneficial
owners of more than 10% of a registered company's voting securities to apply to
the Nevada Gaming Commission for a finding of suitability within 30 days after
the Chairman of the Nevada State Gaming Control Board mails the written notice
requiring such filing. Under certain circumstances, an "institutional investor,"
as defined in the Nevada Gaming Control Act, which acquires more than 10%, but
not more than 15%, of the registered company's voting securities may apply to
the Nevada Gaming Commission for a waiver of a finding of suitability if the
institutional investor holds the voting securities for investment purposes only.
In certain circumstances, an institutional investor that has obtained a waiver
can hold up to 19% of a registered company's voting securities for a limited
period of time and maintain the waiver. An institutional investor will not be
deemed to hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board at directors
of the registered company, a change in the corporate charter, bylaws,
management, policies or operations of the registered company, or any of its
gaming affiliates, or any other action which the Nevada Gaming Commission finds
to be inconsistent with holding the registered company's voting securities for
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include:

-   voting on all matters voted on by stockholders or interest holders;

-   making financial and other inquiries of management of the type normally
made by securities analysts for informational purposes and not to cause
a change in its management, policies or operations; and

-   other activities that the Nevada Gaming Commission may determine to be
consistent with such investment intent.

Consequences of Being Found Unsuitable

Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Gaming
Commission or by the Chairman of the Nevada State Gaming Control Board, or who
refuses or fails to pay the investigative costs incurred by the Nevada Gaming
Authorities in connection with the investigation of its application, may be
found unsuitable. The same restrictions apply to a record owner if the record
owner, after request, fails to identify the beneficial owner. Any person found
unsuitable and who holds, directly or indirectly, any beneficial ownership of
any voting security or debt security of a registered company beyond the period
of time as may be prescribed by the Nevada Gaming Commission may be guilty of a
criminal offense. We will be subject to disciplinary action if, after we receive
notice that a person is unsuitable to hold an equity interest or to have any
other relationship with, we:

-   pay that person any dividend or interest upon any voting securities;

-   allow that person to exercise, directly or indirectly, any voting right
held by that person;

-   pay remuneration in any form to that person for services rendered or
otherwise; or

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-   fail to pursue all lawful efforts to require the unsuitable person to
relinquish such person's voting securities including, if necessary, the
immediate purchase of the voting securities for cash at fair market
value.

Gaming Laws Relating to Securities Ownership

The Nevada Gaming Commission may, in its discretion, require the holder of
any debt or similar securities of a registered company to file applications, be
investigated and be found suitable to own the debt or other security of the
registered company if the Nevada Gaming Commission has reason to believe that
such ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. If the Nevada Gaming Commission decides that a person is
unsuitable to own the security, then under the Nevada Gaming Control Act, the
registered company can be sanctioned, including the loss of its approvals if,
without the prior approval of the Nevada Gaming Commission, it:

-   pays to the unsuitable person any dividend, interest or any distribution
whatsoever;

-   recognizes any voting right by the unsuitable person in connection with
the securities;

-   pays the unsuitable person remuneration in any form; or

-   makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation or similar transaction.

We are required to maintain a current stock ledger in Nevada which may be
examined by the Nevada Gaming Authorities at any time. If any securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make the disclosure may be grounds for finding the record holder
unsuitable. We will be required to render maximum assistance in determining the
identity of the beneficial owner of any of our voting securities. The Nevada
Gaming Commission has the power to require the stock certificates of any
registered company to bear a legend indicating that the securities are subject
to the Nevada Gaming Control Act and certain subject to restrictions imposed by
applicable gaming laws. To date, this requirement has not been imposed on us.

Approval of Public Offerings

Neither we nor any of our affiliates may make a public offering of our
securities without the prior approval of the Nevada Gaming Commission if the
proceeds from the offering are intended to be used to construct, acquire or
finance gaming facilities in Nevada, or to retire or extend obligations incurred
for those purposes or for similar transactions. Any offer by us to exchange the
notes for publicly registered notes will require the review of, and prior
approval by, the Nevada Gaming Authorities. The Nevada Commission has granted us
prior approval to make public offerings for a period of two years expiring in
May 2006, subject to certain conditions ("Shelf Approval"). The Shelf Approval
may be rescinded for good cause without prior notice upon the issuance of an
interlocutory stop order by the Chairman of the Nevada Board and must be renewed
at the end of the two-year approval period. The Shelf Approval applies to any
affiliated company wholly owned by us (an "Affiliate"), which is a publicly
traded corporation or would thereby become a publicly traded corporation
pursuant to a public offering. The Shelf Approval includes approval for
Stratosphere Gaming Corp. to guarantee any security issued by, or to hypothecate
its assets to secure the payment or performance of any obligations evidenced by
a security issued by, us or an Affiliate in a public offering under the Shelf
Approval. The Shelf Approval also includes approval for us to place restrictions
upon the transfer of, and to enter into agreements not to encumber the equity
securities of our subsidiaries licensed or registered in Nevada, as applicable,
in conjunction with public offerings made under the Shelf Approval. The Shelf
Approval does not constitute a finding, recommendation or approval by the Nevada
Commission or the Nevada Board as to the accuracy or adequacy of the prospectus
or the investment merits of the securities offered. Any representation to the
contrary is unlawful.

Approval of Changes in Control

As a registered company, we must obtain prior approval of the Nevada Gaming
Commission with respect to a change in control through:

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-   merger;

-   consolidation;

-   stock or asset acquisitions;

-   management or consulting agreements; or

-   any act or conduct by a person by which the person obtains control of
us.

Entities seeking to acquire control of a registered company must satisfy the
Nevada State Gaming Control Board and Nevada Gaming Commission with respect to a
variety of stringent standards before assuming control of the registered
company. The Nevada Gaming Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control to be investigated and
licensed as part of the approval process relating to the transaction.

Approval of Defensive Tactics

The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licenses or affecting registered companies that are
affiliated with the operations permitted by Nevada gaming licenses may be
harmful to stable and productive corporate gaming. The Nevada Gaming Commission
has established a regulatory scheme to reduce the potentially adverse effects of
these business practices upon Nevada's gaming industry and to further Nevada's
policy to:

-   assure the financial stability of corporate gaming operators and their
affiliates;

-   preserve the beneficial aspects of conducting business in the corporate
form; and

-   promote a neutral environment for the orderly governance of corporate
affairs.

As a registered company, we may need to obtain approvals from the Nevada
Gaming Commission before we can make exceptional repurchases of voting
securities above our current market price and before a corporate acquisition
opposed by management can be consummated. The Nevada Gaming Control Act also
requires prior approval of a plan of recapitalization proposed by a registered
company's board of directors in response to a tender offer made directly to its
stockholders for the purpose of acquiring control.

Fees and Taxes

License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the licensed subsidiaries respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon:

-   a percentage of gross revenues received;

-   the number of gaming devices operated; or

-   the number of table games operated.

Our casinos are also subject to a state payroll tax based on the wages paid
to its employees.

Foreign Gaming Investigations

Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with those persons (collectively,
"licensees"), and who proposes to become involved in a gaming venture

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outside of Nevada, is required to deposit with the Nevada State Gaming Control
Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay
the expenses of investigation of the Nevada State Gaming Control Board of the
licensee's or registrant's participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada Gaming
Commission. Licensees and registrants are required to comply with the reporting
requirements imposed by the Nevada Gaming Control Act. A licensee or registrant
is also subject to disciplinary action by the Nevada Gaming Commission if it:

-   knowingly violates any laws of the foreign jurisdiction pertaining to
the foreign gaming operation;

-   fails to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations;

-   engages in any activity or enters into any association that is
unsuitable because it poses an unreasonable threat to the control of
gaming in Nevada, reflects or tends to reflect, discredit or disrepute
upon the State of Nevada or gaming in Nevada, or is contrary to the
gaming policies of Nevada;

-   engages in activities or enters into associations that are harmful to
the State of Nevada or its ability to collect gaming taxes and fees; or

-   employs, contracts with or associates with a person in the foreign
operation who has been denied a license or finding of suitability in
Nevada on the ground of unsuitability.

License for Conduct of Gaming and Sale of Alcoholic Beverages

The conduct of gaming activities and the service and sale of alcoholic
beverages by our casinos are subject to licensing, control and regulation by the
Clark County Liquor and Gaming Licensing Board and the City of Las Vegas. In
addition to approving our casinos, the Clark County Liquor and Gaming License
Board and the City of Las Vegas have the authority to approve all persons owning
or controlling the stock of any corporation controlling a gaming license. All
licenses are revocable and are not transferable. The county and city agencies
have full power to limit, condition, suspend or revoke any license. Any
disciplinary action could, and revocation would, have a substantial negative
impact upon our operations.

NEW JERSEY

Introduction

Casino gaming is strictly regulated in Atlantic City under the New Jersey
Casino Control Act, or NJCCA, and the regulations of the New Jersey Casino
Control Commission, or New Jersey Commission, which affect virtually all aspects
of the operations of The Sands. The NJCCA and regulations affecting Atlantic
City casino licensees concern primarily the financial stability, integrity and
character of casino operators, their employees, their debt and equity security
holders and others financially interested in casino operations; the nature of
casino/hotel facilities; the operation methods (including rules of games and
credit granting procedures); and financial and accounting practices used in
connection with casino operations. A number of these regulations require
practices that are different from those in casinos in Nevada and elsewhere, and
some of these regulations result in casino operating costs greater than those in
comparable facilities in Nevada and elsewhere. The following is only a summary
of the applicable provisions of the NJCCA. It does not purport to be a full
description and is qualified in its entirety by reference to the NJCCA and such
other applicable laws and regulations.

New Jersey Gaming Regulations

In general, the NJCCA and the regulations promulgated thereunder contain
detailed provisions concerning, among other things:

-   the granting and renewal of casino licenses;

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-   the suitability of the approved hotel facility, and the amount of
authorized casino space and gaming units permitted therein;

-   the qualification of natural persons and entities related to the casino
licensee;

-   the licensing of certain employees and vendors of casino licensees;

-   the rules of the games;

-   the selling and redeeming of gaming chips;

-   the granting and duration of credit and the enforceability of gaming
debts;

-   management control procedures, accounting and cash control methods and
reports to gaming agencies;

-   the security standards;

-   the manufacture and distribution of gaming equipment; and

-   the simulcasting of horse races by casino licensees, advertising,
entertainment and alcoholic beverages.

Casino Control Commission

The ownership and operation of casino/hotel facilities in Atlantic City are
the subject of strict state regulation under the NJCCA. The New Jersey
Commission is empowered to regulate a wide spectrum of gaming and non-gaming
related activities and to approve the form of ownership and financial structure
of not only a casino licensee, but also its entity qualifiers and intermediary
and holding companies and any other related entity required to be qualified.

Casino License

No casino hotel facility may operate unless the appropriate license and
approvals are obtained from the New Jersey Commission, which has broad
discretion with regard to the issuance, renewal, revocation and suspension of
such licenses and approvals, which are non-transferable. The qualification
criteria with respect to the holder of a casino license include its financial
stability, integrity and responsibility; the integrity and adequacy of its
financial resources which bear any relation to the casino project; its good
character, honesty and integrity; and the sufficiency of its business ability
and casino experience to establish the likelihood of a successful, efficient
casino operation. A plenary license authorizes the operation of a casino with
the games authorized in an operation certificate issued by the New Jersey
Commission, and the operation certificate may be issued only on a finding that
the casino conforms to the requirements of the NJCCA and applicable regulations
that the casino is prepared to entertain the public. Under such determination,
Atlantic Casino Entertainment, LLC, trading as The Sands Casino Hotel, has been
issued a plenary casino license. The plenary license issued to The Sands was
renewed by the New Jersey Commission in September 2000 for a period of four
years. The Sands has applied for renewal of its casino license for a four-year
term through September 2008 and the Commission is scheduled to consider that
application on September 29, 2004. The New Jersey Commission may reopen license
hearings at any time, and must reopen a licensing hearing at the request of the
New Jersey Division of Gaming Enforcement.

To be considered financially stable, a licensee must demonstrate the
following abilities: to pay winning wagers when due; to achieve an annual gross
operating profit; to pay all local, state and federal taxes when due; to make
necessary capital and maintenance expenditures to insure that it has a superior
first-class facility; and to pay, exchange, refinance or extend debts which will
mature or become due and payable during the license term.

In the event a licensee fails to demonstrate financial stability, the New
Jersey Commission may take such action as it deems necessary to fulfill the
purposes of the NJCCA and protect the public interest, including: issuing
conditional licenses, approvals or determinations; establishing an appropriate
cure period; imposing reporting

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requirements; placing restrictions on the transfer of cash or the assumption of
liabilities; requiring reasonable reserves or trust accounts; denying licensure;
or appointing a conservator. See " -- Conservatorship."

Pursuant to the NJCCA and the regulations and precedent of the New Jersey
Commission, no entity may hold a casino license unless each officer, director,
principal employee, person who directly or indirectly holds any beneficial
interest or ownership in the licensee, each person who in the opinion of the New
Jersey Commission has the ability to control or elect a majority of the board of
directors of the licensee (other than a banking or other licensed lending
institution which makes a loan or holds a mortgage or other lien acquired in the
ordinary course of business) and any lender, underwriter, agent or employee of
the licensee or other person whom the New Jersey Commission may consider
appropriate, obtains and maintains qualification approval from the New Jersey
Commission. Qualification approval means that such person must, but for
residence, individually meet the qualification requirements as a casino key
employee.

Control Persons

Any entity qualifier or intermediary of holding company, such as AREP is
required to register with the New Jersey Commission and meet the same basic
standards for approval as a casino licensee; provided, however, that the New
Jersey Commission, with the concurrence of the Director of the Division of
Gaming Enforcement, may waive compliance by a publicly-traded corporate holding
company with the requirement that an officer, director, lender, underwriter,
agent or employee thereof, or person directly or indirectly holding a beneficial
interest or ownership of the securities thereof, individually qualify for
approval under casino key employee standards so long as the New Jersey
Commission and the Director of the Division of Gaming Enforcement are, and
remain, satisfied that such officer, director, lender, underwriter, agent or
employee is not significantly involved in the activities of the casino licensee,
or that such security holder does not have the ability to control the
publicly-traded corporate holding company or elect one or more of its directors.
Persons holding 5.0% or more of the equity securities of such holding company
are presumed to have the ability to control the company or elect one or more of
its directors and will, unless this presumption is rebutted, be required to
individually qualify. Equity securities are defined as any voting stock or any
security similar to or convertible into or carrying a right to acquire any
security having a direct or indirect participation in the profits of the issuer.

Financial Sources

The New Jersey Commission may require all financial backers, investors,
mortgagees, bond holders and holders of notes or other evidence of indebtedness,
either in effect or proposed, which bear any relation to any casino project,
including holders of publicly-traded securities of an entity which holds a
casino license or is an entity qualifier, subsidiary or holding company of a
casino licensee, to qualify as financial sources. In the past, the New Jersey
Commission has waived the qualification requirement for holders of less than
15.0% of a series of publicly-traded mortgage bonds so long as the bonds
remained widely distributed and freely traded in the public market and the
holder had no ability to control the casino licensee. The New Jersey Commission
may require holders of less than 15.0% of a series of debt to qualify as
financial sources even if not active in the management of the issuer or casino
licensee.

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Institutional Investors

An institutional investor is defined by the NJCCA as any retirement fund
administered by a public agency for the exclusive benefit of federal, state or
local public employees; any investment company registered under the Investment
Company Act of 1940, as amended; any collective investment trust organized by
banks under Part Nine of the Rules of the Comptroller of the Currency; any
closed end investment trust; any chartered or licensed life insurance company or
property and casualty insurance company; any banking and other chartered or
licensed lending institution; any investment advisor registered under the
Investment Advisers Act of 1940, as amended; and such other persons as the New
Jersey Commission may determine for reasons consistent with the policies of the
NJCCA.

An institutional investor may be granted a waiver by the New Jersey
Commission from financial source or other qualification requirements applicable
to a holder of publicly-traded securities, in the absence of a prima facie
showing by the Division of Gaming Enforcement that there is any cause to believe
that the holder may be found unqualified, on the basis of New Jersey Commission
findings that: (i) its holdings were purchased for investment purposes only and,
upon request by the New Jersey Commission, it files a certified statement to the
effect that it has no intention of influencing or affecting the affairs of the
issuer, the casino licensee or its holding or intermediary companies; provided,
however, that the institutional investor will be permitted to vote on matters
put to the vote of the outstanding security holders; and (ii) if (x) the
securities are debt securities of a casino licensee's holding or intermediary
companies or another subsidiary company of the casino licensee's holding or
intermediary companies which is related in any way to the financing of the
casino licensee and represent either (A) 20.0% or less of the total outstanding
debt of the company or (B) 50.0% or less of any issue of outstanding debt of the
company, (y) the securities are equity securities and represent less than 10.0%
of the equity securities of a casino licensee's holding or intermediary
companies or (z) the securities so held exceed such percentages, upon a showing
of good cause. There can be no assurance, however, that the New Jersey
Commission will make such findings or grant such waiver and, in any event, an
institutional investor may be required to produce for the New Jersey Commission
or the Antitrust Division of the Department of Justice upon request, any
document or information which bears any relation to such debt or equity
securities.

Ownership and Transfer of Securities

The NJCCA imposes certain restrictions upon the issuance, ownership and
transfer of securities of a regulated company and defines the term "security" to
include instruments which evidence a direct or indirect beneficial ownership or
creditor interest in a regulated company including, but not limited to
mortgages, debentures, security agreements, notes and warrants. AREP is deemed
to be a regulated company, and instruments evidencing a beneficial ownership or
creditor interest therein, including the notes or a partnership interest, are
deemed to be the securities of a regulated company.

If the New Jersey Commission finds that a holder of such securities is not
qualified under the NJCCA, it has the right to take any remedial action it may
deem appropriate, including the right to force divestiture by such disqualified
holder of such securities. In the event that certain disqualified holders fail
to divest themselves of such securities, the New Jersey Commission has the power
to revoke or suspend the casino license affiliated with the regulated company
which issued the securities. If a holder is found unqualified, it is unlawful
for the holder (i) to exercise, directly or through any trustee or nominee, any
right conferred by such securities or (ii) to receive any dividends or interest
upon such securities or any remuneration, in any form, from its affiliated
casino licensee for services rendered or otherwise.

With respect to non-publicly-traded securities, the NJCCA and regulations of
the New Jersey Commission require that the corporate charter or partnership
agreement of a regulated company establish a right in the New Jersey Commission
of prior approval with regard to transfers of securities, shares and other
interests and an absolute right in the regulated company to repurchase at the
market price or the purchase price, whichever is the lesser, any such security,
share or other interest in the event that the New Jersey Commission disapproves
a transfer. With respect to publicly-traded securities, such corporate charter
or partnership agreement is required to establish that any such securities of
the entity are held subject to the condition that if a holder thereof is found
to be disqualified by the New Jersey Commission, such holder shall dispose of
such securities.

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Under the terms of the indenture governing the notes, if a holder of the
notes does not qualify under the NJCCA when required to do so, such holder must
dispose of its interest in such securities, and the issuer of such securities
may redeem the securities at the lesser of the outstanding amount or fair market
value.

Conservatorship

If, at any time, it is determined that The Sands, AREP or any other holding
company, intermediary company or entity qualifier has violated the NJCCA or that
any of such entities cannot meet the qualification requirements of the NJCCA,
such entity could be subject to fines or the suspension or revocation of its
license or qualification. If a casino license is suspended for a period in
excess of 120 days or is revoked, or if the New Jersey Commission fails or
refuses to renew such casino license, the New Jersey Commission could appoint a
conservator to operate and dispose of such licensee's casino hotel facilities. A
conservator would be vested with title to all property of such licensee relating
to the casino and the approved hotel subject to valid liens and/or encumbrances.
The conservator would be required to act under the direct supervision of the New
Jersey Commission and would be charged with the duty of conserving, preserving
and, if permitted, continuing the operation of the casino hotel. During the
period of the conservatorship, a former or suspended casino licensee is entitled
to a fair rate of return out of net earnings, if any, on the property retained
by the conservator. The New Jersey Commission may also discontinue any
conservatorship action and direct the conservator to take such steps as are
necessary to effect an orderly transfer of the property of a former or suspended
casino licensee. Such events could result in an event of default under the terms
of the indenture governing the notes.

OIL AND GAS

The oil and gas industry is subject to laws, regulations and other legal
requirements enacted or adopted by federal, state and local, as well as foreign,
authorities relating to protection of the environment and health and safety
matters, including those legal requirements that govern discharges of substances
into the air and water, the management and disposal of hazardous substances and
wastes, the cleanup of contaminated sites, groundwater quality and availability,
plant and wildlife protection, reclamation and restoration of properties after
drilling is completed.

The incurrence of significant environmental compliance or remediation costs
by NEG could adversely affect the cash flow available to AREP to service the
indebtedness under the notes.

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MANAGEMENT

The following table sets forth certain information as of June 30, 2004
concerning the directors and executive officers of API and American Real Estate
Finance Corp.:

NAME                 AGE                     POSITION
-------------------------      ----   -----------------------------------------

Carl C. Icahn............       68    Chairman of the Board
William A. Leidesdorf....       59    Director
James L. Nelson..........       54    Director
Jack G. Wasserman........       67    Director
Keith A. Meister.........       31    President and Chief Executive Officer
Martin L. Hirsch.........       49    Executive Vice President and Director of
Acquisitions and Development
John P. Saldarelli.......       62    Vice President, Chief Financial Officer,
Secretary and Treasurer

Carl C. Icahn has been Chairman of the Board of API since November 15,
1990 and Chairman of the Board of American Real Estate Finance Corp. since
inception. He is also Chairman of the Board of Directors and a Director of
Starfire Holding Corporation (formerly Icahn Holding Corporation), a Delaware
corporation, or SHC, and Chairman of the Board and a Director of various of
SHC's subsidiaries. SHC is primarily engaged in the business of holding, either
directly or through subsidiaries, various businesses and investments and its
address is 100 South Bedford Road, Mount Kisco, New York 10549. Mr. Icahn was
Chairman of the Board of Directors of ACF Industries, Inc., or ACF, from October
29, 1984 and a Director of ACF from June 29, 1984 until April 30, 2003. Mr.
Icahn has been a member of the Executive Committee of ACF Industries, LLC, the
successor to ACF, since May 1, 2003. ACF Industries, LLC 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 Mr. Icahn. In January 2003, Mr. Icahn became
Chairman of the Board and a Director of XO Communications Inc., a
telecommunications company. Mr. Icahn has been a Director of Cadus Corporation,
a firm which holds various biotechnology patents, since 1993. Since October
1998, Mr. Icahn has been the President and a Director of Stratosphere
Corporation which operates the Stratosphere Hotel Casino & Tower. 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. Mr. Icahn has been licensed by the New Jersey State
Casino Control Commission and the Nevada State Gaming Control Commission.

William A. Leidesdorf has served as a Director of API since March 26, 1991
and as a Director of American Real Estate Finance Corp. since inception. Mr.
Leidesdorf is also a Director of Renco Steel Group, Inc. and its subsidiary, WCI
Steel, Inc., a steel producer which filed for Chapter 11 bankruptcy protection
in September 2003. 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.
Since December 29, 2003, Mr. Leidesdorf has served as a Director of American
Entertainment Properties Corp. and American Casino & Entertainment Properties
Finance Corp. which are our indirect subsidiaries. Mr. Leidesdorf has been
licensed by the New Jersey State Casino Control Commission and the Nevada State
Gaming Control Commission.

James L. Nelson has served as a Director of API since June 12, 2001 and as
a Director of American Real Estate Finance Corp. since inception. 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 March 1998 through 2003, Mr. Nelson was Chairman and
Chief Executive Officer of Orbit Aviation, Inc. a company engaged in the
acquisition and completion of Boeing Business Jets for private and corporate
clients. From August 1995 until July 1999, he was Chief Executive Officer and
Co-Chairman of Orbitex Management, Inc. Mr. Nelson currently serves as a
Director of Viskase Corporation, a closely-held supplier for the meat and
poultry business, and TransTexas Gas Corporation, a company that is 85% owned by
various entities affiliated with Mr. Icahn and managed by National Energy Group,
Inc. Until March 2001, he was on the Board of Orbitex Financial

75

Services Group, a financial services company in the mutual fund sector. Since
December 29, 2003, Mr. Nelson has served as a Director of American Entertainment
Properties Corp. and American Casino & Entertainment Properties Finance Corp.,
which are our indirect subsidiaries. Mr. Nelson has been licensed by the New
Jersey State Casino Control Commission and the Nevada State Gaming Control
Commission.

Jack G. Wasserman has served as a Director of API since December 3, 1993
and as a Director of American Real Estate Finance Corp. since inception. Mr.
Wasserman is an attorney and a member of the Bars of New York, Florida and the
District of Columbia. From 1966 until 2001, he was a senior partner of
Wasserman, Schneider, Babb & Reed, a New York-based law firm and its
predecessors. Since September 2001, Mr. Wasserman has been engaged in the
practice of law as a sole practitioner. Mr. Wasserman has been licensed by the
New Jersey State Casino Control Commission and the Nevada State Gaming Control
Commission and, at the latter's direction, is an independent member and Chairman
of the Stratosphere Compliance Committee. Since December 29, 2003, Mr. Wasserman
has served as a Director of American Entertainment Properties Corp. and American
Casino & Entertainment Properties Finance Corp., which are our indirect
subsidiaries. Mr. Wasserman is not a member of the Stratosphere's Board of
Directors. Since December 1, 1998, Mr. Wasserman has been a Director of National
Energy Group, Inc. which, on December 4, 1998, sought protection under the
federal bankruptcy laws. A Plan of Reorganization became effective on August 4,
2000, and a final decree closing the case and settling all matters relating to
the bankruptcy proceeding became effective on December 13, 2001. In 2003,
National Energy Group, Inc. became our subsidiary. Mr. Wasserman is also a
Director of Cadus Corporation, a publicly traded biotechnology company.
Affiliates of Mr. Icahn are controlling shareholders of each of these companies.
On March 11, 2004, Mr. Wasserman was elected to the Board of Directors of Triarc
Companies, Inc. a publicly traded diversified holding company.

Keith A. Meister has served as President and Chief Executive Officer of
API since August 2003 and of American Real Estate Finance Corp. since inception.
He also continues to serve as a senior investment analyst of High River Limited
Partnership, a company owned and controlled by Mr. Icahn, a position he has held
since June 2002. From March 2000 through 2001, Mr. Meister co-founded and served
as co-president of J Net Ventures, a venture capital fund focused on investments
in information technology and enterprise software businesses. From 1997 through
1999, Mr. Meister served as an investment professional at Northstar Capital
Partners, an opportunistic real estate investment partnership. Prior to
Northstar, Mr. Meister served as an investment analyst in the investment banking
group at Lazard Freres. He also serves on the Boards of Directors of the
following companies: XO Communications, Inc., a company that is majority-owned
by various entities controlled by Mr. Icahn; TransTexas Gas Corporation, a
company that is 85% owned by various entities controlled by Mr. Icahn and
managed by National Energy Group, Inc.; and Scientia Corporation, a private
health care venture company in which we hold less than a 10% equity interest.
Since December 29, 2003, Mr. Meister has served as a Director of American
Entertainment Properties Corp. and American Casino & Entertainment Properties
Finance Corp., which are our indirect subsidiaries.

Martin L. Hirsch has served as a Vice President of API since 1991 and of
American Real Estate Finance Corp. since inception. Mr. Hirsch focuses on
investment, management and disposition of real estate properties and other
assets. On March 23, 2000, Mr. Hirsch was elected to serve as Executive Vice
President and Director of Acquisitions and Development of API. 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. Mr. Hirsch has served as a Director of Stratosphere
since October 14, 1998. In 1998, Mr. Hirsch was appointed to the Board of
Directors of National Energy Group, Inc. Mr. Hirsch has served as a Director of
GB Holdings, Inc. and GB Property Funding, Inc. since September 29, 2000 and as
a Director of Greate Bay Hotel & Casino, Inc., which owns and operates the Sands
Hotel in Atlantic City, NJ, since February 28, 2001.

John P. Saldarelli has served as Vice President, Secretary and Treasurer
of API since March 18, 1991 and as Chief Financial Officer since June 2000 and
of American Real Estate Finance Corp. since inception. Mr. Saldarelli was
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. Mr. Saldarelli has served as a Director of Stratosphere
since October 14, 1998. Since February 28, 2001, Mr. Saldarelli has served as a
Director of GB Holdings, Inc., GB Property Funding, Inc. and Greate Bay Hotel &
Casino, Inc., which owns and operates the Sands Hotel in Atlantic City, NJ.

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James L. Nelson, William A. Leidesdorf and Jack G. Wasserman are on our
audit committee. We believe that the audit committee members are "independent"
as defined in the currently applicable listing standards of the New York Stock
Exchange.

James L. Nelson, William A. Leidesdorf and Carl C. Icahn are on our
compensation committee.

Each executive officer and director will hold office until our next annual
meeting and until his or her successor is elected and qualified. Directors who
are also audit committee members received quarterly fees of $6,250 in 2003
(increased to $7,500 in 2004) and may receive additional compensation for
special committee assignments. In 2003, Messrs. Leidesdorf, Nelson and Wasserman
received audit and special committee fees of $34,120, $44,040 and $54,130,
respectively.

Each of our executive officers may perform services for our other
affiliates which are reimbursed to us. However, Mr. Meister is paid by us a base
salary for the 50% of his time which is spent on our business and he is
compensated by affiliates of Mr. Icahn for the time he spends on their business.
His compensation from such affiliates includes an equivalent amount of base
salary. He may also receive a bonus from such affiliates.

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

On January 5, 2001, Reliance Group Holdings, Inc. commenced an action in
the United States District Court for the Southern District of New York against
Carl C. Icahn, Icahn Associates Corp. and High River alleging that High River's
tender offer for Reliance 9% senior notes violated Section 14(e) of the
Securities Exchange Act of 1934. Reliance sought a temporary restraining order
and preliminary and permanent injunctive relief to prevent defendants from
purchasing the notes. The court initially imposed a temporary restraining order.
Defendants then supplemented the tender offer disclosures. The court conducted a
hearing on the disclosures and other matters raised by Reliance. The court then
denied Reliance's motion for a preliminary injunction and ordered dissolution of
the temporary restraining order following dissemination of the supplement.
Reliance took an immediate appeal to the United States Court of Appeals for the
Second Circuit and sought a stay to restrain defendants from purchasing notes
during the pendency of the appeal. On January 30, 2001, the Court of Appeals
denied plaintiffs' stay application. On January 30, Reliance also sought a
further temporary restraining order from the District Court. The court
considered the matter and reimposed its original restraint until noon the next
day, at which time the restraint against Mr. Icahn and his affiliates was
dissolved. On March 22, 2001, the Court of Appeals ruled in favor of Mr. Icahn
by affirming the judgment of the District Court.

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 API and
its affiliates, voting as a class, will be entitled to appoint two nominees for
our Board of Directors. Holders of preferred units owning at least 10% of all
outstanding preferred units, including API 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 our Board of Directors by Mr. 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 our 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 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 directors designated by the preferred units. The holders of the
preferred units have no other rights to participate in our management and are
not entitled to vote on any matters submitted to a vote of the holders of
depositary units.

EXECUTIVE COMPENSATION(1)

The following table sets forth information in respect of the compensation
of our Chief Executive Officer and each of our other most highly compensated
executive officers for services in all capacities to us for the fiscal years

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ended December 31, 2003, 2002 and 2001.

SUMMARY COMPENSATION TABLE (2)

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

Keith A. Meister(3)........................................................       2003        73,150
President and Chief Executive Officer

Albo J. Antenucci, Jr.(3)..................................................       2003       327,663
President and Chief Executive Officer                                            2002       349,442
2001       323,750

Martin L. Hirsch(3)........................................................       2003       319,923
Executive Vice President and Director of Acquisitions and Development            2002       255,500
2001       255,000

John P. Saldarelli(3)......................................................       2003       200,200
Vice President, Chief Financial Officer, Secretary and Treasurer                 2002       190,400
2001       182,000

----------

(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 us or by API, which was subsequently reimbursed
by us, required to be reported in those columns or tables.

(2) Mr. Icahn, the Chairman of the Board, received no compensation for the
periods indicated. In addition, other than Albo J. Antenucci, Jr., Martin L.
Hirsch and John P. Saldarelli, no other executive officer received
compensation in excess of $100,000 from us for the applicable period.

(3) On August 18, 2003, Keith A. Meister was elected President and Chief
Executive Officer. On August 15, 2003, Albo J. Antenucci, Jr. resigned as
President and Chief Executive Officer of API. Mr. Antenucci will continue as
a part time consultant to us through May 2004. Messrs. Saldarelli and Hirsch
devote all of their time to the performance of services for us and our
investments. Mr. Meister devotes approximately 50% of his time to the
performance of services for us. The directors of API devote only a portion
of their time to performance of service for us. In February 1993, we adopted
a 401(k) plan pursuant to which we 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.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of March 31, 2004, affiliates of Mr. Icahn, including High Coast Limited
Partnership, a Delaware limited partnership, owned 39,896,836 depositary units,
or approximately 86.5% of the outstanding depositary units, and 8,477,139
preferred units, or approximately 86.5% of the outstanding preferred units. In
light of this ownership position, the Board of Directors has determined that we
are a "controlled company" for the purposes of the New York Stock Exchange's
listing standards and are, therefore, not required to have a majority of
independent directors or to have compensation and nominating committees
consisting entirely of independent directors. API's Board of Directors presently
consists of a majority of independent directors and the audit committee consists
entirely of independent directors.

The affirmative vote of unitholders holding more than 75% of the total
number of all depositary units then outstanding, including depositary units held
by API and its affiliates, is required to remove API. Thus, since Mr. Icahn,
through affiliates, holds approximately 86.5% of the depositary units
outstanding, API will not be able to be removed pursuant to the terms of our
partnership agreement without Mr. Icahn's consent. Moreover, under the

78

partnership agreement, the affirmative vote of API and unitholders owning more
than 50% of the total number of all outstanding depositary units then held by
unitholders, including affiliates of Mr. Icahn, is required to approve, among
other things, selling or otherwise disposing of all or substantially all of our
assets in a single sale or in a related series of multiple sales, our
dissolution or electing to continue our partnership in certain instances,
electing a successor general partner, making certain amendments to the
partnership agreement or causing us, in our capacity as sole limited partner of
AREH, to consent to certain proposals submitted for the approval of the limited
partners of AREH. Accordingly, as affiliates of Mr. Icahn hold in excess of 50%
of the depositary units outstanding, Mr. Icahn, through affiliates, will have
effective control over such approval rights.

The following table provides information, as of March 1, 2004, as to the
beneficial ownership of our depositary units and preferred units for each
director of API, and all directors and executive officers of API as a group.

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

Carl C. Icahn(1)..............................................            39,896,836      86.5%      8,477,139      86.5%
All directors and executive officers as a group (7 persons)...            39,896,836      86.5%      8,477,139      86.5%

----------

(1) Carl C. Icahn, through affiliates, is the beneficial owner of the 39,896,836
depositary units set forth above and may also be deemed to be the beneficial
owner of the 700 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 which API holds by virtue of its 1% general partner
interest in each of us and AREH. Furthermore, pursuant to a registration
rights agreement entered into by affiliates of Mr. Icahn, we have agreed to
pay any expenses incurred in connection with two demand and unlimited
piggy-back registrations requested by affiliates of Mr. Icahn.

Mr. Icahn, through certain affiliates, currently owns 100% of API and over
86% of our outstanding depositary units and preferred units. Applicable pension
and tax laws make each member of a "controlled group" of entities, generally
defined as entities in which there is at least an 80% common ownership interest,
jointly and severally liable for certain pension plan obligations of any member
of the controlled group. These pension obligations include ongoing contributions
to fund the plan, as well as liability for any unfunded liabilities that may
exist at the time the plan is terminated. In addition, the failure to pay these
pension obligations when due may result in the creation of liens in favor of the
pension plan or the Pension Benefit Guaranty Corporation, or PBGC, against the
assets of each member of the controlled group.

As a result of the more than 80% ownership interest in us by Mr. Icahn's
affiliates, we are subject to the pension liabilities of all entities in which
Mr. Icahn has a direct or indirect ownership interest of at least 80%. One such
entity ACF, is the sponsor of several pension plans that are underfunded by a
total of approximately $28 million on an ongoing actuarial basis and $131
million if those plans were terminated, as most recently reported for the 2003
plan year by the plans' actuaries. These liabilities could increase or decrease,
depending on a number of factors, including future changes in promised benefits,
investment returns, and the assumptions used to calculate the liability. As a
member of the ACF controlled group, we would be liable for any failure of ACF to
make ongoing pension contributions or to pay the unfunded liabilities upon a
termination of the ACF pension plans. In addition, other entities now or in the
future within the controlled group that include us may have pension plan
obligations that are, or may become, underfunded and we would be liable for any
failure of such entities to make ongoing pension contributions or to pay the
unfunded liabilities upon a termination of such plans.

The current underfunded status of the ACF pension plans requires ACF to
notify the PBGC of certain "reportable events," such as if we cease to be a
member of the ACF controlled group, or if we make certain extraordinary
dividends or stock redemptions. This reporting obligation could cause us to seek
to delay or reconsider the occurrence of such reportable events.

Starfire, which is 100% owned by Mr. Icahn, has undertaken to indemnify us
and our subsidiaries from losses resulting from any imposition of pension
funding or termination liabilities that may be imposed on us and our

79

subsidiaries or our assets as a result of being a member of the Icahn controlled
group. The Starfire indemnity provides, among other things, that so long as such
contingent liabilities exist and could be imposed on us, Starfire will not make
any distributions to its stockholders that would reduce its net worth to below
$250 million.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

RELATED TRANSACTIONS WITH THE GENERAL PARTNER AND ITS AFFILIATES

On October 17, 2003, Carl C. Icahn, Chairman of the Board of API, repaid the
$250 million loan which had been made to him on December 27, 2001. We made the
two-year $250 million loan to Mr. Icahn, secured by securities consisting of
approximately $250 million aggregate market value of our units owned by Mr.
Icahn and shares of a private company owned by Mr. Icahn. The shares of the
private company had an aggregate book value of at least $250 million. In
connection with the pledge, we also received an irrevocable proxy on sufficient
additional shares of the private company so that the pledged shares and the
shares covered by the proxy equaled in excess of 50% of the private company's
shares. We returned the collateral on October 17, 2003, the date the loan was
repaid. The interest on the loan was payable semi-annually, at a per annum rate
equal to the greater of 3.9% and 200 basis points over 90-day LIBOR to be reset
each calendar quarter. The applicable rate in 2003 was 3.9% and in 2002 ranged
from 3.9% to 4.03%. Interest income of approximately $7.9 million and $9.9
million was earned on this loan in 2003 and 2002, respectively. We entered into
this transaction to earn interest income on a secured investment.

In October 2003, pursuant to a purchase agreement dated as of May 16, 2003,
we acquired certain debt and equity securities of NEG from entities affiliated
with Mr. Icahn for an aggregate consideration of approximately $148.1 million
plus approximately $6.7 million of accrued interest on the debt securities. The
agreement was reviewed and approved by our audit committee who were advised by
its independent financial advisor and legal counsel. The securities acquired
were approximately $148.6 million in principal amount of outstanding 10 3/4%
Senior Notes due 2006 of NEG, representing all of NEG's outstanding debt
securities, and approximately 5.6 million shares of common stock of NEG. As a
result of the foregoing transaction and our acquisition of additional securities
of NEG prior to the closing, we own 50.01% of the outstanding common stock of
NEG.

NEG owns a 50% interest in NEG Holding LLC. The other 50% interest in NEG
Holding is held by Gascon Partners, an affiliate of Mr. Icahn. Gascon is the
managing member of NEG Holding. NEG Holding owns NEG Operating LLC which is
engaged in the business of oil and gas exploration and production with
properties located on-shore in Texas, Louisiana, Oklahoma and Arkansas. NEG
Operating owns operating oil and gas properties managed by NEG. Under the NEG
Holding operating agreement, NEG is to receive guaranteed payments of
approximately $47.9 million and a priority distribution of approximately $148.6
million before Gascon receives any distributions. The NEG Holding operating
agreement contains a provision that allows Gascon, or its successor, at any
time, in its sole discretion, to redeem NEG's membership interest in NEG Holding
at a price equal to the fair market value of the interest determined as if NEG
Holding had sold all of its assets for fair market value and liquidated. A
determination of the fair market value of such assets shall be made by an
independent third party jointly engaged by Gascon and NEG. NEG entered into an
agreement to manage TransTexas Gas Corporation, an affiliate of Mr. Icahn, for a
fee of $312,500 per month.

On January 5, 2004, ACEP, our wholly-owned subsidiary, entered into an
agreement to acquire two Las Vegas casino/hotels, Arizona Charlie's Decatur and
Arizona Charlie's Boulder from Mr. Icahn and an entity affiliated with Mr.
Icahn, for aggregate consideration of $125.9 million. The closing of the
acquisition occurred on May 26, 2004. The terms of the transactions were
approved by our audit committee, who received an opinion from its financial
advisor as to the fairness of the consideration to be paid from a financial
point of view. On May 26, 2004, AREH transferred 100% of the common stock of
Stratosphere Corporation to ACEP. As a result, following the acquisition and
contribution, ACEP owns and operates three gaming and entertainment properties
in the Las Vegas metropolitan area.

Mr. 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, Mr.
Icahn has confirmed to us that neither he nor any of his affiliates will receive
any fees from us in consideration for services rendered in connection with
non-real estate related investments by us. We may determine to make investments
in which Mr. Icahn or his affiliates have independent investments in such
assets. We may enter into other transactions with API and its affiliates,
including, without limitation, buying and selling assets from or to API or its
affiliates and participating in joint venture investments in assets with API or
its affiliates, whether real estate or non-real estate related, provided the
terms of all such transactions are fair and reasonable to us. Furthermore, it
should be noted that our partnership agreement provides that API and its
affiliates are permitted to have other

81

business interests and may engage in other business ventures of any nature
whatsoever, and may compete directly or indirectly with our business. Mr. Icahn
and his affiliates currently invest in and perform investment management
services with respect to assets that may be similar to those we may invest in
and intend to continue to do so; pursuant to the partnership agreement, however,
we 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, 2003 and 2002, we made no payments with
respect to the depositary units owned by API. However, in 2003 and 2002, API was
allocated approximately $1.2 million and approximately $1.3 million,
respectively, of our net earnings (exclusive of the earnings of NEG allocated to
API prior to the acquisition of NEG) as a result of its 1.99% general partner
interest in us.

On March 31, 2003, Mr. Icahn received 403,673 preferred units as part of our
scheduled annual preferred unit distribution and received an additional 423,856
preferred units on March 31, 2004 as part of such scheduled annual preferred
unit distribution.

In 1997, we entered into a license agreement for a portion of office space
from an affiliate of API. 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, we have the non-exclusive use of
approximately 2,275 square feet for which we pay monthly rent of $11,185 plus
10.77% of certain "additional rent." For the three months ended March 31, 2004
and the years ended December 31, 2003, 2002 and 2001, we paid an affiliate of
API approximately $39,000, $159,000, $153,000 and $147,000, respectively, of
rent in connection with this licensing agreement. The terms of such license
agreement were reviewed and approved by our audit committee.

For the three months ended March 31, 2004 and the years ended December 31,
2003, 2002 and 2001, Stratosphere billed affiliates of API approximately $0.8
million, $3.0 million, $1.7 million and $1.3 million, respectively, for
administrative services performed by Stratosphere personnel. For the years ended
December 31, 2003, 2002 and 2001, Stratosphere also received hotel revenue of
$3,000, $123,000 and $600,000, respectively, in connection with a tour and
travel agreement entered into with an affiliate of API. Stratosphere also
received approximately $101,000 in hotel and food revenue from an affiliate of
API in the year ended December 31, 2003 in connection with a conference held at
Stratosphere.

For the three months ended March 31, 2004 and the year ended December 31,
2003, we paid approximately $39,000 and $81,000 to an affiliate of API for
telecommunication services.

NEG received management fees from an affiliate of approximately $2.6 million
and $1.9 million in the three months ended March 31, 2004 and 2003 (unaudited),
respectively, and $7,967,000, $7,637,000 and $2,699,000 in the years ended
December 31, 2003, 2002 and 2001.

PROPERTY MANAGEMENT AND OTHER RELATED TRANSACTIONS

API and its affiliates may receive fees in connection with the acquisition,
sale, financing, development, construction, marketing and management of new
properties acquired by us. As development and other new properties are acquired,
developed, constructed, operated, leased and financed, API 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 us in accordance with our partnership
agreement and customary to the industry. It is not possible to state precisely
what role, if any, API 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 API 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. Subject to the specific
circumstances surrounding each transaction and the overall fairness and
reasonableness thereof to us, the fees charged by API and its affiliates for the
services described below generally will be within the ranges set forth below:

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-   Property Management and Asset Management Services. To the extent that we
acquire any properties requiring active management (e.g., operating
properties that are not net-leased) or asset management services,
including on site services, we may enter into management or other
arrangements with API 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
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. We also may pay affiliates of API
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. API or its affiliates may lend money to, or
arrange loans for, us. Fees payable to API 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 API or its affiliates to us.

-   Development and Construction Services. API 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.

We may also enter into other transactions with API and its affiliates,
including, without limitation, buying and selling properties and borrowing and
lending funds from or to API or its affiliates, joint venture developments and
issuing securities to API 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 us. API is also entitled to
reimbursement by us for all allocable direct and indirect overhead expenses,
including, but not limited to, salaries and rent, incurred in connection with
the conduct of our business.

In addition, our employees may, from time to time, provide services to
affiliates of API, with us being reimbursed therefor. Reimbursement to us by
such affiliates in respect of such services is subject to review and approval by
our audit committee. In 2003 and 2002, we received approximately $68,000 and
$47,000, respectively, for such services. Also, an affiliate of API provided
certain administrative services to us in the amount of approximately $78,000,
$77,000 and $73,000 in the years ended December 31, 2003, 2002 and 2001,
respectively.

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DESCRIPTION OF PREFERRED UNITS AND OF
CERTAIN INDEBTEDNESS AND OTHER OBLIGATIONS

PREFERRED UNITS

Each preferred unit has a liquidation preference of $10.00 and entitles the
holder to receive distributions, 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 of the unit), payable annually on March 31 of each
year, each referred to as a payment date. On any payment date, commencing with
March 31, 2000, we, with the approval of our 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 March 31, 2010, we must redeem all, but not less than
all, of the preferred units on the same terms as any optional redemption. As of
March 31, 2004, there were 10,286,264 preferred units outstanding, including
489,657 units issued on March 12, 2004 as a dividend on the previously
outstanding preferred units.

In March 2004, we increased the number of authorized preferred units to
10,400,000.

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC 7.85% SENIOR SECURED NOTES DUE
2012

In January 2004, our subsidiary, ACEP, and its subsidiary American Casino &
Entertainment Finance Corp. consummated the offering of senior secured notes due
2012. The notes, in the aggregate principal amount of $215 million, bear
interest at the rate of 7.85% per annum. The notes are guaranteed by the
subsidiaries of ACEP and the notes and guarantees are secured by a
second-priority security interest, subject to certain customary exceptions, in
substantially all of ACEP's and the guarantors' assets, including the capital
stock or other equity interests of the subsidiaries that own the Stratosphere,
Arizona Charlie's Decatur and Arizona Charlie's Boulder.

The notes restrict the ability of ACEP, subject to certain exceptions, to
incur additional debt; pay dividends and make contributions; make certain
investments; repurchase stock; create liens; enter into transactions with
affiliates; enter into sale and leaseback transactions; merge or consolidate;
and transfer, lease or sell assets. The restrictions, among other things, limit
dividends, distributions and other transfers by ACEP and its subsidiaries to us,
as well as loans and other transactions between us and ACEP and its
subsidiaries.

AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC BANK CREDIT FACILITY

In January 2004, in connection with the $215 million senior secured note
offering, a syndicate of lenders provided a non-amortizing $20.0 million
revolving credit facility to ACEP. The commitments are available to ACEP and its
subsidiaries in the form of revolving loans, and include a letter of credit
facility (subject to a $10.0 million sublimit). Loans made under the senior
secured revolving credit facility will mature and the commitments under them
will terminate on January 29, 2008.

The senior secured revolving credit facility is jointly, severally and
unconditionally guaranteed by the subsidiaries of ACEP that also guarantee the
notes. This indebtedness is ACEP's and the guarantors' senior secured debt and
ranks equally with all of ACEP's and the guarantors' existing and future senior
secured debt. However, the senior secured revolving credit facility and the
guarantees in respect thereof are secured by a first-priority security interest
in the note collateral, while the notes issued by ACEP are secured by a
second-priority security interest in the note collateral.

The loans under the senior secured revolving credit facility will bear
interest, at ACEP's option, at a rate per annum equal to (a) a LIBOR rate plus a
spread payable monthly, bi-monthly or quarterly, or (b) a base rate plus a
spread, payable quarterly. ACEP will pay administration fees, commitment fees,
letter of credit fees and certain expenses and provide certain indemnities that
are customary for a financing of this type.

The senior secured revolving credit facility contains customary affirmative
covenants. The negative covenants are similar to those contained in the
indenture with respect to ACEP's notes. However, certain of those covenants are
more restrictive than those contained in the indenture, including certain
financial covenants with which ACEP must comply on an ongoing basis and
limitations on liens.

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MORTGAGE LOANS

Properties owned by AREP and its subsidiaries are subject to mortgages in an
aggregate principal amount of approximately $179 million as of March 31, 2004.
Maturities of the mortgage loans range from October 2007 through December 31,
2018. Contractual future principal payments are as follows: 2004, $4.5 million;
2005, $6.7 million; 2006, $7.4 million; 2007, $14.2 million; 2008, $58.8
million; 2009-2013, $66.9 million; and 2014-2018, $20.5 million. The mortgages
relate to our rental real estate portfolio, which we are offering for sale, and
we will pay mortgages with respect to properties that we sell from the related
sale proceeds or the mortgages will be assumed by the purchasers. All mortgages
are non-recourse to us and AREH, except for indemnification obligations
customary for non-recourse financing. Interest rates range from 5.630% per annum
to 8.430% per annum.

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DESCRIPTION OF NOTES

GENERAL

You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, the word "AREP"
refers only to American Real Estate Partners, L.P., the words "AREP Finance"
refer only to American Real Estate Finance Corp., the word "AREH" refers only to
American Real Estate Holdings Limited Partnership, and the word "API" refers
only to American Property Investors, Inc. and not to any of their respective
Subsidiaries. For the avoidance of doubt, AREH will be deemed to be a Subsidiary
of AREP for so long as AREH remains a Guarantor. The term "Issuers" refers to
AREP and AREP Finance, collectively.

The issuers issued the notes under an indenture among the issuers, AREH and
Wilmington Trust Company, as trustee, in a private transaction that was not
subject to the registration requirements under the Securities Act. See "Notice
to Investors." The terms of the notes include those stated in the indenture and
those made part of the indenture by reference to the Trust Indenture Act of
1939.

The following description is a summary of the material provisions of the
indenture and the registration rights agreement. It does not restate those
agreements in their entirety. We urge you to read the indenture and the
registration rights agreement because they, and not this description, define
your rights as holders of the notes. Copies of the indenture and the
registration rights agreement are available as set forth below under " --
Additional Information." Certain defined terms used in this description but not
defined below under " -- Certain Definitions" have the meanings assigned to them
in the indenture and the registration rights agreement.

For the avoidance of doubt, the inclusion of exceptions to the provisions
(including covenants and definitions) set forth herein will not be interpreted
to imply that the matters permitted by the exception would be limited by the
terms of such provisions but for such exceptions.

The registered holder of a note will be treated as the owner of it for all
purposes. Only registered holders will have rights under the indenture.

BRIEF DESCRIPTION OF THE NOTES AND THE NOTE GUARANTEE

THE NOTES

The notes:

-   are the general unsecured obligation of each of the issuers;

-   are pari passu in right of payment to all existing and future senior
Indebtedness of each of the issuers;

-   are senior in right of payment to any future subordinated Indebtedness
of each of the issuers; and

-   are effectively subordinated to the secured Indebtedness of the issuers
to the extent of the value of the collateral securing such Indebtedness.
As of March 31, 2004, the issuers did not have any secured Indebtedness.

THE NOTE GUARANTEE

The Guarantee of the notes:

-   are the general unsecured obligation of AREH;

-   are pari passu in right of payment to all existing and future senior
Indebtedness of AREH;

-   are senior in right of payment to any future subordinated Indebtedness
of AREH; and

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-   are effectively subordinated to the secured Indebtedness of AREH to the
extent of the value of the collateral securing such Indebtedness. As of
March 31, 2004, AREH had $394.3 million of secured Indebtedness.

The operations of AREP are conducted through its Subsidiaries (including
AREH) and, therefore, AREP depends on the cash flow of AREP's Subsidiaries and
AREH to meet its obligations, including its obligations under the notes. The
notes will not be guaranteed by any of AREP's Subsidiaries other than AREH. The
notes and the guarantee will be effectively subordinated in right of payment to
all Indebtedness and other liabilities and commitments (including trade payables
and lease obligations) of AREP's Subsidiaries (other than AREH). Any right of
the issuers or AREH to receive assets of any of their Subsidiaries (other than
AREH) upon that Subsidiary's liquidation or reorganization (and the consequent
right of the holders of the notes to participate in those assets) will be
effectively subordinated to the claims of that Subsidiary's creditors, except to
the extent that any of the issuers or AREH is itself recognized as a creditor of
that Subsidiary, in which case the claims of the issuers and AREH would still be
subordinate in right of payment to any security in the assets of the Subsidiary
and any Indebtedness of the Subsidiary senior to that held by the issuers or
AREH. The covenants of the notes do not restrict the ability of AREP's
Subsidiaries, other than AREH, from incurring additional Indebtedness or
creating liens, nor do the covenants of the notes restrict the ability of AREH,
AREP or its Subsidiaries from making investments or entering into sale and
leaseback transactions.

PRINCIPAL, MATURITY AND INTEREST

The issuers issued $353.0 million in aggregate principal amount of notes in
the private offering. The issuers may issue additional notes ("Additional
Notes") from time to time. Any offering of Additional Notes is subject to the
covenant " -- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock." In the case of each series, the notes and any Additional Notes
subsequently issued under the indenture will be treated as a single class for
all purposes under the indenture, including, without limitation, waivers,
amendments, redemption and offers to purchase. The issuers will issue notes in
denominations of $1,000 and integral multiples of $1,000. The notes will mature
on June 1, 2012.

Interest on the notes accrues at the rate of 8 1/8% per annum and is payable
semi-annually in arrears on June 1 and December 1, commencing on December 1,
2004. Interest on overdue principal and interest and Liquidated Damages, if any,
will accrue at a rate that is 1% higher than the then applicable interest rate
on the notes. The issuers will make each interest payment to the holders of
record on the immediately preceding May 15 and November 15.

Interest on the notes accrues from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.

METHODS OF RECEIVING PAYMENTS ON THE NOTES

If a noteholder holds at least $2.0 million aggregate principal amount of
notes, such holder may give wire transfer instructions to AREP and the issuers
will instruct the trustee to pay all principal, interest and premium and
Liquidated Damages, if any, on that holder's notes in accordance with those
instructions. All other payments on the notes will be made at the office or
agency of the paying agent and registrar within the City and State of New York
unless the issuers elect to make interest payments by check mailed to the
noteholders at their address set forth in the register of holders. In addition,
all payments will be subject to the applicable rules and procedures of the
settlement systems (including, if applicable, those of Euroclear and
Clearstream), which may change from time to time.

PAYING AGENT AND REGISTRAR FOR THE NOTES

The trustee will initially act as paying agent and registrar. The issuers
may change the paying agent or registrar without prior notice to the holders of
the notes, and the issuers or any of their Subsidiaries (including AREH) may act
as paying agent or registrar.

TRANSFER AND EXCHANGE

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A holder may transfer or exchange notes in accordance with the provisions of
the indenture. The registrar and the trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents in connection
with a transfer of notes. Holders will be required to pay all taxes due on
transfer. The issuers will not be required to transfer or exchange any note
selected for redemption. Also, the issuers will not be required to transfer or
exchange any note for a period of 15 days before a selection of notes to be
redeemed.

NOTE GUARANTEE

The notes are guaranteed by AREH. AREP may, at its option, add subsidiary
Guarantors to the notes. Each Guarantor's obligations under its Note Guarantee
will be limited as necessary to prevent the Note Guarantee from constituting a
fraudulent conveyance under applicable law. See "Risk Factors -- Federal and
state statutes allow courts, under specific circumstances, to void guarantees
and require noteholders to return payments received from the guarantor."

Any Guarantor's Note Guarantee will be released:

(1) upon the substitution of a successor to AREH or other release as
described under the heading "Certain Covenants -- Merger, Consolidation or
Sale of Assets"; and

(2) upon legal defeasance or satisfaction and discharge of the indenture
as provided below under the captions " -- Covenant Defeasance" and " --
Satisfaction and Discharge."

OPTIONAL REDEMPTION

At any time prior to June 1, 2007, the issuers may on one or more occasions
redeem up to 35% of the aggregate principal amount of notes (including
Additional Notes) issued under the indenture at a redemption price of 108.125%
of the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the redemption date, with the net cash proceeds of one or
more Equity Offerings; provided, however, that:

(1) at least 65% of the aggregate principal amount of notes issued under
the indenture remains outstanding immediately after the occurrence of such
redemption (excluding notes held by AREP and its Subsidiaries (including any
Guarantor)); and

(2) the redemption occurs within 60 days of the date of the closing of
such Equity Offering.

Except pursuant to the preceding paragraph, the notes will not be redeemable
at the issuers' option prior to June 1, 2008.

On or after June 1, 2008, the issuers may redeem all or a part of the notes
upon not less than 15 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and Liquidated Damages, if any, on the notes redeemed, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on one of the years indicated below:

YEAR               PERCENTAGE
----------------------      ----------

2008..................      104.063%
2009..................      102.031%
2010 and thereafter...      100.000%

MANDATORY DISPOSITION PURSUANT TO GAMING LAWS

If any Gaming Authority requires that a holder or Beneficial Owner of notes
be licensed, qualified or found suitable under any applicable Gaming Law and
such holder or Beneficial Owner:

(1) fails to apply for a license, qualification or a finding of
suitability within 30 days (or such shorter period as may be required by the
applicable Gaming Authority) after being requested to do so by the Gaming
Authority; or

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(2) is denied such license or qualification or not found suitable;

AREP shall then have the right, at its option:

(1) to require each such holder or Beneficial Owner to dispose of its
notes within 30 days (or such earlier date as may be required by the
applicable Gaming Authority) of the occurrence of the event described in
clause (1) or (2) above, or

(2) to redeem the notes of each such holder or Beneficial Owner, in
accordance with Rule 14e-1 of the Exchange Act, if applicable, at a
redemption price equal to the lowest of:

(a) the principal amount thereof, together with accrued and unpaid
interest and Liquidated Damages, if any, to the earlier of the date of
redemption, the date 30 days after such holder or Beneficial Owner is
required to apply for a license, qualification or finding of suitability
(or such shorter period that may be required by any applicable Gaming
Authority) if such holder or Beneficial Owner fails to do so
("Application Date") or of the date of denial of license or
qualification or of the finding of unsuitability by such Gaming
Authority;

(b) the price at which such holder or Beneficial Owner acquired the
notes, together with accrued and unpaid interest and Liquidated Damages,
if any, to the earlier of the date of redemption, the Application Date
or the date of the denial of license or qualification or of the finding
of unsuitability by such Gaming Authority; and

(c) such other lesser amount as may be required by any Gaming
Authority.

Immediately upon a determination by a Gaming Authority that a holder or
Beneficial Owner of the notes will not be licensed, qualified or found suitable
and must dispose of the notes, the holder or Beneficial Owner will, to the
extent required by applicable Gaming Laws, have no further right:

(1) to exercise, directly or indirectly, through any trustee or nominee
or any other person or entity, any right conferred by the notes, the Note
Guarantee or the indenture; or

(2) to receive any interest, Liquidated Damages, dividend, economic
interests or any other distributions or payments with respect to the notes
and the Note Guarantee or any remuneration in any form with respect to the
notes and the Note Guarantee from the issuers, any Note Guarantor or the
trustee, except the redemption price referred to above.

AREP shall notify the trustee in writing of any such redemption as soon as
practicable. Any holder or Beneficial Owner that is required to apply for a
license, qualification or a finding of suitability will be responsible for all
fees and costs of applying for and obtaining the license, qualification or
finding of suitability and of any investigation by the applicable Gaming
Authorities and the issuers and any Note Guarantor will not reimburse any holder
or Beneficial Owner for such expense.

MANDATORY REDEMPTION

The issuers are not required to make mandatory redemption or sinking fund
payments with respect to the notes.

REPURCHASE AT THE OPTION OF HOLDERS

CHANGE OF CONTROL

If a Change of Control occurs, each holder of notes will have the right to
require the issuers to repurchase all or any part (equal to $1,000 or an
integral multiple of $1,000) of that holder's notes pursuant to a Change of
Control offer on the terms set forth in the indenture. In the Change of Control
offer, the issuers will offer a Change of Control payment in cash equal to 101%
of the aggregate principal amount of notes repurchased plus accrued and

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unpaid interest and Liquidated Damages, if any, on the notes repurchased, to the
date of purchase. Within 30 days following any Change of Control, the issuers
will mail a notice to each holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase notes on the
Change of Control payment date specified in the notice, which date will be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed, pursuant to the procedures required by the indenture and described in
such notice.

On the Change of Control payment date, the issuers will, to the extent
lawful:

(1) accept for payment all notes or portions of notes properly tendered
and not withdrawn pursuant to the Change of Control offer;

(2) deposit with the paying agent an amount equal to the Change of
Control payment in respect of all notes or portions of notes properly
tendered; and

(3) deliver or cause to be delivered to the trustee the notes properly
accepted together with an Officers' Certificate stating the aggregate
principal amount of notes or portions of notes being purchased by the
issuers.

The paying agent will promptly mail to each holder of notes properly
tendered the Change of Control payment for such notes, and the trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each holder a new note equal in principal amount to any unpurchased portion of
the notes surrendered, if any; provided that each new note will be in a
principal amount of $1,000 or an integral multiple of $1,000. The issuers will
publicly announce the results of the Change of Control offer on or as soon as
practicable after the Change of Control payment date.

The provisions described above that require the issuers to make a Change of
Control offer following a Change of Control will be applicable whether or not
any other provisions of the indenture are applicable. Except as described above
with respect to a Change of Control, the indenture does not contain provisions
that permit the holders of the notes to require that the issuers repurchase or
redeem the notes in the event of a takeover, recapitalization or similar
transaction.

The issuers will not be required to make a Change of Control offer upon a
Change of Control if a third party makes the Change of Control offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control offer made by the issuers and
purchases all notes properly tendered and not withdrawn under the Change of
Control offer.

The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition by AREP or AREH of "all or
substantially all" of its properties or assets. Although there is a limited body
of case law interpreting the phrase "substantially all," there is no precise
established definition of the phrase under applicable law. Accordingly, the
ability of a holder of notes to require the issuers to repurchase its notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of AREP or AREH to another Person or group may be uncertain.
In addition, under certain circumstances the definition of Change of Control
excludes certain sales, leases transfers, conveyances or other dispositions even
if they constitute "all or substantially all" of the properties or assets of
AREP or AREH.

CERTAIN COVENANTS

RESTRICTED PAYMENTS

AREP will not, and will not permit any of its Subsidiaries (including any
Guarantor) to:

(1) declare or pay any dividend or make any other distribution on
account of AREP's or any of its Subsidiaries' (including any Guarantor's)
Equity Interests or to the holders of AREP's or any of its Subsidiaries'
(including AREH's) Equity Interests in their capacity as such (other than
dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of AREP or to AREP or a Subsidiary of AREP (including
AREH));

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(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving AREP) any Equity Interests of AREP; or

(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness of AREP or any
Guarantor that is contractually subordinated to the notes or to any Note
Guarantee (excluding any intercompany Indebtedness between or among AREP and
any of its Subsidiaries (including any Guarantor)), except a payment of
interest, Other Liquidated Damages or principal at the Stated Maturity on
such subordinated Indebtedness (all such payments and other actions set
forth in these clauses (1) through (3) (except as excluded therein) above
being collectively referred to as "Restricted Payments"),

unless, at the time of and after giving effect to such Restricted Payment:

(1) no Default or Event of Default has occurred and is continuing or
would occur as a consequence of such Restricted Payment;

(2) AREP or any Guarantor would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the most recently ended four-quarter period
for which financial statements are available, have been permitted to incur
at least $1.00 of additional Indebtedness pursuant to the first paragraph of
the covenant described below under the caption " -- Incurrence of
Indebtedness and Issuance of Preferred Stock"; and

(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by AREP and its Subsidiaries (including any
Guarantor) after the Issuance Date (excluding Restricted Payments permitted
by clauses (2), (3), (4), (6) and (8) of the next succeeding paragraph) is
less than the sum, without duplication, of:

(a) 50% of the Consolidated Net Income of AREP for the period (taken
as one accounting period) from July 1, 2006 to the end of AREP's most
recently ended fiscal quarter for which financial statements are
available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit); provided, however, that to the extent any payments of Tax
Amounts were not deducted in the calculation of Consolidated Net Income
during the applicable period, for purposes of this clause (a), such
payments of Tax Amounts will be deducted from Consolidated Net Income,
plus

(b) 100% of the aggregate net cash proceeds received by AREP since
the date of the indenture as a contribution to its equity capital or
from the issue or sale of Equity Interests of AREP (excluding
Disqualified Stock) or from the issue or sale of convertible or
exchangeable Disqualified Stock or convertible or exchangeable debt
securities of AREP that have been converted into or exchanged for such
Equity Interests (other than Equity Interests or Disqualified Stock or
debt securities sold to a Subsidiary of AREP (including AREH)).

So long as no Default or Event of Default has occurred and is continuing or
would be caused thereby (except with respect to clauses (6) and (8), which
payments will be permitted notwithstanding an Event of Default), the preceding
provisions will not prohibit:

(1) the payment of any dividend or the consummation of any irrevocable
redemption or payment within 60 days after the date of declaration of the
dividend or giving of the redemption notice or becoming irrevocably
obligated to make such payment, as the case may be, if at the date of
declaration or notice or becoming irrevocably obligated to make such
payment, the dividend or payment would have complied with the provisions of
the indenture;

(2) the making of any Restricted Payment in exchange for, or out of the
net cash proceeds of the substantially concurrent sale (other than to a
Subsidiary of AREP (including any Guarantor)) of, Equity Interests (other
than Disqualified Stock) or from the substantially concurrent contribution
of equity capital to AREP (including any contribution of equity capital by
or to, or sale of Equity Interests of a successor or substitute entity
pursuant to the covenant "Mergers, Consolidations or Sales of Assets";
provided, however, that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance or
other acquisition

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will be excluded from clause (3)(b) of the preceding paragraph;

(3) the repurchase, redemption, defeasance or other acquisition or
retirement for value of Indebtedness of AREP or any Guarantor that is
contractually subordinated to the notes with the net cash proceeds from a
substantially concurrent incurrence of Permitted Refinancing Indebtedness;

(4) the declaration or payment of any dividend or distribution by a
Subsidiary of AREP (including any Guarantor) to the holders of its Equity
Interests; provided, that if any such dividend or distribution is paid to an
Affiliate of the Principal (other than AREP or any of its Subsidiaries
(including any Guarantor)), that any such dividend or distribution is paid
on a pro rata basis to all holders (including AREP or any of its
Subsidiaries (including any Guarantor)) that hold securities whose terms
(either contractually or by law) entitle them to the same distribution upon
which such dividend or distribution is paid;

(5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of AREP or any Subsidiary of AREP (including
any Guarantor) held by any member of AREP's (or any of its Subsidiaries'
(including any Guarantors)) management pursuant to any management equity
subscription agreement, stock option agreement or similar agreement;
provided that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed $2.0 million;

(6) for so long as AREP is a partnership or otherwise a pass-through
entity for federal income tax purposes for any period, AREP may make cash
distributions to its equity holders or partners in an amount not to exceed
the Tax Amount for such period; provided that a distribution of the Tax
Amount shall be made no earlier than 20 days prior to the due date for such
tax (or the date that quarterly estimated taxes are required to be paid)
that would be payable by AREP if it were a Delaware corporation;

(7) the purchase, redemption or retirement for value of Capital Stock of
AREP not owned by the Principal or any Affiliate of the Principal, provided
that (a) AREP would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at the
beginning of the most recently ended four-quarter period for which financial
statements are available, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the first paragraph of the covenant
described below under the caption " -- Incurrence of Indebtedness and
Issuance of Preferred Stock" and (b) after giving effect to such purchase,
redemption or retirement, the Partners' Equity is at least $1.0 billion;

(8) the payment of dividends on the Preferred Units in the form of
additional Preferred Units or other Capital Stock of AREP (that is not
Disqualified Stock) or the payment of cash dividends on the Preferred Units
in lieu of fractional Preferred Units; provided that the aggregate amount of
cash under this clause (8) does not exceed $100,000 in any calendar year;

(9) the purchase, redemption or retirement for value of the Preferred
Units on or before March 31, 2010, provided that (a) AREP would, at the time
of such Restricted Payment and after giving pro forma effect thereto as if
such Restricted Payment had been made at the beginning of the most recently
ended four-quarter period for which financial statements are available, have
been permitted to incur at least $1.00 of additional Indebtedness pursuant
to the first paragraph of the covenant described below under the caption "
-- Incurrence of Indebtedness and Issuance of Preferred Stock" and (b) after
giving effect to such purchase, redemption or retirement, the Partners'
Equity is at least $1.0 billion; and

(10) other Restricted Payments in an aggregate amount not to exceed
$50.0 million since the date of the indenture.

For purposes of determining compliance with this covenant, in the event that
a proposed Restricted Payment meets the criteria of more than one of the
categories of Restricted Payments described in clauses (1) through (10) above,
or is permitted to be made pursuant to the first paragraph of this covenant,
AREP shall, in its sole discretion, classify (or later reclassify, in whole or
in part, in its sole discretion) such Restricted Payment in any manner that
complies with this covenant.

The amount of all Restricted Payments (other than cash) will be the Fair
Market Value on the date of the

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Restricted Payment of the assets, property or securities proposed to be
transferred or issued by AREP or such Subsidiary (including AREH), as the case
may be, pursuant to the Restricted Payment.

INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK

Neither AREP nor any Guarantor will create, incur, issue, assume, guarantee
or otherwise become liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt), and neither
AREP nor any Guarantor will issue any Disqualified Stock; provided, however,
that AREP or any Guarantor may incur Indebtedness (including Acquired Debt) or
issue Disqualified Stock, if immediately after giving effect to the incurrence
of additional Indebtedness (including Acquired Debt) or issuance of Disqualified
Stock (including a pro forma application of the net proceeds therefrom), the
ratio of the aggregate principal amount of all outstanding Indebtedness
(excluding Indebtedness incurred pursuant to clauses (4), (7) and (8) of the
following paragraph and any Hedging Obligations of AREP's Subsidiaries that are
not Guarantors) of AREP and its Subsidiaries (including any Guarantor) on a
consolidated basis determined in accordance with GAAP (including an amount of
Indebtedness equal to the principal amount of any Guarantees by AREP or its
Subsidiaries (including any Guarantor) of any Indebtedness of a Person (that is
not AREP or a Subsidiary) to the extent such Guarantees were not included in
computing AREP's or its Subsidiaries' (including any Guarantor's) outstanding
Indebtedness) to the Tangible Net Worth of AREP and its Subsidiaries (including
any Guarantor) on a consolidated basis, would have been less than 1.75 to 1.

The preceding paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):

(1) the incurrence by AREP or any Guarantor of Indebtedness represented
by the notes to be issued on the date of the indenture and the exchange
notes to be issued pursuant to the registration rights agreement;

(2) the incurrence by AREP or any Guarantor of Permitted Refinancing
Indebtedness in exchange for, or the net proceeds of which are used to
refund, refinance or replace Indebtedness (other than intercompany
Indebtedness) that was incurred under the first paragraph of this covenant
or clauses (1), (2) or (9) of this paragraph or any Existing Indebtedness;

(3) the incurrence by AREP or any Guarantor of intercompany Indebtedness
between or among AREP and any of its Subsidiaries (including AREH) or the
issuance of Disqualified Stock by any Guarantor to AREP;

(4) the incurrence by AREP or any Guarantor of Hedging Obligations that
are incurred in the normal course of business;

(5) the incurrence by AREP or any Guarantor of Indebtedness arising from
the honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently drawn against insufficient funds, so long
as such Indebtedness is covered within five business days;

(6) the incurrence by AREP or any Guarantor of the Existing
Indebtedness;

(7) Indebtedness arising from any agreement entered into by AREP or AREH
providing for indemnification, purchase price adjustment or similar
obligations, in each case, incurred or assumed in connection with an asset
sale;

(8) Indebtedness of AREP or any Guarantor attributable to Bad Boy
Guarantees; and

(9) the incurrence by AREP or any Guarantor of additional Indebtedness
in an aggregate principal amount at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any Indebtedness incurred pursuant to this clause (9), not to exceed $10.0
million at any one time outstanding.

Neither AREP nor any Guarantor will incur any Indebtedness (including
Permitted Debt) that is contractually subordinated in right of payment to any
other Indebtedness of AREP or any Guarantor unless such Indebtedness is also
contractually subordinated in right of payment to the notes and the Note
Guarantee, as applicable, on

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substantially identical terms; provided, however, that no Indebtedness of AREP
or any Guarantor shall be deemed to be contractually subordinated in right of
payment to any other Indebtedness of AREP or any Guarantor for purposes of this
paragraph solely by virtue of being unsecured or secured to a lesser extent or
on a junior Lien basis.

To the extent AREP or any Guarantor incurs any intercompany Indebtedness,
(a) if AREP or any Guarantor is the obligor on such Indebtedness, such
Indebtedness (other than intercompany Indebtedness of any Guarantor to or from
AREP or another Guarantor) must be expressly subordinated to the prior payment
in full in cash of all Obligations with respect to the notes and (b)(1) any
subsequent issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than AREP or a Subsidiary of AREP
(including any Guarantor) and (2) any sale or other transfer of any such
Indebtedness to a Person that is not either AREP or a Subsidiary of AREP
(including any Guarantor) shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by AREP or any Guarantor, that is not
intercompany Indebtedness; provided that in the case of clause (a), that no
restriction on the payment of principal, interest or other obligations in
connection with such intercompany Indebtedness shall be required by such
subordinated terms except during the occurrence and continuation of a Default or
Event of Default.

For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories of
Permitted Debt described in clauses (1) through (9) above or is entitled to be
incurred pursuant to the first paragraph of this covenant, in each case, as of
the date of incurrence thereof, AREP shall, in its sole discretion, classify (or
later reclassify in whole or in part, in its sole discretion) such item of
Indebtedness in any manner that complies with this covenant and such
Indebtedness will be treated as having been incurred pursuant to such clauses or
the first paragraph hereof, as the case may be, designated by AREP.

The accrual of interest, the accretion or amortization of original issue
discount, the payment of interest or Other Liquidated Damages on any
Indebtedness in the form of additional Indebtedness with the same terms, the
reclassification of preferred stock as Indebtedness due to a change in
accounting principles, and the payment of dividends on Disqualified Stock in the
form of additional shares of the same class of Disqualified Stock will not be
deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock
for purposes of this covenant. Notwithstanding any other provision of this
covenant, the maximum amount of Indebtedness that AREP or any Guarantor may
incur pursuant to this covenant shall not be deemed to be exceeded solely as a
result of fluctuations in exchange rates or currency values.

The amount of any Indebtedness outstanding as of any date will be:

(1) the accreted value of the Indebtedness, in the case of any
Indebtedness issued with original issue discount;

(2) the principal amount of the Indebtedness, in the case of any other
Indebtedness; and

(3) in respect of Indebtedness of another Person secured by a Lien on
the assets of the specified Person, the lesser of:

(a) the Fair Market Value of such assets at the date of
determination; and

(b) the amount of the Indebtedness of the other Person.

LIMITATION ON LIENS

Neither AREP nor any Guarantor will, (a) issue, assume or guarantee any
Indebtedness if such Indebtedness is secured by a Lien upon, or (b) secure any
then outstanding Indebtedness by granting a Lien upon, any Principal Property of
AREP or any Guarantor, now owned or hereafter acquired by AREP or any Guarantor,
without effectively providing that the notes and the Note Guarantee shall be
secured equally and ratably with such Indebtedness, except that the foregoing
restrictions shall not apply to:

(1) Liens on any Principal Property acquired after the Issuance Date to
secure or provide for the payment of the purchase price or acquisition cost
thereof;

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(2) Liens on Principal Property acquired after the Issuance Date
existing at the time such Principal Property is acquired;

(3) Liens on any Principal Property acquired from a corporation merged
with or into AREP or any Guarantor;

(4) Liens in favor of AREP or any Guarantor;

(5) Liens in existence on any Principal Property on the Issuance Date;

(6) Liens on any Principal Property constituting unimproved real
property constructed or improved after the Issuance Date to secure or
provide for the payment or cost of such construction or improvement;

(7) Liens in favor of, or required by, governmental authorities;

(8) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insure carriers under insurance arrangements;

(9) Liens for taxes, assessments or governmental charges or statutory
liens of landlords, carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen or other similar Liens arising in the ordinary course
of business or in the improvement or repair of any Principal Property not
yet due or which are being contested in good faith by appropriate
proceedings;

(10) any judgment attachment or judgment Lien not constituting an Event
of Default;

(11) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business and in the improvement or repair
of any Principal Property and which obligations are not expressly prohibited
by the indenture;

(12) Liens to secure Indebtedness of AREP or any Guarantor attributable
to Bad Boy Guarantees;

(13) Liens in favor of the trustee and required by the covenant
"Maintenance of Interest Coverage";

(14) Liens to secure margin Indebtedness; provided that such Liens are
secured solely by the applicable margin securities; or

(15) any extension, renewal, substitution or replacement (or successive
extensions, renewals, substitutions or replacements), in whole or in part,
of any Lien referred to in the foregoing clauses (1) through (14),
inclusive; provided that in the case of clauses (1), (2) and (3) such Liens
shall only extend to the Principal Property so acquired (including through
any merger or consolidation) and not to any other Principal Property of AREP
or any Guarantor.

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MAINTENANCE OF INTEREST COVERAGE

On each Quarterly Determination Date, the Fixed Charge Coverage Ratio of
AREP and the Guarantors will be at least 1.5 to 1.0 for the four consecutive
fiscal quarters most recently completed prior to such Quarterly Determination
Date; provided that, in the event that the Fixed Charge Coverage Ratio of AREP
and the Guarantors is less than 1.5 to 1.0 for such four consecutive fiscal
quarters, the issuers shall be deemed to have satisfied this maintenance test if
there is deposited, within 2 Business Days of such Quarterly Determination Date,
an amount in cash such that the deposited funds, together with any funds
previously deposited pursuant to this covenant (and that have not been paid out
or otherwise released) are in an amount equal to the issuers' obligations to pay
interest on the notes for one year; provided further, that the issuers shall
grant to the trustee, on behalf of the holders of the notes, a first priority
security interest in such deposited funds. At any subsequent Quarterly
Determination Date, if the Fixed Charge Coverage Ratio of AREP and the
Guarantors is at least 1.5 to 1.0 for the four consecutive fiscal quarters most
recently completed prior to such Quarterly Determination Date, such deposited
funds will be released from the security interest granted to the trustee and
paid to or at the direction of AREP.

MAINTENANCE OF TOTAL UNENCUMBERED ASSETS

On each Quarterly Determination Date, the ratio of Total Unencumbered Assets
to the then outstanding principal amount of the Unsecured Indebtedness will be
greater than 1.5 to 1.0 as of the last day of the fiscal quarter most recently
completed.

COMPLIANCE WITH LAW

AREP will, and will cause its Subsidiaries (including any Guarantor) to,
comply in all material respects with all applicable laws, rules and regulations.

NO INVESTMENT COMPANY

Neither AREP nor any Guarantor will register as an "investment company" as
such term is defined in the Investment Company Act of 1940, as amended.

MERGER, CONSOLIDATION OR SALE OF ASSETS

AREP will not: (1) consolidate or merge with or into another Person (whether
or not AREP, is the surviving entity) or (2) sell, assign, transfer, convey or
otherwise dispose of all or substantially all of the properties or assets of
AREP in one or more related transactions, to another Person; unless:

(1) either: (a) AREP is the surviving entity, or (b) the Person formed
by or surviving any such consolidation or merger (if other than AREP) or to
which such sale, assignment, transfer, conveyance or other disposition has
been made is a corporation, limited liability company or limited partnership
entity organized or existing under the laws of the United States, any state
of the United States or the District of Columbia;

(2) the Person formed by or surviving any such consolidation or merger
(if other than AREP) or the Person to which such sale, assignment, transfer,
conveyance or other disposition has been made assumes all the obligations of
AREP under the notes, the indenture and the registration rights agreement
and upon such assumption such Person will become the successor to, and be
substituted for, AREP thereunder and all references to AREP in each thereof
shall then become references to such Person and such Person shall thereafter
be able to exercise every right and power of AREP thereunder;

(3) immediately after such transaction no Default or Event of Default
exists;

(4) AREP or the Person formed by or surviving any such consolidation or
merger (if other than AREP), or to which such sale, assignment, transfer,
conveyance or other disposition has been made would, on the date of such
transaction after giving pro forma effect thereto and any related financing
transactions as if the same had occurred at the last day of the immediately
preceding quarter, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the first paragraph of the covenant described above
under the caption " -- Incurrence of

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Indebtedness and Issuance of Preferred Stock;" and

(5) AREP has delivered to the trustee an Officers' Certificate and
opinion of counsel, which may be an opinion of in-house counsel of AREP or
an Affiliate, each stating that such transaction complies with the terms of
the indenture.

Clauses (1), (2) or (4) above will not apply to or be required to be
complied with in connection with any merger or consolidation or the sale,
assignment, transfer, conveyance or other disposition of all or substantially
all of AREP's properties or assets to:

(1) an Affiliate that has no material assets or liabilities where the
primary purpose of such transaction is to change AREP into a corporation or
other form of business entity or to change the jurisdiction of formation of
AREP and such transaction does not cause the realization of any material
federal or state tax liability that will be paid by AREP or any of its
Subsidiaries (including AREH). For purposes of this paragraph, the term
material refers to any assets, liabilities or tax liabilities that are
greater than 5.0% of the Tangible Net Worth of AREP and its Subsidiaries
(including AREH) on a consolidated basis; or

(2) any Person; provided that AREP receives consideration in Cash
Equivalents and marketable securities with an aggregate Fair Market Value
determined at the time of the execution of such relevant agreement of at
least $1.0 billion for such merger or consolidation or the sale, assignment,
transfer, conveyance or other disposition of all or substantially all of
AREP's properties or assets. In any transaction referred to in this clause
(2), and subject to the terms and conditions thereof, the trustee shall,
without the need of any action by the noteholders, (x) confirm that such
Person shall not be liable for and release such Person from, any obligation
of AREP's under the indenture and the notes and (y) release any Guarantor
from all obligations under its Note Guarantee if such Guarantor was directly
or indirectly sold, assigned, transferred, conveyed or otherwise disposed of
to such Person in such transaction.

AREP or the Person formed by or surviving any merger or consolidation will
not have to comply with clause (4) above in connection with any merger or
consolidation if the effect of the merger or consolidation is to cause the
Capital Stock of AREP not owned by the Principal or any Affiliate of the
Principal to be retired or extinguished for consideration that was provided by
the Principal or an Affiliate of the Principal (other than AREP or its
Subsidiaries (including AREH) or the Person formed by or surviving any merger or
consolidation) and the Partners' Equity immediately after giving effect to the
merger or consolidation is not less than the Partners' Equity immediately prior
to such merger or consolidation.

In addition, AREP may not lease all or substantially all of its properties
or assets, in one or more related transactions, to any other Person. In the case
of a lease of all or substantially all of the assets of AREP, AREP will not be
released from its obligations under the notes or the indenture, as applicable.

AREH will not: (1) consolidate or merge with or into another Person (whether
or not AREH, is the surviving entity) or (2) sell, assign, transfer, convey or
otherwise dispose of all or substantially all of the properties or assets of
AREH in one or more related transactions, to another Person; unless:

(1) either: (a) AREH is the surviving entity, or (b) the Person formed
by or surviving any such consolidation or merger (if other than AREH) or to
which such sale, assignment, transfer, conveyance or other disposition has
been made is a corporation, limited liability company or limited partnership
entity organized or existing under the laws of the United States, any state
of the United States or the District of Columbia;

(2) the Person formed by or surviving any such consolidation or merger
(if other than AREH) or the Person to which such sale, assignment, transfer,
conveyance or other disposition has been made assumes all the obligations of
AREH under the Note Guarantee (and becomes a Guarantor), the notes, the
indenture and the registration rights agreement, and upon such assumption
such Person will become the successor to, and be substituted for, AREH
thereunder, and all references to AREH in each thereof shall than become
references to such Person and such Person shall thereafter be able to
exercise every right and power of AREH thereunder;

(3) immediately after such transaction no Default or Event of Default
exists;

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(4) AREH or the Person formed by or surviving any such consolidation or
merger (if other than AREP), or to which such sale, assignment, transfer,
conveyance or other disposition has been made would, on the date of such
transaction after giving pro forma effect thereto and any related financing
transactions as if the same had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the first paragraph of the covenant described above
under the caption " -- Incurrence of Indebtedness and Issuance of Preferred
Stock; and

(5) AREH has delivered to the trustee an Officers' Certificate and
opinion of counsel which may be an opinion of in-house counsel of AREP or an
Affiliate, each stating that such transaction complies with the terms of the
indenture.

Clauses (1), (2) or (4) above will not apply to or be required to be
complied with in connection with any merger or consolidation or the sale,
assignment, transfer, conveyance or other disposition of all or substantially
all of AREH's properties or assets to:

(1) an Affiliate that has no material assets or liabilities where the
primary purpose of such transaction is to change AREH into a corporation or
other form of business entity or to change the jurisdiction of formation of
AREH and such transaction does not cause the realization of any material
federal or state tax liability that will be paid by AREH or any of its
Subsidiaries. For purposes of this paragraph, the term material refers to
any assets, liabilities or tax liabilities that are greater than 5.0% of the
Tangible Net Worth of AREP and its Subsidiaries (including AREH) on a
consolidated basis;

(2) any Person; provided that AREP receives consideration in Cash
Equivalents and marketable securities with an aggregate Fair Market Value
determined at the time of the execution of such relevant agreement of at
least $1.0 billion for such merger or consolidation or the sale, assignment,
transfer, conveyance or other disposition of all or substantially all of
AREH's properties or assets; or

(3) any Person; provided that AREH receives consideration in Cash
Equivalents and marketable securities with an aggregate Fair Market Value
determined at the time of the execution of such relevant agreement of at
least $1.0 billion for such merger or consolidation or the sale, assignment,
transfer, conveyance or other disposition of all or substantially all of
AREH's properties or assets and AREH remains a Subsidiary of AREP.

In any transaction referred to in clause (2) or (3) above, and subject to
the terms and conditions thereof, the trustee shall, without the need of any
action by the noteholders, (x) confirm that such other Person shall not be
liable for and shall be released from any obligation of AREP's or AREH's under
the indenture, the notes and the Note Guarantees, and (y) release any Guarantor
from all obligations under its Note Guarantee if such Guarantor was directly or
indirectly sold, assigned, transferred, conveyed or otherwise disposed of to
such Person in such transaction.

This "Merger, Consolidation or Sale of Assets" covenant will not apply to:

(1) any consolidation or merger, or any sale, assignment, transfer,
conveyance, lease or other disposition of assets between or among AREP, AREH
or any one or more Guarantors; or

(2) any sale, assignment, transfer, conveyance or other disposition of
Cash Equivalents, including, without limitation, any investment or capital
contribution of Cash Equivalents, or any purchase of property and assets,
including, without limitation, securities, debt obligations or Capital
Stock, with Cash Equivalents.

TRANSACTIONS WITH AFFILIATES

AREP will not, and will not permit any of its Subsidiaries (including any
Guarantor) to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, any Affiliate of AREP
(each, an "Affiliate Transaction"), unless:

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(1) the Affiliate Transaction is on terms that are not materially less
favorable to AREP or the relevant Subsidiary (including any Guarantor) than
those that would have been obtained in a comparable transaction by AREP or
such Subsidiary (including any Guarantor) with an unrelated Person as
determined in good faith by the Board of Directors of AREP; and

(2)AREP delivers to the trustee:

(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$2.0 million, a resolution of the Board of Directors of AREP set forth
in an Officers' Certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of
Directors of AREP; and

(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to AREP or such Subsidiary
(including any Guarantor) of such Affiliate Transaction from a financial
point of view issued by an accounting, appraisal or investment banking
firm of recognized standing.

The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:

(1) any employment agreement, employee benefit plan, officer or director
indemnification agreement or any similar arrangement entered into by AREP or
any of its Subsidiaries (including any Guarantor) in the ordinary course of
business and payments pursuant thereto including payments or reimbursement
of payments by API with respect to any such agreement, plan or arrangement
entered into by API with respect to or for the benefit of officers or
directors of API (other than any such agreements, plans or arrangements
entered into by AREP or any of its Subsidiaries (including AREH) with Carl
Icahn (other than employee benefit plans and officer or director
indemnification agreements generally applicable to officers and directors of
API, AREP or its Subsidiaries (including AREH)));

(2) transactions between or among AREP, any Guarantor and/or their
respective Subsidiaries (except any Subsidiaries of which Carl Icahn or
Affiliates of Carl Icahn (other then AREP, AREH or their Subsidiaries) own
more than 10% of the Voting Stock);

(3) payment (or reimbursement of payments by API) of directors' fees to
Persons who are not otherwise Affiliates of AREP;

(4) any issuance of Equity Interests (other than Disqualified Stock) and
Preferred Unit Distributions of AREP to Affiliates of AREP;

(5) Restricted Payments that do not violate the provisions of the
indenture described above under the caption " -- Restricted Payments";

(6) the acquisition of the membership interests of Charlie's Holding LLC
pursuant to the membership interest purchase agreement, dated as of January
5, 2004, by and among American Casino and Entertainment Properties LLC,
Starfire Holding Corporation and Carl Icahn, as amended, and the other
transactions contemplated thereby;

(7) transactions between AREP and/or any of its Subsidiaries (including
any Guarantor), on the one hand, and other Affiliates, on the other hand,
for the provision of goods or services in the ordinary course of business by
such other Affiliates; provided that such other Affiliate is in the business
of providing such goods or services in the ordinary course of business to
unaffiliated third parties and the terms and pricing for such goods and
services overall are not less favorable to AREP and/or its Subsidiaries
(including AREH) than the terms and pricing upon which such goods and
services are provided to unaffiliated third parties;

(8) the provision or receipt of accounting, financial, management,
information technology and other ancillary services to or from Affiliates,
provided that AREP or its Subsidiaries (including any Guarantor) in the case
of the

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provision of such services, are paid a fee not less than its out of
pocket costs and allocated overhead (including a portion of salaries and
benefits) and in the case of the receipt of such services, paid a fee not
more than such Person's out-of-pocket costs and allocated overhead
(including a portion of salaries and benefits), in each case, as determined
by AREP in its reasonable judgment;

(9) the license of a portion of office space pursuant to a license
agreement, dated as of February 1, 1997, between AREP and an Affiliate of
API and any renewal thereof;

(10) the payment to API and reimbursements of payments made by API of
expenses relating to AREP's, AREH's or any Guarantors' status as a public
company;

(11) services provided and payments received by NEG from NEG Operating
LLC and TransTexas Gas Corporation pursuant to the NEG Management
Agreements;

(12) the pledge by NEG of its interest in the Capital Stock of NEG
Holding LLC pursuant to the NEG Credit Agreement;

(13) the exchange by AREH of its GB Securities for other securities of
GB Holdings, Inc.; provided that such exchange is on terms no less favorable
to AREH as the exchange of GB Securities offered to other non-Affiliated
Persons; and

(14) payments by AREH, AREP or any Subsidiary to API in connection with
services provided to AREH, AREP or any Subsidiary in accordance with the
AREP Partnership Agreement.

REPORTS

Whether or not required by the rules and regulations of the SEC, so long as
any notes are outstanding, the issuers will furnish to the holders of notes or
cause the trustee to furnish to the holders of notes, within the time periods
specified in the SEC's rules and regulations:

(1) all quarterly and annual reports that would be required to be filed
with the SEC on Forms 10-Q and 10-K if the issuers were required to file
such reports; and

(2) all current reports that would be required to be filed with the SEC
on Form 8-K if the issuers were required to file such reports.

All such reports will be prepared in all material respects in accordance
with all of the rules and regulations applicable to such reports. Each annual
report on Form 10-K will include a report on the issuers' consolidated financial
statements by the issuers' certified independent accountants. In addition, the
issuers will file a copy of each of the reports referred to in clauses (1) and
(2) above with the SEC for public availability within the time periods specified
in the rules and regulations applicable to such reports (unless the SEC will not
accept such a filing) and, if the SEC will not accept such a filing, will post
the reports on its website within those time periods.

If, at any time, the issuers are no longer subject to the periodic reporting
requirements of the Exchange Act for any reason, the issuers will nevertheless
continue filing the reports specified in the preceding paragraphs of this
covenant with the SEC within the time periods specified above unless the SEC
will not accept such a filing. The issuers will not take any action for the
purpose of causing the SEC not to accept any such filings. If, notwithstanding
the foregoing, the SEC will not accept the issuers' filings for any reason, the
issuers will post the reports referred to in the preceding paragraphs on its
website within the time periods that would apply if the issuers were required to
file those reports with the SEC.

In addition, the issuers agree that, for so long as any notes remain
outstanding, if at any time they are not required to file with the SEC the
reports required by the preceding paragraphs, they will furnish to the holders
of notes and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.

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EVENTS OF DEFAULT AND REMEDIES

The following constitutes an Event of Default:

(1) default in payment when due and payable, upon redemption or
otherwise, of principal or premium, if any, on the notes;

(2) default for 30 days or more in the payment when due of interest or
Liquidated Damages on the notes;

(3) failure by the issuers to call or cause to be called for redemption
or to purchase or cause to be called any notes, in each case when required
under the indenture;

(4) failure by AREP or any Guarantor for 30 days after written notice
from the trustee to comply with the provisions described under the captions
" -- Restricted Payments" or " -- Incurrence of Indebtedness and Issuance of
Preferred Stock";

(5) failure by AREP or any Guarantor for 30 days after written notice
from the trustee to comply with the provisions described under the captions
" -- Maintenance of Interest Coverage" or " -- Maintenance of Total
Unencumbered Assets";

(6) failure by the issuers for 60 days after receipt of written notice
from the trustee to comply with any of its other agreements in the indenture
or the notes;

(7) default under any mortgage, indenture or instrument under which
there is issued or by which there is secured or evidenced any Indebtedness
for money borrowed by the issuers or any Guarantor or default on any
Guarantee by the issuers or AREH of Indebtedness, whether such Indebtedness
or Guarantee now exists or is created after the Issuance Date, which default
(a) is caused by a failure to pay when due at final maturity (giving effect
to any grace period or waiver related thereto) the principal of such
Indebtedness (a "Payment Default") or (b) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the
principal amount of any such Indebtedness as to which AREP or any Guarantor
is obligated to pay, together with the principal amount of any other such
Indebtedness under which a Payment Default then exists or with respect to
which the maturity thereof has been so accelerated or which has not been
paid at maturity as to which AREP or any Guarantor is obligated to pay,
aggregates $10.0 million or more;

(8) failure by the issuers or any Guarantor to pay final judgments
aggregating in excess of $10.0 million, which final judgments remain unpaid,
undischarged or unstayed for a period of more than 60 days after such
judgment becomes a final judgment;

(9) except as permitted by the indenture, any Note Guarantee is held in
any judicial proceeding to be unenforceable or invalid or ceases for any
reason to be in full force and effect, or AREH or any other Guarantor, or
any Person acting on behalf of any Guarantor, denies or disaffirms its
obligations under its Note Guarantee; and

(10) certain events of bankruptcy or insolvency with respect to AREP or
any Guarantor that is a Significant Subsidiary.

If any Event of Default (other than by reason of bankruptcy or insolvency)
occurs and is continuing, the holders of more than 25% in principal amount of
the then outstanding notes may declare the principal, premium, if any, interest,
Liquidated Damages, if any, and any other monetary obligations on all the notes
to be due and payable immediately. Notwithstanding the foregoing, in the case of
an Event of Default arising from certain events of bankruptcy or insolvency,
with respect to the issuers or any Guarantor that is a Significant Subsidiary
all outstanding notes will become due and payable without further action or
notice. Holders of the notes may not enforce the indenture or the notes except
as provided in the indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding notes may direct the
trustee in its exercise of any trust or power. The trustee may withhold from
holders of notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest) if
it determines that withholding notice is in its

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interest. In addition, the trustee shall have no obligation to accelerate the
notes if in the best judgment of the trustee acceleration is not in the best
interest of the holders of the notes.

At any time after a declaration of acceleration with respect to the notes
and subject to certain conditions, the holders of a majority in aggregate
principal amount of notes outstanding may rescind and cancel such acceleration
and its consequences.

The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest on, premium, if any, or the principal of, any note held by a
non-consenting holder.

The issuers will be required to deliver to the trustee annually a statement
regarding compliance with the indenture, and the issuers will be required,
within ten Business Days, upon becoming aware of any Default or Event of Default
to deliver to the trustee a statement specifying such Default or Event of
Default.

NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS AND
STOCKHOLDERS

No director, officer, employee, incorporator, manager (or managing member)
direct or indirect member, partner or stockholder of the issuers, AREH, API or
any additional Guarantor shall have any liability for any obligations of the
issuers, AREH, API or any additional Guarantor under the notes, the indenture,
any Note Guarantee or for any claim based on, in respect of, or by reason of
such obligations or its creation. Each holder of the notes by accepting a note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes.

COVENANT DEFEASANCE

The issuers may, at their option and at any time, elect to have their
obligations and the obligations of any of their Subsidiaries or AREH released
with respect to certain covenants that are described in the indenture ("Covenant
Defeasance") and, thereafter, any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the notes or any
Note Guarantee. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the notes.

In order to exercise Covenant Defeasance:

(1) the issuers must irrevocably deposit, or cause to be deposited, with
the trustee, in trust, for the benefit of the holders of the notes, cash in
U.S. dollars, non-callable Government Securities, or a combination thereof,
in such amounts as will be sufficient to pay the principal of, premium, if
any, interest and Liquidated Damages, if any, due on the outstanding notes
on the stated maturity date or on the applicable redemption date, as the
case may be, in accordance with the terms of the indenture;

(2) no Default or Event of Default shall have occurred and be continuing
with respect to certain Events of Default on the date of such deposit;

(3) such Covenant Defeasance shall not result in a breach or violation
of, or constitute a default under any material agreement or instrument
(other than the indenture) to which the issuers or any of their Subsidiaries
is a party or by which the issuers or any of their Subsidiaries is bound;

(4) the issuers shall have delivered to the trustee an opinion of
counsel, which may be an opinion of in-house counsel to AREP or an
Affiliate, containing customary assumptions and exceptions, to the effect
that upon and immediately following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally under
any applicable law;

(5) the issuers shall have delivered to the trustee an Officers'
Certificate stating that the deposit was not made by AREP with the intent of
defeating, hindering, delaying or defrauding any creditors of AREP or
others; and

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(6) the issuers shall have delivered to the trustee an Officers'
Certificate and an opinion of counsel in the United States, which may be an
opinion of in-house counsel to AREP or an Affiliate (which opinion of
counsel may be subject to customary assumptions and exclusions) each stating
that all conditions precedent provided for or relating to the Covenant
Defeasance have been complied with.

SATISFACTION AND DISCHARGE

The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder, when:

(1)either:

(a) all notes that have been authenticated, except lost, stolen or
destroyed notes that have been replaced or paid and notes for whose
payment money has been deposited in trust and thereafter repaid to AREP,
have been delivered to the trustee for cancellation; or

(b) all notes that have not been delivered to the trustee for
cancellation (1) have become due and payable by reason of the mailing of
a notice of redemption or otherwise, (2) will become due and payable
within one year or (3) are to be called for redemption within 12 months
under arrangements reasonably satisfactory to the trustee for the giving
of notice of redemption by the trustee in the name, and at the
reasonable expense of the issuers, and the issuers or any Guarantor have
irrevocably deposited or caused to be deposited with the trustee as
trust funds in trust solely for the benefit of the holders, cash in U.S.
dollars, non-callable Government Securities, or a combination of cash in
U.S. dollars and non-callable Government Securities, in amounts as will
be sufficient without consideration of any reinvestment of interest, to
pay and discharge the entire Indebtedness on the notes not delivered to
the trustee for cancellation for principal and premium, if any, and
accrued but unpaid interest to the date of maturity or redemption;

(2) no Default of Event of Default has occurred and is continuing on the
date of the deposit or will occur as a result of the deposit and the deposit
will not result in a breach or violation of, or constitute a default under,
any other material instrument to which the issuers are a party or by which
the issuers are bound;

(3) the issuers have paid or caused to be paid all sums payable by it
under the indenture; and

(4) the issuers or any Guarantor have delivered irrevocable instructions
to the trustee under the indenture to apply the deposited money toward the
payment of the notes at maturity or the redemption date, as the case may be.

In addition, the issuers must deliver an Officers' Certificate and an
opinion of counsel to the trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.

AMENDMENT, SUPPLEMENT AND WAIVER

Except as provided in the next two succeeding paragraphs, the indenture, the
notes or the Note Guarantee may be amended or supplemented with the consent of
the holders of at least a majority in principal amount of the notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for notes), and any existing default or compliance with any
provision of the indenture, the notes or the Note Guarantee may be waived with
the consent of the holders of a majority in principal amount of the then
outstanding notes (including consents obtained in connection with a tender offer
or exchange offer for notes).

Without the consent of each holder affected, an amendment or waiver may not
(with respect to any notes held by a nonconsenting holder of notes):

(1) reduce the principal amount of notes whose holders must consent to
an amendment, supplement or waiver;

(2) reduce the principal of or change the fixed maturity of any note or
alter or waive the provisions with

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respect to the redemption of the notes;

(3) reduce the rate of or change the time for payment of interest on any
note;

(4) waive a Default or Event of Default in the payment of principal of,
premium or interest on the notes (except a rescission of acceleration of the
notes by the holders of at least a majority in aggregate principal amount of
the notes and a waiver of the payment default that resulted from such
acceleration);

(5) make any note payable in money other than that stated in the notes;

(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of holders of notes to receive
payments of principal of or premium, if any, or interest on the notes;

(7) release AREH or any other Guarantor from any of its obligations
under its Note Guarantee or the indenture, except in accordance with the
terms of the indenture; or

(8) make any change in the foregoing amendment and waiver provisions.

Notwithstanding the foregoing, without the consent of any holder of notes,
the issuers, the Guarantors and the trustee together may amend or supplement the
indenture, any Note Guarantee or the notes to cure any ambiguity, defect or
inconsistency, to comply with the covenant relating to mergers, consolidations
and sales of assets, to provide for uncertificated notes in addition to or in
place of certificated notes, to provide for the assumption of the issuers' or
any Guarantor's obligations to holders of the notes and any Note Guarantee in
the case of a merger, consolidation or asset sale, to make any change that would
provide any additional rights or benefits to the holders of the notes, or that
does not adversely affect the legal rights under the indenture of any such
holder.

CONCERNING THE TRUSTEE

The indenture contains certain limitations on the rights of the trustee,
should it become a creditor of the issuers or AREH, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days or resign.

The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy, available to the trustee, subject to
certain exceptions. The indenture will provide that in case an Event of Default
shall occur (which shall not be cured), the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of his own affairs. Subject to such provisions, the trustee will be
under no obligation to exercise any of its rights or powers under the indenture
at the request of any holder of notes, unless such holder shall have offered to
the trustee security and indemnity satisfactory to it against any loss,
liability or expense.

GOVERNING LAW

The indenture and the notes are, subject to certain exceptions, governed by
and construed in accordance with the internal laws of the State of New York,
without regard to the choice of law rules thereof. The issuance of the notes and
the Note Guarantee are also subject to a certain extent to the laws of the
jurisdiction of formation of AREP.

ADDITIONAL INFORMATION

Any holder of the notes may obtain a copy of the indenture without charge by
writing to American Real Estate Partners, L.P. at 100 South Bedford Road, Mt.
Kisco, New York 10549, Attention: Chief Financial Officer.

BOOK-ENTRY, DELIVERY AND FORM

The new notes will be issued in one or more notes in global form (the
"Global Notes"). Except as set forth below, the notes will be issued in
registered, global form in minimum denominations of $1,000 and integral

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multiples of $1,000 in excess of $1,000. The Global Notes will be deposited upon
issuance with the trustee as custodian for DTC or its nominee, in each case for
credit to an account of a direct or indirect participant in DTC, as described
below.

Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
definitive notes in registered certificated form ("Certificated Notes") except
in the limited circumstances described below. See " -- Exchange of Global Notes
for Certificated Notes." Except in the limited circumstances described below,
owners of beneficial interests in the Global Notes will not be entitled to
receive physical delivery of notes in certificated form.

In addition, transfers of beneficial interests in the Global Notes will be
subject to the applicable rules and procedures of DTC and its direct and
indirect participants (including, if applicable, those of Euroclear and
Clearstream), which may change from time to time.

Prospective purchasers are advised that the laws of some states require that
certain Persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer beneficial interests in a Global
Note to such Persons will be limited to such extent.

So long as the Global Note Holders is the registered owner of any notes, the
Global Note Holder will be considered the sole holder under the indenture of any
notes evidenced by the Global Notes. Beneficial owners of notes evidenced by the
Global Notes will not be considered the owners or holders of the notes under the
indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the trustee thereunder. Neither the
issuers nor the trustee will have any responsibility or liability for any aspect
of the records of DTC or for maintaining, supervising or reviewing any records
of DTC relating to the notes.

DEPOSITORY PROCEDURES

The following description of the operations and procedures of DTC, Euroclear
and Clearstream are provided solely as a matter of convenience. These operations
and procedures are solely within the control of the respective settlement
systems and are subject to changes by them. The issuers take no responsibility
for these operations and procedures and urge investors to contact the system or
their participants directly to discuss these matters.

DTC has advised the issuers that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between the Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the initial purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.

Investors in the Global Notes who are Participants may hold their interests
therein directly through DTC. Investors in the Global Notes who are not
Participants may hold their interests therein indirectly through organizations
(including Euroclear and Clearstream) which are Participants. All interests in a
Global Note, including those held through Euroclear or Clearstream, may be
subject to the procedures and requirements of DTC. Those interests held through
Euroclear or Clearstream may also be subject to the procedures and requirements
of such systems. The laws of some states require that certain Persons take
physical delivery in definitive form of securities that they own. Consequently,
the ability to transfer beneficial interests in a Global Note to such Persons
will be limited to that extent. Because DTC can act only on behalf of the
Participants, which in turn act on behalf of the Indirect Participants, the
ability of a Person having beneficial interests in a Global Note to pledge such
interests to Persons that do not participate in the DTC system, or otherwise
take actions in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests.

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EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
"HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.

Payments in respect of the principal of, and interest and premium, if any,
and Liquidated Damages, if any, on, a Global Note registered in the name of DTC
or its nominee will be payable to DTC in its capacity as the registered holder
under the indenture. Under the terms of the indenture, the issuers and the
trustee will treat the Persons in whose names the notes, including the Global
Notes, are registered as the owners of the notes for the purpose of receiving
payments and for all other purposes. Consequently, neither the issuers, the
trustee nor any agent of the issuers or the trustee has or will have any
responsibility or liability for:

(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interest in the Global Notes or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes; or

(2) any other matter relating to the actions and practices of DTC or any
of its Participants or Indirect Participants.

DTC has advised the issuers that its current practice, upon receipt of any
payment in respect of securities such as the notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe that it will not
receive payment on such payment date. Each relevant Participant is credited with
an amount proportionate to its beneficial ownership of an interest in the
principal amount of the relevant security as shown on the records of DTC.
Payments by the Participants and the Indirect Participants to the beneficial
owners of notes will be governed by standing instructions and customary
practices and will be the responsibility of the Participants or the Indirect
Participants and will not be the responsibility of DTC, the trustee or the
issuers. Neither the issuers nor the trustee will be liable for any delay by DTC
or any of the Participants or the Indirect Participants in identifying the
beneficial owners of the notes, and the issuers and the trustee may conclusively
rely on and will be protected in relying on instructions from DTC or its nominee
for all purposes.

Transfers between the Participants will be effected in accordance with DTC's
procedures, and will be settled in same-day funds, and transfers between
participants in Euroclear and Clearstream will be effected in accordance with
their respective rules and operating procedures.

Cross-market transfers between the Participants, on the one hand, and
Euroclear or Clearstream participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or
Clearstream, as the case may be, by their respective depositaries; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Clearstream, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Clearstream, as the case may be,
will, if the transaction meets its settlement requirements, deliver instructions
to its respective depositary to take action to effect final settlement on its
behalf by delivering or receiving interests in the relevant Global Note in DTC,
and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly to the
depositories for Euroclear or Clearstream.

DTC has advised the issuers that it will take any action permitted to be
taken by a holder of notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of the notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the notes, DTC reserves the right
to exchange the Global Notes for notes in certificated form, and to distribute
such notes to its Participants.

Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the Global Notes among
participants in DTC, Euroclear and Clearstream, they are under no obligation to
perform or to continue to perform such procedures, and may discontinue such
procedures at any time. None of the issuers, the trustee and any of their
respective agents will have any responsibility for the performance by DTC,

106

Euroclear or Clearstream or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.

EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES

A Global Note is exchangeable for Certificated Notes if:

(1) DTC (a) notifies the issuers that it is unwilling or unable to
continue as depositary for the Global Notes or (b) has ceased to be a
clearing agency registered under the Exchange Act and, in either case, the
issuers fail to appoint a successor depositary;

(2) the issuers, at their option, notify the trustee in writing that it
elects to cause the issuance of the Certificated Notes; or

(3) there has occurred and is continuing a Default or Event of Default
with respect to the notes.

In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the indenture. In all cases, Certificated Notes
delivered in exchange for any Global Note or beneficial interests in Global
Notes will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary (in accordance with its customary
procedures).

EXCHANGE OF CERTIFICATED NOTES FOR GLOBAL NOTES

Certificated Notes may not be exchanged for beneficial interests in any
Global Note unless the transferor first delivers to the trustee a written
certificate (in the form provided in the indenture) to the effect that such
transfer will comply with the appropriate transfer restrictions applicable to
such notes. See "Notice to Investors."

SAME DAY SETTLEMENT AND PAYMENT

The issuers will make payments in respect of the notes represented by the
Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) by wire transfer of immediately available funds to the accounts
specified by DTC or its nominee. The issuers will make all payments of
principal, interest and premium, if any, and Liquidated Damages, if any, with
respect to Certificated Notes by wire transfer of immediately available funds to
the accounts specified by the holders of the Certificated Notes or, if no such
account is specified, by mailing a check to each such holder's registered
address. The notes represented by the Global Notes are expected to be eligible
to trade in DTC's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such notes will, therefore, be required by DTC to be
settled in immediately available funds. The issuers expect that secondary
trading in any Certificated Notes will also be settled in immediately available
funds.

Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a Global Note from a
Participant will be credited, and any such crediting will be reported to the
relevant Euroclear or Clearstream participant, during the securities settlement
processing day (which must be a business day for Euroclear and Clearstream)
immediately following the settlement date of DTC. DTC has advised the issuers
that cash received in Euroclear or Clearstream as a result of sales of interests
in a Global Note by or through a Euroclear or Clearstream participant to a
Participant will be received with value on the settlement date of DTC but will
be available in the relevant Euroclear or Clearstream cash account only as of
the business day for Euroclear or Clearstream following DTC's settlement date.

CERTAIN DEFINITIONS

Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.

"Acquired Debt" means, with respect to any specified Person:

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(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection with, or
in contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and

(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.

"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person will be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings.

"API" means American Property Investors, Inc.

"AREH" means American Real Estate Holdings Limited Partnership.

"AREP" means American Real Estate Partners, L.P.

"AREP Finance" means American Real Estate Finance Corp.

"AREP Partnership Agreement" means AREP's Amended and Restated Agreement of
Limited Partnership, dated May 12, 1987 as amended February 22, 1995 and August
16, 1996.

"Bad Boy Guarantees" means the Indebtedness of any specified Person
attributable to "bad boy" indemnification or Guarantees, which Indebtedness
would be non-recourse to AREP and AREH other than recourse relating to the
specific events specified therein, which such events shall be usual and
customary exceptions typically found in non-recourse financings at such time as
determined by management in its reasonable judgment.

"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" will be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only after the passage of time. The terms "Beneficially Owns" and
"Beneficially Owned" have a corresponding meaning.

"Board of Directors" means:

(1) with respect to a corporation, the board of directors of the
corporation or any committee thereof duly authorized to act on behalf of
such board;

(2) with respect to a partnership, the Board of Directors of the general
partner of the partnership;

(3) with respect to a limited liability company, the managing member or
members or any controlling committee of managing members thereof or the
Board of Directors of the managing member; and

(4) with respect to any other Person, the board or committee of such
Person serving a similar function.

"Business Day" means any day excluding Saturday, Sunday and any day which is
a legal holiday under the laws of the State of New York or is a day on which
banking institutions located in such jurisdictions are authorized or required by
law or other governmental action to close.

"Capital Lease Obligation" means, at the time any determination is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet prepared in

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accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be prepaid by the lessee without payment of a
penalty.

"Capital Stock" means:

(1)in the case of a corporation, corporate stock;

(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;

(3) in the case of a partnership or limited liability company,
partnership interests (whether general or limited) or membership interests;
and

(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person but excluding from all of the foregoing any
debt securities convertible into Capital Stock, whether or not such debt
securities include any right of participation with Capital Stock.

"Cash Equivalents" means:

(1)United States dollars;

(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality of the United
States government (provided that the full faith and credit of the United
States is pledged in support of those securities) having maturities of not
more than one year from the date of acquisition;

(3) certificates of deposit and eurodollar time deposits with maturities
of one year or less from the date of acquisition, bankers' acceptances with
maturities not exceeding one year and overnight bank deposits, in each case,
with any domestic commercial bank having capital and surplus in excess of
$500.0 million and a Thomson Bank Watch Rating of "B" or better;

(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;

(5) commercial paper having one of the two highest ratings obtainable
from Moody's Investors Service, Inc. or Standard & Poor's Rating Services
and, in each case, maturing within one year after the date of acquisition;
and

(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition.

"Cash Flow of AREP and the Guarantors" means, with respect to any period,
the Net Income of AREP and the Guarantors for such period plus, without
duplication:

(1) provision for taxes based on income or profits of AREP and the
Guarantors or any payments of Tax Amounts by AREP for such period, to the
extent that such provision for taxes or such payments of Tax Amounts were
deducted in computing such Net Income of AREP or any Guarantor; plus

(2) the Fixed Charges of AREP or any Guarantor for such period, to the
extent that such Fixed Charges of AREP and such Guarantor were deducted in
computing such Net Income of AREP and such Guarantor; plus

(3) depreciation, amortization (including amortization of intangibles
but excluding amortization of prepaid cash expenses that were paid in a
prior period) and other non-cash expenses (excluding any such non-cash

109

expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that
was paid in a prior period) of AREP and any Guarantor for such period to the
extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such Net Income of AREP and any Guarantor; minus

(4) non-cash items increasing such Net Income of AREP and any Guarantor
for such period, other than the accrual of revenue in the ordinary course of
business,

in each case, consolidating such amounts for AREP and any Guarantor but
excluding any net income, provision for taxes, fixed charges, depreciation,
amortization or other amounts of any of the Subsidiaries of AREP (other than any
Guarantor) and otherwise determined in accordance with GAAP; provided, further,
that the Net Income of AREP and any Guarantor shall include income from
investments or Subsidiaries of AREP (other than any Guarantor) but only to the
extent such income is realized in Cash Equivalents by AREP or any Guarantor.

"Change of Control" means the occurrence of any of the following:

(1) the sale, lease, transfer, conveyance or other disposition by AREP
or AREH (other than by way of merger or consolidation), in one or a series
of related transactions, of all or substantially all of the properties or
assets of AREP or AREH to any "person" (as that term is used in Section
13(d) of the Exchange Act) other than the Principal or a Related Party;
provided, however, that (x) if AREP or AREH receives consideration in Cash
Equivalents and marketable securities with an aggregate Fair Market Value
determined at the time of the execution of each relevant agreement of at
least $1.0 billion for such sale, lease, transfer, conveyance or other
disposition of properties or assets, then such transaction shall not be
deemed a Change of Control and (y) any sale, assignment, transfer or other
disposition of Cash Equivalents, including, without limitation, any
investment or capital contribution of Cash Equivalents or purchase of
property, assets or Capital Stock with Cash Equivalents, will not constitute
a sale, assignment, transfer, conveyance or other disposition of all or
substantially all of the properties or assets for purposes of this clause
(1);

(2) the adoption of a plan relating to the liquidation or dissolution of
AREP;

(3) the consummation of any transaction (including, without limitation,
any merger or consolidation), the result of which is that any "person" (as
defined above), other than the Principal or the Related Parties, becomes the
Beneficial Owner, directly or indirectly, of more than 50% of the Voting
Stock of a Controlling Entity of AREP, measured by voting power rather than
number of shares;

(4) the first day on which a majority of the members of the Board of
Directors of the Controlling Entity are not Continuing Directors; or

(5) for so long as AREP is a partnership, upon any general partner of
AREP ceasing to be an Affiliate of the Principal or a Related Party.

"Change of Control Offer" has the meaning assigned to that term in the
indenture governing the notes.

"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of net income (loss) of such Person, on a consolidated
basis with its Subsidiaries, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends; provided that:

(1) the Net Income of any Person that is accounted for by the equity
method of accounting or that is a Subsidiary will be included only to the
extent of the amount of dividends or similar distributions paid in cash to
the specified Person or a Subsidiary of the Person;

(2) the Net Income of any of its Subsidiaries will be excluded to the
extent that the declaration or payment of dividends or similar distributions
by that Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been
obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Subsidiary or its
stockholders; and

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(3) the cumulative effect of a change in accounting principles will be
excluded.

"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of AREP who:

(1) was a member of such Board of Directors on the date of the
indenture; or

(2) was nominated for election or elected to such Board of Directors
with the approval of the Principal or any of the Related Parties or with the
approval of a majority of the Continuing Directors who were members of such
Board of Directors at the time of such nomination or election.

"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of management and policies of a Person, whether
through the ownership of Voting Stock, by agreement or otherwise.

"Controlling Entity" means (1) for so long as AREP is a partnership, any
general partner of AREP, (2) if AREP is a limited liability company, any
managing member of AREP or (3) if AREP is a corporation, AREP.

"Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.

"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case, at the option of the holder of the Capital Stock),
or upon the happening of any event, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or redeemable at the option
of the holder of the Capital Stock, in whole or in part, on or prior to the date
that is 91 days after the date on which the notes mature. Notwithstanding the
preceding sentence, any Capital Stock that would constitute Disqualified Stock
solely because the holders of the Capital Stock have the right to require AREP
or any Guarantor to repurchase such Capital Stock upon the occurrence of a
change of control, event of loss, an asset sale or other special redemption
event will not constitute Disqualified Stock if the terms of such Capital Stock
provide that AREP or any Guarantor may not repurchase or redeem any such Capital
Stock pursuant to such provisions unless such repurchase or redemption complies
with the covenant described above under the caption " -- Certain Covenants --
Restricted Payments" or where the funds to pay for such repurchase was from the
net cash proceeds of such Capital Stock and such net cash proceeds was set aside
in a separate account to fund such repurchase. Furthermore, any Capital Stock
that would constitute Disqualified Stock solely because the holders of the
Capital Stock have the right to require AREP or any Guarantor to redeem such
Capital Stock, including, without limitation, upon maturity will not constitute
Disqualified Stock if the terms of such Capital Stock provide that AREP or any
Guarantor may redeem such Capital Stock for other Capital Stock that is not
Disqualified Stock. The amount of Disqualified Stock deemed to be outstanding at
any time for purposes of the indenture will be the maximum amount that AREP and
its Subsidiaries (including any Guarantor) may become obligated to pay upon the
maturity of, or pursuant to any mandatory redemption provisions of, such
Disqualified Stock, exclusive of accrued dividends. For the avoidance of doubt,
and by way of example, the Preferred Units, as in effect on the date of the
indenture, do not constitute Disqualified Stock.

"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

"Equity Offering" means an offer and sale of Capital Stock (other than
Disqualified Stock) of AREP (other than an offer and sale relating to equity
securities issuable under any employee benefit plan of AREP) or a capital
contribution in respect of Capital Stock (other than Disqualified Stock) of
AREP.

"Existing Indebtedness" means up to $43.8 million in aggregate principal
amount of Indebtedness of AREP and any Guarantor, in existence on the Issuance
Date, until such amounts are repaid.

"Fair Market Value" means the value that would be paid by a willing buyer to
an unaffiliated willing seller in a transaction not involving distress or
necessity of either party, determined in good faith by the Board of Directors of
AREP (unless otherwise provided in the indenture).

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"Fixed Charge Coverage Ratio of AREP and the Guarantors" means the ratio of
the Cash Flow of AREP and the Guarantors for such period to the Fixed Charges of
AREP and the Guarantors for such period. In the event that AREP, the Guarantors
or any Guarantor incurs, assumes, guarantees, repays, repurchases, redeems,
defeases or otherwise discharges any Indebtedness (other than ordinary working
capital borrowings) or issues, repurchases or redeems preferred stock subsequent
to the commencement of the period for which the Fixed Charge Coverage Ratio of
AREP and the Guarantors is being calculated and on or prior to the Quarterly
Determination Date for which the calculation of the Fixed Charge Coverage Ratio
of AREP and the Guarantors is being made (the "Calculation Date"), then the
Fixed Charge Coverage Ratio of AREP and the Guarantors will be calculated giving
pro forma effect to such incurrence, assumption, Guarantee, repayment,
repurchase, redemption, defeasance or other discharge of Indebtedness, or such
issuance, repurchase or redemption of preferred stock, and the use of the
proceeds therefrom, as if the same had occurred at the beginning of the
applicable four-quarter reference period.

In addition, for purposes of calculating the Fixed Charge Coverage Ratio:

(1) acquisitions that have been made by the specified Person, including
through mergers or consolidations, or any Person acquired by the specified
Person, and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on
or prior to the Calculation Date will be given pro forma effect (in
accordance with Regulation S-X under the Securities Act) as if they had
occurred on the first day of the four-quarter reference period;

(2) the Cash Flow of AREP and the Guarantors attributable to
discontinued operations, as determined in accordance with GAAP, and
operations or businesses (and ownership interests therein) disposed of prior
to the Calculation Date, will be excluded;

(3) the Fixed Charges of AREP and the Guarantors attributable to
discontinued operations, as determined in accordance with GAAP, and
operations or businesses (and ownership interests therein) disposed of prior
to the Calculation Date, will be excluded, but only to the extent that such
Fixed Charges of AREP and the Guarantors are equal to or less than the Cash
Flow of AREP and the Guarantors from the related discontinued operation
excluded under clause (3) for such period; and

(4) if any Indebtedness bears a floating rate of interest, the interest
expense on such Indebtedness will be calculated as if the rate in effect on
the Calculation Date had been the applicable rate for the entire period
(taking into account any Hedging Obligation applicable to such Indebtedness
if such Hedging Obligation has a remaining term as at the Calculation Date
in excess of 12 months).

"Fixed Charges of AREP and the Guarantors" means, with respect to any
period, the sum, without duplication, of:

(1) the interest expense of AREP, and any Guarantor for such period,
whether paid or accrued, including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net of the effect of
all payments made or received pursuant to Hedging Obligations in respect of
interest rates; plus

(2) the interest expense of AREP and any Guarantor that was capitalized
during such period; plus

(3) any interest on Indebtedness of another Person that is guaranteed by
AREP or any Guarantor (other than Bad Boy Guarantees unless such Bad Boy
Guarantee is called upon) or secured by a Lien on assets of AREP or any
additional Guarantor, whether or not such Guarantee or Lien is called upon;
provided that for purposes of calculating interest with respect to
Indebtedness that is Guaranteed or secured by a Lien, the principal amount
of Indebtedness will be calculated in accordance with the last two
paragraphs of the definition of Indebtedness; plus

(4) the product of (a) all dividends, whether paid or accrued and
whether or not in cash, on any series of preferred equity of AREP, other
than dividends on preferred stock to the extent payable in Equity Interests
of

112

AREP (other than Disqualified Stock) or dividends on preferred equity
payable to AREP, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state
and local statutory income tax rate of AREP (however, for so long as AREP is
a partnership or otherwise a pass-through entity for federal income tax
purposes, the combined federal, state and local income tax rate shall be the
rate that was utilized to calculate the Tax Amount of AREP to the extent
that the Tax Amount was actually distributed with respect to such period
(and if less than the Tax Amount is distributed, such rate shall be
proportionately reduced) and if no Tax Amount was actually distributed with
respect to such period, such combined federal, state and local income tax
rate shall be zero), expressed as a decimal; provided that this clause (4)
will not include any Preferred Unit Distribution paid in additional
Preferred Units,

in each case, determined on a consolidated basis between AREP and any Guarantor
but on a non-consolidated basis with the Subsidiaries of AREP (other than any
Guarantor) and otherwise in accordance with GAAP.

"GAAP" means generally accepted accounting principles in the United States
set forth in the statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as have been
approved by a significant segment of the accounting profession, which are in
effect on the Issuance Date. For the purposes of the indenture, the term
"consolidated" with respect to any Person shall mean such Person consolidated
with its Subsidiaries.

"Gaming Authority" means any agency, authority, board, bureau, commission,
department, office or instrumentality of any nature whatsoever of the United
States or other national government, any state, province or any city or other
political subdivision, including, without limitation, the State of Nevada or the
State of New Jersey, whether now or hereafter existing, or any officer or
official thereof and any other agency with authority thereof to regulate any
gaming operation (or proposed gaming operation) owned, managed or operated by
the Principal, its Related Parties, the issuers or any of their respective
Subsidiaries or Affiliates.

"Gaming Law" means any gaming law or regulation of any jurisdiction or
jurisdictions to which the issuers or any of their Subsidiaries (including AREH)
is, or may at any time after the issue date be, subject.

"GB Securities" means the 11% notes due 2005 issued by GB Property Funding
Corp.

"Government Instrumentality" means any national, state or local government
(whether domestic or foreign), any political subdivision thereof or any other
governmental, quasi-governmental, judicial, public or statutory instrumentality,
authority, body, agency, court, tribunal, commission, bureau or entity or any
arbitrator with authority to bind a party at law.

"Government Securities" means securities that are (1) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (2) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Security
or a specific payment of principal of or interest on any such Government
Security held by such custodian for the account of the holder of such depository
receipt; provided, that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
Government Security or the specific payment of principal of or interest on the
Government Security evidenced by such depository receipt.

"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take or pay or to maintain financial statement
conditions or otherwise).

"Guarantor" means any Subsidiary of AREP (initially only AREH) that executes
a Note Guarantee in accordance with the provisions of the indenture, and their
respective successors and assigns, in each case, until the

113

Note Guarantee of such Person has been released in accordance with the
provisions of the indenture.

"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:

(1) interest rate swap agreements (whether from fixed to floating or
from floating to fixed), interest rate cap agreements and interest rate
collar agreements;

(2) other agreements or arrangements designed to manage interest rates
or interest rate risk; and

(3) other agreements or arrangements designed to protect such Person
against fluctuations in currency exchange rates or commodity prices.

"Indebtedness" means, with respect to any specified Person, any indebtedness
of such Person (excluding accrued expenses and trade payables), whether or not
contingent:

(1)in respect of borrowed money;

(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);

(3)in respect of banker's acceptances;

(4)representing Capital Lease Obligations;

(5) representing the balance deferred and unpaid of the purchase price
of any property or services due more than six months after such property is
acquired or such services are completed; or

(6)representing any Hedging Obligations,

if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any Indebtedness of any other Person.

The amount of any Indebtedness outstanding as of any date attributable to a
Guarantee shall be the maximum principal amount guaranteed by such specified
Person as of such date.

The amount of any Indebtedness outstanding as of any date shall be (a) the
accreted value thereof, in the case of any Indebtedness with original issue
discount, (b) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness and
(c) in respect of Indebtedness of another Person secured by a Lien on the assets
of the specified Person, the lesser of (x) the Fair Market Value of such assets
at the date of determination and (y) the amount of the Indebtedness of the other
Person to the extent so secured. Notwithstanding anything in the indenture to
the contrary, Indebtedness of AREP, AREH or any Note Guarantor shall not include
any Indebtedness that has been either satisfied and discharged or defeased
through covenant defeasance or legal defeasance.

"Issuance Date" means the closing date for the sale and original issuance of
the notes.

"Issuers" means AREP and AREP Finance, collectively.

"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction.

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"Liquidated Damages" means all liquidated damages then owing pursuant to the
registration rights agreement.

"NEG" means National Energy Group, Inc.

"NEG Credit Agreement" means the credit agreement, dated as of December 29,
2003, among NEG Operating LLC, certain commercial lending institutions party
thereto, including Mizuho Corporate Bank, Ltd. as the administrative agent, Bank
of Texas N.A. and Bank of Nova Scotia as co-agents.

"NEG Management Agreements" means the management agreement dated September
12, 2001, between NEG and NEG Operating LLC and the management agreement dated
August 28, 2003, between NEG and TransTexas Gas Corporation, each as in effect
on the date hereof.

"Net Income" means, with respect to any specified Person for any four
consecutive fiscal quarter period, the net income (loss) of such Person
determined in accordance with GAAP and before any reduction in respect of
preferred stock dividends.

"Note Guarantee" means the Guarantee by any Subsidiary of AREP of the
issuers' obligations under the indenture and the notes, executed pursuant to the
provisions of the indenture which initially will only be by AREH.

"Notes" means AREP's 8 1/8% senior notes issued under the indenture,
including any Additional Notes issued.

"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.

"Offering Memorandum" means the offering memorandum with respect to the
private notes dated May 6, 2004.

"Officer" means with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, an Assistant Treasurer, the Controller, the
Secretary or any Vice President of such Person.

"Officers' Certificate" means a certificate signed on behalf of API or AREP
Finance by two Officers (or if a limited liability company, two Officers of the
managing member of such limited liability company) of API or AREP Finance, one
of whom must be the principal executive officer, the principal financial
officer, the treasurer or the principal accounting officer of API or AREP
Finance that meets the requirements set forth in the indenture.

"Other Liquidated Damages" means liquidated damages arising from a
registration default under a registration rights agreement with respect to the
registration of subordinated Indebtedness permitted to be incurred under the
indenture.

"Partners' Equity" with respect to any Person means as of any date, the
partners' equity as of such date shown on the consolidated balance sheet of such
Person and its Subsidiaries or if such Person is not a partnership, the
comparable line-item on a balance sheet, each prepared in accordance with GAAP.

"Permitted Refinancing Indebtedness" means any Indebtedness of AREP or any
Guarantor issued in exchange for, or the net proceeds of which are used to
renew, refund, refinance, replace, defease or discharge other Indebtedness of
AREP or any Guarantor (other than intercompany Indebtedness); provided that:

(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness renewed, refunded,
refinanced, replaced, defeased or discharged (plus all accrued interest on
the Indebtedness and the amount of all fees and expenses, including
premiums, and Other Liquidated Damages, incurred in connection therewith);

(2) in the case of any Indebtedness other than notes redeemed in
accordance with " -- Mandatory Disposition Pursuant to Gaming Laws," such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and has a Weighted Average Life to Maturity equal to
or greater than the Weighted 

115

Average Life to Maturity of, the Indebtedness being renewed, refunded,
refinanced, replaced, defeased or discharged; and

(3) if the Indebtedness being renewed, refunded, refinanced, replaced,
defeased or discharged is subordinated in right of payment to the notes,
such Permitted Refinancing Indebtedness has a final maturity date later than
the final maturity date of, and is subordinated in right of payment to, the
notes on terms at least as favorable to the holders of notes as those
contained in the documentation governing the Indebtedness being renewed,
refunded, refinanced, replaced, defeased or discharged.

"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.

"Preferred Stock" means any Equity Interest with preferential right of
payment of dividends or upon liquidation, dissolution, or winding up.

"Preferred Units" means AREP's 5% Cumulative Pay-in-Kind Redeemable
Preferred Units payable on or before March 31, 2010.

"Preferred Unit Distribution" means the scheduled annual Preferred Unit
distribution, payable on March 31 of each year in additional Preferred Units at
the rate of 5% of the liquidation preference of $10.00 per Preferred Unit.

"Principal" means Carl Icahn.

"Principal Property" of a specified Person means any property, assets or
revenue of such Person now owned or hereafter acquired.

"Quarterly Determination Date" means, in connection with AREP's first,
second and third fiscal quarters (commencing with the second fiscal quarter of
2004), the earlier of (i) the date AREP would have been required to file a
quarterly report with the SEC on Form 10-Q if AREP were required to file such
reports and (ii) the date AREP files its quarterly report with the SEC on Form
10-Q. In connection with AREP's fourth fiscal quarter, the earlier of (i) the
date AREP would have been required to file an annual report with the SEC on Form
10-K if AREP were required to file such a report and (ii) the date AREP files
its annual report with the SEC on Form 10-K.

"Related Parties" means (1) Carl Icahn, any spouse and any child, stepchild,
sibling or descendant of Carl Icahn, (2) any estate of Carl Icahn or any person
under clause (1), (3) any person who receives a beneficial interest in any
estate under clause (2) to the extent of such interest, (4) any executor,
personal administrator or trustee who holds such beneficial interest in AREP for
the benefit of, or as fiduciary for, any person under clauses (1), (2) or (3) to
the extent of such interest and (5) any corporation, partnership, limited
liability company, trust, or similar entity, directly or indirectly owned or
Controlled by Carl Icahn or any other person or persons identified in clauses
(1), (2) or (3).

"SEC" means the United States Securities and Exchange Commission.

"Secured Indebtedness" of any specified Person means any Indebtedness
secured by a Lien upon the property of such Person.

"Securities Act" means the Securities Act of 1933, as amended.

"Significant Subsidiary" means any Subsidiary which would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such regulation is in effect on the Issuance
Date.

"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest, accreted value, or principal
prior to the date originally scheduled for the payment or accretion thereof.

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"Subordinated Indebtedness" means any Indebtedness that by its terms is
expressly subordinated in right of payment in any respect (either in the payment
of principal or interest) to the payment of principal, Liquidated Damages or
interest on the notes.

"Subsidiary" means, with respect to any specified Person:

(1) any corporation, association or other business entity of which more
than 50% of the total Voting Stock is at the time owned or Controlled,
directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person (or a combination thereof); and

(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the
only general partners of which are that Person or one or more Subsidiaries
of that Person (or any combination thereof).

For the avoidance of doubt, AREH will be deemed to be a Subsidiary of AREP
so long as AREH remains a Guarantor.

"Tangible Net Worth" of any specified Person as of any date means, the total
shareholders' equity (or if such Person were not a corporation, the equivalent
account) of such Person and its Subsidiaries on a consolidated basis determined
in conformity with GAAP less any and all goodwill and other intangible assets
reflected on the consolidated balance sheet of such Person as of the last day of
the fiscal quarter most recently completed before the date of determination for
which financial statements are then available, but taking into account any
change in total shareholders' equity (or the equivalent account) as a result of
any (x) Restricted Payments made, (y) asset sales or (z) contributions to equity
or from the issuance or sale of Equity Interests (excluding Disqualified Stock)
or from the exchange or conversion (other than to Disqualified Stock) of
Disqualified Stock or debt securities, completed since such fiscal quarter end.

"Tax Amount" means, for any period, the combined federal, state and local
income taxes, including estimated taxes, that would be payable by AREP if it
were a Delaware corporation filing separate tax returns with respect to its
Taxable Income for such period and owned 100% of AREH; provided, that in
determining the Tax Amount, the effect thereon of any net operating loss
carryforwards or other carryforwards or tax attributes, such as alternative
minimum tax carryforwards, that would have arisen if AREP were a Delaware
corporation shall be taken into account; provided, further that (1) if there is
an adjustment in the amount of the Taxable Income for any period, an appropriate
positive or negative adjustment shall be made in the Tax Amount, and if the Tax
Amount is negative, then the Tax Amount for succeeding periods shall be reduced
to take into account such negative amount until such negative amount is reduced
to zero and (2) any Tax Amount other than amounts relating to estimated taxes
shall be computed by a nationally recognized accounting firm (but, including in
any event, AREP's auditors). Notwithstanding anything to the contrary, the Tax
Amount shall not include taxes resulting from AREP's change in the status to a
corporation for tax purposes.

"Taxable Income" means, for any period, the taxable income or loss of AREP
for such period for federal income tax purposes.

"Total Unencumbered Assets" means, as of any Quarterly Determination Date,
the book value of all of the assets of AREP and any Guarantor (including,
without limitation, the Capital Stock of their Subsidiaries, but excluding
goodwill and intangibles) that do not secure, by a Lien, any portion of any
Indebtedness (other than assets secured by a Lien in favor of the notes and such
assets are not secured by a Lien in favor of any other Indebtedness) as of such
date (determined on a consolidated basis between AREP and any Guarantor but not
on a consolidated basis with their Subsidiaries and otherwise in accordance with
GAAP).

"Unsecured Indebtedness" of AREP, AREH and any additional Guarantor means
any Indebtedness of such Person that is not Secured Indebtedness.

"Voting Stock" means, with respect to any Person that is (a) a corporation,
any class or series of capital stock of such Person that is ordinarily entitled
to vote in the election of directors thereof at a meeting of stockholders called

117

for such purpose, without the occurrence of any additional event or contingency,
(b) a limited liability company, membership interests entitled to manage, or to
elect or appoint the Persons that will manage the operations or business of the
limited liability company, or (c) a partnership, partnership interests entitled
to elect or replace the general partner thereof.

"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Disqualified Stock, as the case may be, at any date, the number of years
(calculated to the nearest one-twelfth) obtained by dividing (1) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal or liquidation preference, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment,
by (2) the then outstanding principal amount or liquidation preference, as
applicable, of such Indebtedness or Disqualified Stock, as the case may be.

118

CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES

The following general discussion summarizes certain material United States
federal income tax consequences that apply to beneficial owners of the private
notes who:

(1) acquired the private notes at their original issue price for cash,

(2) exchange the private notes for new notes in this exchange offer, and

(3) held the private notes and hold the new notes as "capital assets"
(generally, for investment) as defined in the Internal Revenue Code of 1986, as
amended, the Code.

This summary, however, does not consider state, local or foreign tax laws.
In addition, it does not include all of the rules which may affect the United
States tax treatment of your investment in the notes. For example, special rules
not discussed here may apply to you if you are:

-   A broker-dealer, a dealer in securities or a financial institution;

-   An S corporation;

-   A bank;

-   A thrift;

-   An insurance company;

-   A tax-exempt organization;

-   A partnership or other pass-through entity;

-   Subject to the alternative minimum tax provisions of the Code;

-   Holding the private notes or the new notes as part of a hedge, straddle
or other risk reduction or constructive sale transaction;

-   A person with a "functional currency" other than the U.S. dollar; or

-   A United States expatriate.

If you are a partner in a partnership which holds the new notes, you should
consult your own tax advisor regarding special rules that may apply.

This summary is based on the Code and applicable Treasury Regulations,
rulings, administrative pronouncements and decisions as of the date hereof, all
of which are subject to change or differing interpretations at any time with
possible retroactive effect. We have not sought and will not seek any rulings
from the Internal Revenue Service with respect to the statements made and the
conclusions reached in this summary, and there can be no assurance that the
Internal Revenue Service will agree with such statements and conclusions.

EACH HOLDER IS URGED TO CONSULT HIS TAX ADVISOR REGARDING THE SPECIFIC
FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSIDERATIONS OF
PARTICIPATING IN THIS EXCHANGE OFFER AND HOLDING THE NEW NOTES.

EXCHANGE OF PRIVATE NOTES FOR NEW NOTES

The exchange of the private notes for the new notes pursuant to this
exchange offer should not be a taxable event for U.S. federal income tax
purposes. Accordingly, holders participating in this exchange offer should not
recognize 

119

any income, gain or loss in connection with the exchange. In addition,
immediately after the exchange, any such holder should have the same adjusted
tax basis and holding period in the new notes as it had in the private notes,
immediately before the exchange.

CONSEQUENCES OF HOLDING THE NEW NOTES

UNITED STATES HOLDERS

If you are a "United States Holder," as defined below, this section applies
to you. Otherwise, the section "Non-United States Holders," applies to you.

DEFINITION OF UNITED STATES HOLDER

You are a "United States Holder" if you are the beneficial owner of a new
note and you are, for United States federal income tax purposes:

-   a citizen or resident of the United States;

-   a corporation organized under the laws of the United States or any
political subdivision thereof;

-   an estate the income of which is subject to U.S. federal income tax
regardless of its sources; or

-   a trust if a court within the United States can exercise primary
supervision over the administration of the trust and one or more U.S.
persons has authority to control all substantial decisions of the trust,
or if the trust was in existence on August 20, 1996, and treated as a
domestic trust on August 19, 1996, and it has elected to continue to be
treated as a U.S. person.

TAXATION OF STATED INTEREST

Generally, you must include the interest on the new notes in your gross
income as ordinary income:

-   when it accrues, if you use the accrual method of accounting for United
States federal income tax purposes; or

-   when you receive it, if you use the cash method of accounting for United
States federal income tax purposes.

SALE OR OTHER TAXABLE DISPOSITION OF THE NEW NOTES

You will generally recognize taxable gain or loss on the sale, exchange,
redemption, retirement or other taxable disposition of a new note. The amount of
your gain or loss will equal the difference between the amount you receive for
the new note (in cash or other property, valued at fair market value), except to
the extent amounts received are attributable to accrued interest on the note,
and your adjusted tax basis in the new note. Your tax basis in the new note
generally will equal the price you paid for the private note that was exchanged
for the new note.

Your gain or loss will generally be long-term capital gain or loss if your
holding period for the new note is more than one year at the time of the sale,
exchange, redemption, retirement or other taxable disposition. Otherwise, it
will be short-term capital gain or loss. For this purpose, your holding period
for the new note should include your holding period for the private note that
was exchanged for the new note. Long-term capital gains recognized in years
beginning before December 31, 2008 by certain non-corporate holders are
generally taxed at a maximum rate of 15%. The ability to deduct capital losses
is subject to limitations. Payments attributable to accrued interest which you
have not yet included in income will be taxed as ordinary interest income.

120

INFORMATION REPORTING AND BACKUP WITHHOLDING

We will report to certain holders of the new notes and to the IRS the amount
of any interest paid on the new notes in each calendar year and the amounts of
tax withheld, if any, with respect to such payments. You may be subject to a
backup withholding tax when you receive interest payments on a new note or
proceeds upon the sale or other disposition of the new note. Certain holders
(including, among others, corporations, financial institutions and certain
tax-exempt organizations) are generally not subject to information reporting or
backup withholding. In addition, the backup withholding tax will not apply to
you if you provide to us or our paying agent your correct social security or
other taxpayer identification number, or TIN, in the prescribed manner unless:

-   the IRS notifies us or our paying agent that the TIN you provided is
incorrect;

-   you underreport interest and dividend payments that you receive on your
tax return and the IRS notifies us or our paying agent that withholding
is required; or

-   you fail to certify under penalties of perjury that you are not subject
to backup withholding.

The backup withholding tax rate is currently 28%.

Any amounts withheld from a payment to you under the backup withholding
rules may be credited against your United States federal income tax liability,
and may entitle you to a refund, provided the required information is properly
furnished to the Internal Revenue Service on a timely basis.

You should consult your tax advisor as to your qualification for exemption
from backup withholding and the procedures for obtaining such exemption.

NON-UNITED STATES HOLDERS

The following general discussion is limited to the United States federal
income tax consequences relevant to a "Non-United States Holder." A "Non-United
States Holder" is any beneficial owner of a new note if such owner is, for
United States federal income tax purposes, a nonresident alien, or a
corporation, estate, or trust that is not a United States Holder.

INTEREST

Portfolio Interest Exemption. You will generally not be subject to United
States federal income tax or withholding tax on interest paid or accrued on the
new notes if:

-   you do not own, actually or constructively, 10% or more of our capital
or profits interests;

-   you are not a controlled foreign corporation with respect to which we
are a "related person" within the meaning of Section 864(d)(4) of the
Code;

-   you are not a bank receiving interest described in Section 881(c)(3)(A)
of the Code;

-   such interest is not effectively connected with the conduct by you of a
trade or business in the United States; and

-   either (i) you represent that you are not a United States person for
United States federal income tax purposes and you provide your name and
address to us or our paying agent on a properly executed IRS Form W-8BEN
(or a suitable substitute form) signed under penalties of perjury, or
(ii) a securities clearing organization, bank, or other financial
institution that holds customers' securities in the ordinary course of
its business holds the new note on your behalf, certifies to us or our
paying agent under penalties of perjury that it has received IRS Form
W-8BEN (or a suitable substitute form) from you or from another
qualifying financial institution intermediary, and provides a copy of
the Form W-8BEN (or a suitable substitute form)

121

to us or our paying agent.

United States Federal Income or Withholding Tax If Interest Is Not Portfolio
Interest. If you do not claim, or do not qualify for, the benefit of the
portfolio interest exemption described above, you may be subject to a 30%
withholding tax on the gross amount of interest payments, unless reduced or
eliminated by an applicable income tax treaty.

However, income from payments or accruals of interest that is effectively
connected with the conduct by you of a trade or business in the United States
will be subject to United States federal income tax on a net basis at a rate
applicable to United States persons generally (and, if paid to corporate
holders, may also be subject to a branch profits tax at a rate of 30% or lower
applicable treaty rate). If payments are subject to United States federal income
tax on a net basis in accordance with the rules described in the preceding
sentence, such payments will not be subject to United States withholding tax so
long as you provide us or our paying agent with a properly executed IRS Form
W-8ECI.

Non-United States Holders should consult any applicable income tax treaties,
which may provide for a lower rate of withholding tax, exemption from or
reduction of the branch profits tax, or other rules different from those
described above. Generally, in order to claim any treaty benefits you must
submit a properly executed IRS Form W-8BEN.

Reporting. We may report annually to the IRS and to you the amount of
interest paid to you, and the tax withheld, if any, with respect to you.

SALE OR OTHER DISPOSITION OF NEW NOTES

You will generally not be subject to United States federal income tax or
withholding tax on gain recognized on a sale, exchange, redemption, retirement,
or other disposition of a new note unless such gain is effectively connected
with the conduct by you of a trade or business within the United States. Any
gain that is effectively connected with the conduct by you of a trade or
business within the United States will be subject to United States federal
income tax on a net basis at the rates generally applicable to United States
persons as described above.

BACKUP WITHHOLDING AND INFORMATION REPORTING

Payments From United States Office. If you receive payment of interest or
principal directly from us or through the United States office of a custodian,
nominee, agent or broker, you may be subject to both backup withholding and
information reporting.

With respect to interest payments made on the new notes, however, backup
withholding and information reporting will not apply if you certify, generally
on a Form W-8BEN (or Form W-8ECI) or suitable substitute form, that you are not
a United States person in the manner described above under the heading
"Non-United States Holders -- Interest," or you otherwise establish an
exemption.

Moreover, with respect to proceeds received on the sale, exchange,
redemption, or other disposition of a new note, backup withholding or
information reporting generally will not apply if you properly provide,
generally on Form W-8BEN (or Form W-8ECI) or a suitable substitute form, a
statement that you are an "exempt foreign person" for purposes of the broker
reporting rules, and other required information. If you are not subject to
United States federal income or withholding tax on the sale or other disposition
of a new note, as described above under the heading "Non-United States
Holders-Interest -- Sale or Other Disposition of New Notes," you will generally
qualify as an "exempt foreign person" for purposes of the broker reporting
rules.

Payments From Foreign Office. If payments of principal and interest are made
to you outside the United States by or through the foreign office of your
foreign custodian, nominee or other agent, or if you receive the proceeds of the
sale of a new note through a foreign office of a "broker," as defined in the
pertinent United States Treasury Regulations, you will generally not be subject
to backup withholding or information reporting. You will however, be subject to
backup withholding and information reporting if the foreign custodian, nominee,
agent or broker has actual knowledge or reason to know that you are a United
States person. You will also be subject to information

122

reporting, but not backup withholding, if the payment is made by a foreign
office of a custodian, nominee, agent or broker that has certain relationships
to the United States unless the broker has in its records documentary evidence
that you are a Non-United States Holder and certain other conditions are met.

Refunds. Any amounts withheld from a payment to you under the backup
withholding rules may be credited against your United States federal income tax
liability, and may entitle you to a refund, provided the required information is
properly furnished to the Internal Revenue Service on a timely basis.

The information reporting requirements may apply regardless of whether
withholding is required. Copies of the information returns reporting interest
and withholding also may be made available to the tax authorities in the country
in which a Non-United States Holder is a resident under the provisions of an
applicable income tax treaty or other agreement.

THE PRECEDING SUMMARY IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE.
PLEASE CONSULT YOUR OWN TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF
PURCHASING, HOLDING AND DISPOSING OF THE NOTES UNDER YOUR PARTICULAR
CIRCUMSTANCES.

123

PLAN OF DISTRIBUTION

Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of new notes received in exchange for old notes where
such old notes were acquired as a result of market-making activities or other
trading activities. We have agreed that, starting on the expiration date and
ending on the close of business 270 days after the expiration date (or such
shorter period during which participating broker-dealers are required by law to
deliver such prospectus), we will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until ?, all dealers effecting transactions in the new
notes may be required to deliver a prospectus.

We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such new notes. Any broker-dealer
that resells new notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit of any such resale of new notes and any
commissions or concessions received any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver, and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.

Furthermore, any broker-dealer that acquired any of its old notes directly
from us:

-   may not rely on the applicable interpretation of the staff of the
Commission's position contained in Exxon Capital Holdings Corp., SEC
no-action letter (May 13, 1988), Morgan, Stanley & Co. Inc., SEC
no-action letter (June 5, 1991) and Shearman & Sterling, SEC
no-action letter (July 2, 1983); and

-   must also be named as a selling noteholder in connection with the
registration and prospectus delivery requirements of the Securities
Act relating to any resale transaction.

For a period of 270 days after the expiration date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the letter of
transmittal. We have agreed to pay all expenses incident to the exchange offer
(including the expenses of one counsel for the holder of the old notes) other
than commissions or concessions of any brokers or dealers and will indemnify the
holders of the old notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.

124

LEGAL MATTERS

The validity of the notes offered by this prospectus and certain legal
matters in connection with the exchange offer will be passed upon for us by
Piper Rudnick LLP, New York, New York.

EXPERTS

The consolidated financial statements of American Real Estate Partners, L.P.
as of December 31, 2003 and 2002 and for each of the three years in the period
ended December 31, 2003; and the consolidated financial statements of American
Real Estate Holdings Limited Partnership as of December 31, 2003 and 2002 and
for each of the three years in the period ended December 31, 2003, 2002 and
2001; included in this prospectus, have been so included in reliance on the
reports of KPMG LLP, independent registered public accounting firm, given on the
authority of said firm as experts in accounting and auditing.

The balance sheet of American Property Investors, Inc. as of December 31, 
2003 included in this prospectus has been included in reliance on the report of 
KPMG LLP, independent accountants, given on the authority of said firm as 
experts in accounting and auditing.

On April 1, 2004, KPMG LLP advised us that it would not seek re-election as
our independent auditor for 2004, and that the client-auditor relationship
between us and KPMG has ceased. None of KPMG's reports on our consolidated
financial statements for the years ended December 31, 2003 or 2002 contained an
adverse opinion or a disclaimer of opinion, nor was any such report qualified or
modified as to uncertainty, audit scope, or accounting principles. During the
two most recent fiscal years and the interim period preceding receipt of KPMG's
letter, there were no (1) disagreements with KMPG on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of KPMG,
would have caused it to make reference to the subject matter of the
disagreements in connection with its report or (2) "reportable events" as such
term is defined in Item 304(a)(1)(v) of Regulation S-K under the Securities
Exchange Act of 1934.

Effective as of April 26, 2004, our audit committee engaged Grant Thornton
LLP as our independent public accountant. During the years ended December 31,
2002 and 2003, and from January 1, 2004 through April 26, 2004 (the date Grant
Thornton LLP was appointed), neither us nor our audit committee consulted Grant
Thornton LLP with respect to the application of accounting principles to a
specified transaction, either completed or proposed; or any matter that was
either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of
Regulation S-K) or a reportable event (as described in Item 304(a)(1)(v) of
Regulation S-K).

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other
information with the SEC under the Securities Exchange Act of 1934. The Exchange
Act file number for our SEC filings is 1-9516. You may read any document we file
at the SEC's public reference rooms at 450 Fifth Street, N.W., Washington, D.C.
20549. You may also inspect our filings at a regional public reference facility
maintained by the SEC located at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 or at 233 Broadway, New York, New York 10279.
Please call the SEC toll free at 1-800-SEC-0330 for information about its public
reference rooms. We file information electronically with the SEC. Our SEC
filings are available from the SEC's Internet site at http: //www.sec.gov.

THIS PROSPECTUS IS PART OF A REGISTRATION STATEMENT THAT WE FILED WITH THE SEC.
THE REGISTRATION STATEMENT, INCLUDING THE ATTACHED EXHIBITS AND SCHEDULES,
CONTAINS ADDITIONAL RELEVANT INFORMATION ABOUT US AND OUR COMMON STOCK. THE
RULES AND REGULATIONS OF THE SEC ALLOW US TO OMIT SOME OF THE INFORMATION
INCLUDED IN THE REGISTRATION STATEMENT FROM THIS PROSPECTUS. YOU MAY INSPECT THE
REGISTRATION STATEMENT, INCLUDING EXHIBITS, AT THE SEC'S PUBLIC REFERENCE
FACILITIES OR INTERNET SITE. OUR STATEMENTS IN THIS PROSPECTUS ABOUT THE
CONTENTS OF ANY CONTRACT OR OTHER DOCUMENT ARE NOT NECESSARILY COMPLETE. YOU
SHOULD REFER TO THE COPY OF EACH CONTRACT OR OTHER DOCUMENT WE HAVE FILED AS AN
EXHIBIT TO THE REGISTRATION STATEMENT FOR COMPLETE INFORMATION.

125

INCORPORATION OF DOCUMENTS BY REFERENCE

The SEC allows us to "incorporate by reference" into this prospectus the
information we file with it, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and
information in documents that we file later with the SEC will automatically
update and supersede information in this prospectus. We incorporate by reference
the documents listed below, and they shall be deemed to be a part hereof:

-   Annual Report on Form 10-K for the year ended December 31, 2003,
filed March 15, 2004.

-   Quarterly Report on Form 10-Q for the quarter ended March 31, 2004,
filed May 10, 2004.

-   Current Report on Form 8-K filed March 16, 2004.

-   Current Report on Form 8-K filed April 6, 2004.

-   Current Report on Form 8-K filed April 27, 2004.

-   Current Report on Form 8-K filed April 28, 2004.

-   Current Report on Form 8-K filed May 7, 2004.

-   Current Report on Form 8-K filed May 11, 2004.

-   Current Report on Form 8-K filed May 27, 2004.

-   Current Report on Form 8-K filed July 22, 2004.

All documents and reports filed by us with the SEC (other than Current
Reports on Form 8-K containing only Regulation FD disclosure furnished under
Item 9 of Form 8-K or containing other disclosure furnished under Item 12 of
Form 8-K, unless otherwise indicated therein) under Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this prospectus and prior to the
termination of this offering shall be deemed incorporated herein by reference
and shall be deemed to be part hereof from the date of filing of such documents
and reports. Any statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus shall be deemed to be modified or
superseded for purposes of this document to the extent that a statement
contained herein or in any subsequently filed document or report that also is or
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this document.

We will provide copies of these documents, other than exhibits, free of
charge, to any person, including any beneficial owner, who receives this
prospectus upon written or oral request of such person. To request a copy, you
should contact us at our headquarters which are located at 100 South Bedford
Road, Mt. Kisco, New York 10549, Attention: Chief Financial Officer.

126

INDEX TO FINANCIAL STATEMENTS

American Real Estate Partners, L.P.
Report of Independent Registered Public Accounting Firm................................................................      F-2
Consolidated Balance Sheets as of March 31, 2004 (unaudited) and as of December 31, 2003 and 2002......................      F-3
Consolidated Statements of Earnings for the three months ended March 31, 2004 and 2003 (unaudited) and for the years
ended December 31, 2003, 2002 and 2001...............................................................................      F-4
Consolidated Statements of Changes in Partners' Equity and Comprehensive Income for the three months ended March 31,
2004 and 2003 (unaudited) and for the years ended December 31, 2003, 2002 and 2001...................................      F-5
Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003 (unaudited) and for the years
ended December 31, 2003, 2002 and 2001...............................................................................      F-6
Notes to Consolidated Financial Statements.............................................................................      F-8

American Real Estate Holdings Limited Partnership
Report of Independent Registered Public Accounting Firm................................................................      F-36
Consolidated Balance Sheets as of March 31, 2004 (unaudited) and as of December 31, 2003 and 2002......................      F-37
Consolidated Statements of Earnings for the three months ended March 31, 2004 and 2003 (unaudited) and for the years
ended December 31, 2003, 2002 and 2001...............................................................................      F-38
Consolidated Statements of Changes in Partners' Equity and Comprehensive Income for the three months ended March 31,
2004 and 2003 (unaudited) and for the years ended December 31, 2003, 2002 and 2001...................................      F-39
Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003 (unaudited) and for the years
ended December 31, 2003, 2002 and 2001...............................................................................      F-40
Notes to Consolidated Financial Statements.............................................................................      F-42

American Property Investors, Inc.
Independent Auditors' Report...........................................................................................      F-66
Balance Sheet as of December 31, 2003..................................................................................      F-67
Notes to Balance Sheet.................................................................................................      F-68

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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, 2003 and 2002,
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, 2003. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Real Estate Partners, L.P. and subsidiaries as of December 31, 2003 and 2002 and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2003 in conformity with U.S. generally
accepted accounting principles.

/s/ KPMG LLP

New York, New York
March 12, 2004

F-2

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
MARCH 31, 2004 (UNAUDITED) AND DECEMBER 31, 2003 AND 2002
(IN $000'S EXCEPT PER UNIT AMOUNTS)

DECEMBER 31,
MARCH 31,       ------------------------------
2004              2003              2002
------------      ------------      ------------
(UNAUDITED)
(IN $000'S EXCEPT PER UNIT AMOUNTS)

ASSETS
Real estate leased to others:
Accounted for under the financing method (Notes 4, 14 and 15) ............     $    131,413      $    137,356      $    155,458
Accounted for under the operating method, net of accumulated depreciation            
(Notes 5, 14 and 15) ....................................................           76,127            76,443           204,242
Properties held for sale (Notes 5 and 14) .................................          148,878           128,813             4,300
Investment in U.S. Government and Agency obligations (Note 6) .............          122,650            61,573           336,051
Note receivable due from affiliate (Note 12) ..............................               --                --           250,000
Cash and cash equivalents (Note 2) ........................................          483,872           467,704            54,871
Marketable equity and debt securities (Note 7) ............................           47,584            80,522            26,728
Mortgages and notes receivable (Note 11) ..................................          104,745            50,328            56,216
Investment in NEG Holding LLC (Note 10) ...................................           77,250            69,346           108,880
Equity interest in GB Holdings, Inc. (Note 8) .............................           29,766            30,854            37,280
Hotel, casino and resort operating properties net of accumulated
depreciation: Stratosphere Corporation hotel and casino (Note 9) ........          171,405           174,249           171,430
Hotel and resort (Notes 5 and 13) ........................................           35,358            41,526            44,346
Land and construction-in-progress .........................................           43,708            43,459            40,415
Deferred tax asset (Note 20) ..............................................           80,835            82,450            25,522
Restricted cash ...........................................................          219,313                --                --
Receivables and other assets ..............................................           54,053            45,307            44,737
------------      ------------      ------------
Total ...................................................................     $  1,826,957      $  1,489,930      $  1,560,476
============      ============      ============
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable (Notes 4, 5 and 15):
Real estate leased to others .............................................     $     96,778      $     98,128      $    171,848
Properties held for sale .................................................           82,473            82,861                --
------------      ------------      ------------
179,251           180,989           171,848
Senior secured notes payable (Notes 17 and 27) ............................          215,000                --                --
Liability for purchase of debt securities .................................           54,769                --                --
Credit facility due affiliates (Notes 10 and 16) ..........................               --                --            10,940
Senior notes due affiliates (Notes 10 and 16) .............................               --                --           148,637
Interest payable-senior notes (Note 16) ...................................               --                --            44,360
Accounts payable, accrued expenses and other liabilities ..................           60,315            53,844            54,515
Preferred limited partnership units:
$10 liquidation preference, 5% cumulative pay-in-kind; 10,400,000 and
9,900,000 authorized; 10,286,264 and 9,796,607 issued and outstanding as
of March 31, 2004 and December 31, 2003, respectively (Note 18 and 19) ..          102,863           101,649                --
------------      ------------      ------------
612,198           336,482           430,300
------------      ------------      ------------
Commitments and contingencies (Notes 3 and 23) 
Limited partners:
Preferred units, $10 liquidation preference, 5% cumulative pay-in-kind
redeemable; 9,400,000 authorized; 9,330,963 issued and outstanding as of
December 31, 2002 (Note 18) .............................................               --                --            96,808
Depositary units; 47,850,000 authorized; 47,235,484 outstanding ..........        1,244,960         1,184,870         1,071,857
General partner ...........................................................          (18,280)          (19,501)          (26,568)
Treasury units at cost:
1,137,200 depositary units (Note 26) ......................................          (11,921)          (11,921)          (11,921)
------------      ------------      ------------
Partners' equity (Notes 2 and 3) ..........................................        1,214,759         1,153,448         1,130,176
------------      ------------      ------------
Total ...................................................................     $  1,826,957      $  1,489,930      $  1,560,476
============      ============      ============

See notes to consolidated financial statements.

F-3

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED) AND YEARS
ENDED DECEMBER 31, 2003, 2002 AND 2001
(IN $000'S EXCEPT PER UNIT AMOUNTS)

THREE MONTHS ENDED
MARCH 31,                       YEARS ENDED DECEMBER 31,
----------------------------    --------------------------------------------
2004            2003            2003            2002            2001
------------    ------------    ------------    ------------    ------------
(UNAUDITED)

Revenues:
Hotel and casino operating income (Note 9) .......   $     45,715    $     40,642    $    163,701    $    156,315    $    144,354
Land, house and condominium sales ................          5,014           4,860          13,265          76,024          55,566
Interest income on financing leases ..............          2,936           3,418          13,115          14,722          16,935
Interest income on U.S. Government and Agency
obligations and other investments (Notes 11
and 12) .........................................          4,883           4,560          22,543          30,344          30,367
Rental income ....................................          3,161           2,810          11,636          10,516          10,431
Hotel and resort operating income (Note 13) ......          2,104           2,073          14,592          14,918          12,276
Accretion of investment in NEG Holding LLC
(Note 10) .......................................          7,904           8,750          30,142          32,879           9,834
Oil and gas operating income .....................             --              --              --              --          33,176
NEG management fee ...............................          2,619           1,874           7,967           7,637           2,699
Dividend and other income (Notes 7 and 11) .......            834             900           3,061           2,720           4,877
Equity in earnings (loss) of GB Holdings,
Inc. (Note 8) ...................................           (348)           (857)         (3,466)            305           1,807
------------    ------------    ------------    ------------    ------------
74,822          69,030         276,556         346,380         322,322
------------    ------------    ------------    ------------    ------------
Expenses:
Hotel and casino operating expenses (Note 9) .....         34,019          32,709         135,429         131,659         127,956
Cost of land, house and condominium sales ........          3,358           4,103           9,129          54,640          42,599
Hotel and resort operating expenses (Note 13) ....          2,097           2,265          11,138          12,553          10,792
Interest expense (Notes 7, 14, 15 and 17) ........          5,919           6,361          20,640          27,369          34,765
Oil and gas operating expenses ...................             --              --              --              --           5,569
Depreciation and amortization ....................          5,092           4,605          17,773          17,613          20,814
General and administrative expenses (Note 3) .....          4,364           3,372          14,081          14,134          13,011
Property expenses ................................          1,184           1,091           5,475           4,682           3,028
------------    ------------    ------------    ------------    ------------
56,033          54,506         213,665         262,650         258,534
------------    ------------    ------------    ------------    ------------
Operating income ..................................         18,789          14,524          62,891          83,730          63,788
Other gains and (losses):
Provision for loss on real estate ................             --            (200)           (750)         (3,212)         (3,184)
Gain on sale of marketable equity and debt
securities ......................................         28,857              --           2,607              --           6,749
Write-down of equity securities available for
sale (Note 7) ...................................             --            (961)           (961)         (8,476)             --
Write-down of mortgages and notes receivable
(Note 7) ........................................             --              --         (18,798)             --              --
Gain on sales and disposition of real estate
(Note 14) .......................................          6,047           1,138           7,121           8,990           1,737
Loss on limited partnership interests ...........             --              --              --          (3,750)             --
Minority interest in net earnings of
Stratosphere Corporation (Note 9) ...............             --              --              --          (1,943)           (450)
------------    ------------    ------------    ------------    ------------
Income from continuing operations before
income taxes ....................................         53,693          14,501          52,110          75,339          68,640
Income tax benefit (expense) (Note 20) ...........         (4,302)         (2,878)          6,495          (7,480)         30,077
------------    ------------    ------------    ------------    ------------
Income from continuing operations ................         49,391          11,623          58,605          67,859          98,717
------------    ------------    ------------    ------------    ------------
Discontinued operations:
Income from discontinued operations ..............          2,458           1,629           6,139           6,007           6,117
Gain on sales and disposition of real estate .....          6,929              --           3,353              --              --
------------    ------------    ------------    ------------    ------------
Income from discontinued operations ...............          9,387           1,629           9,492           6,007           6,117
------------    ------------    ------------    ------------    ------------
Net earnings ......................................   $     58,778    $     13,252    $     68,097    $     73,866    $    104,834
============    ============    ============    ============    ============
Net earnings attributable to (Note 3):
Limited partners ................................   $     57,608    $     10,274    $     59,360    $     63,168    $     66,190
General partners ................................          1,170           2,978           8,737          10,698          38,644
------------    ------------    ------------    ------------    ------------
$     58,778    $     13,252    $     68,097    $     73,866    $    104,834
============    ============    ============    ============    ============
Net earnings per limited partnership unit (Note 2):
Basic earnings:

Income from continuing operations ...............   $       1.05    $       0.17    $       1.03    $       1.15    $       1.21
Income from discontinued operations .............           0.20            0.03            0.20            0.12            0.13
------------    ------------    ------------    ------------    ------------
Basic earnings per LP unit .......................   $       1.25    $       0.20    $       1.23    $       1.27    $       1.34
============    ============    ============    ============    ============
Weighted average limited partnership units
outstanding .....................................     46,098,284      46,098,284      46,098,284      46,098,284      46,098,284
============    ============    ============    ============    ============
Diluted earnings:
Income from continuing operations ...............   $       0.94    $       0.15    $       0.96    $       1.02    $       1.09
Income from discontinued operations .............           0.18            0.03            0.17            0.10            0.10
------------    ------------    ------------    ------------    ------------
Diluted earnings per LP unit .....................   $       1.12    $       0.18    $       1.13    $       1.12    $       1.19
============    ============    ============    ============    ============
Weighted average limited partnership units and
equivalent partnership units outstanding ........     52,499,303      55,641,655      54,489,943      56,466,698      55,599,112
============    ============    ============    ============    ============

See notes to consolidated financial statements.

F-4

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS'
EQUITY AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2004 (UNAUDITED) AND YEARS ENDED
DECEMBER 31, 2003, 2002 AND 2001
(IN $000'S EXCEPT PER UNIT AMOUNTS)

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

Balance, December 31, 2000 (as previously
reported) ..................................   $   22,498    $  944,340    $   87,808    $  (11,921)        1,137   $1,042,725
NEG, Inc. acquisition (Note 1) ...............     (119,705)           --            --            --            --     (119,705)
----------    ----------    ----------    ----------    ----------   ----------
Balance, December 31, 2000 (Restated) ........      (97,207)      944,340        87,808       (11,921)        1,137      923,020
Comprehensive income:
Net earnings .................................       38,644        66,190            --            --            --      104,834
Reversal of unrealized loss on sale of debt
securities .................................           78         3,818            --            --            --        3,896
Net unrealized losses on securities available
for sale ...................................         (269)      (13,257)           --            --            --      (13,526)
----------    ----------    ----------    ----------    ----------   ----------
Comprehensive income .........................       38,453        56,751            --            --            --       95,204
Pay-in-kind distribution (Note 18) ...........           --        (4,390)        4,390            --            --           --
----------    ----------    ----------    ----------    ----------   ----------
Balance, December 31, 2001 (Restated) ........      (58,754)      996,701        92,198       (11,921)        1,137    1,018,224
Comprehensive income:
Net earnings .................................       10,698        63,168            --            --            --       73,866
Reversal of unrealized loss on sale of debt
securities .................................          211        10,384            --            --            --       10,595
Adjustment to reverse unrealized loss on
investment securities reclassified to notes
receivable .................................          131         6,451            --            --            --        6,582
Net unrealized losses on securities available
for sale ...................................           (5)         (237)           --            --            --         (242)
----------    ----------    ----------    ----------    ----------   ----------
Comprehensive income .........................       11,035        79,766            --            --            --       90,801
Net adjustment for acquisition of minority
interest (Note 9(a)) .......................       21,151            --            --            --            --       21,151
Pay-in-kind distribution (Note 18) ...........           --        (4,610)        4,610            --            --           --
----------    ----------    ----------    ----------    ----------   ----------
Balance, December 31, 2002 (Restated) ........      (26,568)    1,071,857        96,808       (11,921)        1,137    1,130,176
Comprehensive income:
Net earnings .................................        8,737        59,360            --            --            --       68,097
Reversal of unrealized loss on sale of debt
securities .................................           15           746            --            --            --          761
Net unrealized gains on securities available
for sale ...................................          183         8,991            --            --            --        9,174
Sale of marketable equity securities available
for sale ...................................           (6)         (274)           --            --            --         (280)
----------    ----------    ----------    ----------    ----------   ----------
Comprehensive income .........................        8,929        68,823            --            --            --       77,752
Pay-in-kind distribution (Note 18) ...........           --        (2,391)        2,391            --            --           --
Recognition of deferred tax asset at date of
bankruptcy (Note 20) .......................          946        46,581            --            --            --       47,527
Capital distribution (Note 1) ................       (2,808)           --            --            --            --       (2,808)
Reclassification of Preferred LP units to
liabilities (Note 18) ......................           --            --       (99,199)           --            --      (99,199)
----------    ----------    ----------    ----------    ----------   ----------
Balance, December 31, 2003 ...................   $  (19,501)   $1,184,870    $       --    $  (11,921)        1,137   $1,153,448
==========    ==========    ==========    ==========    ==========   ==========
Comprehensive income (unaudited):
Net earnings ...............................        1,170        57,608            --            --            --       58,778
Reversal of unrealized gains on marketable
securities sold ..........................          (97)       (4,803)           --            --            --       (4,900)
Net unrealized gains on securities available
for sale .................................          148         7,285            --            --            --        7,433
----------    ----------    ----------    ----------    ----------   ----------
Comprehensive income .........................        1,221        60,090            --            --            --       61,311
----------    ----------    ----------    ----------    ----------   ----------
Balance, March 31, 2004 (unaudited) ..........   $  (18,280)   $1,244,960    $       --    $  (11,921)        1,137   $1,214,759
==========    ==========    ==========    ==========    ==========   ==========

Accumulated other comprehensive gain (loss) at March 31, 2004 (unaudited),
December 31, 2003, 2002 and 2001 was $11,707, $9,174, ($242) and ($17,178),
respectively.

See notes to consolidated financial statements.

F-5

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED) AND YEARS
ENDED DECEMBER 31, 2003, 2002 AND 2001
(IN $000'S EXCEPT PER UNIT AMOUNTS)

THREE MONTHS ENDED
MARCH 31,                   YEARS ENDED DECEMBER 31,
------------------------    --------------------------------------
2004          2003          2003          2002          2001
----------    ----------    ----------    ----------    ----------
(UNAUDITED)

Cash flows from operating activities:
Income from continuing operations ................   $   49,391    $   11,623    $   58,605    $   67,859    $   98,717
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization ...................        5,092         4,605        17,773        17,613        20,814
Preferred LP interest expense ...................        1,225            --         2,450            --            --
Gain on sale of marketable equity securities ....      (28,857)           --        (2,607)           --        (6,749)
Gain on sales and disposition of real estate ....       (6,047)       (1,138)       (7,121)       (8,990)       (1,737)
Loss on limited partnership interests ...........           --            --            --         3,750            --
Provision for loss on real estate ...............           --           200           750         3,212         3,184
Write-down of equity securities available for
sale ...........................................           --           961           961         8,476            --
Write-down of mortgages and notes receivable ....           --            --        18,798            --            --
Minority interest in net earnings of
Stratosphere Corporation .......................           --            --            --         1,943           450
Equity in (earnings) losses of GB Holdings, Inc .          348           857         3,466          (305)       (1,807)
Deferred gain amortization ......................         (510)         (510)       (2,038)       (2,038)         (849)
Accretion of investment in NEG Holding LLC ........       (7,904)       (8,750)      (30,142)      (32,879)       (9,834)
Deferred income tax (benefit) expense ...........        1,615         1,491        (7,147)        7,480       (30,077)
Change in fair market value of derivative
contracts ......................................           --            --            --            --           716
Changes in operating assets and liabilities:
(Increase) decrease in land and
construction-in-progress .....................         (455)        1,755        (6,556)       24,215         7,753
(Decrease) increase in accounts payable,
accrued expenses and other liabilities .......       10,532       (34,327)      (40,503)       (3,037)       (1,359)
Decrease in receivables and other assets ......      (12,302)         (442)        1,424         4,068         4,570
----------    ----------    ----------    ----------    ----------
Net cash provided by continuing operations ....       12,128       (23,675)        8,113        91,367        83,792
----------    ----------    ----------    ----------    ----------
Income from discontinued operations ..............        9,387         1,629         9,492         6,007         6,117
Depreciation and amortization ...................           18         1,028         4,212         3,616         3,383
Net gain from property transactions .............       (6,929)           --        (3,353)           --            --
----------    ----------    ----------    ----------    ----------
Net cash provided by discontinued operations ...        2,476         2,657        10,351         9,623         9,500
----------    ----------    ----------    ----------    ----------
Net cash provided by (used in) operating
activities ...................................       14,604       (21,018)       18,464       100,990        93,292
----------    ----------    ----------    ----------    ----------
Cash flows from investing activities:
Increase in mortgages and notes receivable .......           --       (30,963)      (31,112)      (23,200)      (15,583)
Repayments of mortgages and notes receivable .....          351            --        12,200        23,000            --
Net proceeds from the sales and disposition of
real estate .....................................       11,346         3,279        15,290        20,513         3,656
Principal payments received on leases accounted
for under the financing method ..................        1,112         1,386         5,310         5,941         6,858
Additions to hotel, casino and resort operating
property .......................................       (1,181)       (1,139)      (19,734)       (4,577)      (62,662)
Acquisitions of rental real estate ...............      (14,583)           --            --       (18,226)           --
Additions to rental real estate ..................         (166)          (76)         (413)         (181)       (1,064)
Decrease (increase) in investment in U.S.         
Government and Agency Obligations (Note 2) ......      (61,077)       15,398       274,478       (22,410)      162,046
Disposition of marketable equity & debt securities       64,471            --         3,843            --        17,929
Disposition proceeds on sale mortgages and notes
receivable ......................................           --            --         2,621            --            --
Increase in marketable equity & debt securities ..           --            --       (45,140)       (4,415)           --
Decrease (increase) in note receivable from
affiliate .......................................           --            --       250,000            --      (250,000)
Decrease in minority interest in Stratosphere Corp           --            --            --       (44,744)           --
Decrease in investment in Stratosphere Corp ......           --            --           788            --            --
Investment in NEG, Inc ...........................           --            --      (148,101)           --            --
Investment in NEG Holding LLC ....................           --            --            --            --        (4,379)
Guaranteed payment from NEG Holding LLC ..........           --         2,250        18,229        21,653         3,625
Priority distribution from NEG Holding LLC .......           --        40,506        40,506            --            --
Oil and natural gas acquisition, exploration and
development expenditures ........................           --            --            --            --       (26,432)
Increase (decrease) in due to affiliate ..........           --            --            --       (68,815)       (8,716)
Increase in investment in joint ventures .........           --            --            --            --        (5,856)
Increase in restricted cash ......................     (219,313)           --            --            --            --
Other ............................................          (50)          134           589           197           (29)
----------    ----------    ----------    ----------    ----------
Net cash provided by (used in) continuing
operations ...................................     (219,090)       30,775       379,354      (115,264)     (180,607)
Cash flows from discontinued operations:
Net proceeds from the sales and disposition of
real estate ..................................        7,392            --         5,336            --            --
----------    ----------    ----------    ----------    ----------
Net cash provided by (used in) investing
activities ...................................     (211,698)       30,775       384,690      (115,264)     (180,607)
----------    ----------    ----------    ----------    ----------

See notes to consolidated financial statements.

F-6

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)

THREE MONTHS ENDED
MARCH 31,                    YEARS ENDED DECEMBER 31,
------------------------    --------------------------------------
2004          2003          2003          2002          2001
----------    ----------    ----------    ----------    ----------
(UNAUDITED)

Cash Flows From Financing Activities:
Debt:
Proceeds from Senior Secured Notes Payable ............      215,000            --            --            --            --
Repayment of credit facility ..........................           --            --            --            --       (25,000)
Proceeds from credit facility .........................           --            --            --            --        10,940
Repayment of senior notes .............................           --            --            --            --       (10,500)
Proceeds from mortgages payable .......................           --            --        20,000        12,700            --
Payments on mortgages payable .........................           --            --        (3,837)         (462)       (6,457)
Periodic principal payments ...........................       (1,738)       (2,036)       (6,484)       (7,198)       (6,840)
Balloon payments ......................................           --            --            --            --        (1,756)
----------    ----------    ----------    ----------    ----------
Net cash provided by (used in) financing activities ..      213,262        (2,036)        9,679         5,040       (39,613)
----------    ----------    ----------    ----------    ----------
Net increase (decrease) in cash and cash equivalents ....       16,168         7,721       412,833        (9,234)     (126,928)
Cash and cash equivalents, beginning of year ............      467,704        54,761        54,871        64,105       191,033
----------    ----------    ----------    ----------    ----------
Cash and cash equivalents at end of year ................   $  483,872    $   62,482    $  467,704    $   54,871    $   64,105
==========    ==========    ==========    ==========    ==========
Supplemental information:
Cash payments for interest, net of amounts capitalized    $    4,766    $   46,554    $   62,324    $   36,646    $   51,910
==========    ==========    ==========    ==========    ==========
Cash payments for income taxes ........................   $       --    $       --    $       --    $       --    $    1,200
==========    ==========    ==========    ==========    ==========
Supplemental schedule of noncash investing and financing
activities:
Reclassification of real estate to operating lease ......   $       --    $    2,158    $    5,065    $   13,403    $    3,082
Reclassification from hotel and resort operating
properties ............................................       (6,395)           --            --            --        (1,167)
Reclassification of real estate from financing lease ....           --        (2,158)       (5,065)      (13,503)       (9,754)
Reclassification of real estate from operating lease ....      (14,353)           --      (126,263)           --            --
Reclassification of real estate to property held for sale       20,748            --       126,263           100         6,672
Decrease in mortgages and notes receivable ..............           --        (3,453)       (3,453)           --            --
Decrease in deferred income .............................           --         2,565         2,565            --            --
Increase in real estate accounted for under the
operating method ......................................           --           888           888            --            --
Reclassification of real estate to (from)
construction-in-progress ..............................           --            --            --            --         1,167
Reclassification from marketable equity and debt
securities ............................................           --            --            --       (20,494)           --
Reclassification from receivable and other assets .......           --        (1,631)       (1,631)           --            --
Reclassification to mortgages and notes receivable ......           --         1,631         1,631        20,494            --
----------    ----------    ----------    ----------    ----------
$       --    $       --    $       --    $       --    $       --
==========    ==========    ==========    ==========    ==========
Net unrealized gains (losses) on securities available
for sale ..........................................       $    2,378    $    1,165    $    9,174    $     (242)   $  (13,526)
==========    ==========    ==========    ==========    ==========
Increase in equity and debt securities ..............       $       --    $       --    $    1,200    $    2,890    $    2,500
==========    ==========    ==========    ==========    ==========
Purchase of debt securities .........................       $   54,769    $       --    $       --    $       --    $       --
==========    ==========    ==========    ==========    ==========
Contribution of note from NEG Holding LLC ...........       $       --    $   10,940    $   10,940    $       --    $       --
==========    ==========    ==========    ==========    ==========
Transfer of assets and liabilities to NEG Holding LLC       $       --    $       --    $       --    $       --    $   87,066
==========    ==========    ==========    ==========    ==========

See notes to consolidated financial statements

F-7

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 (UNAUDITED) AND DECEMBER 31, 2003, 2002 AND 2001

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. The General Partner is owned and controlled by Mr.
Carl C. Icahn ("Icahn" or "Mr. Icahn").

On August 16, 1996 the Company amended its Partnership Agreement to permit
non-real estate related acquisitions and investments which has allowed and
continues to permit the Company to take advantage of investment opportunities it
believes exist outside of the real estate market in order to seek to enhance
unitholder value and further diversify its assets. 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 portion of the Company's
assets invested in any one type of security or any single issuer will not be
limited.

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 (the "1940
Act"). Generally, this means that no more than 40% of the Company's total assets
will be invested in investment securities as such is defined in the 1940 Act. In
addition, the Company does not intend to invest in securities as its primary
business and 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, (iv) participation
and management of oil and gas operating properties and (v) investment in
securities including investment in other entities and marketable equity and debt
securities.

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. In December 2002, the Company
purchased the remaining 49% minority interest. See Note 9.

In October 2003, the Company acquired certain debt and equity securities
of National Energy Group, Inc. ("NEG") from entities affiliated with Icahn for
an aggregate consideration of $148.1 million. NEG owns a 50% interest in NEG
Holding LLC ("Holding LLC") which owns oil and gas properties managed by NEG.
The other 50% interest in Holding LLC is held by an Icahn affiliate and managing
member. In connection with the acquisition of stock in NEG, the excess of cash
disbursed over the historical cost which amounted to $2.8 million was charged to
the General Partner's equity.

In accordance with generally accepted accounting principles, assets
transferred between entities under common control are 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 are
restated on a combined basis. There is no minority interest allocated to the
other NEG stockholders because of NEG's negative equity. See Note 10.

F-8

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Statements and Principles of Consolidation -- The consolidated
financial statements are prepared in accordance with accounting principles
generally accepted in the United States 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 in 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: 6,401,019 and 9,543,371 in the three months ended March 31, 2004 and
2003 (unaudited), respectively, and 8,391,659, 10,368,414 and 9,500,828 limited
partnership units for the years ended December 31, 2003, 2002 and 2001,
respectively, to reflect the effects of the conversion of preferred units.

For accounting purposes, NEG's earnings prior to the NEG acquisition in
October 2003 have been allocated to the General Partner and therefore excluded
from the computation of basic and diluted earnings per limited partnership unit.

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
March 31, 2004 (unaudited), December 31, 2003 and 2002 are investments in
government backed securities of approximately $416,000,000, $378,000,000 and
$5,467,000, 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. Investments 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 or available for
sale 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 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

a. 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.

b. The Company has provided development financing for certain real
estate projects. The security for these loans is either a second mortgage or a
pledge of the developers' ownership interest in the properties. Such loans are
subordinate to construction financing and are generally referred to as mezzanine
loans. Current mezzanine loans accrue interest at approximately 22% per annum.
Generally interest is not paid periodically but is due at maturity or earlier
from unit sales or refinancing proceeds. The Company defers recognition of
interest income on mezzanine loans pending receipt of principal and interest
payments.

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 and NEG, the
Company's corporate subsidiaries, account for their 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

F-9

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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. A property is classified as held for sale at the time
management determines that the criteria in SFAS 144 have been met. Properties
held for sale are carried at the lower of cost or net realizable value. Such
properties are no longer depreciated and their operations are included in
discontinued operations.

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. The more
significant estimates include the valuation of (i) long-lived assets, (ii)
mortgages and notes receivable, (iii) marketable equity and debt securities,
(iv) costs to complete for land, house and condominium developments, (v)
gaming-related liability and loyalty programs and (vi) deferred tax assets.

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".

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.

F-10

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Investment in NEG Holding LLC -- Due to the substantial uncertainty
that the Company will receive any distribution above the priority and guaranteed
payment amounts, the Company accounts for its investment in Holding LLC as a
preferred investment whereby guaranteed payment amounts received and receipts of
the priority distribution amount are recorded as reductions in the investment
and income is recognized from accretion of the investment up to the priority
distribution amount, including the guaranteed payments (based on the interest
method) (see Note 10). Following receipt of the guaranteed payments and priority
distributions, the residual interest in the investment will be valued at zero.

The Company periodically evaluates the propriety of the carrying amount
of its investment in Holding LLC to determine whether current events or
circumstances warrant adjustments to the carrying value and/or revisions to
accretion of income. The Company currently believes that no such impairment has
occurred and that no revision to the accretion of income is warranted.

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. In May 2003, the FASB issued SFAS 150 "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
150 is effective at the beginning of the first interim period beginning after
June 15, 2003. The Company adopted SFAS 150 on July 1, 2003 and has reclassified
its preferred units to a liability account. See Note 18.

2. In January 2003, the FASB issued FASB Interpretation 46 (revised
December 2003), Consolidation of Variable Interest Entities, which addresses how
a business enterprise should evaluate whether it has a controlling financial
interest in an entity through means other than voting rights and accordingly
should consolidate the entity. FIN 46R, issued in December 2003 as a revision to
the original interpretation, clarifies the application of ARB 51, Consolidated
Financial Statements, to certain entities in which the equity investors do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support.

The Company is required to apply FIN 46R to variable interests created
after January 2003. For variable interest entities created prior to January
2003, for which FIN 46 has not been applied prior to December 24, 2003, the
interpretation will be applied in reporting periods ending after March 15, 2004.

The Company has an investment in a variable interest entity, which owns
oil and natural gas operating properties. The variable interest entity has net
assets of $161 million. The Company has determined that it is not the primary
beneficiary of the variable interest entity. The maximum exposure to losses as a
result of its involvement with the variable interest entity is $69 million.

3.    RELATED PARTY TRANSACTIONS

a. On January 5, 2004, American Casino & Entertainment Properties LLC
("American Casino"), an indirect wholly-owned subsidiary of the Company, entered
into an agreement to acquire two Las Vegas casino/hotels, Arizona Charlie's
Decatur and Arizona Charlie's Boulder from Mr. Icahn and an entity affiliated
with Mr. Icahn, for an aggregate consideration of $125.9 million. Mr. Icahn

F-11

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

is Chairman of the Board of American Property Investors, Inc., AREP's General
Partner ("API" or the "General Partner"). The closing of the acquisition is
subject to certain conditions, including among other things, obtaining all
approvals necessary under the gaming laws. The terms of the transactions were
approved by the Audit Committee of the Board of Directors of the General Partner
("Audit Committee") which was advised by its independent financial advisor and
by counsel. See Note 9.

b. At December 31, 2002, the Company had a $250 million note receivable
from Mr. Icahn, Chairman of the General Partner, which was repaid in October
2003. (See Note 12).

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
paid $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. For the three months ended March 31, 2004 and 2003 (unaudited),
the Company paid rent of approximately $39,000 and $37,000, respectively. In the
years ended December 31, 2003, 2002 and 2001, the Company paid such affiliate
approximately $159,000, $153,000 and $147,000 of rent, respectively, in
connection with this licensing agreement. The terms of such sublease were
reviewed and approved by the Audit Committee. The agreement expires in May 2004.
If the Company must vacate the space, it believes there will be adequate
alternative space available.

d. Stratosphere received as reimbursement from affiliates of the
General Partner approximately $0.8 million and $0.6 million in the three months
ended March 31, 2004 and 2003 (unaudited), respectively, and $2,993,000,
$1,675,000 and $1,343,000 in the years ended December 31, 2003, 2002 and 2001,
respectively, for administrative services performed by Stratosphere personnel.

Stratosphere received hotel revenue of approximately $3,000, $123,000
and $600,000 in the years ended December 31, 2003, 2002 and 2001, respectively,
in connection with a tour and travel agreement entered into with an affiliate of
the General Partner. Stratosphere also received approximately $101,000 in hotel
and food revenue from an affiliate of the General Partner in the year ended
December 31, 2003 in connection with a conference held at Stratosphere.
Stratosphere did not receive any revenue from affiliates of the General Partner
during the quarters ended March 31, 2004 and 2003 (unaudited).

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 quarter
ended March 31, 2004 (unaudited) and the years ended December 31, 2003, 2002,
and 2001.

f. NEG received management fees from an affiliate of approximately $2.6
million and $1.9 million in the three months ended March 31, 2004 and 2003
(unaudited), respectively, and $7,967,000, $7,637,000 and $2,699,000 in the
years ended December 31, 2003, 2002 and 2001, respectively.

g. NEG entered into an agreement to manage TransTexas Gas Corporation,
an Icahn affiliate, for a fee of $312,500 per month.

h. For the three months ended March 31, 2004 (unaudited) and for the
year ended December 31, 2003, the Company paid approximately $39,000 and
$81,000, respectively, to an affiliate of the General Partner for
telecommunication services.

i. See Note 9(b) in connection with the acquisition of Arizona
Charlie's Decatur and Arizona Charlies Boulder from Icahn

F-12

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and an entity affiliated with Mr. Icahn.

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,
MARCH 31,     -------------------------
2004           2003           2002
----------     ----------     ----------
(UNAUDITED)

Minimum lease payments receivable     $  156,066     $  161,785     $  180,943
Unguaranteed residual value .....         70,722         74,651         87,160
----------     ----------     ----------
226,788        236,436        268,103
Less unearned income ............         95,375         99,080        112,645
----------     ----------     ----------
$  131,413     $  137,356     $  155,458
==========     ==========     ==========

The following is a summary of the anticipated future receipts of the
minimum lease payments receivable at December 31, 2003 in ($000's):

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

2004............    $  17,797
2005............       15,686
2006............       15,491
2007............       14,577
2008............       13,221
Thereafter......       85,013
---------
$ 161,785
=========

At December 31, 2003, approximately $107,543,000 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

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

DECEMBER 31,
MARCH 31,     -------------------------
2004           2003           2002
----------     ----------     ----------
(UNAUDITED)

Land ........................     $   18,523     $   24,040     $   55,034
Commercial Buildings ........         72,079         83,252        194,521
----------     ----------     ----------
90,602        107,292        249,555
Less accumulated depreciation         14,475         30,849         45,313
----------     ----------     ----------
$   76,127     $   76,443     $  204,242
==========     ==========     ==========

As of December 31, 2003 and 2002, accumulated depreciation on the hotel
and resort operating properties (not included above) amounted to approximately
$12,341,000 and $9,665,000, respectively (See Note 13).

F-13

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a summary of the anticipated future receipts of
minimum lease payments under non-cancelable leases at December 31, 2003 (in
$000's):

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

2004........       $  9,967
2005........          8,802
2006........          5,443
2007........          3,874
2008........          2,810
Thereafter..          5,799
--------
$ 36,695
========

At December 31, 2003, approximately $15,630,000 of net real estate
leased to others was pledged to collateralize the payment of non-recourse
mortgages payable.

b. Real estate held for sale (in $000's):

DECEMBER 31,
MARCH 31,     -------------------------
2004           2003           2002
----------     ----------     ----------
(UNAUDITED)

Leased to others ............     $  182,195     $  146,416     $       --
Vacant ......................          2,100          2,550          4,300
----------     ----------     ----------
184,295        148,966          4,300
Less accumulated depreciation         35,417         20,153             --
----------     ----------     ----------
$  148,878     $  128,813     $    4,300
==========     ==========     ==========

The following is a summary of income from discontinued operations (in
$000's):

MARCH 31,                      DECEMBER 31,
---------------------     ----------------------------------
2004         2003         2003         2002         2001
--------     --------     --------     --------     --------
(UNAUDITED)

Rental Income .........................     $  4,736     $  4,681     $ 18,548     $ 17,409     $ 16,456
Hotel & resort operating income .......        1,139        1,176        3,912        3,679        4,142
--------     --------     --------     --------     --------
5,875        5,857       22,460       21,088       20,598
--------     --------     --------     --------     --------
Mortgage interest expense .............        1,548        1,562        6,247        5,691        5,599
Depreciation and amortization .........           18        1,027        4,212        3,616        3,383
Property expenses .....................        1,007          778        2,546        2,589        2,127
Hotel and resort operating expenses ...          844          861        3,316        3,185        3,372
--------     --------     --------     --------     --------
3,417        4,228       16,321       15,081       14,481
--------     --------     --------     --------     --------
Income from discontinued operations         $  2,458     $  1,629     $  6,139     $  6,007     $  6,117
========     ========     ========     ========     ========

At March 31, 2004 (unaudited) and December 31, 2003, approximately
$105,750,000 and $105,984,000, respectively, of real estate held for sale was
pledged to collateralize the payment of non-recourse mortgages payable.

F-14

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

The Company has investments in U.S. Government and Agency Obligations
whose maturities range from 2004 to December 2008 as follows (in $millions):

DECEMBER 31,
MARCH 31,           -----------------------------------------------
2004                       2003                     2002
---------------------     ---------------------     ---------------------
COST       CARRYING       COST       CARRYING       COST       CARRYING
BASIS        VALUE       BASIS        VALUE        BASIS         VALUE
--------     --------     --------     --------     --------     --------
(UNAUDITED)

Available for Sale:
Matures in:
less than 1 year .     $  114.4     $  114.1     $   52.8     $   52.8     $  292.9     $  292.9
2-5 years ........          8.5          8.6          9.0          8.8         39.7         39.7
Thereafter .......           --           --           --           --          3.4          3.4
--------     --------     --------     --------     --------     --------
$  122.9     $  122.7     $   61.8     $   61.6     $  336.0     $  336.0
========     ========     ========     ========     ========     ========

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

DECEMBER 31,
MARCH 31,           -----------------------------------------------
2004                       2003                     2002
---------------------     ---------------------     ---------------------
COST       CARRYING       COST       CARRYING       COST       CARRYING
BASIS        VALUE       BASIS        VALUE        BASIS         VALUE
--------     --------     --------     --------     --------     --------
(UNAUDITED)

Available for Sale:
Philip Service Corporation (b):
Equity ......................     $     --     $     --     $     --     $     --     $    9.4     $    0.2
Corporate bonds (c) ...........          9.5         17.8         45.1         51.6           --           --
Other .........................          1.1          4.8          1.3          4.2          2.5          3.0
--------     --------     --------     --------     --------     --------
10.6         22.6         46.4         55.8         11.9          3.2
Held-to-maturity:
GB Notes(a) ..................         21.3         25.0         21.3         24.7         21.3         23.5
--------     --------     --------     --------     --------     --------
Total .......................     $   31.9     $   47.6     $   67.7     $   80.5     $   33.2     $   26.7
========     ========     ========     ========     ========     ========

a. 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.

The Company, the General Partner, and the directors and officers of the
General Partner were 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 was equal to the Company's cost for

F-15

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

such Notes. The affiliate of the General Partner was obligated to sell back to
the Company, and the Company was obligated to repurchase such interests at the
same price (together with a commercially reasonable interest factor), when the
appropriate licenses were obtained by the Company. The Company would 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 $0.9 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 ("GBH") and (ii) $15.96 million face amount of GB
Property First Mortgage Notes ("GB Notes"), plus $21.56 million in cash. The
Company 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 were, in effect, holding on behalf of the Company (i) approximately 3.6
million common shares of GBH and (ii) $26.9 million face amount of GB Notes, to
which the Company would become entitled and obligated to purchase when it was
fully licensed. As of February 2001, the Company no longer had any interests in
the Claridge.

In May 2002, the Company was qualified as a holding company by the New
Jersey Casino Control Commission (the "Casino Control Commission") and in
accordance with the prior agreement repurchased its interest in the Sands,
located in Atlantic City, New Jersey, from affiliates of the General Partner. As
a result, the Company acquired approximately 3.6 million common shares (36%) of
GBH and $26.9 million face amount of GB Notes. The Company paid approximately
$68.8 million to reacquire its interests representing the affiliates' advances
plus accrued interest of approximately $11 million. In accordance with the
agreement, interest was accrued from March 2000 to May 2002 at an annual rate of
1 1/2% over the prime rate. Interest expense of approximately $919,000, and
$5,306,000 for the years ended December 31, 2002 and 2001, respectively, has
been included in "Interest expense" in the Consolidated Statements of Earnings.
As required by the New Jersey Casino Control Act (the "Casino Control Act"), the
Partnership Agreement was amended to provide that securities of the Company are
held subject to the condition that if a holder thereof is found to be
disqualified by the Casino Control Commission, pursuant to the provisions of the
Casino Control Act, such holder shall dispose of his interest in the Company in
accordance with the Casino Control Act.

In July 2003, GBH announced that its Board of Directors, acting through
a special committee, approved an exchange offer for the GB Notes. The proposed
transaction is subject to the consent of the holders of a majority in principal
amount of the GB notes, the approval of stockholders owning a majority of the
common stock of GBH, the effectiveness of required filings under applicable
securities laws and the receipt of all required governmental and third party
approvals. Mr. Icahn and his affiliated companies hold in excess of 77% of the
GBH stock and 58% of the existing debt, of which the Company owns approximately
36% of the common stock and 24% of the debt. The Company and Mr. Icahn intend to
support the proposed transaction. The GB Notes in the face amount of $110
million are due in September 2005 and bear interest at 11% per annum.

The proposed transaction would involve the following:

-     An amendment to the existing note indenture to remove certain
provisions and covenants and release the liens on the Sands
assets; thereby allowing the transfer of these assets and
those now held at GBH to a wholly-owned indirect subsidiary of
GBH, Atlantic Coast Entertainment Holdings, Inc. ("Atlantic
Holdings").

-     The solicitation of an exchange of the existing notes for new
notes due September 2008, which will bear interest at 3% per
annum payable at maturity.

-     The payment of $100 per $1,000 in principal amount of the
existing notes exchanged plus accrued interest on the existing
notes.

F-16

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

-     The holders of a majority of the new notes will have an option
to convert into 72.5% of the Atlantic Holdings stock if all of
the existing notes participate in the exchange.

-     The distribution to the GBH common stockholders of warrants
(following the occurrence of certain events) for 27.5% of the
common stock of Atlantic Holdings (on a fully diluted basis).

As the exchange will be accounted for as a modification of debt for
accounting purposes, this transaction is not expected to have a significant
impact on the Company's consolidated financial statements.

For accounting purposes, the Company reflects its interest in the GB
Notes as held to maturity.

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

b. At December 31, 2002, the Company owned the following approximate
interests in Philip Service Corporation ("Philip"): (i) 1.8 million common
shares, (ii) $14.2 million in secured term debt, and (iii) $10.9 million in
accreted secured convertible payment-in-kind debt. The Company had an
approximate 7% equity interest in Philip and an Icahn affiliate had an
approximate 38% equity interest. Icahn affiliates also owned term and
payment-in-kind debt.

The secured term debt matures March 31, 2005 and bears interest at 9%
per annum. Interest was 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 was accreted quarterly with interest on the
accreted interest also calculated at the rate of 10% per annum.

The market value of Philip's common stock declined steadily since it
was acquired by the Company. In 2002, based on a review of Philip's financial
statements, management of the Company deemed the decrease in value to be other
than temporary. As a result, the Company wrote down its investment in Philip's
common stock by charges to earnings of $8,476,000 and charges to other
comprehensive income ("OCI") of $761,000 in the year ended December 31, 2002.
This investment had been previously written down by approximately $6.8 million
in charges to earnings. The Company's adjusted carrying value of Philip's common
stock was approximately $200,000 at December 31, 2002.

In June 2003, Philip announced that it and most of its wholly owned
U.S. subsidiaries filed voluntary petitions under Chapter 11 of the Federal
Bankruptcy Code.

In the year ended December 31, 2003, management of the Company
determined that it was appropriate to write-off the balance of its investment in
the Philip's common stock by a charge to earnings of approximately $961,000; of
this amount $761,000 was previously charged to other comprehensive income in
2002, which was reversed in 2003, and included in the $961,000 charge to
earnings.

The Company also has a participation in Philip's debt with an original
cost at the date of their acquisition of approximately $19.7 million. At
December 31, 2001, such notes were classified as available-for-sale securities
and were written down through charges to OCI, to an estimated fair market value
of approximately $13.2 million. In 2002, upon concluding its review of these
investments, management determined that such investments were more properly
classified as notes receivable.

Approximately $6.6 million of charges to OCI were reversed and the
investments were reclassified at their original cost to "Mortgages and notes
receivable" at December 31, 2002. These adjustments had no effect on the
Company's reported earnings for the year ended December 31, 2002.

In 2003, the cost basis of the debt was approximately $22.1 million. As
previously mentioned, Philip filed for bankruptcy protection in June 2003.
Management of the Company reviewed Philip's financial statements, bankruptcy
documents and the prices of recent purchases and sales of the debt and
determined this investment to be impaired. Based upon this review, management
concluded the fair value of the debt to be approximately $3.3 million;
therefore, the Company recorded a write-down of approximately $18.8 million by a
charge to earnings which was included in "Write-down of mortgages and notes
receivable" in the Consolidated

F-17

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Statements of Earnings in the year ended December 31, 2003. In December 2003,
the Company sold two-thirds of its term and PIK debt with a basis of $2.2
million for $2.6 million generating a gain of $0.4 million.

Philip emerged from bankruptcy on December 31, 2003 as a private
company controlled by an Icahn affiliate. The Company's remaining interest in
the notes will be delivered and exchanged for approximately 443,000 common
shares representing a 4.4% equity interest in the new Philip valued at the
carrying value of the debt at December 31, 2003 of $1.1 million. Subsequent to
December 31, 2003, the Company received a bankruptcy distribution of
approximately $350,000.

c. In December 2003, the Company acquired approximately $86.9 million
principal amount of corporate bonds for approximately $45.1 million. Such bonds
were classified as available for sale securities. Available for sale securities
are carried at fair value on the Balance Sheet. Unrealized holding gains and
losses are excluded from earnings and reported as a separate component of
Partners' Equity. At December 31, 2003, the carrying value of the bonds was
approximately $51.6 million and accumulated other comprehensive gain was
approximately $6.5 million. In the first quarter of 2004, the Company sold bonds
for which the cost basis was approximately $35.6 million for approximately $64.5
million, recognizing a gain of approximately $28.9 million for the three months
ended March 31, 2004 (unaudited). At March 31, 2004 (unaudited), the carrying
value of the remaining bonds was approximately $17.8 million, the cost basis was
approximately $9.5 million and accumulated other comprehensive gain with respect
to the bonds was approximately $8.3 million. In April 2004, the Company sold the
remaining bonds for approximately $17.8 million realizing a gain of
approximately $8.3 million which will be recognized in the three and six months
ended June 30, 2004.

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 approximately
($0.3 million) and ($0.9 million) for the three months ended March 31, 2004 and
2003, respectively, and ($3.4 million), $0.3 million and $1.8 million have been
recorded in the Consolidated Statements of Earnings in the years ended December
31, 2003, 2002 and 2001, respectively (See Note 7).

9.    HOTEL AND CASINO OPERATING PROPERTY

a. In September 2000, Stratosphere Corp.'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 Corp. ("Stratosphere") under which the Company would acquire the
remaining shares of Stratosphere that it did not currently own. The Company
owned approximately 51% of Stratosphere and Mr. Icahn owned approximately 38.6%.
The Company, subject to certain conditions, agreed to pay approximately $44.3
million for the outstanding shares of Stratosphere not currently owned by it.
Stratosphere stockholders not affiliated with Icahn would receive a cash price
of $45.32 per share and Icahn related stockholders would receive a cash price of
$44.33 per share. This transaction was completed in December 2002 after
shareholders' approval.

The acquisition by the Company of the minority shares not owned by an
Icahn affiliate has been accounted for as a purchase in accordance with
Financial Accounting Standards Board ("FASB") Statement No. 141, "Business
Combinations." The acquisition by the Company of the common stock held by an
Icahn affiliate has been recorded at historical cost. The excess of the
historical cost over the amount of the cash disbursed, which amounted to
$21,151,000, has been accounted for as a net addition to the General Partner's
equity.

The Company indirectly owns 100% of Stratosphere and consolidates
Stratosphere in its financial statements. The Stratosphere which offers the
tallest free-standing observation tower in the United States, is situated on
approximately 31 acres of land located at the northern end of the Las Vegas
Strip. The facility is a tourist-oriented gaming and entertainment destination
property, which has approximately 80,000 square feet of gaming space, 2,444
hotel rooms, eight restaurants and approximately 110,000 square feet of
developed retail space. The Stratosphere features three of the most visible
amusement rides in Las Vegas.

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 improvements were substantially completed in June 2001.

F-18

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stratosphere's property and equipment consist of the following as of March
31, 2004 and December 31, 2003 and 2002 (in $000's):

MARCH 31,          DECEMBER 31,
2004         2003          2002
---------     ---------     ---------
(UNAUDITED)

Land and improvements, including land held for development    $  20,639     $  20,625     $  20,110
Building and improvements ................................      141,170       140,922       135,989
Furniture, fixtures and equipment ........................       61,118        58,577        57,158
Construction in progress .................................        1,891         4,179           329
---------     ---------     ---------
224,818       224,303       213,586
Less accumulated depreciation and amortization ...........      (53,413)      (50,054)      (42,156)
---------     ---------     ---------
$ 171,405     $ 174,249     $ 171,430
=========     =========     =========

Included in property and equipment at December 31, 2002 are assets
recorded under capital leases of $1.9 million.

Stratosphere's operations for three months ended March 31, 2004 and 2003
and for the years ended December 31, 2003, 2002 and 2001 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 $3,360,000 and $3,388,000 of depreciation and amortization for the
three months ended March 31, 2004 and 2003 (unaudited), respectively, and for
approximately $12,276,000, $13,328,000 and $11,257,000 of depreciation and
amortization for the years ended December 31, 2003, 2002 and 2001, respectively,
and $2,687,000 and $1,387,000 of income tax expense for the three months ended
March 31, 2004 and 2003 (unaudited), respectively, and $2,259,000 of income tax
benefit for the year ended December 31, 2003 and $2,412,000 and $513,000 of
income tax provision for the years ended December 31, 2002 and 2001,
respectively. Such amounts have been included in "Depreciation and amortization
expense" and "Income tax benefit (expense)" in the Consolidated Statements of
Earnings.

b. On January 5, 2004, American Casino and Entertainment Properties LLC
("ACEP"), an indirect wholly-owned subsidiary of the Company, entered into an
agreement to acquire two Las Vegas casino/hotels, Arizona Charlie's Decatur and
Arizona Charlie's Boulder from Carl C. Icahn and an entity affiliated with Mr.
Icahn, for an aggregate consideration of $125.9 million. The closing of the
acquisition is subject to certain conditions, including among other things,
obtaining all approvals necessary under the gaming laws. The terms of the
transaction were approved by the Audit Committee. Upon receiving all approvals
necessary under gaming laws and upon closing of the acquisition, American Real
Estate Holdings Limited Partnership ("AREH"), the Company's direct subsidiary,
will transfer 100% of the common stock of Stratosphere to ACEP. As a result,
following the acquisition and contribution, ACEP will own and operate three
gaming and entertainment properties in the Las Vegas metropolitan area. In
accordance with generally accepted accounting principles, assets transferred
between entities under common control are accounted for at historical costs
similar to a pooling of interests. Upon closing in May of 2004, the Company
accounted for the acquisition at historical cost similar to a pooling of
interests.

Also in January 2004, ACEP closed on its offering of Senior Secured Notes
Due 2012. The Notes, in the aggregate principal amount of $215 million, bear
interest at the rate of 7.85% per annum. The proceeds will be held in escrow
pending receipt of all approvals necessary under gaming laws and certain other
conditions in connection with the acquisition of Arizona Charlie's Decatur and
Arizona Charlie's Boulder. ACEP intends to use the proceeds of the offering for
the acquisition and to repay intercompany indebtedness and for distributions to
AREH. At March 31, 2004 (unaudited), escrow funds in the amount of $219,313,000
are reflected as "Restricted Cash" in the accompanying Consolidated Balance
Sheet.

PROPERTIES UNDER CONTRACT

ARIZONA CHARLIE'S DECATUR

Arizona Charlie's Decatur is located on approximately 17 acres of land,
four miles west of the Las Vegas strip and contains approximately 52,000 square
feet of gaming space, 258 hotel rooms, four restaurants and three bars. For the
three months ended March 31, 2004 and 2003, Arizona Charlie's Decatur's revenues
were approximately $19.2 million and $17.3 million, respectively.

F-19

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ARIZONA CHARLIE'S BOULDER

Arizona Charlie's Boulder is located on approximately 24 acres of land,
seven miles east of the Las Vegas strip and contains approximately 41,000 square
feet of gaming space, 303 hotel rooms, four restaurants and a 202-space
recreational vehicle park. For the three months ended March 31, 2004 and 2003
Arizona Charlie's Boulder's revenues were approximately $10.1 million and $7.8
million, respectively.

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

10. NATIONAL ENERGY GROUP

a. National Energy Group, Inc.

In October 2003, pursuant to a Purchase Agreement dated as of May 16,
2003, the Company acquired certain debt and equity securities of National Energy
Group, Inc. ("NEG") from entities affiliated with Mr. Icahn for an aggregate
consideration of approximately $148.1 million plus approximately $6.7 million of
accrued interest on the debt securities. The agreement was reviewed and approved
by the Audit Committee who were advised by its independent financial advisor and
legal counsel. The securities acquired were $148,637,000 in principal amount of
outstanding 10 3/4% Senior Notes due 2006 of NEG and 5,584,044 shares of common
stock of NEG. As a result of the foregoing transaction and the acquisition by
the Company of additional securities of NEG prior to the closing, the Company
beneficially owns in excess of 50% of the outstanding common stock of NEG.

NEG owns a 50% interest in NEG Holding LLC ("Holding LLC"), the other 50%
interest in Holding LLC is held by Gascon Partners ("Gascon") an Icahn affiliate
and managing member. Holding LLC owns NEG Operating LLC ("Operating LLC") which
owns operating oil and gas properties managed by NEG. Under the Holding LLC
operating agreement NEG is to receive guaranteed payments of approximately $47.9
million in addition to a priority distribution of approximately $148.6 million
before the Icahn affiliate receives any monies. Due to the substantial
uncertainty that NEG will receive any distribution above the priority and
guaranteed payments amounts, NEG accounts for its investment in Holding LLC as a
preferred investment. The Company consolidates NEG in its financial statements.

In connection with a credit facility obtained by Holding LLC, NEG and
Gascon have pledged as security their respective interests in Holding LLC.

b. Investment in NEG Holding LLC

As explained below, NEG's investment in Holding LLC is recorded as a
preferred investment. The initial investment was recorded at historical carrying
value of the net assets contributed with no gain or loss recognized on the
transfer.

Summarized financial information for Holding LLC as of the three months
ended March 31 (unaudited), and for the years ended December 31, is as follows
(in $000's):

MARCH 31,       DECEMBER 31,
--------------------
2004        2003         2002
--------    --------    --------
(UNAUDITED)

Current assets ......................    $ 38,399    $ 33,415    $ 42,126
Noncurrent assets(1) ................     198,574     189,988     180,611
--------    --------    --------
Total assets ........................    $236,973    $223,403    $222,737
========    ========    ========
Current liabilities .................    $ 13,305    $ 14,253    $ 20,927
Noncurrent liabilities ..............      48,464      48,640       1,968
--------    --------    --------
Total liabilities ...................      61,769      62,893      22,895
Member's equity .....................     175,204     160,510     199,842
--------    --------    --------
Total liabilities and member's equity    $236,973    $223,403    $222,737
========    ========    ========

----------

(1)   Primarily oil and gas properties

F-20

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

MARCH 31,                    DECEMBER 31,
---------------------     ----------------------------------
2004         2003         2003         2002         2001
--------     --------     --------     --------     --------
(UNAUDITED)
(IN $000'S)

Total revenues .......    $ 25,569     $ 19,501     $ 80,475     $ 39,509     $ 12,637
Costs and expenses ...     (11,044)     (11,743)     (47,277)     (32,064)      (9,988)
--------     --------     --------     --------     --------
Operating income .....      14,525        7,758       33,198        7,445        2,649
Other income (expense)        (358)      (3,019)      (2,855)       6,481       (3,940)
--------     --------     --------     --------     --------
Net income (loss) ....    $ 14,167     $  4,739     $ 30,343     $ 13,926     $ (1,291)
========     ========     ========     ========     ========

Under Holding LLC Operating Agreement, NEG is to receive guaranteed
payments in addition to a priority distribution amount of $202.2 million before
Gascon receives any monies. The priority distribution is to be made on or before
November 1, 2006. Guaranteed payments are to be paid, on a semi annual basis,
based on an annual interest rate of 10.75% of the outstanding priority
distribution amount. After the payments to NEG, Gascon is to receive
distributions equivalent to the priority distribution amount and guaranteed
payments plus other amounts as defined. Following the above distributions to NEG
and Gascon, additional distributions, if any, are to be made in accordance with
their respective capital accounts. The order of distributions is listed below.
Because of the substantial uncertainty that NEG will receive any distributions
above the priority and guaranteed payment amounts, NEG accounts for its
investment in Holding LLC as a preferred investment.

Prior to September 2001, NEG owned and operated certain oil and gas
properties. At inception (September 12, 2001), NEG recorded the investment in
Holding LLC at the historical cost of the oil and gas properties that NEG
contributed into the partnership (in exchange for Holding LLC obligation to pay
NEG the priority distribution and guaranteed payments). Subsequently, NEG
accretes its investment in Holding LLC from the initial investment recorded up
to the priority distribution amount, including the guaranteed payments, at the
implicit rate of interest, recognizing the accretion income in earnings.
Accretion income is periodically adjusted for changes in the timing of cash
flows, if necessary due to unscheduled cash distributions. Receipt of guaranteed
payments and the priority distribution are recorded as reductions in the
preferred investment. The preferred investment is evaluated quarterly for other
than temporary impairment.

Because of the substantial uncertainty that NEG will receive any
distributions in excess of the priority distribution and the guaranteed payments
("residual interest"), the residual interest attributable to the investment in
Holding LLC is valued at zero. Upon payment of the priority distribution in
2006, NEG's investment in Holding LLC will be zero. Cash receipts, if any, after
the priority distribution and the guaranteed payments will be reported in income
as earned.

The following is a roll forward of the Investment in Holding LLC as of
March 31, 2004 (unaudited) and December 31, 2003 (in $000s):

MARCH 31,   DECEMBER 31,
2004         2003
---------    ---------
(UNAUDITED)

Investment in Holding LLC at beginning of period    $  69,346    $ 108,880
Priority distribution from Holding LLC .........           --      (51,446)
Guaranteed payment from Holding LLC ............           --      (18,230)
Accretion of investment in Holding LLC .........        7,904       30,142
---------    ---------
Investment in Holding LLC at end of period .....    $  77,250    $  69,346
=========    =========

Holding LLC Operating Agreement requires that distributions shall be made
to both NEG and Gascon as follows:

1. Guaranteed payments are to be paid to NEG, calculated on an annual
interest rate of 10.75% on the outstanding priority distribution amount. The
priority distribution amount includes all outstanding debt owed to entities
owned or controlled by Carl C. Icahn, including the amount of NEG's 10.75%
Senior Notes. As of March 31, 2004 and December 31, 2003, the priority
distribution amount

F-21

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

was $148.6 million which equals the amount of NEG's 10.75% Senior Notes due the
Company. The guaranteed payments will be made on a semi-annual basis.

2. The priority distribution amount is to be paid to NEG. Such
payment is to occur by November 6, 2006.

3. An amount equal to the priority distribution amount and all
guaranteed payments paid to NEG, plus any additional capital contributions made
by Gascon, less any distribution previously made by NEG to Gascon, is to be paid
to Gascon.

4. An amount equal to the aggregate annual interest (calculated at
prime plus 1/2% on the sum of the guaranteed payments), plus any unpaid interest
for prior years (calculated at prime plus 1/2% on the sum of the guaranteed
payments), less any distributions previously made by NEG to Gascon, is to be
paid to Gascon.

5. After the above distributions have been made, any additional
distributions will be made in accordance with the ratio of NEG's and Gascon's
respective capital accounts.

In addition, the Holding LLC Operating Agreement contains a provision that
allows Gascon at any time, in its sole discretion, to redeem the NEG membership
interest in Holding LLC at a price equal to the fair market value of such
interest determined as if Holding LLC had sold all of its assets for fair market
value and liquidated. Since all of the NEG's operating assets and oil and
natural gas properties have been contributed to Holding LLC, as noted above,
following such a redemption, NEG's principal assets would consist solely of its
cash balances.

11. MORTGAGES AND NOTES RECEIVABLE (IN $000S)

BALANCE AT
BALANCE     MONTHLY                      DECEMBER 31,
COLLATERALIZED BY PROPERTY             INTEREST   MATURITY        AT       PAYMENT     MARCH 31,   ---------------------
TENANTED BY OR DEBTOR                    RATE       DATE       MATURITY     AMOUNT       2004         2003       2002
--------------------------             --------   --------     --------    -------   -----------   ---------   ---------
(UNAUDITED)

Peninsula/Hampton & Alex Hotel(b)      Various      Various           --      --       $  42,030   $  42,030   $  23,200
Philip debt(c) ..................           --           --           --      --             741       1,091      20,494
Westpoint Stevens (d) ...........           15%   2/28/2005    $  63,500      --          54,769          --          --
Other ...........................           --           --           --      --           7,205       7,207      12,522
---------   ---------   ---------
$ 104,745   $  50,328   $  56,216
=========   =========   =========

The Company has provided development financing for certain real estate
projects. The security for these loans is a pledge of the developers' ownership
interest in the properties. Such loans are subordinate to construction financing
and are generally referred to as mezzanine loans. The Company's mezzanine loans
accrue interest at approximately 22% per annum. However interest is not paid
periodically and is due at maturity or earlier from unit sales or refinancing
proceeds. The Company defers recognition of interest income on mezzanine loans
pending receipt of principal and interest payments.

a. 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 were 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 provided 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 provided for
interest accruing at a rate of 21.5% per annum with principal and interest due
at maturity, November 29, 2002. The loans were payable at any time from the
proceeds of unit sales after satisfaction of senior debt of approximately $45
million. The loans were secured by the pledge of membership interests in the
entity that owns the real estate. In May 2002, the Company received
approximately $31.3 million for prepayment of the mezzanine loans. The balance
of the prepayment of $8.3 million represented accrued interest ($7.9 million)
and exit fees ($0.4 million) which amounts were recognized as "Interest income
on U.S. Government and Agency obligations and other investments" and "Other
income" respectively, in the Consolidated Statements of Earnings for the year
ended December 31, 2002.

b. At December 31, 2002, the Company had funded two mezzanine loans for
approximately $23.2 million and had

F-22

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

commitments to fund, under certain conditions, additional advances of
approximately $5 million. Both loans have an interest rate of 22% per annum
compounded monthly. The Peninsula loan, for a Florida condominium development,
which had a term of 24 months from the date of funding, February 2002, was
repaid in full in 2003. Approximately $6.8 million of interest income was
recorded and is included in "Interest income on U.S. Government and Agency
obligations and other investments" in the Consolidated Statements of Earnings.
The Alex Hotel loan, for a New York City hotel with approximately 200 rooms, has
a term of 36 months from the closing date, April 2002. At December 31, 2003,
accrued interest of approximately $4.4 million has been deferred for financial
statement purposes pending receipt of principal and interest payments in
connection with this loan. Origination fees of $3.0 million have been received
in connection with one of the mezzanine loans and approximately $1.5 million and
$1.1 million has been recognized as "Other income" in the Consolidated
Statements of Earnings in the years ended December 31, 2003 and 2002
respectively. In February 2003, the Company funded the Hampton mezzanine loan
for approximately $30 million on a Florida condominium development. The loan is
due in 18 months with one six month extension and has an interest rate of 22%
per annum compounded monthly. The Company has committed to fund an additional
$15 million if required by the borrower to complete the project. At December 31,
2003 accrued interest of approximately $6.7 million has been deferred for
financial statement purposes pending receipt of principal and interest payments
in connection with this loan.

c. See Note 7 with respect to Philip debt.

d. On March 30, 2004, the Company agreed to purchase approximately $63.5
million principal amount of secured bank indebtedness of a bankrupt company
(WestPoint Stevens, Inc.) for a purchase price of approximately $54.8 million.
In April 2004, the Company entered into a trade confirmation effective March 30,
2004. At March 31, 2004, the Company reflected the purchase liability in
"Liability for purchase of debt securities" on the Consolidated Balance Sheets.
The trade settled on April 30, 2004; the Company paid cash for the securities.

12. NOTE RECEIVABLE DUE FROM AFFILIATE

On October 17, 2003 Mr. Icahn, Chairman of the Board of the General
Partner, repaid the $250 million loan which had been made to him by the Company
on December 27, 2001. The Company made the two-year $250 million loan to Mr.
Icahn, secured by securities consisting of (i) 21,136,044 and 8,073,466 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, 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 interest on the loan was 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 applicable
rate in 2003 was 3.9% and in 2002 ranged from 3.9% to 4.03%. Interest income of
approximately $7.9 million, $9.9 million and $0.1 million was earned on this
loan in the years ended December 31, 2003, 2002 and 2001, respectively, and is
included in "Interest income on U.S. Government and Agency obligations and other
investments" in the Consolidated Statements of Earnings.

The Company entered into this transaction to earn interest income on a
secured investment. The terms of this transaction were reviewed and approved by
the Audit Committee.

13. 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 for this property ("hotel and resort operating income" less
"hotel and resort operating expenses") resulted in losses of approximately
$240,000 and $330,000 for the three months ended March 31, 2004 and 2003

F-23

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(unaudited), respectively, and income of approximately $3,033,000, $1,909,000
and $712,000 for the years ended December 31, 2003, 2002, and 2001,
respectively. Hotel and resort operating expenses include all expenses except
for approximately $647,000 and $614,000 for the three months ended March 31,
2004 and 2003, respectively, and $2,451,000, $1,833,000 and $970,000 for the
years ended December 31, 2003, 2002 and 2001 of depreciation and amortization,
respectively, which is included in such caption in the Consolidated Statements
of Earnings.

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 $6.4 million, $6.3 million and $6.4 million at December
31, 2003 and 2002 and March 31, 2004 (unaudited), respectively, and is
unencumbered by any mortgages. Approximately $1.3 million of capital
improvements were completed in the year ended December 31, 2002.

The Company has a management agreement for the operation of the hotel with
a national management organization. In the three months ended March 31, 2004 and
2003, net hotel operations which totaled $296,000 and $316,000 (unaudited),
respectively, has been included in discontinued operations. Depreciation expense
of $52,000 in the three months ended March 31, 2004 and 2003 (unaudited) has
been included in discontinued operations. Net hotel and resort operations
("hotel and resort operating revenues" less "hotel and resort operating
expenses") totaled approximately $596,000, $494,000 and $770,000 for the years
ended December 31, 2003, 2002 and 2001, respectively and have been included in
discontinued operations. Depreciation expense of $210,000, $374,000 and $342,000
for the years ended December 31, 2003, 2002 and 2001, respectively, have been
included in discontinued operations.

14. SIGNIFICANT PROPERTY TRANSACTIONS

Information on significant property transactions during the three-year
period ended December 31, 2003 is as follows:

a. In September 2002, the Company purchased an industrial building located
in Nashville, Tennessee for approximately $18.2 million. The building was
constructed in 2001 and is fully leased to two tenants, Alliance Healthcare and
Jet Equipment & Tools Inc., with leases expiring in 2011. The annual net
operating income is anticipated to be approximately $1.6 million increasing to
approximately $1.9 million by 2011. In October 2002, the Company closed a $12.7
million non-recourse mortgage loan on the Nashville, Tennessee property. The
loan bears interest at 6.4% per annum and matures in ten years. Required
payments are interest only for the first three years and then principal
amortization will commence based on a thirty-year amortization schedule.

At March 31, 2004 (unaudited) and December 31, 2003 and 2002, the property
had a carrying value of approximately $17,584,000, $18,066,000 and $17,584,000
respectively, and was encumbered by a non-recourse mortgage in the amount of
$12,700,000.

b. In October 2002, the Company sold a property located in North Palm
Beach, Florida for a selling price of $3.5 million. A gain of approximately $2.4
million was recognized in the year ended December 31, 2002.

c. In October 2003, the Company sold a property located in Columbia,
Maryland to its tenant for a selling price of $11 million. A gain of
approximately $5.8 million was recognized in the year ended December 31, 2003.

d. Due to favorable real estate market conditions and the mature nature of
the Company's real portfolio, the Company has engaged C.B. Richard Ellis, Inc.
to assist it in obtaining offers for its rental real estate portfolio. The
Company intends to utilize proceeds from any asset sales to continue to invest
in our core businesses, including real estate, gaming and entertainment and oil
and gas. The Company may also seek opportunities in other sectors including
industrial, manufacturing and insurance and asset management. In total, the
Company is marketing for sale properties with a book value of approximately $340
million individually encumbered by mortgage debt which in the aggregate is
approximately $179 million at March 31, 2004 (unaudited). There can be no
assurance that offers satisfactory to the Company will be received and, if
received, that the properties will ultimately be sold at prices acceptable to
the Company.

At March 31, 2004 (unaudited), the Company had 40 properties under
contract or as to which letters of intent had been executed by potential
purchasers, all of which contracts or letters of intent are subject to
purchaser's due diligence and other closing conditions. Selling prices for the
properties covered by the contracts or letters of intent would total
approximately $323 million but the

F-24

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

properties are encumbered by aggregate mortgage debt of approximately $142
million which would have to be repaid out of the proceeds of the sales or
assumed by the purchaser. At March 31, 2004 (unaudited), the carrying value of
these properties is approximately $226 million. In 2003, net income from these
properties totaled approximately $7 million; interest expense was approximately
$11 million; and depreciation and amortization expense was approximately $4.2
million. In accordance with generally accepted accounting principles, only the
real estate operating properties under contract or letter of intent, but not the
financing lease properties, were reclassified to "Properties held for sale" and
the related income and expense reclassified to "Income from discontinued
operations."

In January 2004, the Company sold five properties to Alabama Power, its
tenant, for approximately $10.9 million, recognizing a gain of approximately
$6.0 million. Also in January 2004, AREP sold a grocery-anchored shopping center
located in Audubon, New Jersey for approximately $7.3 million, recognizing a
gain of approximately $6.8 million, which is included in discontinued
operations.

In January 2004, the Company purchased a 34,422 square foot commercial
condominium unit located in New York City for approximately $14.5 million. The
unit contains a Citibank branch, a furniture store and a restaurant. AREP
obtained mortgage financing of $10 million for this property in April 2004.

15. MORTGAGES PAYABLE

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

ANNUAL PRINCIPAL
RANGE OF INTEREST RATES   RANGE OF MATURITIES   AND INTEREST PAYMENT     MARCH 31,     BALANCE AT DECEMBER 31,
2004         2003        2002
(UNAUDITED)

5.630% -- 8.430%.......   10/15/07 - 12/31/18            $19,328          $179,251     $180,989    $166,287
9.000 -- 9.500.........   11/30/03 - 11/30/09                 --                --           --       5,561
-------          --------     --------    --------
$19,328          $179,251     $180,989    $171,848
=======          ========     ========    ========

The following is a summary of the anticipated future principal payments of
the mortgages (in 000's):

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

2004............    $     6,489
2005............          6,702
2006............          7,360
2007............         14,176
2008............         58,817
2009 - 2013.....         66,905
2014 - 2018.....         20,540
-----------
$   180,989
===========

a. See Note 14(a) for Mid-South Logistics financing in October 2002.

b. On May 16, 2003, the Company executed a mortgage note secured by a
distribution facility located in Windsor Locks, Connecticut and obtained funding
in the principal amount of $20 million. The loan bears interest at 5.63% per
annum and matures on June 1, 2013. Annual debt service is approximately
$1,382,000 per annum based on a 30 year amortization schedule.

c. See Note 14(a).

16. SENIOR NOTES AND CREDIT FACILITY DUE AFFILIATES

F-25

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

a. The Senior Notes of National Energy Group, Inc. ("Notes") were held in
their entirety by affiliates of Icahn at December 31, 2002. The Notes bear
interest at an annual rate of 10 3/4%, payable semiannually in arrears on May 1
and November 1 of each year. The Notes are senior, unsecured obligations of NEG,
ranking pari passu with all existing and future senior indebtedness of NEG, and
senior in right of payment to all future subordinated indebtedness of NEG.
Subject to certain limitations set forth in the indenture covering the Senior
Notes (the "Indenture"), NEG and its subsidiaries may incur additional senior
indebtedness and other indebtedness.

The Indenture contains certain covenants limiting NEG with respect to the
following: (i) asset sales; (ii) restricted payments; (iii) the incurrence of
additional indebtedness and the issuance of certain redeemable preferred stock;
(iv) liens; (v) sale and leaseback transactions; (vi) lines of business; (vii)
dividend and other payment restrictions affecting subsidiaries; (viii) mergers
and consolidations; and (ix) transactions with affiliates.

NEG was unable to reasonably determine the fair value of the Notes at
December 31, 2002, due to a lack of available market quotations, credit ratings
and inability to determine an appropriate discount rate.

In August 2001, NEG redeemed both $16.4 million of principal outstanding
under the notes and $4.8 million of Reinstated Interest for a cash consideration
of $10.5 million. NEG paid two Icahn affiliates approximately $0.4 million in
current interest on the redeemed senior note obligations at the date of
redemption related to interest owed from the last semi-annual interest payment
date of May 1, 2001, to the date of redemption. As this was a partial redemption
of the Notes, it has been accounted for as a modification of terms that changes
the amounts of future cash payments. Accordingly, the excess of redeemed
principal and interest over the redemption payment of $10.5 million is being
amortized as a reduction to interest expense over the remaining life of the
bonds. In connection with this transaction, NEG borrowed $10.9 million under its
existing credit facility with an Icahn affiliate.

In October 2003, the Company acquired these Notes. At December 31, 2003,
these Notes were eliminated in consolidation (See Note 10).

b. At December 31, 2002, NEG had $10.9 million outstanding under its
existing $100 million credit facility with Arnos, an Icahn affiliate. Arnos
continued to be the holder of the credit facility; however, the $10.9 million
note outstanding under the credit facility was contributed to Holding LLC as
part of Gascon's contribution to Holding LLC on September 12, 2001. In December
2001, the maturity date of the credit facility was extended to December 31, 2003
and NEG was given a waiver of compliance with respect to any and all covenant
violations. NEG was not in compliance with the minimum interest coverage ratio
at September 30, 2002; and December 31, 2002 and the current ratio at December
31, 2002, however, in December 2001, NEG was given a waiver of compliance with
respect to any and all covenant violations through December 31, 2003.

On March 26, 2003, Holding LLC distributed the $10.9 million note
outstanding under NEG'S revolving credit facility as a priority distribution to
NEG, thereby canceling the note. Also, on March 26, 2003, NEG, Arnos and
Operating LLC entered into an agreement to assign the credit facility to
Operating LLC. Effective with this assignment, Arnos amended the credit facility
to increase the revolving commitment to $150 million, increase the borrowing
base to $75 million and extend the revolving due date until June 30, 2004.
Concurrently, Arnos extended a $42.8 million loan to Operating LLC under the
amended credit facility. Operating LLC then distributed $42.8 million to Holding
LLC who, thereafter, made a $40.5 million priority distribution and a $2.3
million guaranteed payment to NEG. NEG utilized these funds to pay the entire
amount of the long-term interest payable on the Notes and interest accrued
thereon outstanding on March 27, 2003. The Arnos facility was canceled on
December 29, 2003 in conjunction with a third party bank financing.

17. SENIOR SECURED NOTES PAYABLE

In January 2004, ACEP closed on its offering of Senior Secured Notes Due
2012. The Notes, in the aggregate principal amount of $215 million, bear
interest at the rate of 7.85% per annum. The proceeds are being held in escrow
pending receipt of all approvals necessary under gaming laws and certain other
conditions in connection with the acquisition of Arizona Charlie's Decatur and
Boulder. ACEP intends to use the proceeds of the offering for the acquisition
and to repay intercompany indebtedness and for distributions to AREH. The notes
will be recourse only to, and will be secured by a lien on the assets of, ACEP
and its subsidiaries. The notes will restrict the ability of those companies,
subject to the exceptions set forth in the notes, to: incur additional debt; pay
dividends and make distributions; make certain investments; repurchase stock;
create liens; enter into transactions with affiliates; enter

F-26

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

into sale and leaseback transactions; merge or consolidate; and transfer, lease
or sell assets. At March 31, 2004 (unaudited), the gross proceeds of the
offering plus accrued interest paid is being held in escrow and included on the
Consolidated Balance Sheets as "Restricted cash." For the three months ended
March 31, 2004 (unaudited), $3 million of interest expense is included in
"Interest expense" in the Consolidated Statement of Earnings.

18. 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. 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.

As of May 1, 2004 and at December 31, 2003, affiliates of the General
Partner owned 8,960,995 and 8,477,139 Preferred Units, respectively, and
39,896,836 Depositary Units.

19. PREFERRED UNITS

Pursuant to the terms of the Preferred Units, on February 21, 2003, 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 was payable March 31, 2003 to holders of record as of
March 14, 2003. A total of 466,548 additional Preferred Units were issued. At
December 31, 2003 and 2002, 9,796,607 and 9,330,963 Preferred Units are issued
and outstanding, respectively.

Pursuant to the terms of the Preferred Units, on February 25, 2004, 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 on

F-27

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

March 31, 2004 to holders of record as of March 12, 2004. In addition, the
Company increased the number of authorized Preferred Units to 10,400,000.

On July 1, 2003, the Company adopted Statement of Financial Accounting
Standards No. 150 (SFAS 150) "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity." SFAS 150 requires that a
financial instrument, which is an unconditional obligation, be classified as a
liability. Previous guidance required an entity to include in equity financial
instruments that the entity could redeem in either cash or stock. Pursuant to
SFAS 150 the Company's Preferred Units, which are an unconditional obligation,
have been reclassified from "Partners' equity" to a liability account in the
consolidated Balance Sheets and the preferred pay-in-kind distribution for the
period from July 1, 2003 to December 31, 2003 of $2,449,000 and all future
distributions have been and will be recorded as "Interest expense" in the
Consolidated Statements of Operations.

20. INCOME TAXES (IN $000'S)

DECEMBER 31,
------------
2003            2002
-------------   -------------

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:
Book basis of American Real Estate Holdings net assets excluding Stratosphere
Corp. and NEG, Inc..............................................................        $   1,149,418   $   1,177,329
Excess of tax over book (Excess of book over tax basis)........................               79,238          (1,778)
-------------   -------------
Tax basis of net assets........................................................        $   1,228,656   $   1,175,551
=============   =============

b. Corporate income taxes

(i)   The Company's corporations recorded the following income tax
(expense) benefit attributable to continuing operations for
Stratosphere and NEG for the three months ended March 31,2004 and
the years ended December 31, 2003, 2002 and 2001 (in $000's):

MARCH 31,                    DECEMBER 31,
---------------------     ----------------------------------
2004         2003         2003         2002         2001
--------     --------     --------     --------     --------
(UNAUDITED)

Current     $   (201)    $   (181)    $   (723)    $     --     $     --
Deferred      (4,101)      (2,697)       7,218       (7,480)      30,077
--------     --------     --------     --------     --------
$ (4,302)    $ (2,878)    $  6,495     $ (7,480)    $ 30,077
========     ========     ========     ========     ========

(ii)  The tax effect of significant differences representing net deferred
tax assets (the difference between financial statement carrying
values and the tax basis of assets and liabilities) for the Company
is as follows at March 31, 2004 and December 31, 2003, 2002 and 2001
(in $000's):

DECEMBER 31,
MARCH 31,    -----------------------
2004          2003          2002
---------     ---------     ---------
(UNAUDITED)

Deferred tax assets:
Depreciation ...................    $  39,886     $  40,191     $  61,628
Net operating loss carryforwards       26,675        30,942        45,958
Investment in NEG Holding LLC ..       19,404        18,845         8,440
Other ..........................       10,745         8,347         9,950
---------     ---------     ---------
96,710        98,325       125,976
Valuation allowance ...........      (15,875)      (15,875)     (100,454)
---------     ---------     ---------
Net deferred tax assets .......    $  80,835     $  82,450     $  25,522
=========     =========     =========

At March 31, 2004 and December 31, 2003, Stratosphere had net operating
loss carryforwards available for federal income tax purposes of approximately
$23.9 million (unaudited) and $28.5 million, respectively, which begin expiring
in 2019.

SFAS 109 requires a "more likely than not" criterion be applied when
evaluating the realizability of a deferred tax asset. As of December 31, 2002,
given Stratosphere's history of losses for income tax purposes, the volatility
of the industry within which the

F-28

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stratosphere operates, and certain other factors, Stratosphere had established a
valuation allowance for the deductible temporary differences, including the
excess of the tax basis of the Stratosphere's assets over the basis of such
assets for financial statement purposes and the tax carryforwards. However, at
December 31, 2003, based on various factors including the current earnings trend
and future taxable income projections, Stratosphere determined that it was more
likely than not that the deferred tax assets will be realized and removed the
valuation allowance.

In accordance with SFAS 109, the tax benefit of any deferred tax asset
that existed on the effective date of a reorganization should be reported as a
direct addition to contributed capital. Stratosphere has deferred tax assets
relating to both before and after Stratosphere emerged from bankruptcy in
September of 1998. The net decrease in the valuation allowance was $79.3 million
of which a net amount of $47.5 million was credited to partners' capital in the
year ended December 31, 2003.

At March 31, 2004 and December 31, 2003, NEG had net operating loss
carryforwards available for federal income tax purposes of approximately $52.3
million (unaudited) and $58 million, respectively, which expire in 2012 and
2009, respectively. Net operating loss limitations may be imposed as a result of
subsequent changes in stock ownership of NEG. Prior to the formation of Holding
LLC, the income tax benefit associated with the loss carryforwards had not been
recognized since, in the opinion of management, there was not sufficient
positive evidence of future taxable income to justify recognition of a benefit.
Upon the formation of Holding LLC, management again evaluated all evidence, both
positive and negative, in determining whether a valuation allowance to reduce
the carrying value of deferred tax assets was still needed and concluded, based
on the projected allocations of taxable income by Holding LLC, NEG more likely
than not will realize a partial benefit from the loss carryforwards. In
accordance with SFAS 109, NEG recorded a deferred tax asset of $31.9 million in
September 2001, $25.5 million as of December 31, 2002, $25.9 million as of
December 31, 2003, and $24.3 million as of March 31, 2004 (unaudited). Ultimate
realization of the deferred tax asset is dependent upon, among other factors,
NEG's ability to generate sufficient taxable income within the carryforward
periods and is subject to change depending on the tax laws in effect in the
years in which the carryfowards are used. As a result of the recognition of
expected future income tax benefits, subsequent periods will reflect a full
effective tax rate provision.

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

THREE MONTHS ENDED(1)
--------------------------------------------------------------------------------------------
MARCH 31,                JUNE 30,             SEPTEMBER 30,          DECEMBER 31,
--------------------    --------------------    --------------------    --------------------
2003        2002        2003        2002        2003        2002        2003        2002
--------    --------    --------    --------    --------    --------    --------    --------

Revenues ........................   $ 69,030    $ 82,995    $ 67,016    $ 89,008    $ 71,492    $ 80,906    $ 69,018    $ 93,471
========    ========    ========    ========    ========    ========    ========    ========
Operating Income ................   $ 14,524    $ 19,810    $ 15,033    $ 26,106    $ 14,811    $ 17,802    $ 18,523    $ 20,012
Gains (losses) on property
transactions ..................      1,138       1,639        (272)         --         501       2,891       5,754       4,460
Gain on sale of marketable
equity and debt securities ....         --          --          --          --       2,168          --         439          --
Provision for loss on real estate       (200)         --          --        (926)       (100)         --        (450)     (2,286)
Write-down of equity securities
available for sale ............       (961)         --          --      (8,476)         --          --          --          --
Write-down write-up of mortgages
& notes receivable ............         --          --     (18,798)         --          --          --          --          --
Loss on limited partnership
interest ......................         --          --          --          --          --          --          --      (3,750)
Minority interest in net
earnings of Stratosphere Corp.          --        (407)         --        (589)         --        (612)         --        (335)
--------    --------    --------    --------    --------    --------    --------    --------
Income (loss) from continuing
operations before income tax ..     14,501      21,042      (4,037)     16,115      17,380      20,081      24,266      18,101
Income tax (expense) benefit ....     (2,878)     (1,595)     (2,158)     (1,854)     (2,568)     (2,031)     14,099      (2,000)
--------    --------    --------    --------    --------    --------    --------    --------
Income (loss) from continuing
operations ....................     11,623      19,447      (6,195)     14,261      14,812      18,050      38,365      16,101
Income from discontinued
operations ....................      1,629       1,502       3,427       1,502       2,933       1,502       1,503       1,501
--------    --------    --------    --------    --------    --------    --------    --------
Net earnings (loss) .............   $ 13,252    $ 20,949    $ (2,768)   $ 15,763    $ 17,745    $ 19,552    $ 39,868    $ 17,602
========    ========    ========    ========    ========    ========    ========    ========
Net Earnings (loss) per limited
Partnership unit(2):
Basic earnings:

F-29

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

THREE MONTHS ENDED(1)
--------------------------------------------------------------------------------------------
MARCH 31,                JUNE 30,             SEPTEMBER 30,          DECEMBER 31,
--------------------    --------------------    --------------------    --------------------
2003        2002        2003        2002        2003        2002        2003        2002
--------    --------    --------    --------    --------    --------    --------    --------

Income (loss) from continuing
operations ..................   $    .17    $    .35    $   (.20)   $    .24    $    .26    $    .31    $    .82    $    .26
Income from discontinued
operations ..................        .03         .03         .07         .03         .06         .03         .03         .03
--------    --------    --------    --------    --------    --------    --------    --------
Basic earnings (loss) per LP
unit .........................   $    .20    $    .38    $   (.13)   $    .27    $    .32    $    .34    $    .85    $    .29
========    ========    ========    ========    ========    ========    ========    ========
Diluted earnings:
Income (loss) from continuing
operations ..................   $    .15    $    .30    $   (.20)   $    .21    $    .24    $    .27    $    .71    $    .22
Income from discontinued
operations ..................        .03         .03         .07         .03         .05         .03         .03         .03
--------    --------    --------    --------    --------    --------    --------    --------
Diluted earnings (loss) per LP
unit .........................   $    .18    $    .33    $   (.13)   $    .24    $    .29    $    .30    $    .74    $    .25
========    ========    ========    ========    ========    ========    ========    ========

----------

(1)   All quarterly amounts have been restated for the effects of the
acquisition of NEG and the reporting of discontinued operations.

(2)   Net earnings (loss) 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.

22. SEGMENT REPORTING

The Company is engaged in six 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, (v) investment in securities including investment in other limited
partnerships and marketable equity and debt securities and (vi) investment in
oil and gas operating properties. 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 three months ended March 31, 2004 and 2003 and the years ended and as of
December 31, 2003, 2002, and 2001 (in $000's):

MARCH 31,                           DECEMBER 31,
-------------------------       -----------------------------------------
2004            2003            2003            2002             2001
---------       ---------       ---------       ---------       ---------
(UNAUDITED)

Revenues:
Hotel & casino operating properties ....   $  45,367       $  39,785       $ 160,235       $ 156,620       $ 146,161
Land, house and condominium sales ......       5,014           4,860          13,265          76,024          55,566
Rental real estate .....................       6,097           6,228          24,751          25,238          27,366
Hotel & resort operating properties ....       2,104           2,073          14,592          14,918          12,276
Oil & gas operating properties .........      10,523          10,624          38,109          40,516          45,709
Other investments ......................       4,564           4,344          13,874          15,283           7,097
---------       ---------       ---------       ---------       ---------
Subtotal ..............................      73,669          67,914         264,826         328,599         294,175

F-30

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

MARCH 31,                           DECEMBER 31,
-------------------------       -----------------------------------------
2004            2003            2003            2002             2001
---------       ---------       ---------       ---------       ---------
(UNAUDITED)

Reconciling items ........................       1,153(1)        1,116(1)       11,730(1)       17,781(1)       28,147(1)
---------       ---------       ---------       ---------       ---------
Total revenues ........................   $  74,822       $  69,030       $ 276,556       $ 346,380       $ 322,322
=========       =========       =========       =========       =========
Net earnings:
Segment earnings:
Hotel & casino operating property ......   $  11,348       $   7,076       $  24,806       $  24,961       $  18,205
Land, house and condominium sales ......       1,656             757           4,136          21,384          12,967
Oil & gas operating properties .........      10,523          10,624          38,109          40,516          40,140
Rental real estate .....................       4,913           5,137          19,276          20,556          24,338
Hotel and resort operating properties ..           7            (192)          3,454           2,365           1,484
Other investments ......................       4,564           4,344          13,874          15,283           7,097
---------       ---------       ---------       ---------       ---------
Total segment earnings ................      33,011          27,746         103,655         125,065         104,231
Interest income ..........................       1,153           1,116          11,730          17,781          28,147
Interest expense .........................      (5,919)         (6,361)        (20,640)        (27,369)        (34,765)
General and administrative expenses ......      (4,364)         (3,372)        (14,081)        (14,134)        (13,011)
Depreciation and amortization ............      (5,092)         (4,605)        (17,773)        (17,613)        (20,814)
---------       ---------       ---------       ---------       ---------
Operating Income .......................      18,789          14,524          62,891          83,730          63,788
Gain on sales and disposition of real
estate from continuing operations ......       6,047           1,138           7,121           8,990           1,737
Loss on sale of limited partnership
interests ..............................          --              --              --          (3,750)             --
Write-down of mortgages and notes
receivable .............................          --              --         (18,798)             --              --
Provision for loss on real estate ........          --            (200)           (750)         (3,212)         (3,184)
Write-down of equity securities available
for sale ...............................          --            (961)           (961)         (8,476)             --
Gain on sale of marketable equity
securities .............................      28,857              --           2,607              --           6,749
Minority interest in net earnings of
Stratosphere Corp ......................          --              --              --          (1,943)           (450)
Income tax benefit (expense) .............      (4,302)         (2,878)          6,495          (7,480)         30,077
Income from discontinued operations ......       9,387           1,629           9,492           6,007           6,117
General partner's share of net income ....      (1,170)         (2,978)         (8,737)        (10,698)        (38,644)
---------       ---------       ---------       ---------       ---------
Net earnings-limited partners' unitholders   $  57,608       $  10,274       $  59,360       $  63,168       $  66,190
=========       =========       =========       =========       =========

----------

(1)   Primarily interest income on U.S. Government and Agency obligations and
other short-term investments and Icahn note receivable.

DECEMBER 31,
MARCH 31,   ------------------------------------
2004         2003         2002         2001
----------   ----------   ----------   ----------
(UNAUDITED)

Assets:
Rental real estate .......................   $  354,318   $  340,062   $  359,700   $  358,597
Hotel and casino operating property ......      171,405      174,249      171,430      184,191
Land and construction-in-progress ........       43,708       43,459       40,415       69,429
Hotel and resort operating properties ....       35,358       41,526       44,346       43,990
Other investments ........................      259,345      231,050      479,104      458,372
----------   ----------   ----------   ----------
864,134      830,346    1,094,995    1,114,579
Reconciling items ........................      962,823      659,584      465,481      469,772
----------   ----------   ----------   ----------
Total ...................................   $1,826,957   $1,489,930   $1,560,476   $1,584,351
==========   ==========   ==========   ==========
Real estate investment capital expenditures:
Acquisitions:
Rental real estate .......................   $   14,583   $       --   $   18,226   $       --
Land and construction-in-progress ........           --           --           --           --
Hotel and casino operating property ......           --           --           --           --
Hotel and resort operating properties ....           --           --           --           --
----------   ----------   ----------   ----------
$   14,583   $       --   $   18,226   $       --
==========   ==========   ==========   ==========
Developments:
Rental real estate .......................   $      166   $      413   $      181   $    1,064
Land and construction-in-progress ........           --           --        1,138        3,804

F-31

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

DECEMBER 31,
MARCH 31,   ------------------------------------
2004         2003         2002         2001
----------   ----------   ----------   ----------
(UNAUDITED)

Hotel and casino operating property ......          396       18,667        2,582       48,909
Hotel and resort operating properties ....          785        1,067        1,995       13,753
----------   ----------   ----------   ----------
$    1,347   $   20,147   $    5,896   $   67,530
==========   ==========   ==========   ==========

23. COMMITMENTS AND CONTINGENCIES

a. 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. At March 31,
2004, three of the rejected properties were classified as held for sale and one
property was sold. The Company recorded a provision for loss of approximately
$1.9 million on the four properties, whose leases were rejected, 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 March
31, 2004 (unaudited) and December 31, 2003 and 2002, the carrying value of the
seven properties (six properties at March 31, 2004) was approximately
$5,003,000, $5,482,000 and $6,529,000, respectively, which management believes
is less than the estimate of net realizable value.

b. Tiffiny Decorating Company ("Tiffiny"), a subcontractor to Great
Western Drywall ("Great Western"), filed a legal action against Stratosphere
Corporation, Stratosphere Development, LLC, American Real Estate Holdings
Limited Partnership (collectively referred to as the "Stratosphere Parties"),
Great Western, Nevada Title and Safeco Insurance, Case No. A443926 in the Eighth
Judicial District Court of the State of Nevada. The legal action asserts claims
that include breach of contract, unjust enrichment and foreclosure of lien. The
Stratosphere Parties have filed a cross-claim against Great Western in that
action. Additionally, Great Western has filed a separate legal action against
the Stratosphere Parties setting forth the same disputed issues. That separate
action, Case No. A448299 in the Eighth Judicial Court of the State of Nevada,
has been consolidated with the case brought by Tiffiny.

The initial complaint brought by Tiffiny asserts that Tiffiny performed
certain construction services at the Stratosphere and was not fully paid for
those services. Tiffiny claims the sum of $521,562 against Great Western, the
Statosphere Parties, and the other defendants, which the Stratosphere Parties
contend has been paid to Great Western for payment to Tiffiny.

Great Western is alleging that it is owed payment from the Stratosphere
Parties for work performed and for delay and disruption damages. Great Western
is claiming damages in the sum of $3,935,438 plus interest, costs and legal fees
from the Stratosphere Parties. This amount apparently includes the Tiffiny
claim.

The Stratosphere Parties have evaluated the project and have determined
that the amount of $1,004,059, of which $195,953 and $371,973 were disbursed to
Tiffiny and Great Western in 2002, respectively, is properly due and payable to
satisfy all claims for the work performed, including the claim by Tiffiny. The
remaining amount has been segregated in a separate interest bearing account. The
Stratosphere Parties intend to vigorously defend the action for claims in excess
of $1,004,059.

c. In January 2002, the Cape Cod Commission, (the "Commission"), a
Massachusetts regional planning body created in 1989, concluded that AREP's New
Seabury development is within its jurisdiction for review and approval (the
"Administrative Decision"). It is the Company's position that the proposed
residential, commercial and recreational development is in substantial
compliance with a special permit issued for the property in 1964 and is
therefore exempt from the Commission's jurisdiction and that Commission is
barred from exercising jurisdiction pursuant to a 1993 settlement agreement
between the Commission and a prior owner of the New Seabury property (the
"Settlement Agreement").

In February 2002, New Seabury Properties LLC ("New Seabury"), an AREP
subsidiary and owner of the property, filed in Barnstable County Massachusetts
Superior Court, a civil complaint appealing the Administrative Decision by the
Commission, and a separate civil complaint to find the Commission in contempt of
the Settlement Agreement. The Court subsequently consolidated the two complaints
into one proceeding. In July 2003, New Seabury and the Commission filed cross
motions for summary judgment.

F-32

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Also, in July 2003, in accordance with a Court ruling, the Commission
reconsidered the question of its jurisdiction over the initial development
proposal and over a modified development proposal that New Seabury filed in
March 2003. The Commission concluded that both proposals are within its
jurisdiction (the Second Administrative Decision). In August 2003, New Seabury
filed in Barnstable County Massachusetts Superior Court another civil complaint
appealing the Second Administrative Decision to find the Commission in contempt
of the Settlement Agreement.

In November 2003, the Court ruled in New Seabury's favor on its July 2003
motion for partial summary judgment, finding that the special permit remains
valid and that the modified development proposal is in substantial compliance
with the Special Permit and therefore exempt from the Commission's jurisdiction
(the Court did not yet rule on the initial proposal). Under the modified
development proposal New Seabury could potentially develop up to 278 residential
units and 145,000 square feet of commercial space. In March 2004, New Seabury
moved for Summary Judgment to dispose of remaining claims under all three
complaints and to obtain a final judgment from the Court. Also in March 2004,
the Commission cross-moved for summary judgment on certain claims under each
complaint. Under the initial proposal, New Seabury could potentially build up to
675 residential/hotel units and 80,000 square feet of commercial space. The
Company cannot predict the effect on the development process if it loses any
appeal or if the Commission is ultimately successful in asserting jurisdiction
over any of the development proposals.

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

In addition, in the ordinary course of business, the Company, its
subsidiaries and other companies in which the Company 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 Company's consolidated
financial statements taken as a whole.

24. FAIR VALUE OF FINANCIAL INSTRUMENTS

CASH AND CASH EQUIVALENTS, RECEIVABLES, NOTE RECEIVABLE DUE FROM AFFILIATE,
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES AND THE PREFERRED
LIMITED PARTNERSHIP UNITS LIABILITY

The carrying amount of cash and cash equivalents, receivables, note
receivable due from affiliate, and accounts payable, accrued expenses and other
liabilities and the Preferred Limited Partnership Units Liability 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 March 31, 2004 and December 31, 2003 and 2002 are
summarized as follows (in $000's):

AT MARCH 31, 2004         AT DECEMBER 31, 2003        AT DECEMBER 31, 2002
-----------------         --------------------        --------------------
NET        ESTIMATED        NET       ESTIMATED        NET        ESTIMATED
INVESTMENT    FAIR VALUE   INVESTMENT    FAIR VALUE    INVESTMENT    FAIR VALUE
----------    ----------   ----------    ----------    ----------    ----------
(UNAUDITED)

Total              $104,745       $122,756     $ 50,272       $ 55,000     $ 51,449      $ 53,973
========       ========     ========       ========     ========      ========

The net investment at March 31, 2004 and December 31, 2003 and 2002 is
equal to the carrying amount of the mortgage receivable less any deferred income
recorded.

F-33

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

MORTGAGES PAYABLE

The approximate estimated fair values of the mortgages payable as of March
31, 2004 and December 31, 2003 and 2002 are summarized as follows (in $000's):

AT MARCH 31, 2004         AT DECEMBER 31, 2003        AT DECEMBER 31, 2002
-----------------         --------------------        --------------------
CARRYING     ESTIMATED     CARRYING     ESTIMATED      CARRYING     ESTIMATED
VALUE       FAIR VALUE      VALUE      FAIR VALUE      VALUE       FAIR VALUE
-----       ----------      -----      ----------      -----       ----------
(UNAUDITED)

Total               $179,251     $182,081      $180,989      $185,000      $171,848      $190,000
========     ========      ========      ========      ========      ========

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.

25. 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 $7,600,000, $6,500,000 and $4,900,000 for the years ended
December 31, 2003, 2002 and 2001, respectively. Sufficient information is not
available from the plans' sponsors to permit the Company to determine the
adequacy of the plans' funding status.

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% to 50%. The Company recorded charges for matching contributions
of approximately $422,000, $433,000 and $477,000, for the years ended December
31, 2003, 2002 and 2001, respectively.

26. REPURCHASE OF DEPOSITARY UNITS

The Company has previously been authorized to repurchase up to 1,250,000
Depositary Units. As of March 31, 2004 and December 31, 2003, the Company has
purchased 1,137,200 Depositary Units at an aggregate cost of approximately
$11,921,000.

27. SUBSEQUENT EVENTS (UNAUDITED)

a. On May 7, 2004, the Company announced that it priced the offering of
senior notes due 2012 in a private placement transaction. The notes, in the
aggregate principal amount of $353 million, and priced at 99.266%, will bear
interest at a rate of 8.125% per annum. Net proceeds from the offering will be
used for general business purposes, including to pursue AREP's primary business
strategy of acquiring undervalued assets in either its existing lines of
business or other businesses and to provide additional capital to grow its
existing businesses.

b. On April 30, 2004, the Company received approximately $16.2 million for
the prepayment of a mezzanine loan. The principal amount of the loan was $11
million and the prepayment included deferred interest. The Company defers
recognition of interest income on mezzanine loans pending receipt of principal
and interest payment; therefore, the interest portion of the prepayment of $5.2
million will be recognized as income in the Consolidated Statements of Earnings
for the three and six months ended June 30, 2004.

c. In April, the Company sold nine properties for approximately $31.3
million which were encumbered by mortgage debt of approximately $6.6 million.
The carrying value of the properties was approximately $19.1 million; therefore,
the Company will recognize a gain of approximately $12.2 million in discontinued
operations in the three and six months ended June 30, 2004.

F-34

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

d. On May 26, 2004, American Casino, an indirect wholly-owned subsidiary
of the Company completed the acquisition of Arizona Charlie's Decatur and
Arizona Charlie's Boulder from Carl C. Icahn and an entity affiliated with Mr.
Icahn, for an aggregate consideration of $125.9 million. In connection with the
closing of the acquisitions, as previously contemplated, American Real Estate
Holdings Limited Partnership, transferred 100% of the common stock of the
Stratosphere to American Casino. As a result, American Casino owns and operates
three gaming and entertainment properties in the Las Vegas metropolitan area.
The Company indirectly owns 100% of American Casino and will consolidate
American Casino in its financial statements. In accordance with generally
accepted accounting principles, assets transferred between entities under common
control are 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 are restated on a combined basis.

F-35

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Partners
American Real Estate Holdings Limited Partnership:

We have audited the accompanying consolidated balance sheets of American
Real Estate Holdings Limited Partnership and subsidiaries as of December 31,
2003 and 2002, 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, 2003. These consolidated financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Real Estate Holdings Limited Partnership and subsidiaries as of December 31,
2003 and 2002 and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 2003 in conformity with
U.S. generally accepted accounting principles.

/s/ KPMG LLP

New York, New York
March 12, 2004

F-36

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
MARCH 31, 2004 (UNAUDITED) AND DECEMBER 31, 2003 AND 2002
(IN $000'S EXCEPT PER UNIT AMOUNTS)

DECEMBER 31,
MARCH 31,      --------------------------
2004            2003            2002
----------      ----------      ----------
(UNAUDITED)

ASSETS
Real estate leased to others:
Accounted for under the financing method (Notes 4, 14 and 15)                $  131,413      $  137,356      $  155,458
Accounted for under the operating method, net of accumulated 
depreciation (Notes 5, 14 and 15)                                               76,127          76,443         204,242          
Properties held for sale (Notes 5 and 14)                                         148,878         128,813           4,300
Investment in U.S. Government and Agency obligations (Note 6)                     122,650          61,573         336,051
Note receivable due from affiliate (Note 12)                                           --              --         250,000
Cash and cash equivalents (Note 2)                                                483,746         467,580          54,747
Marketable equity and debt securities (Note 7)                                     47,584          80,522          26,728
Mortgages and notes receivable (Note 11)                                          104,745          50,328          56,216
Investment in NEG Holding LLC (Note 10)                                            77,250          69,346         108,880
Equity interest in GB Holdings, Inc. (Note 8)                                      29,766          30,854          37,280
Hotel, casino and resort operating properties net of accumulated 
depreciation:
Stratosphere Corporation hotel and casino (Note 9)                              171,405         174,249         171,430
Hotel and resort (Notes 5 and 13)                                                35,358          41,526          44,346
Land and construction-in-progress                                                  43,708          43,459          40,415
Deferred tax asset (Note 18)                                                       80,835          82,450          25,522
Due from American Real Estate Partners, L.P.                                       18,045          18,044          18,056
Restricted cash (Note 9)                                                          219,313              --              --
Receivables and other assets                                                       51,803          43,056          42,454
----------      ----------      ----------
Total                                                                       $1,842,626      $1,505,599      $1,576,125
==========      ==========      ==========
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable (Notes 4, 5 and 15):
Real estate leased to others                                                 $   96,778      $   98,128      $  171,848
Properties held for sale                                                         82,473          82,861              --
----------      ----------      ----------
179,251         180,989         171,848
Senior secured notes payable (Note 17)                                            215,000              --              --
Liability for purchase of debt securities                                          54,769              --              --
Credit facility due affiliates (Notes 10 and 16)                                       --              --          10,940
Senior notes due affiliates (Notes 10 and 16)                                          --              --         148,637
Interest payable-senior notes (Note 16)                                                --              --          44,360
Accounts payable, accrued expenses and other liabilities                           60,303          53,843          54,493
----------      ----------      ----------
509,323         234,832         430,278
----------      ----------      ----------
Commitments and contingencies (Notes 3 and 19)
Limited partners:                                                               1,319,970       1,258,059       1,134,388
General partner                                                                    13,333          12,708          11,459
----------      ----------      ----------
Partners' equity                                                                1,333,303       1,270,767       1,145,847
----------      ----------      ----------
Total                                                                       $1,842,626      $1,505,599      $1,576,125
==========      ==========      ==========

See notes to consolidated financial statements.

F-37

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED) AND YEARS ENDED
DECEMBER 31, 2003, 2002 AND 2001
(IN $000'S EXCEPT PER UNIT AMOUNTS)

THREE MONTHS ENDED
MARCH 31,                   YEARS ENDED DECEMBER 31,
-----------------------     -------------------------------------
2004         2003          2003           2002         2001
---------     ---------     ---------     ---------     ---------
(UNAUDITED)

Revenues:
Hotel and casino operating income (Note 9)                $  45,715     $  40,642     $ 163,701     $ 156,315     $ 144,354
Land, house and condominium sales                             5,014         4,860        13,265        76,024        55,566
Interest income on financing leases                           2,936         3,418        13,115        14,722        16,935
Interest income on U.S. Government and Agency
obligations and other investments (Notes 11 and 12)          4,883         4,560        22,543        30,344        30,367
Rental income                                                 3,161         2,810        11,636        10,516        10,431
Hotel and resort operating income (Note 13)                   2,104         2,073        14,592        14,918        12,276
Accretion of investment in NEG Holding LLC (Note 10)          7,904         8,750        30,142        32,879         9,834
Oil and gas operating income                                     --            --            --            --        33,176
NEG management fee                                            2,619         1,874         7,967         7,637         2,699
Dividend and other income (Notes 7 and 11)                      834           900         3,061         2,720         4,877
Equity in earnings (loss) of GB Holdings, Inc. (Note 8)        (348)         (857)       (3,466)          305         1,807
---------     ---------     ---------     ---------     ---------
74,822        69,030       276,556       346,380       322,322
---------     ---------     ---------     ---------     ---------
Expenses:
Hotel and casino operating expenses (Note 9)                 34,019        32,709       135,429       131,659       127,956
Cost of land, house and condominium sales                     3,358         4,103         9,129        54,640        42,599
Hotel and resort operating expenses (Note 13)                 2,097         2,265        11,138        12,553        10,792
Interest expense (Notes 7, 14, 15 and 17)                     4,694         6,361        18,191        27,369        34,765
Oil and gas operating expenses                                   --            --            --            --         5,569
Depreciation and amortization                                 5,092         4,605        17,773        17,613        20,814
General and administrative expenses (Note 3)                  4,364         3,372        14,081        14,134        13,011
Property expenses                                             1,184         1,091         5,475         4,682         3,028
---------     ---------     ---------     ---------     ---------
54,808        54,506       211,216       262,650       258,534
---------     ---------     ---------     ---------     ---------
Operating income                                               20,014        14,524        65,340        83,730        63,788
Other gains and (losses):
Provision for loss on real estate                                --          (200)         (750)       (3,212)       (3,184)
Gain on sale of marketable equity and debt securities        28,857            --         2,607            --         6,749
Write-down of equity securities available for sale               --          (961)
(Note 7)                                                                                  (961)       (8,476)           --
Write-down of mortgages and notes receivable (Note 7)            --            --       (18,798)           --            --
Gain on sales and disposition of real estate (Note 14)        6,047         1,138         7,121         8,990         1,737
Minority interest in net earnings of Stratosphere
Corporation (Note 9)                                            --            --            --        (1,943)         (450)
---------     ---------     ---------     ---------     ---------
Income from continuing operations before income taxes          54,918        14,501        54,559        79,089        68,640
Income tax benefit (expense) (Note 18)                       (4,302)       (2,878)        6,495        (7,480)       30,077
---------     ---------     ---------     ---------     ---------
Income from continuing operations                            50,616        11,623        61,054        71,609        98,717
---------     ---------     ---------     ---------     ---------
Discontinued operations:
Income from discontinued operations                           2,458         1,629         6,139         6,007         6,117
Gain on sales and disposition of real estate                  6,929            --         3,353            --            --
---------     ---------     ---------     ---------     ---------
Income from discontinued operations                             9,387         1,629         9,492         6,007         6,117
---------     ---------     ---------     ---------     ---------
Net earnings                                                $  60,003     $  13,252     $  70,546     $  77,616     $ 104,834
=========     =========     =========     =========     =========
Net earnings attributable to (Note 3):
Limited partners                                          $  59,403     $  13,119     $  69,841     $  76,840     $ 103,786
General partners                                                600           133           705           776         1,048
---------     ---------     ---------     ---------     ---------
$  60,003     $  13,252     $  70,546     $  77,616     $ 104,834
=========     =========     =========     =========     =========

See notes to consolidated financial statements.

F-38

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS'
EQUITY AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2004 (UNAUDITED) AND YEARS ENDED
DECEMBER 31, 2003, 2002 AND 2001
(IN $000'S EXCEPT PER UNIT AMOUNTS)

GENERAL         LIMITED
PARTNER'S       PARTNER'S       PARTNERS'
EQUITY           EQUITY         EQUITY
-----------     -----------     -----------

Balance, December 31, 2000                                    $     9,349     $   925,592     $   934,941
Comprehensive income:
Net earnings                                                        1,048         103,786         104,834
Reversal of unrealized loss on sale of debt securities                 39           3,857           3,896
Net unrealized losses on securities available for sale               (135)        (13,391)        (13,526)
-----------     -----------     -----------
Comprehensive income                                                  952          94,252          95,204
-----------     -----------     -----------
Balance, December 31, 2001                                         10,301       1,019,844       1,030,145
Comprehensive income:
Net earnings                                                          776          76,840          77,616
Reversal of unrealized loss on sale of debt securities                106          10,489          10,595
Adjustment to reverse unrealized loss on investment
securities reclassified to notes receivable                          66           6,516           6,582
Net unrealized losses on securities available for sale                 (2)           (240)           (242)
-----------     -----------     -----------
Comprehensive income                                                  946          93,605          94,551
Net adjustment for acquisition of minority interest (Note
9(a))                                                               212          20,939          21,151
-----------     -----------     -----------
Balance, December 31, 2002                                         11,459       1,134,388       1,145,847
Comprehensive income:
Net earnings                                                          705          69,841          70,546
Reversal of unrealized loss on sale of debt securities                  8             753             761
Net unrealized gains on securities available for sale                  92           9,082           9,174
Sale of marketable equity securities available for sale                (3)           (277)           (280)
-----------     -----------     -----------
Comprehensive income                                                  802          79,399          80,201
Recognition of deferred tax asset at date of bankruptcy
(Note 18)                                                           475          47,052          47,527
Capital distribution (Note 1)                                         (28)         (2,780)         (2,808)
-----------     -----------     -----------
Balance, December 31, 2003                                         12,708       1,258,059       1,270,767
Comprehensive income (unaudited):
Net earnings                                                       600          59,403          60,003
Reversal of unrealized gains on sale of debt securities            (49)         (4,851)         (4,900)
Net unrealized gains on securities available for sale               74           7,359           7,433
-----------     -----------     -----------
Comprehensive income                                                  625          61,911          62,536
-----------     -----------     -----------
Balance, March 31, 2004 (unaudited)                           $    13,333     $ 1,319,970     $ 1,333,303
===========     ===========     ===========

Accumulated other comprehensive gain (loss) at March 31, 2004, December
31, 2003, 2002 and 2001 was $11,707 (unaudited), $9,174, ($242) and ($17,178),
respectively.

See notes to consolidated financial statements.

F-39

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(IN $000'S)

THREE MONTHS ENDED
MARCH 31,                  YEARS ENDED DECEMBER 31,
-----------------------     -------------------------------------
2004          2003          2003          2002          2001
---------     ---------     ---------     ---------     ---------
(UNAUDITED)

Cash flows from operating activities:
Income from continuing operations                               $  50,616     $  11,623     $  61,054     $  71,609     $  98,717
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) operating activities:
Depreciation and amortization                                       5,092         4,605        17,773        17,613        20,814
Gain on sale of marketable equity securities                     (28,857)       (1,138)       (2,607)           --        (6,749)
Gain on sales and disposition of real estate                      (6,047)                     (7,121)       (8,990)       (1,737)
Provision for loss on real estate                                     --           200           750         3,212         3,184
Write-down of equity securities available for sale                    --           961           961         8,476            --
Write-down of mortgages and notes receivable                          --            --        18,798            --            --
Minority interest in net earnings of Stratosphere                     
Corporation                                                          --            --            --         1,943           450
Equity in (earnings) losses of GB Holdings, Inc                      348           857         3,466          (305)       (1,807)
Deferred gain amortization                                          (510)         (510)       (2,038)       (2,038)         (849)
Accretion of investment in NEG Holding LLC                        (7,904)       (8,750)      (30,142)      (32,879)       (9,834)
Deferred income tax (benefit) expense                              1,615         1,491        (7,147)        7,480       (30,077)
Change in fair market value of derivative contracts                   --            --            --            --           716
Changes in operating assets and liabilities:
(Decrease) increase in accounts payable, accrued
expenses and other liabilities                                 10,532       (34,327)      (42,952)       (3,037)       (1,359)
(Increase) decrease in receivables and other assets            (12,759)        1,313        (2,682)       28,283        12,323
---------     ---------     ---------     ---------     ---------
Net cash provided by (used in) continuing operations            12,126       (23,675)        8,113        91,367        83,792
---------     ---------     ---------     ---------     ---------
Income from discontinued operations                                 9,387         1,629         9,492         6,007         6,117
Depreciation and amortization                                         18         1,028         4,212         3,616         3,383
Net gain from property transactions                               (6,929)           --        (3,353)           --            --
---------     ---------     ---------     ---------     ---------
Net cash provided by discontinued operations                      2,476         2,657        10,351         9,623         9,500
---------     ---------     ---------     ---------     ---------
Net cash provided by (used in) operating activities              14,602       (21,018)       18,464       100,990        93,292
---------     ---------     ---------     ---------     ---------
Cash flows from investing activities:
Increase in mortgages and notes receivable                             --       (30,963)      (31,112)      (23,200)      (15,583)
Repayments of mortgages and notes receivable                          351            --        12,200        23,000            --
Net proceeds from the sales and disposition of real estate         11,346         3,279        15,290        20,513         3,656
Principal payments received on leases accounted for under
the financing method                                               1,112         1,386         5,310         5,941         6,858
Additions to hotel, casino and resort operating property           (1,181)       (1,139)      (19,734)       (4,577)      (62,662)
Acquisitions of rental real estate                                (14,583)           --            --       (18,226)           --
Additions to rental real estate                                      (166)          (76)         (413)         (181)       (1,064)
Decrease (increase) in investment in U.S. Government and
Agency Obligations (Note 2)                                      (61,077)       15,398       274,478       (22,410)      162,046
Disposition of marketable equity & debt securities                 64,471            --         3,843            --        17,929
Disposition proceeds on sale mortgages and notes receivable            --            --         2,621            --            --
Increase in marketable equity & debt securities                        --            --       (45,140)       (4,415)           --
Decrease (increase) in note receivable from affiliate                  --            --       250,000            --      (250,000)
Decrease in minority interest in Stratosphere Corp.                    --            --            --       (44,744)           --
Decrease in investment in Stratosphere Corp.                           --            --           788            --            --
Investment in NEG, Inc                                                 --            --      (148,101)           --            --
Investment in NEG Holding LLC                                          --            --            --            --        (4,379)
Guaranteed payment from NEG Holding LLC                                --         2,250        18,229        21,653         3,625
Priority distribution from NEG Holding LLC                             --        40,506        40,506            --            --
Oil and natural gas acquisition, exploration and
development expenditures                                              --            --            --            --       (26,432)
Decrease in due to affiliate                                           --            --            --       (68,815)       (8,716)
Increase in restricted cash                                      (219,313)           --            --            --            --
Increase in due from affiliate                                         --            --            --            --        (6,000)
Other                                                                 (50)          134           589           197           115
---------     ---------     ---------     ---------     ---------
Net cash provided by (used in) continuing operations           (219,090)       30,775       379,354      (115,264)     (180,607)
Cash flows from discontinued operations:
Net proceeds from the sales and disposition of real estate        7,392            --         5,336            --            --
---------     ---------     ---------     ---------     ---------
Net cash provided by (used in) investing activities            (211,698)       30,775       384,690      (115,264)     (180,607)
---------     ---------     ---------     ---------     ---------

See notes to consolidated financial statements.

F-40

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED) AND YEARS ENDED
DECEMBER 31, 2003, 2002 AND 2001
(IN $000'S)

THREE MONTHS ENDED
MARCH 31,                   YEARS ENDED DECEMBER 31,
-----------------------     -------------------------------------
2004         2003          2003          2002           2001
---------     ---------     ---------     ---------     ---------
(UNAUDITED)

Cash Flows From Financing Activities:
Debt:
Repayment of credit facility                                      --            --            --            --       (25,000)
Proceeds from credit facility                                     --            --            --            --        10,940
Repayment of senior notes                                         --            --            --            --       (10,500)
Proceeds from Senior Secured Notes Payable                   215,000            --            --            --            --
Proceeds from mortgages payable                                   --            --        20,000        12,700            --
Payments on mortgages payable                                     --            --        (3,837)         (462)       (6,457)
Periodic principal payments                                   (1,738)       (2,036)       (6,484)       (7,198)       (6,840)
Balloon payments                                                  --            --            --            --        (1,756)
---------     ---------     ---------     ---------     ---------
Net cash provided by (used in) financing activities         213,262        (2,036)        9,679         5,040       (39,613)
---------     ---------     ---------     ---------     ---------
Net increase (decrease) in cash and cash equivalents             16,166         7,721       412,833        (9,234)     (126,928)
Cash and cash equivalents, beginning of year                    467,580        54,747        54,747        63,981       190,910
---------     ---------     ---------     ---------     ---------
Cash and cash equivalents at end of year                      $ 483,746     $  62,468     $ 467,580     $  54,747     $  63,982
=========     =========     =========     =========     =========
Supplemental information:
Cash payments for interest, net of amounts capitalized      $   4,766     $  46,554     $  62,324     $  36,646     $  51,910
=========     =========     =========     =========     =========
Cash payments for income taxes                                     --     $      --     $      --     $      --     $   1,200
=========     =========     =========     =========     =========
Supplemental schedule of noncash investing and financing 
activities:
Reclassification of real estate to operating lease            $      --     $   2,158     $   5,065     $  13,403     $   3,082
Reclassification from hotel and resort operating 
properties                                                      (6,395)           --            --            --        (1,167)
Reclassification of real estate from financing lease            (14,353)       (2,158)       (5,065)      (13,503)       (9,754)
Reclassification of real estate from operating lease                 --            --      (126,263)           --            --
Reclassification of real estate to property held for sale        20,748            --       126,263           100         6,672
Decrease in mortgages and notes receivable                           --        (3,453)       (3,453)           --            --
Decrease in deferred income                                          --         2,565         2,565            --            --
Increase in real estate accounted for under the operating 
method                                                              --           888           888            --            --
Reclassification of real estate to (from)
construction-in-progress                                            --            --            --            --         1,167
Reclassification from marketable equity and debt 
securities                                                          --            --            --       (20,494)           --
Reclassification from receivable and other assets                    --        (1,631)       (1,631)           --            --
Reclassification to mortgages and notes receivable                   --         1,631         1,631        20,494            --
---------     ---------     ---------     ---------     ---------
$      --     $      --     $      --     $      --     $      --
=========     =========     =========     =========     =========
Net unrealized gains (losses) on securities available for 
sale                                                         $   2,378     $   1,165     $   9,174     $    (242)    $ (13,526)
=========     =========     =========     =========     =========
Increase in equity and debt securities                        $      --     $      --     $   1,200     $   2,890     $   2,500
=========     =========     =========     =========     =========
Purchase of debt securities                                   $  54,769     $      --     $      --     $      --     $      --
=========     =========     =========     =========     =========
Contribution of note from NEG Holding LLC                     $      --     $  10,940     $  10,940     $      --     $      --
=========     =========     =========     =========     =========
Transfer of assets and liabilities to NEG Holding LLC         $      --     $      --     $      --     $      --     $  87,066
=========     =========     =========     =========     =========

See notes to consolidated financial statements

F-41

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 (UNAUDITED) AND DECEMBER 31, 2003, 2002 AND 2001

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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

By virtue of the Exchange, the Company owns the assets, subject to the
liabilities, of the Predecessor Partnerships. The Limited Partner owns a 99%
limited partner interest in the Company. American Property Investors, Inc. (the
"General Partner") owns a 1% general partner interest in both the Limited
Partner and the Company, representing an aggregate 1.99% general partner
interest in the Company and the Limited Partner. The General Partner is owned
and controlled by Mr. Carl C. Icahn ("Mr. Icahn" or "Icahn").

On August 16, 1996, the Company amended its Partnership Agreement to
permit non-real estate related acquisitions and investments which has allowed
and continues to permit the Company to take advantage of investment
opportunities it believes exist outside of the real estate market in order to
seek to enhance unitholder value and further diversify its assets. 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 portion
of the Company's assets invested in any one type of security or any single
issuer will not be limited.

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 (the "1940
Act"). Generally, this means that no more than 40% of the Company's total assets
will be invested in investment securities as such is defined in the 1940 Act. In
addition, the Company does not intend to invest in securities as its primary
business and 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, (iv) participation
and management of oil and gas operating properties and (v) investment in
securities including investment in other entities and marketable equity and debt
securities.

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. In December 2002, the Company
purchased the remaining 49% minority interest. See Note 9.

In October 2003, the Company acquired certain debt and equity securities
of National Energy Group, Inc. ("NEG") from entities affiliated with Icahn for
an aggregate consideration of $148.1 million. NEG owns a 50% interest in NEG
Holding LLC ("Holding LLC") which owns oil and gas properties managed by NEG.
The other 50% interest in Holding LLC is held by an Icahn affiliate and managing
member. In connection with the acquisition of stock in NEG, the excess of cash
disbursed over the historical cost which amounted to $2.8 million was charged to
the partner's equity accounts in accordance with their partnership interests.

In accordance with generally accepted accounting principles, assets
transferred between entities under common control are 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 are
restated on a combined basis. There is no minority interest allocated to the
other NEG stockholders because of NEG's negative equity. See Note 10.

F-42

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Statements and Principles of Consolidation -- The consolidated
financial statements are prepared in accordance with accounting principles
generally accepted in the United States 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 in subsidiaries that are less than 50% owned under the equity
method of accounting.

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
March 31, 2004 (unaudited), December 31, 2003 and 2002 are investments in
government backed securities of approximately $416,000,000, $378,000,000 and
$5,467,000, 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. Investments 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 or available for
sale 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 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

a. 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.

b. The Company has provided development financing for certain real estate
projects. The security for these loans is either a second mortgage or a pledge
of the developers' ownership interest in the properties. Such loans are
subordinate to construction financing and are generally referred to as mezzanine
loans. Current mezzanine loans accrue interest at approximately 22% per annum.
Generally interest is not paid periodically but is due at maturity or earlier
from unit sales or refinancing proceeds. The Company defers recognition of
interest income on mezzanine loans pending receipt of principal and interest
payments.

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 and NEG, the
Company's corporate subsidiaries, account for their 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.

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.

F-43

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. A property is classified as held for sale at the time
management determines that the criteria in SFAS 144 have been met. Properties
held for sale are carried at the lower of cost or net realizable value. Such
properties are no longer depreciated and their operations are included in
discontinued operations.

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. The more
significant estimates include the valuation of (i) long-lived assets, (ii)
mortgages and notes receivable, (iii) marketable equity and debt securities,
(iv) costs to complete for land, house and condominium developments, (v)
gaming-related liability and loyalty programs and (vi) deferred tax assets.

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".

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.

Investment in NEG Holding LLC -- Due to the substantial uncertainty that
the Company will receive any distribution above the priority and guaranteed
payment amounts, the Company accounts for its investment in Holding LLC as a
preferred investment whereby guaranteed payment amounts received and receipts of
the priority distribution amount are recorded as reductions in the investment
and income is recognized from accretion of the investment up to the priority
distribution amount, including the guaranteed payments (based on the interest
method) (see Note 10). Following receipt of the guaranteed payments and priority
distributions, the residual interest in the investment will be valued at zero.

The Company periodically evaluates the propriety of the carrying amount of
its investment in Holding LLC to determine whether current events or
circumstances warrant adjustments to the carrying value and/or revisions to
accretion of income. The Company currently believes that no such impairment has
occurred and that no revision to the accretion of income is warranted.

F-44

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:

In January 2003, the FASB issued FASB Interpretation 46 (revised December
2003), Consolidation of Variable Interest Entities, which addresses how a
business enterprise should evaluate whether it has a controlling financial
interest in an entity through means other than voting rights and accordingly
should consolidate the entity. FIN 46R, issued in December 2003 as a revision to
the original interpretation, clarifies the application of ARB 51, Consolidated
Financial Statements, to certain entities in which the equity investors do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support.

The Company is required to apply FIN 46R to variable interests created
after January 2003. For variable interest entities created prior to January
2003, for which FIN 46 has not been applied prior to December 24, 2003, the
interpretation is required to be applied in reporting periods ending after March
15, 2004. The interpretation had no effect on the Company's financial
statements.

The Company has an investment in a variable interest entity, which owns
oil and natural gas operating properties. The variable interest entity has net
assets of $161 million. The Company has determined that it is not the primary
beneficiary of the variable interest entity. The maximum exposure to losses as a
result of its involvement with the variable interest entity was $69 million at
December 31, 2003 and $77 million at March 31, 2004 (unaudited).

3. RELATED PARTY TRANSACTIONS

a. On January 5, 2004, American Casino & Entertainment Properties LLC
("American Casino"), an indirect wholly-owned subsidiary of the Company, entered
into an agreement to acquire two Las Vegas casino/hotels, Arizona Charlie's
Decatur and Arizona Charlie's Boulder from Mr. Icahn and an entity affiliated
with Mr. Icahn, for an aggregate consideration of $125.9 million. Mr. Icahn is
Chairman of the Board of American Property Investors, Inc., AREP's General
Partner ("API" or the "General Partner"). The closing of the acquisition is
subject to certain conditions, including among other things, obtaining all
approvals necessary under the gaming laws. The terms of the transactions were
approved by the Audit Committee of the Board of Directors of the General Partner
("Audit Committee") which was advised by its independent financial advisor and
by counsel. See Note 9.

b. At December 31, 2002, the Company had a $250 million note receivable
from Mr. Icahn, Chairman of the General Partner, which was repaid in October
2003. (See Note 12).

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
paid $17,068 per month, together with 16.79% of certain "additional rent". In
November 2000, the Company reduced its office size to 2,275 square feet, which
decreased its monthly rental to $11,185 plus 10.77% of certain additional rent.
For the three months ended March 31, 2004 and 2003 (unaudited), the Company paid

F-45

rent of approximately $39,000 and $37,000, respectively. In the years ended
December 31, 2003, 2002 and 2001, the Company paid such affiliate approximately
$159,000, $153,000 and $147,000 of rent, respectively, in connection with this
licensing agreement. The terms of such sublease were reviewed and approved by
the Audit Committee. The agreement expires in May 2004. If the Company must
vacate the space, it believes there will be adequate alternative space
available.

d. Stratosphere received as reimbursement from affiliates of the General
Partner approximately $0.8 million and $0.6 million in the three months ended
March 31, 2004 and 2003 (unaudited), respectively, and $2,993,000, $1,675,000
and $1,343,000 in the years ended December 31, 2003, 2002 and 2001,
respectively, for administrative services performed by Stratosphere personnel.

Stratosphere received hotel revenue of approximately $3,000, $123,000 and
$600,000 in the years ended December 31, 2003, 2002 and 2001, respectively, in
connection with a tour and travel agreement entered into with an affiliate of
the General Partner. Stratosphere also received approximately $101,000 in hotel
and food revenue from an affiliate of the General Partner in the year ended
December 31, 2003 in connection with a conference held at Stratosphere.
Stratosphere did not receive any revenue from affiliates of the General Partner
during the three months ended March 31, 2004 and 2003 (unaudited).

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, 2003, 2002, and 2001 and the three months ended March 31,
2004 (unaudited).

f. NEG received management fees from an affiliate of approximately $2.6
million and $1.9 million in the three months ended March 31, 2004 and 2003
(unaudited), respectively, and $7,967,000, $7,637,000 and $2,699,000 in the
years ended December 31, 2003, 2002 and 2001, respectively.

g. NEG entered into an agreement to manage TransTexas Gas Corporation, an
Icahn affiliate, for a fee of $312,500 per month.

h. For the three months ended March 31, 2004 (unaudited) and for the year
ended December 31, 2003, the Company paid approximately $39,000 and $81,000,
respectively, to an affiliate of the General Partner for telecommunication
services.

i. See Note 9(b) in connection with the acquisition of Arizona Charlie's
Decatur and Arizona Charlies Boulder from Icahn and an entity affiliated with
Icahn.

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):

MARCH 31,                  DECEMBER 31,
2004               2003               2002
----------          ---------          ----------
(UNAUDITED)

Minimum lease payments receivable........    $  156,066          $ 161,785          $  180,943
Unguaranteed residual value..............        70,722             74,651              87,160
----------          ---------          ----------
226,788            236,436             268,103
Less unearned income.....................        95,375             99,080             112,645
----------          ---------          ----------
$  131,413          $ 137,356          $  155,458
==========          =========          ==========

F-46

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a summary of the anticipated future receipts of the
minimum lease payments receivable at December 31, 2003 in ($000's):

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

2004........      $    17,797
2005........           15,686
2006........           15,491
2007........           14,577
2008........           13,221
Thereafter..           85,013
-----------
$   161,785
===========

At December 31, 2003, approximately $107,543,000 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

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

MARCH 31,         DECEMBER 31,
2004         2003         2002
--------     --------     --------
(UNAUDITED)

Land ............................   $ 18,523     $ 24,040     $ 55,034
Commercial Buildings ............     72,079       83,252      194,521
--------     --------     --------
90,602      107,292      249,555
Less accumulated depreciation ...     14,475       30,849       45,313
--------     --------     --------
$ 76,127     $ 76,443     $204,242
========     ========     ========

As of December 31, 2003 and 2002, accumulated depreciation on the hotel
and resort operating properties (not included above) amounted to approximately
$12,341,000 and $9,665,000, respectively (See Note 13).

The following is a summary of the anticipated future receipts of
minimum lease payments under non-cancelable leases at December 31, 2003 (in
$000's):

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

2004.........     $    9,967
2005.........          8,802
2006.........          5,443
2007.........          3,874
2008.........          2,810
Thereafter...          5,799
----------
$   36,695
==========

At December 31, 2003, approximately $15,630,000 of net real estate
leased to others was pledged to collateralize the payment of non-recourse
mortgages payable.

F-47

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

b.   Real estate held for sale (in $000's):

MARCH 31,        DECEMBER 31,
2004         2003         2002
--------     --------     --------
(UNAUDITED)

Leased to others ................   $182,195     $146,416     $     --
Vacant ..........................      2,100        2,550        4,300
--------     --------     --------
184,295      148,966        4,300
Less accumulated depreciation ...     35,417       20,153           --
--------     --------     --------
$148,878     $128,813     $  4,300
========     ========     ========

The following is a summary of income from discontinued operations ($000's):

MARCH 31,                    DECEMBER 31,
-------------------     -------------------------------
2004        2003        2003        2002        2001
-------     -------     -------     -------     -------
(UNAUDITED)

Rental income ............................  $ 4,736     $ 4,681     $18,548     $17,409     $16,456
Hotel and resort operating income ........    1,139       1,176       3,912       3,679       4,142
-------     -------     -------     -------     -------
5,875       5,857      22,460      21,088      20,598
-------     -------     -------     -------     -------
Mortgage interest expense ................    1,548       1,562       6,247       5,691       5,599
Depreciation and amortization ............       18       1,027       4,212       3,616       3,383
Property expenses ........................    1,007         778       2,546       2,589       2,127
Hotel and resort operating expenses ......      844         861       3,316       3,185       3,372
-------     -------     -------     -------     -------
3,417       4,228      16,321      15,081      14,481
-------     -------     -------     -------     -------
Income from discontinued operations ......  $ 2,458     $ 1,629     $ 6,139     $ 6,007     $ 6,117
=======     =======     =======     =======     =======

At December 31, 2003 and March 31, 2004 (unaudited), approximately
$105,984,000 and $105,750,000, respectively, of real estate held for sale was
pledged to collateralize the payment of non-recourse 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 2004 to December 2008 as follows (in $millions):

DECEMBER 31,
MARCH 31,         ----------------------------------------
2004                  2003                  2002
------------------    ------------------    ------------------
COST     CARRYING     COST     CARRYING     COST     CARRYING
BASIS       VALUE     BASIS       VALUE     BASIS       VALUE
------     ------     ------     ------     ------     ------
(UNAUDITED)

Available for Sale:
Matures in:
less than 1 year ...  $114.4     $114.1     $ 52.8     $ 52.8     $292.9     $292.9
2-5 years ..........     8.5        8.6        9.0        8.8       39.7       39.7
Thereafter .........      --         --         --         --        3.4        3.4
------     ------     ------     ------     ------     ------
$122.9     $122.7     $ 61.8     $ 61.6     $336.0     $336.0
======     ======     ======     ======     ======     ======

F-48

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

DECEMBER 31,
MARCH 31,       -------------------------------------
2004                2003                2002
-----------------   -----------------   -----------------
COST     CARRYING   COST     CARRYING   COST     CARRYING
BASIS     VALUE     BASIS     VALUE     BASIS     VALUE
-----     -----     -----     -----     -----     -----
(UNAUDITED)

Available for Sale:
Philip Service Corporation (b):
Equity .........................  $  --     $  --     $  --     $  --     $ 9.4     $ 0.2
Corporate bonds (c) ..............    9.5      17.8      45.1      51.6        --        --
Other ............................    1.1       4.8       1.3       4.2       2.5       3.0
-----     -----     -----     -----     -----     -----
10.6      22.6      46.4      55.8      11.9       3.2
Held-to-maturity:
GB Notes(a) ......................   21.3      25.0      21.3      24.7      21.3      23.5
-----     -----     -----     -----     -----     -----
Total ...........................  $31.9     $47.6     $67.7     $80.5     $33.2     $26.7
=====     =====     =====     =====     =====     =====

a. 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.

The Company, the General Partner, and the directors and officers of the
General Partner were 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 was equal to the Company's cost for such Notes. The affiliate of
the General Partner was obligated to sell back to the Company, and the Company
was obligated to repurchase such interests at the same price (together with a
commercially reasonable interest factor), when the appropriate licenses were
obtained by the Company. The Company would 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 $0.9 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 ("GBH") and (ii) $15.96 million face amount of GB
Property First Mortgage Notes ("GB Notes"), plus $21.56 million in cash. The
Company 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 were, in effect, holding on behalf of the Company (i) approximately 3.6
million common shares of

F-49

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

GBH and (ii) $26.9 million face amount of GB Notes, to which the Company would
become entitled and obligated to purchase when it was fully licensed. As of
February 2001, the Company no longer had any interests in the Claridge.

In May 2002, the Company was qualified as a holding company by the New
Jersey Casino Control Commission (the "Casino Control Commission") and in
accordance with the prior agreement repurchased its interest in the Sands,
located in Atlantic City, New Jersey, from affiliates of the General Partner. As
a result, the Company acquired approximately 3.6 million common shares (36%) of
GBH and $26.9 million face amount of GB Notes. The Company paid approximately
$68.8 million to reacquire its interests representing the affiliates' advances
plus accrued interest of approximately $11 million. In accordance with the
agreement, interest was accrued from March 2000 to May 2002 at an annual rate of
1 1/2% over the prime rate. Interest expense of approximately $919,000, and
$5,306,000 for the years ended December 31, 2002 and 2001, respectively, has
been included in "Interest expense" in the Consolidated Statements of Earnings.
As required by the New Jersey Casino Control Act (the "Casino Control Act"), the
Partnership Agreement was amended to provide that securities of the Company are
held subject to the condition that if a holder thereof is found to be
disqualified by the Casino Control Commission, pursuant to the provisions of the
Casino Control Act, such holder shall dispose of his interest in the Company in
accordance with the Casino Control Act.

In July 2003, GBH announced that its Board of Directors, acting 
through a special committee, approved an exchange offer for the GB Notes. The 
proposed transaction is subject to the consent of the holders of a majority in 
principal amount of the GB notes; the approval of stockholders owning a 
majority of the common stock of GBH, the effectiveness of required filings 
under applicable securities laws and the receipt of all required governmental 
and third party approvals. Mr. Icahn and his affiliated companies hold in 
excess of 77% of the GBH stock and 58% of the existing debt, of which the 
Company owns approximately 36% of the common stock and 24% of the debt. The 
Company and Mr. Icahn intend to support the proposed transaction. The GB Notes 
in the face amount of $110 million are due in September 2005 and bear interest 
at 11% per annum.

The proposed transaction would involve the following:

-    An amendment to the existing note indenture to remove certain
provisions and covenants and release the liens on the Sands
assets; thereby allowing the transfer of these assets and those
now held at GBH to a wholly-owned indirect subsidiary of GBH,
Atlantic Coast Entertainment Holdings, Inc. ("Atlantic Holdings").

-    The solicitation of an exchange of the existing notes for new 
notes due September 2008, which will bear interest at 3% per annum
payable at maturity.

-    The payment of $100 per $1,000 in principal amount of the 
existing notes exchanged.

-    The holders of a majority of the new notes will have an option to 
convert into 72.5% of the Atlantic Holdings stock if all of the
existing notes participate in the exchange.

-    The distribution to the GBH common stockholders of warrants 
(following the occurrence of certain events) for 27.5% of the
common stock of Atlantic Holdings (on a fully diluted basis).

As the exchange will be accounted for as a modification of debt for
accounting purposes, this transaction is not expected to have a significant
impact on the Company's consolidated financial statements.

For accounting purposes, the Company reflects its interest in the GB
Notes as held to maturity.

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

F-50

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

b. At December 31, 2002, the Company owned the following approximate
interests in Philip Service Corporation ("Philip"): (i) 1.8 million common
shares, (ii) $14.2 million in secured term debt, and (iii) $10.9 million in
accreted secured convertible payment-in-kind debt. The Company had an
approximate 7% equity interest in Philip and an Icahn affiliate had an
approximate 38% equity interest. Icahn affiliates also owned term and
payment-in-kind debt.

The secured term debt matures March 31, 2005 and bears interest at 9%
per annum. Interest was 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 was accreted quarterly with interest on the
accreted interest also calculated at the rate of 10% per annum.

The market value of Philip's common stock declined steadily since it
was acquired by the Company. In 2002, based on a review of Philip's financial
statements, management of the Company deemed the decrease in value to be other
than temporary. As a result, the Company wrote down its investment in Philip's
common stock by charges to earnings of $8,476,000 and charges to other
comprehensive income ("OCI") of $761,000 in the year ended December 31, 2002.
This investment had been previously written down by approximately $6.8 million
in charges to earnings. The Company's adjusted carrying value of Philip's common
stock was approximately $200,000 at December 31, 2002.

In June 2003, Philip announced that it and most of its wholly owned
U.S. subsidiaries filed voluntary petitions under Chapter 11 of the Federal
Bankruptcy Code.

In the year ended December 31, 2003, management of the Company
determined that it was appropriate to write-off the balance of its investment in
the Philip's common stock by a charge to earnings of approximately $961,000; of
this amount $761,000 was previously charged to other comprehensive income in
2002, which was reversed in 2003, and included in the $961,000 charge to
earnings.

The Company also has a participation in Philip's debt with an original
cost at the date of their acquisition of approximately $19.7 million. At
December 31, 2001, such notes were classified as available-for-sale securities
and were written down through charges to OCI, to an estimated fair market value
of approximately $13.2 million. In 2002, upon concluding its review of these
investments, management determined that such investments were more properly
classified as notes receivable.

Approximately $6.6 million of charges to OCI were reversed and the
investments were reclassified at their original cost to "Mortgages and notes
receivable" at December 31, 2002. These adjustments had no effect on the
Company's reported earnings for the year ended December 31, 2002.

In 2003, the cost basis of the debt was approximately $22.1 million. As
previously mentioned, Philip filed for bankruptcy protection in June 2003.
Management of the Company reviewed Philip's financial statements, bankruptcy
documents and the prices of recent purchases and sales of the debt and
determined this investment to be impaired. Based upon this review, management
concluded the fair value of the debt to be approximately $3.3 million;
therefore, the Company recorded a write-down of approximately $18.8 million by a
charge to earnings which was included in "Write-down of mortgages and notes
receivable" in the Consolidated Statements of Earnings in the year ended
December 31, 2003. In December 2003, the Company sold two-thirds of its term and
PIK debt with a basis of $2.2 million for $2.6 million generating a gain of $0.4
million.

Philip emerged from bankruptcy on December 31, 2003 as a private
company controlled by an Icahn affiliate. The Company's remaining interest in
the notes will be delivered and exchanged for approximately 443,000 common
shares representing a 4.4% equity interest in the new Philip valued at the
carrying value of the debt at December 31, 2003 of $1.1 million. Subsequent to
December 31, 2003, the Company received a bankruptcy distribution of
approximately $350,000.

c. In December 2003, the Company acquired approximately $86.9 million
principal amount of corporate bonds for approximately $45.1 million. Such bonds
were classified as available for sale securities. Available for sale securities
are carried at fair value on the Balance Sheet. Unrealized holding gains and
losses are excluded from earnings and reported as a separate component of
Partners' Equity. At December 31, 2003, the carrying value of the bonds was
approximately $51.6 million and accumulated other comprehensive gain was
approximately $6.5 million. In the first quarter of 2004, the Company sold bonds
for which the cost basis was approximately $35.6 million for approximately $64.5
million, recognizing a gain of approximately $28.9 million for the three months
ended March 31, 2004 (unaudited). At March 31, 2004 (unaudited), the carrying
value of the remaining bonds was approximately

F-51

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$17.8 million, the cost basis was approximately $9.5 million and accumulated
other comprehensive gain with respect to the bonds was approximately $8.3
million. In April 2004, the Company sold the remaining bonds for approximately
$17.8 million realizing a gain of approximately $8.3 million which will be
recognized in the three and six months ended June 30, 2004.

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 approximately
($0.3 million) and ($0.9 million) for the three months ended March 31, 2004 and
2003, respectively, and ($3.4 million), $0.3 million and $1.8 million have been
recorded in the Consolidated Statements of Earnings in the years ended December
31, 2003, 2002 and 2001, respectively (See Note 7).

9.   HOTEL AND CASINO OPERATING PROPERTY

a. In September 2000, Stratosphere Corp.'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 Corp. ("Stratosphere") under which the Company would acquire the
remaining shares of Stratosphere that it did not currently own. The Company
owned approximately 51% of Stratosphere and Mr. Icahn owned approximately 38.6%.
The Company, subject to certain conditions, agreed to pay approximately $44.3
million for the outstanding shares of Stratosphere not currently owned by it.
Stratosphere stockholders not affiliated with Icahn would receive a cash price
of $45.32 per share and Icahn related stockholders would receive a cash price of
$44.33 per share. This transaction was completed in December 2002 after
shareholders' approval.

The acquisition by the Company of the minority shares not owned by an
Icahn affiliate has been accounted for as a purchase in accordance with
Financial Accounting Standards Board ("FASB") Statement No. 141, "Business
Combinations." The acquisition by the Company of the common stock held by an
Icahn affiliate has been recorded at historical cost. The excess of the
historical cost over the amount of the cash disbursed, which amounted to
$21,151,000, has been accounted for as a net addition to the partner's equity in
accordance with their partnership interests.

The Company indirectly owns 100% of Stratosphere and consolidates
Stratosphere in its financial statements. The Stratosphere which offers the
tallest free-standing observation tower in the United States, is situated on
approximately 31 acres of land located at the northern end of the Las Vegas
Strip. The facility is a tourist-oriented gaming and entertainment destination
property, which has approximately 80,000 square feet of gaming space, 2,444
hotel rooms, eight restaurants and approximately 110,000 square feet of
developed retail space. The Stratosphere features three of the most visible
amusement rides in Las Vegas.

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 improvements were substantially completed in June 2001.

Stratosphere's property and equipment consist of the following as of
March 31, 2004 and December 31, 2003 and 2002 (in $000's):

DECEMBER 31,
MARCH 31,      ------------------------
2004           2003           2002
---------      ---------      ---------
(UNAUDITED)

Land and improvements, including land held for development .   $  20,639      $  20,625      $  20,110
Building and improvements ..................................     141,170        140,922        135,989
Furniture, fixtures and equipment ..........................      61,118         58,577         57,158
Construction in progress ...................................       1,891          4,179            329
---------      ---------      ---------
224,818        224,303        213,586
Less accumulated depreciation and amortization .............     (53,413)       (50,054)       (42,156)
---------      ---------      ---------
$ 171,405      $ 174,249      $ 171,430
=========      =========      =========

Included in property and equipment at December 31, 2002 are assets
recorded under capital leases of $1.9 million.

F-52

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stratosphere's operations for three months ended March 31, 2004 and
2003 and for the years ended December 31, 2003, 2002 and 2001 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 $3,360,000 and $3,388,000 of depreciation and
amortization for the three months ended March 31, 2004 and 2003 (unaudited),
respectively, and for approximately $12,276,000, $13,328,000 and $11,257,000 of
depreciation and amortization for the years ended December 31, 2003, 2002 and
2001, respectively, and $2,687,000 and $1,387,000 of income tax expense for the
three months ended March 31, 2004 and 2003 (unaudited), respectively, and
$2,259,000 of income tax benefit for the year ended December 31, 2003 and
$2,412,000 and $513,000 of income tax provision for the years ended December 31,
2002 and 2001, respectively. Such amounts have been included in "Depreciation
and amortization expense" and "Income tax benefit (expense)" in the Consolidated
Statements of Earnings.

b. On January 5, 2004, American Casino and Entertainment Properties LLC
("ACEP"), an indirect wholly-owned subsidiary of the Company, entered into an
agreement to acquire two Las Vegas casino/hotels, Arizona Charlie's Decatur and
Arizona Charlie's Boulder from Mr. Icahn and an entity affiliated with Mr.
Icahn, for an aggregate consideration of $125.9 million. The closing of the
acquisition is subject to certain conditions, including among other things,
obtaining all approvals necessary under the gaming laws. The terms of the
transaction were approved by the Audit Committee. Upon receiving all approvals
necessary under gaming laws and upon closing of the acquisition, American Real
Estate Holdings Limited Partnership ("AREH"), the Company's direct subsidiary,
will transfer 100% of the common stock of Stratosphere to ACEP. As a result,
following the acquisition and contribution, ACEP will own and operate three
gaming and entertainment properties in the Las Vegas metropolitan area. In
accordance with generally accepted accounting principles, assets transferred
between entities under common control are accounted for at historical costs
similar to a pooling of interests. Upon closing, in May 2004, the Company
accounted for the acquisition at historical cost similar to a pooling of
interests.

Also in January 2004, ACEP closed on its offering of Senior Secured
Notes Due 2012. The Notes, in the aggregate principal amount of $215 million,
bear interest at the rate of 7.85% per annum. The proceeds will be held in
escrow pending receipt of all approvals necessary under gaming laws and certain
other conditions in connection with the acquisition of Arizona Charlie's Decatur
and Arizona Charlie's Boulder. ACEP intends to use the proceeds of the offering
for the acquisition and to repay intercompany indebtedness and for distributions
to AREH. At March 31, 2004, escrow funds in the amount of $219,313,000 are
reflected as "Restricted Cash" in the accompanying Consolidated Balance Sheet.

PROPERTIES UNDER CONTRACT

ARIZONA CHARLIE'S DECATUR

Arizona Charlie's Decatur is located on approximately 17 acres of land,
four miles west of the Las Vegas strip and contains approximately 52,000 square
feet of gaming space, 258 hotel rooms, four restaurants and three bars. For the
three months ended March 31, 2004 and 2003 (unaudited), Arizona Charlie's
Decatur's revenues were approximately $19.2 million and $17.3 million,
respectively.

ARIZONA CHARLIE'S BOULDER

Arizona Charlie's Boulder is located on approximately 24 acres of land,
seven miles east of the Las Vegas strip and contains approximately 41,000 square
feet of gaming space, 303 hotel rooms, four restaurants and a 202-space
recreational vehicle park. For the three months ended March 31, 2004 and 2003
(unaudited), Arizona Charlie's Boulder's revenues were approximately $10.1
million and $7.8 million, respectively.

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

F-53

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10.  NATIONAL ENERGY GROUP

a.   National Energy Group, Inc.

In October 2003, pursuant to a Purchase Agreement dated as of May 16,
2003, the Company acquired certain debt and equity securities of National Energy
Group, Inc. ("NEG") from entities affiliated with Mr. Icahn for an aggregate
consideration of approximately $148.1 million plus approximately $6.7 million of
accrued interest on the debt securities. The agreement was reviewed and approved
by the Audit Committee who were advised by its independent financial advisor and
legal counsel. The securities acquired were $148,637,000 in principal amount of
outstanding 10 3/4% Senior Notes due 2006 of NEG and 5,584,044 shares of common
stock of NEG. As a result of the foregoing transaction and the acquisition by
the Company of additional securities of NEG prior to the closing, the Company
beneficially owns in excess of 50% of the outstanding common stock of NEG.

NEG owns a 50% interest in NEG Holding LLC ("Holding LLC"), the other
50% interest in Holding LLC is held by Gascon Partners ("Gascon") an Icahn
affiliate and managing member. Holding LLC owns NEG Operating LLC ("Operating
LLC") which owns operating oil and gas properties managed by NEG. Under the
Holding LLC operating agreement NEG is to receive guaranteed payments of
approximately $47.9 million in addition to a priority distribution of
approximately $148.6 million before the Icahn affiliate receives any monies. Due
to the substantial uncertainty that NEG will receive any distribution above the
priority and guaranteed payments amounts, NEG accounts for its investment in
Holding LLC as a preferred investment. The Company consolidates NEG in its
financial statements.

In connection with a credit facility obtained by Holding LLC, NEG and
Gascon have pledged as security their respective interests in Holding LLC.

b.   Investment in NEG Holding LLC

As explained below, NEG's investment in Holding LLC is recorded as a
preferred investment. The initial investment was recorded at historical carrying
value of the net assets contributed with no gain or loss recognized on the
transfer.

Summarized financial information for Holding LLC as of and for the
years ended December 31, is as follows (in $000's):

DECEMBER 31,
MARCH 31,    ---------------------
2004         2003         2002
--------     --------     --------
(UNAUDITED)

Current assets ........................   $ 38,399     $ 33,415     $ 42,126
Noncurrent assets(1) ..................    198,574      189,988      180,611
--------     --------     --------
Total assets ..........................   $236,973     $223,403     $222,737
========     ========     ========
Current liabilities ...................   $ 13,305     $ 14,253     $ 20,927
Noncurrent liabilities ................     48,464       48,640        1,968
--------     --------     --------
Total liabilities .....................     61,769       62,893       22,895
Member's equity .......................    175,204      160,510      199,842
--------     --------     --------
Total liabilities and member's equity .   $236,973     $223,403     $222,737
========     ========     ========

----------

(1) Primarily oil and gas properties:

MARCH 31,                        DECEMBER 31,
----------------------      ------------------------------------
2004          2003          2003          2002          2001
--------      --------      --------      --------      --------
(UNAUDITED)

Total revenues ..........  $ 25,569      $ 19,501      $ 80,475      $ 39,509      $ 12,637
Costs and expenses ......   (11,044)      (11,743)      (47,277)      (32,064)       (9,988)
--------      --------      --------      --------      --------
Operating income ........    14,525         7,758        33,198         7,445         2,649
Other income (expense) ..      (358)       (3,019)       (2,855)        6,481        (3,940)
--------      --------      --------      --------      --------
Net income (loss) .......  $ 14,167      $  4,739      $ 30,343      $ 13,926      $ (1,291)
========      ========      ========      ========      ========

F-54

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Under Holding LLC Operating Agreement, NEG is to receive guaranteed
payments in addition to a priority distribution amount of $202.2 million before
Gascon receives any monies. The priority distribution is to be made on or before
November 1, 2006. Guaranteed payments are to be paid, on a semi annual basis,
based on an annual interest rate of 10.75% of the outstanding priority
distribution amount. After the payments to NEG, Gascon is to receive
distributions equivalent to the priority distribution amount and guaranteed
payments plus other amounts as defined. Following the above distributions to NEG
and Gascon, additional distributions, if any, are to be made in accordance with
their respective capital accounts. The order of distributions is listed below.
Because of the substantial uncertainty that NEG will receive any distributions
above the priority and guaranteed payment amounts, NEG accounts for its
investment in Holding LLC as a preferred investment.

Prior to September 2001, NEG owned and operated certain oil and gas
properties. At inception (September 12, 2001), NEG recorded the investment in
Holding LLC at the historical cost of the oil and gas properties that NEG
contributed into the partnership (in exchange for Holding LLC obligation to pay
NEG the priority distribution and guaranteed payments). Subsequently, NEG
accretes its investment in Holding LLC from the initial investment recorded up
to the priority distribution amount, including the guaranteed payments, at the
implicit rate of interest, recognizing the accretion income in earnings.
Accretion income is periodically adjusted for changes in the timing of cash
flows, if necessary due to unscheduled cash distributions. Receipt of guaranteed
payments and the priority distribution are recorded as reductions in the
preferred investment. The preferred investment is evaluated quarterly for other
than temporary impairment.

Because of the substantial uncertainty that NEG will receive any
distributions in excess of the priority distribution and the guaranteed payments
("residual interest"), the residual interest attributable to the investment in
Holding LLC is valued at zero. Upon payment of the priority distribution in
2006, NEG's investment in Holding LLC will be zero. Cash receipts, if any, after
the priority distribution and the guaranteed payments will be reported in income
as earned.

The following is a roll forward of the Investment in Holding LLC as of
March 31, 2004 (unaudited) and December 31, 2003 (in $000s):

MARCH 31,    DECEMBER 31,
2004          2003
---------     ---------
(UNAUDITED)

Investment in Holding LLC at beginning of period     $  69,346     $ 108,880
Priority distribution from Holding LLC ..........           --       (51,446)
Guaranteed payment from Holding LLC .............           --       (18,230)
Accretion of investment in Holding LLC ..........        7,904        30,142
---------     ---------
Investment in Holding LLC at end of period ......    $  77,250     $  69,346
=========     =========

Holding LLC Operating Agreement requires that distributions shall be
made to both NEG and Gascon as follows:

1. Guaranteed payments are to be paid to NEG, calculated on an annual
interest rate of 10.75% on the outstanding priority distribution amount. The
priority distribution amount includes all outstanding debt owed to entities
owned or controlled by Carl C. Icahn, including the amount of NEG's 10.75%
Senior Notes. As of March 31, 2004 and December 31, 2003, the priority
distribution amount was $148.6 million which equals the amount of NEG's 10.75%
Senior Notes due the Company. The guaranteed payments will be made on a
semi-annual basis.

2. The priority distribution amount is to be paid to NEG. Such payment
is to occur by November 6, 2006.

3. An amount equal to the priority distribution amount and all
guaranteed payments paid to NEG, plus any additional capital contributions made
by Gascon, less any distribution previously made by NEG to Gascon, is to be paid
to Gascon.

4. An amount equal to the aggregate annual interest (calculated at
prime plus 1/2% on the sum of the guaranteed payments), plus any unpaid interest
for prior years (calculated at prime plus 1/2% on the sum of the guaranteed
payments), less any distributions previously made by NEG to Gascon, is to be
paid to Gascon.

F-55

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. After the above distributions have been made, any additional
distributions will be made in accordance with the ratio of NEG's and Gascon's
respective capital accounts.

In addition, the Holding LLC Operating Agreement contains a provision that
allows Gascon at any time, in its sole discretion, to redeem the NEG membership
interest in Holding LLC at a price equal to the fair market value of such
interest determined as if Holding LLC had sold all of its assets for fair market
value and liquidated. Since all of the NEG's operating assets and oil and
natural gas properties have been contributed to Holding LLC, as noted above,
following such a redemption, NEG's principal assets would consist solely of its
cash balances.

11.  MORTGAGES AND NOTES RECEIVABLE (IN $000'S)

BALANCE AT
BALANCE     MONTHLY                     DECEMBER 31,
COLLATERALIZED BY PROPERTY TENANTED BY   INTEREST    MATURITY       AT       PAYMENT    MARCH 31,    ---------------------
OR DEBTOR                                  RATE        DATE      MATURITY    AMOUNT       2004          2003       2002
---------                                --------    --------    --------    -------    ---------       ----       ----
(UNAUDITED)

Peninsula/Hampton & Alex Hotel(b) ....   Various      Various          --         --    $  42,030    $  42,030   $  23,200
Philip debt(c) .......................       --            --          --         --          741        1,091      20,494
Westpoint Stevens (d) ................       15%    2/28/2005   $  63,500         --       54,769           --          --
Other ................................       --            --          --         --        7,205        7,207      12,522
---------    ---------   ---------
$ 104,745    $  50,328   $  56,216
=========    =========   =========

The Company has provided development financing for certain real estate
projects. The security for these loans is a pledge of the developers' ownership
interest in the properties. Such loans are subordinate to construction financing
and are generally referred to as mezzanine loans. The Company's mezzanine loans
accrue interest at approximately 22% per annum. However interest is not paid
periodically and is due at maturity or earlier from unit sales or refinancing
proceeds. The Company defers recognition of interest income on mezzanine loans
pending receipt of principal and interest payments.

a. 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 were 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 provided 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 provided for
interest accruing at a rate of 21.5% per annum with principal and interest due
at maturity, November 29, 2002. The loans were payable at any time from the
proceeds of unit sales after satisfaction of senior debt of approximately $45
million. The loans were secured by the pledge of membership interests in the
entity that owns the real estate. In May 2002, the Company received
approximately $31.3 million for prepayment of the mezzanine loans. The balance
of the prepayment of $8.3 million represented accrued interest ($7.9 million)
and exit fees ($0.4 million) which amounts were recognized as "Interest income
on U.S. Government and Agency obligations and other investments" and "Other
income" respectively, in the Consolidated Statements of Earnings for the year
ended December 31, 2002.

b. At December 31, 2002, the Company had funded two mezzanine loans for
approximately $23.2 million and had commitments to fund, under certain
conditions, additional advances of approximately $5 million. Both loans have an
interest rate of 22% per annum compounded monthly. The Peninsula loan, for a
Florida condominium development, which had a term of 24 months from the date of
funding, February 2002, was repaid in full in 2003. Approximately $6.8 million
of interest income was recorded and is included in "Interest income on U.S.
Government and Agency obligations and other investments" in the Consolidated
Statements of Earnings. The Alex Hotel loan, for a New York City hotel with
approximately 200 rooms, has a term of 36 months from the closing date, April
2002. At December 31, 2003, accrued interest of approximately $4.4 million has
been deferred for financial statement purposes pending receipt of principal and
interest payments in connection with this loan. Origination fees of $3.0 million
have been received in connection with one of the mezzanine loans and
approximately $1.5 million and $1.1 million has been recognized as "Other
income" in the Consolidated Statements of Earnings in the years ended December
31, 2003 and 2002 respectively. In February 2003, the Company funded the Hampton
mezzanine loan for approximately $30 million on a Florida condominium
development. The loan is due in 18 months with one six month extension and has
an interest rate of 22% per annum compounded monthly. The Company has committed
to fund an additional $15 million if required by the borrower to complete the
project. At December 31, 2003 accrued interest of approximately $6.7 million has
been deferred for financial statement purposes pending receipt of principal and

F-56

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

interest payments in connection with this loan.

c. See Note 7 with respect to Philip debt.

d. On March 30, 2004, the Company agreed to purchase approximately
$63.5 million principal amount of secured bank indebtedness of a bankrupt
company WestPoint Stevens, Inc. for a purchase price of approximately $54.8
million. In April 2004, the Company entered into a trade confirmation effective
March 30, 2004. At March 31, 2004, the Company reflected the purchase liability
in "Liability for purchase of debt securities" on the Consolidated Balance
Sheets. The trade settled on April 30, 2004; the Company paid cash for the
securities.

12.  NOTE RECEIVABLE DUE FROM AFFILIATE

On October 17, 2003 Mr. Icahn, Chairman of the Board of the General
Partner, repaid the $250 million loan which had been made to him by the Company
on December 27, 2001. The Company made the two-year $250 million loan to Mr.
Icahn, secured by securities consisting of (i) 21,136,044 and 8,073,466 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, 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 interest on the loan was 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 applicable
rate in 2003 was 3.9% and in 2002 ranged from 3.9% to 4.03%. Interest income of
approximately $7.9 million, $9.9 million and $.1 million was earned on this loan
in the years ended December 31, 2003, 2002 and 2001, respectively, and is
included in "Interest income on U.S. Government and Agency obligations and other
investments" in the Consolidated Statements of Earnings.

The Company entered into this transaction to earn interest income on a
secured investment. The terms of this transaction were reviewed and approved by
the Audit Committee.

13.  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 for this property ("hotel and resort operating income" less
"hotel and resort operating expenses") resulted in losses of approximately
$240,000 and $330,000 for the three months ended March 31, 2004 and 2003
(unaudited), respectively, and income of approximately $3,033,000, $1,909,000
and $712,000 for the years ended December 31, 2003, 2002, and 2001,
respectively. Hotel and resort operating expenses include all expenses except
for approximately $647,000 and $614,000 for the three months ended March 31,
2004 and 2003 (unaudited), respectively, and $2,451,000, $1,833,000 and $970,000
for the years ended December 31, 2003, 2002 and 2001, respectively, of
depreciation and amortization, which is included in such caption in the
Consolidated Statements of Earnings.

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

F-57

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

b. The Company owns a hotel located in Miami, Florida which has a carrying
value of approximately $6.4 million, $6.3 million and $6.4 million at December
31, 2003, 2002 and March 31, 2004 (unaudited), respectively, and is unencumbered
by any mortgages. Approximately $1.3 million of capital improvements were
completed in the year ended December 31, 2002.

The Company has a management agreement for the operation of the hotel with
a national management organization. In the three months ended March 31, 2004 and
2003, net hotel operations which totaled $296,000 and $316,000, respectively,
have been included in discontinued operations. Depreciation expense of $52,000
for each of the three months ended March 31, 2004 and 2003 (unaudited) has been
included in discontinued operations. Net hotel and resort operations ("hotel and
resort operating revenues" less "hotel and resort operating expenses") totaled
approximately $596,000, $494,000 and $770,000 for the years ended December 31,
2003, 2002 and 2001, respectively, and have been included in discontinued
operations. Depreciation expense of $210,000, $374,000 and $342,000 for the
years ended December 31, 2003, 2002 and 2001, respectively, have been included
in discontinued operations.

14. SIGNIFICANT PROPERTY TRANSACTIONS

Information on significant property transactions during the three-year
period ended December 31, 2003 is as follows:

a. In September 2002, the Company purchased an industrial building located
in Nashville, Tennessee for approximately $18.2 million. The building was
constructed in 2001 and is fully leased to two tenants, Alliance Healthcare and
Jet Equipment & Tools Inc., with leases expiring in 2011. The annual net
operating income is anticipated to be approximately $1.6 million increasing to
approximately $1.9 million by 2011. In October 2002, the Company closed a $12.7
million non-recourse mortgage loan on the Nashville, Tennessee property. The
loan bears interest at 6.4% per annum and matures in ten years. Required
payments are interest only for the first three years and then principal
amortization will commence based on a thirty-year amortization schedule.

At December 31, 2003, 2002 and March 31, 2004 (unaudited), the property
had a carrying value of approximately $17,584,000, $18,066,000 and $17,584,000,
respectively, and was encumbered by a non-recourse mortgage in the amount of
$12,700,000.

b. In October 2002, the Company sold a property located in North Palm
Beach, Florida for a selling price of $3.5 million. A gain of approximately $2.4
million was recognized in the year ended December 31, 2002.

c. In October 2003, the Company sold a property located in Columbia,
Maryland to its tenant for a selling price of $11 million. A gain of
approximately $5.8 million was recognized in the year ended December 31, 2003.

d. Due to favorable real estate market conditions and the mature nature of
the Company's real portfolio, the Company has engaged C.B. Richard Ellis, Inc.
to assist it in obtaining offers for its rental real estate portfolio. The
Company intends to utilize proceeds from any asset sales to continue to invest
in its core businesses, including real estate, gaming and entertainment and oil
and gas. The Company may also seek opportunities in other sectors including
industrial, manufacturing and insurance and asset management. In total, the
Company is marketing for sale properties with a book value of approximately $340
million individually encumbered by mortgage debt which in the aggregate is
approximately $179 million at March 31, 2004 (unaudited). There can be no
assurance that offers satisfactory to the Company will be received and, if
received, that the properties will ultimately be sold at prices acceptable to
the Company.

At March 31, 2004 (unaudited), the Company had 40 properties under
contract or as to which letters of intent had been executed by potential
purchasers, all of which contracts or letters of intent are subject to
purchaser's due diligence and other closing conditions. Selling prices for the
properties covered by the contracts or letters of intent would total
approximately $323 million but the properties are encumbered by aggregate
mortgage debt of approximately $142 million which would have to be repaid out of
the proceeds of the sales or assumed by the purchaser. At March 31, 2004
(unaudited), the carrying value of these properties is approximately $226
million. In 2003, net income from these properties totaled approximately $7
million; interest expense was approximately $11 million; and depreciation and
amortization expense was approximately $4.2 million. In accordance with
generally accepted accounting principles, only the real estate operating
properties under contract or letter of intent, but not the financing lease
properties, were reclassified to "Properties held for sale" and the related
income and expense reclassified to "Income from discontinued operations."

F-58

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In January 2004, the Company sold five properties to Alabama Power, its
tenant, for approximately $10.9 million, recognizing a gain of approximately
$6.0 million. Also in January 2004, AREP sold a grocery-anchored shopping center
located in Audubon, New Jersey for approximately $7.3 million, recognizing a
gain of approximately $6.8 million, which is included in discontinued
operations.

In January 2004, the Company purchased a 34,422 square foot commercial
condominium unit located in New York City for approximately $14.5 million. The
unit contains a Citibank branch, a furniture store and a restaurant. AREP
obtained mortgage financing of $10 million for this property in April 2004.

15. MORTGAGES PAYABLE

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

BALANCE AT DECEMBER 31,
ANNUAL PRINCIPAL         MARCH 31,               -----------------------
RANGE OF INTEREST RATES     RANGE OF MATURITIES    AND INTEREST PAYMENT         2004                  2003               2002
-----------------------     -------------------    --------------------         ----                  ----               ----
(UNAUDITED)

5.630% -- 8.430%.......       10/15/07 - 12/31/18    $           19,328    $        179,251        $       180,989        $  166,287
9.000 -- 9.500.........       11/30/03 - 11/30/09                   --                   --                     --             5,561
------------------    ----------------        ---------------        ----------
$           19,328    $        179,251        $       180,989        $  171,848
==================    ================        ===============        ==========

The following is a summary of the anticipated future principal payments of
the mortgages (in 000's):

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

2004............    $     6,489
2005............          6,702
2006............          7,360
2007............         14,176
2008............         58,817
2009 -- 2013....         66,905
2014 -- 2018....         20,540
-----------
$   180,989
===========

a. See Note 14a for Mid-South Logistics financing in October 2002.

b. On May 16, 2003, the Company executed a mortgage note secured by a
distribution facility located in Windsor Locks, Connecticut and obtained funding
in the principal amount of $20 million. The loan bears interest at 5.63% per
annum and matures on June 1, 2013. Annual debt service is approximately
$1,382,000 per annum based on a 30 year amortization schedule.

c. See Note 14(a).

16. SENIOR NOTES AND CREDIT FACILITY DUE AFFILIATES

a. The Senior Notes of National Energy Group, Inc. ("Notes") were held in
their entirety by affiliates of Icahn at December 31, 2002. The Notes bear
interest at an annual rate of 10 3/4%, payable semiannually in arrears on May 1
and November 1 of each year. The Notes are senior, unsecured obligations of NEG,
ranking pari passu with all existing and future senior indebtedness of NEG, and
senior in right of payment to all future subordinated indebtedness of NEG.
Subject to certain limitations set forth in the indenture covering the Senior
Notes (the "Indenture"), NEG and its subsidiaries may incur additional senior
indebtedness and other indebtedness.

F-59

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Indenture contains certain covenants limiting NEG with respect to the
following: (i) asset sales; (ii) restricted payments; (iii) the incurrence of
additional indebtedness and the issuance of certain redeemable preferred stock;
(iv) liens; (v) sale and leaseback transactions; (vi) lines of business; (vii)
dividend and other payment restrictions affecting subsidiaries; (viii) mergers
and consolidations; and (ix) transactions with affiliates.

NEG was unable to reasonably determine the fair value of the Notes at
December 31, 2002, due to a lack of available market quotations, credit ratings
and inability to determine an appropriate discount rate.

In August 2001, NEG redeemed both $16.4 million of principal outstanding
under the notes and $4.8 million of Reinstated Interest for a cash consideration
of $10.5 million. NEG paid two Icahn affiliates approximately $.4 million in
current interest on the redeemed senior note obligations at the date of
redemption related to interest owed from the last semi-annual interest payment
date of May 1, 2001, to the date of redemption. As this was a partial redemption
of the Notes, it has been accounted for as a modification of terms that changes
the amounts of future cash payments. Accordingly, the excess of redeemed
principal and interest over the redemption payment of $10.5 million is being
amortized as a reduction to interest expense over the remaining life of the
bonds. In connection with this transaction, NEG borrowed $10.9 million under its
existing credit facility with an Icahn affiliate.

In October 2003, the Company acquired these Notes. At December 31, 2003,
these Notes were eliminated in consolidation (See Note 10).

b. At December 31, 2002, NEG had $10.9 million outstanding under its
existing $100 million credit facility with Arnos, an Icahn affiliate. Arnos
continued to be the holder of the credit facility; however, the $10.9 million
note outstanding under the credit facility was contributed to Holding LLC as
part of Gascon's contribution to Holding LLC on September 12, 2001. In December
2001, the maturity date of the credit facility was extended to December 31, 2003
and NEG was given a waiver of compliance with respect to any and all covenant
violations. NEG was not in compliance with the minimum interest coverage ratio
at September 30, 2002; and December 31, 2002 and the current ratio at December
31, 2002, however, in December 2001, NEG was given a waiver of compliance with
respect to any and all covenant violations through December 31, 2003.

On March 26, 2003, Holding LLC distributed the $10.9 million note
outstanding under NEG'S revolving credit facility as a priority distribution to
NEG, thereby canceling the note. Also, on March 26, 2003, NEG, Arnos and
Operating LLC entered into an agreement to assign the credit facility to
Operating LLC. Effective with this assignment, Arnos amended the credit facility
to increase the revolving commitment to $150 million, increase the borrowing
base to $75 million and extend the revolving due date until June 30, 2004.
Concurrently, Arnos extended a $42.8 million loan to Operating LLC under the
amended credit facility. Operating LLC then distributed $42.8 million to Holding
LLC who, thereafter, made a $40.5 million priority distribution and a $2.3
million guaranteed payment to NEG. NEG utilized these funds to pay the entire
amount of the long-term interest payable on the Notes and interest accrued
thereon outstanding on March 27, 2003. The Arnos facility was canceled on
December 29, 2003 in conjunction with a third party bank financing.

17. SENIOR SECURED NOTES PAYABLE

In January 2004, ACEP closed on its offering of Senior Secured Notes Due
2012. The Notes, in the aggregate principal amount of $215 million, bear
interest at the rate of 7.85% per annum. The proceeds are being held in escrow
pending receipt of all approvals necessary under gaming laws and certain other
conditions in connection with the acquisition of Arizona Charlie's Decatur and
Boulder. ACEP intends to use the proceeds of the offering for the acquisition
and to repay intercompany indebtedness and for distributions to AREH. The notes
will be recourse only to, and will be secured by a lien on the assets of, ACEP
and its subsidiaries. The notes will restrict the ability of those companies,
subject to the exceptions set forth in the notes, to: incur additional debt; pay
dividends and make distributions; make certain investments; repurchase stock;
create liens; enter into transactions with affiliates; enter into sale and
leaseback transactions; merge or consolidate; and transfer, lease or sell
assets. At March 31, 2004 (unaudited), the gross proceeds of the offering plus
accrued interest paid is being held in escrow and included on the Consolidated
Balance Sheets as "Restricted cash." For the three months ended March 31, 2004
(unaudited), $3 million of interest expense is included in "Interest expense" in
the Consolidated Statement of Earnings.

F-60

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

18. INCOME TAXES (IN $000'S)

DECEMBER 31,
-------------------------------------
2003                 2002
---------------      ----------------

a. 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:
Book basis of American Real Estate Holding's net assets excluding
Stratosphere Corp. and NEG, Inc..........................................              $     1,149,418      $      1,177,329
Excess of tax over book (Excess of book over tax basis)........................                 79,238                (1,778)
---------------      ----------------
Tax basis of net assets........................................................        $     1,228,656      $      1,175,551
===============      ================

b. Corporate income taxes

(i)   The Company's corporations recorded the following income tax (expense)
benefit attributable to continuing operations for 'Stratosphere and NEG
for the three months ended March 31, 2004 and the years ended December 31,
2003, 2002 and 2001 (in $000's):

MARCH 31,                        DECEMBER 31,
--------------------------      -------------------------------
2004            2003           2003        2002       2001
----------      ----------      ---------   ---------   ----------
(UNAUDITED)

Current..............    $     (201)     $     (181)     $    (723)  $      --   $      --
Deferred.............        (4,101)         (2,697)         7,218       (7,480)     30,077
----------      ----------      ---------   ---------   ----------
$   (4,302)     $   (2,878)     $   6,495   $   (7,480) $   30,077
==========      ==========      =========   ==========  ==========

(ii)  The tax effect of significant differences representing net deferred tax
assets (the difference between financial statement carrying values and the
tax basis of assets and liabilities) for the Company is as follows at
March 31, 2004 and December 31, 2003 and 2002 (in $000's):

DECEMBER 31,
MARCH 31,   --------------------------
2004          2003          2002
-----------   -----------   ------------
(UNAUDITED)

Deferred tax assets:
Depreciation...............................    $    39,886   $    40,191   $     61,628
Net operating loss carryforwards...........         26,675        30,942         45,958
Investment in NEG Holding LLC..............         19,404        18,845          8,440
Other......................................         10,745         8,347          9,950
-----------   -----------   ------------
96,710        98,325        125,976
Valuation allowance.......................        (15,875)      (15,875)      (100,454)
-----------   -----------   ------------
Net deferred tax assets...................    $    80,835   $    82,450   $     25,522
===========   ===========   ============

At March 31, 2004 and December 31, 2003, Stratosphere had net operating
loss carryforwards available for federal income tax purposes of approximately
$23.9 million (unaudited) and $28.5 million, respectively, which begin expiring
in 2019.

SFAS 109 requires a "more likely than not" criterion be applied when
evaluating the realizability of a deferred tax asset. As of December 31, 2002,
given Stratosphere's history of losses for income tax purposes, the volatility
of the industry within which the Stratosphere operates, and certain other
factors, Stratosphere had established a valuation allowance for the deductible
temporary differences, including the excess of the tax basis of the
Stratosphere's assets over the basis of such assets for financial statement
purposes and the tax carryforwards. However, at December 31, 2003, based on
various factors including the current earnings trend and future taxable income
projections, Stratosphere determined that it was more likely than not that the
deferred tax assets will be realized and removed the valuation allowance.

In accordance with SFAS 109, the tax benefit of any deferred tax asset
that existed on the effective date of a reorganization should be reported as a
direct addition to contributed capital. Stratosphere has deferred tax assets
relating to both before and after Stratosphere emerged from bankruptcy in
September of 1998. The net decrease in the valuation allowance was $79.3 million
of which a net amount of $47.5 million was credited to partners' capital in the
year ended December 31, 2003.

F-61

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At March 31, 2004 and December 31, 2003, NEG had net operating loss
carryforwards available for federal income tax purposes of approximately $52.3
million (unaudited) and $58 million, respectively, which expire in 2012 and
2009, respectively. Net operating loss limitations may be imposed as a result of
subsequent changes in stock ownership of NEG. Prior to the formation of Holding
LLC, the income tax benefit associated with the loss carryforwards had not been
recognized since, in the opinion of management, there was not sufficient
positive evidence of future taxable income to justify recognition of a benefit.
Upon the formation of Holding LLC, management again evaluated all evidence, both
positive and negative, in determining whether a valuation allowance to reduce
the carrying value of deferred tax assets was still needed and concluded, based
on the projected allocations of taxable income by Holding LLC, NEG more likely
than not will realize a partial benefit from the loss carryforwards. In
accordance with SFAS 109, NEG recorded a deferred tax asset of $31.9 million in
September 2001, $25.5 million as of December 31, 2002, $25.9 million as of
December 31, 2003, and $24.3 million as of March 31, 2004 (unaudited). Ultimate
realization of the deferred tax asset is dependent upon, among other factors,
NEG's ability to generate sufficient taxable income within the carryforward
periods and is subject to change depending on the tax laws in effect in the
years in which the carryfowards are used. As a result of the recognition of
expected future income tax benefits, subsequent periods will reflect a full
effective tax rate provision.

19. COMMITMENTS AND CONTINGENCIES

a. 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. At March 31,
2004, three of the rejected properties have been classified as held for sale and
one property was sold. The Company recorded a provision for loss of
approximately $1.9 million on the four properties, whose leases were rejected,
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 March 31, 2004 and December 31, 2003 and 2002, the carrying
value of the seven properties (six properties at March 31, 2004)was
approximately $5,003,000, $5,482,000 and $6,529,000, respectively, which
management believes is less than the estimate of net realizable value.

b. Tiffiny Decorating Company ("Tiffiny"), a subcontractor to Great
Western Drywall ("Great Western"), filed a legal action against Stratosphere
Corporation, Stratosphere Development, LLC, American Real Estate Holdings
Limited Partnership (collectively referred to as the "Stratosphere Parties"),
Great Western, Nevada Title and Safeco Insurance, Case No. A443926 in the Eighth
Judicial District Court of the State of Nevada. The legal action asserts claims
that include breach of contract, unjust enrichment and foreclosure of lien. The
Stratosphere Parties have filed a cross-claim against Great Western in that
action. Additionally, Great Western has filed a separate legal action against
the Stratosphere Parties setting forth the same disputed issues. That separate
action, Case No. A448299 in the Eighth Judicial Court of the State of Nevada,
has been consolidated with the case brought by Tiffiny.

The initial complaint brought by Tiffiny asserts that Tiffiny performed
certain construction services at the Stratosphere and was not fully paid for
those services. Tiffiny claims the sum of $521,562 against Great Western, the
Statosphere Parties, and the other defendants, which the Stratosphere Parties
contend has been paid to Great Western for payment to Tiffiny.

Great Western is alleging that it is owed payment from the Stratosphere
Parties for work performed and for delay and disruption damages. Great Western
is claiming damages in the sum of $3,935,438 plus interest, costs and legal fees
from the Stratosphere Parties. This amount apparently includes the Tiffiny
claim.

The Stratosphere Parties have evaluated the project and have determined
that the amount of $1,004,059, of which $195,953 and $371,973 were disbursed to
Tiffiny and Great Western in 2002, respectively, is properly due and payable to
satisfy all claims for the work performed, including the claim by Tiffiny. The
remaining amount has been segregated in a separate interest bearing account. The
Stratosphere Parties intend to vigorously defend the action for claims in excess
of $1,004,059.

F-62

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

c. In January 2002, the Cape Cod Commission, (the "Commission"), a
Massachusetts regional planning body created in 1989, concluded that AREP's New
Seabury development is within its jurisdiction for review and approval (the
"Administrative Decision"). It is the Company's position that the proposed
residential, commercial and recreational development is in substantial
compliance with a special permit issued for the property in 1964 and is
therefore exempt from the Commission's jurisdiction and that Commission is
barred from exercising jurisdiction pursuant to a 1993 settlement agreement
between the Commission and a prior owner of the New Seabury property (the
"Settlement Agreement").

In February 2002, New Seabury Properties LLC ("New Seabury"), an AREP
subsidiary and owner of the property, filed in Barnstable County Massachusetts
Superior Court, a civil complaint appealing the Administrative Decision by the
Commission, and a separate civil complaint to find the Commission in contempt of
the Settlement Agreement. The Court subsequently consolidated the two complaints
into one proceeding. In July 2003, New Seabury and the Commission filed cross
motions for summary judgment.

Also, in July 2003, in accordance with a Court ruling, the Commission
reconsidered the question of its jurisdiction over the initial development
proposal and over a modified development proposal that New Seabury filed in
March 2003. The Commission concluded that both proposals are within its
jurisdiction (the Second Administrative Decision). In August 2003, New Seabury
filed in Barnstable County Massachusetts Superior Court another civil complaint
appealing the Second Administrative Decision to find the Commission in contempt
of the Settlement Agreement.

In November 2003, the Court ruled in New Seabury's favor on its July 2003
motion for partial summary judgment, finding that the special permit remains
valid and that the modified development proposal is in substantial compliance
with the Special Permit and therefore exempt from the Commission's jurisdiction
(the Court did not yet rule on the initial proposal). Under the modified
development proposal New Seabury could potentially develop up to 278 residential
units and 145,000 square feet of commercial space. In March 2004, New Seabury
moved for Summary Judgment to dispose of remaining claims under all three
complaints and to obtain a final judgment from the Court. Also in March 2004,
the Commission cross-moved for Summary Judgment on certain claims under each
complaint. Under the initial proposal, New Seabury could potentially build up to
675 residential/hotel units and 80,000 square feet of commercial space. The
Company cannot predict the effect on the development process if it loses any
appeal or if the Commission is ultimately successful in asserting jurisdiction
over any of the development proposals.

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

In addition, in the ordinary course of business, the Company, its
subsidiaries and other companies in which the Company 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 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,
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES AND THE PREFERRED
LIMITED PARTNERSHIP UNITS LIABILITY

The carrying amount of cash and cash equivalents, receivables, note
receivable due from affiliate, and accounts payable, accrued expenses and other
liabilities and the Preferred Limited Partnership Units Liability 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.

F-63

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The approximate estimated fair values of the mortgages and notes
receivable held as of March 31, 2004 and December 31, 2003 and 2002 are
summarized as follows (in $000's):

AT MARCH 31, 2004          AT DECEMBER 31, 2003        AT DECEMBER 31, 2002
-------------------------    -----------------------    ------------------------
NET        ESTIMATED        NET       ESTIMATED        NET        ESTIMATED
INVESTMENT    FAIR VALUE    INVESTMENT   FAIR VALUE    INVESTMENT    FAIR VALUE
-----------   -----------    ----------   ----------    ----------    ----------
(UNAUDITED)

Total........     $   104,745   $   122,756    $   50,272   $   55,000    $   51,449    $   53,973
===========   ===========    ==========   ==========    ==========    ==========

The net investment at March 31, 2004 and December 31, 2003 and 2002 is
equal to the carrying amount of the mortgage receivable less any deferred income
recorded.

MORTGAGES PAYABLE

The approximate estimated fair values of the mortgages payable as of March
31, 2004 and December 31, 2003 and 2002 are summarized as follows (in $000's):

AT MARCH 31, 2004         AT DECEMBER 31, 2003        AT DECEMBER 31, 2002
-------------------------    -----------------------    ------------------------
CARRYING      ESTIMATED     CARRYING     ESTIMATED     CARRYING      ESTIMATED
VALUE       FAIR VALUE      VALUE      FAIR VALUE      VALUE       FAIR VALUE
-----------   -----------    ----------   ----------    ----------    ----------
(UNAUDITED)

Total........     $   179,251   $   182,081    $  180,989   $  185,000    $  171,848    $  190,000
===========   ===========    ==========   ==========    ==========    ==========

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 $7,600,000, $6,500,000 and $4,900,000 for the years ended
December 31, 2003, 2002 and 2001, respectively. Sufficient information is not
available from the plans' sponsors to permit the Company to determine the
adequacy of the plans' funding status.

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% to 50%. The Company recorded charges for matching contributions
of approximately $422,000, $433,000 and $477,000, for the years ended December
31, 2003, 2002 and 2001, respectively.

22. SUBSEQUENT EVENTS (UNAUDITED)

a. On May 7, 2004, the Limited Partner announced that it priced the
offering of senior notes due 2012 in a private placement transaction. The notes,
in the aggregate principal amount of $353 million, and priced at 99.266%, will
bear interest at a rate of 8.125% per annum. Net proceeds from the offering will
be used for general business purposes, including to pursue AREP's primary
business strategy of acquiring undervalued assets in either its existing lines
of business or other businesses and to provide additional capital to grow its
existing businesses.

b. On April 30, 2004, the Company received approximately $16.2 million for
the prepayment of a mezzanine loan. The principal amount of the loan was $11
million and the prepayment included deferred interest. The Company defers
recognition of interest income on mezzanine loans pending receipt of principal
and interest payment; therefore, the interest portion of the prepayment

F-64

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of $5.2 million will be recognized as income in the Consolidated Statements of
Earnings for the thee and six months ended June 30, 2004.

c. In April, the Company sold nine properties for approximately $31.3
million which were encumbered by mortgage debt of approximately $6.6 million.
The carrying value of the properties was approximately $19.1 million; therefore,
the Company will recognize a gain of approximately $12.2 million in discontinued
operations in the three and six months ended June 30, 2004.

F-65

INDEPENDENT AUDITORS' REPORT

The Board of Directors
American Property Investors, Inc.

We have audited the accompanying balance sheet of American Property
Investors, Inc. as of December 31, 2003. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.

We conducted our audit 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 balance
sheet is free of material misstatement. An audit of a balance sheet includes
examining, on a test basis, evidence supporting the amounts and disclosures in
that balance sheet. An audit of a balance sheet also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of American Property Investors, Inc.
as of December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America.

/s/ KPMG LLP

New York, New York
July 29, 2004

F-66

AMERICAN PROPERTY INVESTORS, INC.

BALANCE SHEET
DECEMBER 31, 2003

DECEMBER 31,
2003
-------------

ASSETS
Cash and cash equivalents .....................................................................   $      96,493
Investment in partnerships (Note 2) ...........................................................      24,743,688
Accrued interest receivable (Note 3) ..........................................................          59,538
-------------
$  24,899,719
=============
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued expenses..........................................................   $     229,929
Stockholder's equity:
Common stock - $1 par value, 1,216 shares authorized, 216 shares outstanding                              216
Additional paid-in capital...................................................................      26,084,497
Note receivable from affiliate (Note 3)......................................................      (9,500,000)
Retained earnings............................................................................       8,085,077
-------------
Total stockholder's equity                                                                         24,669,790
-------------
Total liabilities and stockholder's equity..................................................   $  24,899,719
=============

See accompanying notes to consolidated financial statements.

F-67

AMERICAN PROPERTY INVESTORS, INC.

Notes to Financial Statements

December 31, 2003

BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Organization

American Property Investors, Inc. ("API" or "the Company") is the general
partner of both American Real Estate Partners, L.P. ("AREP") and American Real
Estate Holdings Limited Partnership ("AREH"). API has a 1% general partnership
interest in both AREP and AREH. API is a wholly-owned subsidiary of Becton
Corporation ("Becton") which in turn is owned by Carl C. Icahn. Mr. Icahn also
owns, indirectly, approximately 86.5 % of the limited partnership interests of
AREP, a New York Stock Exchange master limited partnership.

b. Cash and Cash Equivalents

The Company considers all temporary cash investments with maturity at the
date of purchase of three months or less to be cash equivalents.

c. Use of Estimates

Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statement to
prepare this balance sheet in conformity with accounting principles generally
accepted in the United States of America. Actual results could differ from those
estimates.

d. Income Taxes

The Company and its parent have elected and the stockholders have
consented, under the applicable provisions of the Internal Revenue Code, to
report their income for Federal income tax purposes as a Subchapter S
Corporation. The stockholders report their respective shares of the net taxable
income or loss on their personal tax returns. Accordingly, no liability has been
accrued for current or deferred Federal income taxes related to the operations
of the Company in the accompanying balance sheet. State and local taxes are
deminimus

e. Investments in Partnerships

The Company evaluates its investments in partially-owned entities in
accordance with FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities, or FIN 46R. If the partially-owned
entity is a "variable interest entity," or a "VIE," and the Company is the
"primary beneficiary" as defined in FIN 46R, the Company would account for such
investment as if it were a consolidated subsidiary.

For a partnership investment which is not a VIE or in which the Company is
not the primary beneficiary, the Company follows the accounting set forth in
AICPA Statement of Position No. 78-9 - Accounting for Investments in Real Estate
Ventures (SOP 78-9). In accordance with this pronouncement, investments in joint
ventures are accounted for under the equity method when its ownership interest
is less than 50% and it does not exercise direct or indirect control. Factors
that are considered in determining whether or not the Company exercises control
include important rights of partners in significant business decisions,
including dispositions and acquisitions of assets, financing and operating and
capital budgets, board and management representation and authority and other
contractual rights of the partners. To the extent that the Company is deemed to
control these entities, these entities would be consolidated.

The Company has determined that the AREP and AREH partnerships are not
VIEs and therefore it accounts for these investments under the equity method of
accounting as the limited partners have important rights as defined in SOP 78-9.
This investment was recorded initially at cost and was subsequently adjusted for
equity in earnings or losses and cash contributions and distributions.

F-68

AMERICAN PROPERTY INVESTORS, INC.

Notes to Financial Statements

December 31, 2003

On a periodic basis the Company evaluates whether there are any indicators
that the value of its investments in partnerships are impaired. An investment is
considered to be impaired if the Company's estimate of the value of the
investment is less than the carrying amount. The ultimate realization of the
Company's investments in partnerships is dependent on a number of factors
including the performance of that entity and market conditions. If the Company
determines that a decline in the value of a partnership is other than temporary,
then the Company would record an impairment charge.

2. INVESTMENT IN PARTNERSHIPS

The Company has a 1% general partnership interest in both AREP and AREH.
AREP is the 99% limited partner and holding company of AREH which is involved in
the following operating businesses: (i) rental real estate, (ii) hotel, casino
and resort operations, (iii) land, house and condominium development, (iv)
investment in oil and gas operating properties and (v) investments in
securities, including investments in other entities and marketable and debt
securities.

Summarized financial information for American Real Estate Partners, L.P.
and subsidiaries as of December 31, 2003 is as follows (in thousands of
dollars):

Real estate leased to others and held for sale        $      342,612
Hotel, casino and resort properties                          215,775
Land and construction in progress                             43,459
Investment in oil and gas properties                          69,346
Investments in securities                                    111,376
Cash and cash equivalents                                    467,704
Other assets                                                 239,658
---------------
Total assets                                 $    1,489,930
==============
Mortgages payable                                            180,989
Accounts payable and accrued expenses                         53,844
Preferred limited partnership units                          101,649
---------------
Total liabilities                                   336,482
Partners' equity                                           1,153,448
---------------
Total liabilities and partners' equity       $    1,489,930
==============
Total liabilities and partners' equity       $      (19,501)
==============

The carrying amount of the investment in partnerships on the Company's
balance sheet exceeds the underlying equity in the net assets of the
partnerships by $44,244,000. This difference is as a result of adjustments
reflected in AREP's equity to account for certain acquisitions from affiliates
of the general partner. The differences between the historical cost of companies
acquired and the purchase price paid to the affiliates of the general partner
were accounted for as contributions from or distributions to the general
partner.

3. NOTE RECEIVABLE

The Company has an unsecured demand note receivable due from Carl C.
Icahn, in the amount of $9,500,000. Interest on the note accrues at the rate of
3.75% per annum and is payable on the last day of April and October. Interest
has been paid through October 31, 2003.

F-69

Until _____, 2004, all dealers that effect transactions in these
securities, whether or not participating in this exchange offer, may be required
to deliver a prospectus. Each broker-dealer that receives new notes for its own
account pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such new notes.

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

PROSPECTUS

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

AMERICAN REAL ESTATE PARTNERS, L.P.
AND
AMERICAN REAL ESTATE FINANCE CORP.

OFFER TO EXCHANGE OUR 8-1/8% SENIOR NOTES DUE 2012, WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, FOR ANY AND ALL OF OUR OUTSTANDING 8-1/8%
SENIOR NOTES DUE 2012.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20 Indemnification of Directors and Officers.

Indemnification Under the Delaware Limited Partnership Act and the American Real
Estate Partners L.P. Limited Partnership Agreement

American Real Estate Partners, L.P. is organized under the laws of
Delaware. Section 17-108 of the Delaware Revised Uniform Limited Partnership Act
(the "Partnership Act") provides that a limited partnership may, and shall have
the power to, indemnify and hold harmless any partners or other persons from and
against any and all claims and demands whatsoever, subject to such standards and
restrictions set forth in the partnership agreement. Accordingly, Section 6.15
of the Amended and Restated Agreement of Limited Partnership of American Real
Estate Partners, L.P., dated as of May 12, 1987, provides that the general
partner, its affiliates, and all officers, directors, employees and agents of
the general partner and its affiliates (individually, an "Indemnitee") will be
indemnified and held harmless from and against any and all losses, claims,
demands, costs, damages, liabilities, joint and several, expenses of any nature
(including attorneys' fees and disbursements), judgments, fines, settlements,
and other amounts arising from any and all claims, demands, actions, suits or
proceedings, whether civil, criminal, administrative or investigative, in which
the Indemnitee may be involved, or threatened to be involved, as a party or
otherwise by reason of its status as (x) the General Partner or an Affiliate
thereof or (y) a partner, shareholder, director, officer, employee or agent of
the General Partner or an Affiliate thereof or (z) a Person serving at the
request of the Partnership in another entity in a similar capacity, which relate
to, arise out of or are incidental to the Partnership, its property, business,
affairs, including, without limitation, liabilities under the federal and state
securities laws, regardless of whether the Indemnitee continues to be a general
partner, an affiliate, or an officer, director, employee or agent of the general
partner or of an affiliate thereof at the time any such liability or expense is
paid or incurred, if the Indemnitee acted in good faith and in a manner it
believed to be in, or not opposed to, the best interests of the Partnership,
and, with respect to any criminal proceeding, had no reasonable cause to believe
its conduct was unlawful and the Indemnitee's conduct did not constitute willful
misconduct. The agreement further provides that an Indemnitee shall not be
denied indemnification in whole or in part under by reason of the fact that the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the terms
of this Agreement. Any indemnification under Section 6.15 shall be satisfied
solely out of the assets of the partnership and not from the assets of the
partners of the partnership.

Indemnification Under the Delaware General Corporation Law and the Certificate
of Incorporation and Bylaws of American Real Estate Finance Corp.

American Real Estate Finance Corp ("AREP Finance"), the Co-issuer of the
notes, is a corporation incorporated under the laws of the State of Delaware.
Section 145 of the Delaware General Corporation Law provides that a corporation
may indemnify directors and officers as well as other employees and individuals
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
any threatened, pending or completed actions, suits or proceedings in which such
person is made a party by reason of such person being or having been a director,
officer, employee of or agent to the Registrants. The statute provides that it
is not exclusive of other rights to which those seeking indemnification may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise.

Item 21 Exhibits and Financial Statement Schedules

EXHIBIT NO.                                     DESCRIPTION
-----------   --------------------------------------------------------

3.1           Certificate of Limited Partnership of AREP, dated
February 17, 1987 (incorporated by reference to Exhibit
3.1 to Form 10-Q for the quarter ended March 31, 2004
(SEC File No. 1-9516), filed on May 10, 2004).

3.2           Amended and Restated Agreement of Limited Partnership of
AREP, dated as of May 12, 1987 (incorporated by
reference to Exhibit 3.2 to Form 10-Q for the quarter
ended March 

II-1

EXHIBIT NO.                                                    DESCRIPTION
-----------   ---------------------------------------------------------------------------------------------------------------------

31, 2004 (SEC File No. 1-9516), filed on May 10, 2004).

3.4           Certificate of Limited Partnership of American Real Estate Holdings Limited Partnership (the "Subsidiary"), dated
February 17, 1987, as amended pursuant to First Amendment to Certificate of Limited Partnership, dated March 10, 1987
(incorporated by reference to Exhibit 3.4 to Form 10-Q for the quarter ended March 31, 2004 (SEC File No. 1-9516),
filed on May 10, 2004).

3.5           Amended and Restated Agreement of Limited Partnership of the Subsidiary, dated as of July 1, 1987 (incorporated by
reference to Exhibit 3.5 to Form 10-Q for the quarter ended March 31, 2004 (SEC File No. 1-9516), filed on May 10,
2004).

3.6           Certificate of Incorporation of American Real Estate Finance Corp.

3.7           By-Laws of American Real Estate Finance Corp.

4.1           Indenture, dated as of May 12, 2004, among American Real Estate Partners, L.P., American Real Estate Finance Corp.,
the Subsidiary, as guarantor and Wilmington Trust Company, as Trustee

4.2           Form of 8-1/8% Senior Note due 2012 (included in Exhibit 4.1).

4.3           Registration Rights Agreement, dated as of May 12, 2004, among American Real Estate Partners, L.P., American Real
Estate Finance Corp., the Subsidiary and Bear, Stearns & Co. Inc.

5.1           Opinion of Piper Rudnick LLP(1)

12.1          Statements re computation of ratio of earnings to fixed charges.

23.1          Consent of Independent Registered Public Accounting Firm

23.2          Consent of Independent Auditors

23.3          Consent of Piper Rudnick LLP (to be included in exhibit 5.1)

24.1          Power of Attorney (included on the signature pages to this Form S-4)

25.1          Statement of Eligibility of Trustee

99.1          Letter of Transmittal(1)

99.2          Notice of Guaranteed Delivery(1)

99.3          Letter to Clients(1)

99.4          Letter to Brokers(1)

99.5          Form of Exchange Agent Agreement by and between AREP and Wilmington Trust Company.(1)

----------------
(1) To be filed by amendment.

Item 22 Undertakings

The undersigned registrant hereby undertakes:

(a)(1) To file during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

II-2

(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of a prospectus
filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;

(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.

(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.

II-3

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Mt. Kisco, New York on
August 6, 2004.

AMERICAN REAL ESTATE
PARTNERS, L.P.

By: American Property Investors, Inc.,
its general partner

By: /s/ Keith A. Meister
-------------------------------------
Keith A. Meister
President and Chief Executive Officer

KNOW BY ALL MEN BY THESE PRESENTS that each person whose signature
appears below hereby constitutes and appoints John P. Saldarelli and Keith A.
Meister, and each of them acting singly, as his true and lawful attorney-in-fact
and agent with full power of substitution and resubstitution, to act, without
the other, for him and in his name, place and stead, in any and all capacities,
to sign any or all amendments (including pre-effective and post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, their
substitute may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated:

/s/ Keith A. Meister          President and Chief Executive Officer (Principal
--------------------------    Executive Officer)                                       August 6, 2004
Keith A. Meister

/s/ John P. Saldarelli        Treasurer, Chief Financial Officer
--------------------------    (Principal Financial Officer)                            August 6, 2004
John P. Saldarelli

/s/ Jack G. Wasserman         Director                                                 August 6, 2004
--------------------------
Jack G. Wasserman

/s/ William A. Leidesdorf     Director                                                 August 6, 2004
--------------------------
William A. Leidesdorf

/s/ James L. Nelson           Director                                                 August 6, 2004
--------------------------
James L. Nelson

--------------------------    Director                                                 August 6, 2004
Carl C. Icahn

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Mt. Kisco, New York on
August 6, 2004.

AMERICAN REAL ESTATE FINANCE CORP.

By: /s/ Keith A. Meister
-------------------------------------
Keith A. Meister
President and Chief Executive Officer

KNOW BY ALL MEN BY THESE PRESENTS that each person whose signature
appears below hereby constitutes and appoints John P. Saldarelli and Keith A.
Meister, and each of them acting singly, as his true and lawful attorney-in-fact
and agent with full power of substitution and resubstitution, to act, without
the other, for him and in his name, place and stead, in any and all capacities,
to sign any or all amendments (including pre-effective and post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do an perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, their
substitute may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated:

/s/ Keith A. Meister                        President and Chief Executive Officer (Principal
--------------------------------            Executive Officer)                                        August 6, 2004
Keith A. Meister

/s/ John P. Saldarelli                      Treasurer, Chief Financial Officer
--------------------------------            (Principal Financial and Accounting Officer)              August 6, 2004
John P. Saldarelli

/s/ Jack G. Wasserman                       Director                                                  August 6, 2004
--------------------------------
Jack G. Wasserman

/s/ William A. Leidesdorf                   Director                                                  August 6, 2004
--------------------------------
William A. Leidesdorf

/s/ James L. Nelson                         Director                                                  August 6, 2004
--------------------------------
James L. Nelson

--------------------------------            Director                                                  August 6, 2004
Carl C. Icahn

II-5

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Mt. Kisco, New York on
August 6, 2004.

AMERICAN REAL ESTATE HOLDINGS 
LIMITED PARTNERSHIP

By: American Property Investors, Inc.,
its general partner

By: /s/ Keith A. Meister
-------------------------------------
Keith A. Meister
President and Chief Executive Officer

KNOW BY ALL MEN BY THESE PRESENTS that each person whose signature
appears below hereby constitutes and appoints John P. Saldarelli and Keith A.
Meister, and each of them acting singly, as his true and lawful attorney-in-fact
and agent with full power of substitution and resubstitution, to act, without
the other, for him and in his name, place and stead, in any and all capacities,
to sign any or all amendments (including pre-effective and post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do an perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, their
substitute may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated:

/s/ Keith A. Meister                        President and Chief Executive Officer (Principal
-------------------------------             Executive Officer)                                       August 6, 2004
Keith A. Meister

/s/ John P. Saldarelli                      Treasurer, Chief Financial Officer
-------------------------------             (Principal Financial and Accounting Officer)             August 6, 2004
John P. Saldarelli

/s/ Jack G. Wasserman                       Director                                                 August 6, 2004
-------------------------------
Jack G. Wasserman

/s/ William A. Leidesdorf                   Director                                                 August 6, 2004
-------------------------------
William A. Leidesdorf

/s/ James L. Nelson                         Director                                                 August 6, 2004
-------------------------------
James L. Nelson

-------------------------------             Director                                                 August 6, 2004
Carl C. Icahn

II-6

EXHIBITS INDEX

EXHIBIT NO.                                                       DESCRIPTION
-----------     ---------------------------------------------------------------------------------------------------------------

3.1             Certificate of Limited Partnership of AREP, dated February 17, 1987 (incorporated by reference to Exhibit 3.1 to
Form 10-Q for the quarter ended March 31, 2004 (SEC File No. 1-9516), filed on May 10, 2004).

3.2             Amended and Restated Agreement of Limited Partnership of AREP, dated as of May 12, 1987 (incorporated by reference
to Exhibit 3.2 to Form 10-Q for the quarter ended March 31, 2004 (SEC File No. 1-9516), filed on May 10, 2004).

3.4             Certificate of Limited Partnership of American Real Estate Holdings Limited Partnership (the "Subsidiary"), dated
February 17, 1987, as amended pursuant to First Amendment to Certificate of Limited Partnership, dated March 10,
1987 (incorporated by reference to Exhibit 3.4 to Form 10-Q for the quarter ended March 31, 2004 (SEC File No.
1-9516), filed on May 10, 2004).

3.5             Amended and Restated Agreement of Limited Partnership of the Subsidiary, dated as of July 1, 1987 (incorporated by
reference to Exhibit 3.5 to Form 10-Q for the quarter ended March 31, 2004 (SEC File No. 1-9516), filed on May 10,
2004).

3.6             Certificate of Incorporation of American Real Estate Finance Corp.

3.7             By-Laws of American Real Estate Finance Corp.

4.1             Indenture, dated as of May 12, 2004, among American Real Estate Partners, L.P., American Real Estate Finance Corp.,
the Subsidiary, as guarantor and Wilmington Trust Company, as Trustee

4.2             Form of 8-1/8% Senior Note due 2012 (included in Exhibit 4.1).

4.3             Registration Rights Agreement, dated as of May 12, 2004, among American Real Estate Partners, L.P., American Real
Estate Finance Corp., the Subsidiary and Bear, Stearns & Co. Inc.

5.1             Opinion of Piper Rudnick LLP(1)

12.1            Statements re computation of ratio of earnings to fixed charges.

23.1            Consent of Independent Registered Public Accounting Firm

23.2            Consent of Independent Auditors

23.3            Consent of Piper Rudnick LLP (to be included in exhibit 5.1)

24.1            Power of Attorney (included on the signature pages to this Form S-4)

25.1            Statement of Eligibility of Trustee

99.1            Letter of Transmittal(1)

99.2            Notice of Guaranteed Delivery(1)

99.3            Letter to Clients(1)

99.4            Letter to Brokers(1)

99.5            Form of Exchange Agent Agreement by and between AREP and Wilmington Trust Company.(1)

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

(1)To be filed by amendment.

EXHIBIT 3.6

State of Delaware
Secretary of State
Division of Corporations
Delivered 05:47 PM 04/19/2004
FILED 05:36 PM 04/19/2004
SRV 040285153 - 3792277 FILE 

CERTIFICATE OF INCORPORATION

OF

AMERICAN REAL ESTATE FINANCE CORP

FIRST. The name of this corporation shall be:

American Real Estate Finance Corp.

SECOND. Its registered office in the State of Delaware is to be located at
2711 Centerville Road, Suite 400, in the City of Wilmington, Delaware 19808,
County of New Castle and its registered agent at such address is the Corporation
Service Company.

THIRD. The purpose or purposes of the corporation shall be:

To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.

FOURTH. The total number of shares of stock which the corporation shall
have authority to issue is Three Thousand (3,000) and the par value of each of
such shares is $.01

FIFTH: The name and address of the incorporator is as follows:

Tara Keating
c/o Icahn Associates Corp.
767 Fifth Avenue
Suite 4700
New York, New York 10153

SIXTH: The Board of Directors shall have the power to adopt, amend or
repeal the by-laws.

SEVENTH: No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law, (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article Seventh
shall apply to or have any effect on the

EXHIBIT 3.6

liability or alleged liability of any director of the Corporation for or with
respect to any acts or omissions of such director occurring prior to such
amendment.

EIGHTH: The corporation shall, to the fullest extent permitted by Section
145 of the Delaware General Corporation Law, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under said Section from and against any and all of the expenses,
liabilities or other matters referred to or covered by said Section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under and By-Law, agreement,
vote of stockholders or disinterested directors, or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.

NINTH: The corporation elects not to be governed by the Takeover Statute
(Section 203).

IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore
named, has executed, signed and acknowledged this certificate of incorporation
this l9th day of April, 2004.

/s/  Tara L. Keating
---------------------------------------
Tara Keating, Incorporator

EXHIBIT 3.6

DELAWARE
__________________________ PAGE 1
The First State

I, HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED ARE TRUE AND CORRECT COPIES OF ALL DOCUMENTS ON FILE
OF "AMERICAN REAL ESTATE FINANCE CORP." AS RECEIVED AND FILED IN THIS OFFICE.

THE FOLLOWING DOCUMENTS HAVE BEEN CERTIFIED:

CERTIFICATE OF INCORPORATION, FILED THE NINETEENTH DAY OF APRIL, A.D.
2004, AT 5:36 O'CLOCK P.M. 

AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CERTIFICATES ARE THE
ONLY CERTIFICATES ON RECORD OF THE AFORESAID CORPORATION.

/s/ Harriet Smith Windsor
-----------------------------------------
Harriet Smith Windsor, Secretary of State

3792277 8100H                                           AUTHENTICATION:  3093922
040329384                                                        DATE:  05-06-04

EXHIBIT 3.7

BY - LAWS

OF

AMERICAN REAL ESTATE FINANCE CORP.

* * * * * * * *

ARTICLE I

OFFICES

Section 1.1 Registered Office. The registered office shall be established
and maintained at the office of Corporation Service Company, 2711 Centerville
Road, Suite 400, in the City of Wilmington, in the County of New Castle, in the
State of Delaware, and said corporation shall be the registered agent of this
corporation in charge thereof.

Section 1.2 Other Offices. The Corporation may have offices, either within
or without the State of Delaware, at such place or places as the Board of
Directors may, from time to time, appoint or the business of the Corporation may
require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 2.1 Annual Meetings. Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, may be called by the directors or any officer instructed by the
directors to call the meeting and shall be held at such place, either within or
without the State of Delaware, and at such time and date as the Board of
Directors, by resolution, shall determine and as set forth in the notice of the
meeting. In the event the Board of Directors fails to so determine the time,
date and place of meeting, the annual meeting of stockholders, commencing with
the year 2005, shall be held on the 1st day of April.

If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
they may transact such other corporate business as shall be stated in the notice
of meeting.

Section 2.2 Other Meetings. Meetings of stockholders for any purpose other
than the election of directors may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting.

Section 2.3 Telephonic Meetings. Meetings may be held by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other and participation in a
meeting pursuant to this paragraph shall constitute presence in person at a
meeting.

Section 2.4 Voting. Each stockholder entitled to vote in accordance with
the terms of the Certificate of Incorporation and in accordance with the
provisions of these By-Laws shall be entitled to one vote, in person or by
proxy, for each share of stock entitled to vote held by such stockholder, but no
proxy shall be voted after three years from its date unless such proxy provides
for a longer period. Upon demand of any stockholder, the vote for directors and
the vote upon any question before the meeting shall be by ballot. All elections
for directors shall be decided by plurality vote and all other questions shall
be decided by majority vote, except as otherwise provided by the Certificate of
Incorporation or the laws of the State of Delaware.

A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof and may be inspected by any
stockholder who is present.

Section 2.5 Conduct of Meeting. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and if
present and acting: the Chairman of the Board, if any, the Vice Chairman of the
Board, if any, the President, a Vice President, or, if none of the foregoing is
in office and present and acting, by a chairman to be chosen by the
stockholders. The Secretary of the Corporation or, in his absence, an Assistant
Secretary, shall act as secretary of every meeting, but if neither the Secretary
nor an Assistant Secretary is present, the Chairman of the meeting shall appoint
a secretary of the meeting.

Section 2.6 Inspectors. The directors, in advance of any meeting, may, but
need not, appoint one or more Inspectors of Election to act at the meeting or
any adjournment thereof. If an Inspector or Inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
Inspectors. In case any person who may be appointed as an Inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors in
advance of the meeting or at the meeting by the person presiding thereat. Each
Inspector, if any, before entering upon the discharge of his duties, shall take
and sign an oath faithfully to execute the duties of Inspector at such meeting
with strict impartiality and according to the best of his ability. The
Inspectors, if any, shall determine the number of shares of stock outstanding
and the voting power of each, the shares of stock represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting, the

2

Inspector or Inspectors, if any, shall make a report in writing of any
challenge, question or matter determined by him or them and execute a
certificate of any fact found by him or them.

Section 2.7 Quorum. Except as otherwise required by Law, by the
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the Corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting, from time to time, without notice other than
announcement at the meeting, until the requisite amount of stock entitled to
vote shall be present. At such adjourned meeting, the requisite amount of stock
entitled to vote at the meeting, as originally noticed, shall be entitled to
vote at any adjournment or adjournments thereof.

Section 2.8 Notice Or Waiver Of Notice Of Meetings. Written notice,
stating the place, date and time of the meeting and the general nature of the
business to be considered, shall be given to each stockholder entitled to vote
thereat at his address as it appears on the records of the Corporation, not less
than ten nor more than sixty days before the date of the meeting. No business
other than that stated in the notice shall be transacted at any meeting without
the unanimous consent of all the stockholders entitled to vote thereat.
Attendance of a stockholder at a meeting of stockholders shall constitute a
waiver of notice of such meeting, except when the stockholder attends the
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.

Section 2.9 Action Without Meeting. Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.

ARTICLE III

DIRECTORS

Section 3.1 Number And Term. The number of directors shall initially be
four (4). The director shall be elected at the annual meeting of the
stockholders and each director shall be elected to serve until his successor
shall be elected and shall qualify. A Director need not be a stockholder.

Section 3.2 Resignations. Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing, and
shall take effect at the time 

3

specified therein and, if no time be specified, at the time of its receipt by
the President or Secretary. The acceptance of a resignation shall not be
necessary to make it effective.

Section 3.3 Vacancies. If the office of any director, member of a
committee or other office becomes vacant, the remaining directors in office,
though less than a quorum, by a majority vote, may appoint any qualified person
to fill such vacancy, such appointee to hold office for the unexpired term and
until his successor shall be duly chosen.

Section 3.4 Removal. Any director or directors may be removed either for
or without cause at any time by the affirmative vote of the holders of a
majority of all the shares of stock outstanding and entitled to vote, at a
special meeting of the stockholders called for the purpose and the vacancies
thus created may be filled, at the meeting held for the purpose of removal, by
the affirmative vote of a majority in interest of the stockholders entitled to
vote.

Section 3.5 Increase Or Decrease Of Number. The number of directors may be
increased or decreased from time to time by resolution of the Board of Directors
or by majority vote of the stockholders at the annual meeting or at a special
meeting called for that purpose and, by like vote, the additional directors may
be chosen at such meeting to hold office until the next annual election and
until their successors are elected and qualify.

Section 3.6 Powers. The Board of Directors shall exercise all of the
powers of the Corporation except such as are by Law, or by the Certificate of
Incorporation of the Corporation or by these By-Laws conferred upon or reserved
to the stockholders.

Section 3.7 Committees. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board, designate one or more
committees, each committee to consist of two or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified director.

Any such committee, to the extent provided in the resolution of the Board
of Directors, or in these By-Laws, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation and may authorize the seal of the Corporation to be
affixed to all papers which may require it; however, no such committee shall
have the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property assets, recommending to the stockholders a dissolution of
the Corporation or a revocation of a dissolution, or amending the By-Laws of the
Corporation; and, unless by resolution, these By-Laws, or the Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock.

4

Section 3.8 Meetings. The newly elected directors may hold their first
meeting for the purpose of organization and the transaction of business if a
quorum is present immediately after the annual meeting of the stockholders or
the time and place of such meeting may be fixed by consent in writing of all the
directors. Attendance of a director at a meeting of directors shall constitute a
waiver of notice of such meeting, except when the director attends the meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.

Regular meetings of the directors may be held without notice at such
places and times as shall be determined from time to time by resolution of the
directors.

Special meetings of the Board may be called by the President or by the
Secretary on the written request of any two directors on at least two days'
notice to each director and shall be held at such place or places as may be
determined by the directors, or as shall be stated in the call of the meeting.

Section 3.9 Telephone Meetings. Meetings may be held by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other and participation in a
meeting pursuant to this paragraph shall constitute presence in person at a
meeting.

Any member or members of the Board of Directors or of any committee
designated by the Board may participate in a meeting of the Board or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.

Section 3.10 Quorum. A majority of the Board of Directors shall constitute
a quorum for the transaction of business. If, at any meeting of the Board, there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum is obtained, and no further notice
thereof need be given other than by announcement at the meeting which shall be
adjourned.

Section 3.11 Compensation. Directors shall not receive any stated salary
for their services as directors or as members of committees but by resolution of
the Board of Directors, fixed fees and expenses of attendance may be allowed for
attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefore.

Section 3.12 Action Without Meeting. Any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if a written consent thereto is signed by all
members of the Board or of such committee, as the case may be, and such written
consent is filed with the minutes of the proceedings of the Board or such
committee.

5

ARTICLE IV

OFFICERS

Section 4.1 Officers. The officers of the Corporation shall be a
President, a Treasurer, and a Secretary, all of whom shall be elected by the
Board of Directors and who shall hold office until their successors are elected
and qualified. In addition, the Board of Directors may elect a Chairman, one or
more Vice Presidents and such Assistant Secretaries and Assistant Treasurers, as
they may deem proper. None of the officers of the Corporation need be directors.
The officers shall be elected at the first meeting of the Board of Directors and
at each annual meeting. More than two offices may be held by the same person.

Section 4.2 Other Officers And Agents. The Board of Directors may appoint
such other officers and agents as it may deem advisable, such officers to hold
their offices for such terms and to exercise such powers and perform such duties
as shall be determined, from time to time, by the Board of Directors.

Section 4.3 Chairman. The Chairman of the Board of Directors, if one be
elected, shall preside at all meetings of the Board of Directors and he shall
have and perform such other duties as, from time to time, may be assigned to him
by the Board of Directors.

Section 4.4 President. The President shall be the chief executive officer
of the Corporation and shall have the general powers and duties of supervision
and management usually vested in the office of President of a corporation. He
shall preside at all meetings of the stockholders, if present thereat and in the
absence or nonelection of the Chairman of the Board of Directors, and shall have
general supervision, direction and control of the business of the Corporation.
Except as the Board of Directors shall authorize the execution thereof in some
other manner, he shall execute bonds, mortgages and other contracts in behalf of
the Corporation and shall cause the seal to be affixed to any instrument
requiring it and, when so affixed, the seal shall be attested by the signature
of the Secretary or the Treasurer or an Assistant Secretary or an Assistant
Treasurer.

Section 4.5 Vice President. Each Vice President shall have such powers and
shall perform such duties as shall be assigned to him by the Board of Directors.

Section 4.6 The Treasurer. The Treasurer shall have custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the Corporation. He shall
deposit all monies and other valuables in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of Directors.

The Treasurer shall disburse the funds of the Corporation, as may be
ordered by the Board of Directors or the President, taking proper vouchers for
such disbursements. He shall render to the President and the Board of Directors
at the regular meetings of the Board of Directors, or whenever they may request
it, an account of all his transactions as Treasurer and of the financial
condition of the Corporation. If required by the Board of Directors, he shall
give 

6

the Corporation a bond for the faithful discharge of his duties in such amount
and with such surety as the Board shall prescribe.

Section 4.7 Secretary. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors and all other notices
required by law or by these By-Laws and, in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the President or by the directors or by the stockholders, upon whose
requisition the meeting is called as provided in these By-Laws. He shall record
all the proceedings of the meetings of the Corporation and of the directors in a
book to be kept for that purpose and shall perform such other duties as may be
assigned to him by the directors or the President. He shall have the custody of
the seal of the Corporation and shall affix the same to all instruments
requiring it, when authorized by the directors or the President, and attest the
same.

Section 4.8 Assistant Treasurers And Assistant Secretaries. Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.

ARTICLE V

MISCELLANEOUS

Section 5.1 Certificates Of Stock. Certificates of stock, signed by the
Chairman or Vice Chairman of the Board of Directors, if they were elected, the
President or Vice President, and the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying the number of shares owned by him in the Corporation. Any of or all
the signatures may be facsimiles.

Section 5.2 Lost Certificates. A new certificate of stock may be issued in
the place of any certificate theretofore issued by the Corporation, alleged to
have been lost or destroyed, and the directors may, in their discretion, require
the owner of the lost or destroyed certificate, or his legal representatives, to
give the Corporation a bond, in such sum as they may direct not exceeding double
the value of the stock, to indemnify the Corporation against any claim that may
be made against it on account of the alleged loss of any such certificate or the
issuance of any such new certificate.

Section 5.3 Transfer Of Shares. The shares of stock of the Corporation
shall be transferable only upon its books by the holders thereof in person or by
their duly authorized attorneys or legal representatives and, upon such
transfer, the old certificates shall be surrendered to the Corporation by the
delivery thereof to the person in charge of the stock and transfer books and
ledgers or to such other person as the directors may designate, by whom they
shall be canceled and new certificates shall thereupon be issued. A record shall
be made of each transfer and whenever a transfer shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of the
transfer.

7

Section 5.4 Stockholders Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purposes of any other lawful action, the Board of Directors may fix, in
advance, a record date which shall not be more than sixty nor less than ten days
before the date of such meeting nor more than sixty days prior to any other
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.

Section 5.5 Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefore, at any regular or special meeting, declare dividends upon the capital
stock of the Corporation as and when they deem such dividends expedient. Before
declaring any dividend, there may be set apart, out of any funds of the
Corporation available for dividends, such sum or sums as the directors, from
time to time, in their discretion, deem proper for working capital or as a
reserve fund to meet contingencies or for equalizing dividends or for such other
purposes as the directors shall deem conducive to the best interests of the
Corporation.

Section 5.6 Seal. The corporate seal shall be circular in form and shall
contain the name of the Corporation, the year of its creation and the words
"CORPORATE SEAL DELAWARE". Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.

Section 5.7 Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.

Section 5.8 Checks. All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the
Corporation shall be signed by such officer or officers or agent or agents of
the Corporation, and in such manner as shall be determined, from time to time,
by resolution of the Board of Directors.

Section 5.9 Notice And Waiver Of Notice. Whenever notice is required to be
given by these By-Laws to be effective it shall be given by one or more of the
following means: personal delivery; United States mail; fax; e-mail; or
overnight courier. Notice shall be deemed to have been duly given or made if
addressed to the person entitled thereto at his address, e-mail address or fax
number, as the case may be, as it appears on the records of the Corporation and:
in the case of personal delivery, when delivered by hand; in the case of United
States mail, three days after such mailing, postage prepaid; in the case of fax,
when received; in the case of e-mail, when sent; or, in the case of overnight
courier, one day following delivery to the overnight service. Stockholders not
entitled to vote shall not be entitled to receive notice of any meetings except
as otherwise provided by Statute.

8

Whenever any notice whatever is required to be given under the provisions
of any law or under the provisions of the Certificate of Incorporation of the
Corporation or of these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Attendance at a meeting
shall constitute a waiver of notice of such meeting except when such attendance
is for the express purpose of objecting at the beginning of the meeting to the
transaction of any business because the meeting is not lawfully called or
convened.

ARTICLE VI

AMENDMENTS

Section 6.1 These By-Laws may be altered or repealed and new By-Laws may
be made at any annual meeting of the stockholders or at any special meeting
thereof if notice of the proposed alteration or repeal of any By-Law or By-Laws
to be made be contained in the notice of such special meeting by the affirmative
vote of a majority of the stock issued and outstanding and entitled to vote
thereat or by the affirmative vote of a majority of the Board of Directors, at
any regular or special meeting of the Board of Directors, if notice of the
proposed alteration or repeal of any By-Law or By-Laws to be made, be contained
in the notice of such regular or special meeting.

9

EXHIBIT 4.1
EXECUTION COPY

================================================================================

AMERICAN REAL ESTATE PARTNERS, L.P.

AMERICAN REAL ESTATE FINANCE CORP.

AND

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP, AS GUARANTOR

8-1/8% SENIOR NOTES DUE 2012

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

INDENTURE

Dated as of May 12, 2004

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

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

WILMINGTON TRUST COMPANY

Trustee

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

================================================================================

CROSS-REFERENCE TABLE*

Trust Indenture
Act Section                                                                       Indenture Section

310(a)(1).................................................................             7.10
(a)(2).................................................................             7.10
(a)(3).................................................................             N.A.
(a)(4).................................................................             N.A.
(a)(5).................................................................             7.10
(b)....................................................................             7.10
(c)....................................................................             N.A.
311(a)....................................................................             7.11
(b)....................................................................             7.11
(c)....................................................................             N.A.
312(a)....................................................................             2.05
(b)....................................................................            12.03
(c)....................................................................            12.03
313(a)....................................................................             7.06
(b)(2).................................................................          7.06; 7.07
(c)....................................................................         7.06; 12.02
(d)....................................................................             7.06
314(a)....................................................................        4.03;12.02; 12.05
(c)(1).................................................................            12.04
(c)(2).................................................................            12.04
(c)(3).................................................................             N.A.
(e)....................................................................            12.05
(f)....................................................................             N.A.
315(a)....................................................................             7.01
(b)....................................................................         7.05; 12.02
(c)....................................................................             7.01
(d)....................................................................             7.01
(e)....................................................................             6.11
316(a) (last sentence)....................................................             2.09
(a)(1)(A)..............................................................             6.05
(a)(1)(B)..............................................................             6.04
(a)(2).................................................................             N.A.
(b)....................................................................             6.07
(c)....................................................................             2.12
317(a)(1).................................................................             6.08
(a)(2).................................................................             6.09
(b)....................................................................             2.04
318(a)....................................................................            12.01
(b)....................................................................             N.A.
(c)....................................................................            12.01

N.A. means not applicable.

* This Cross Reference Table is not part of the Indenture.

TABLE OF CONTENTS

Page

ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01       Definitions................................................................................    .1
Section 1.02       Other Definitions..........................................................................    16
Section 1.03       Incorporation by Reference of Trust Indenture Act..........................................    17
Section 1.04       Rules of Construction......................................................................    17

ARTICLE 2
THE NOTES

Section 2.01       Form and Dating............................................................................    18
Section 2.02       Execution and Authentication...............................................................    19
Section 2.03       Registrar and Paying Agent.................................................................    19
Section 2.04       Paying Agent to Hold Money in Trust........................................................    20
Section 2.05       Holder Lists...............................................................................    20
Section

2.06       Transfer and Exchange......................................................................    20
Section 2.07       Replacement Notes..........................................................................    32
Section 2.08       Outstanding Notes..........................................................................    33
Section 2.09       Treasury Notes.............................................................................    33
Section 2.10       Temporary Notes............................................................................    33
Section 2.11       Cancellation...............................................................................    33
Section 2.12       Defaulted Interest.........................................................................    34

ARTICLE 3
REDEMPTION AND PREPAYMENT

Section 3.01       Notices to Trustee.........................................................................    34
Section 3.02       Selection of Notes to Be Redeemed or Purchased.............................................    34
Section 3.03       Notice of Redemption.......................................................................    35
Section 3.04       Effect of Notice of Redemption.............................................................    35
Section 3.05       Deposit of Redemption or Purchase Price....................................................    36
Section 3.06       Notes Redeemed or Purchased in Part........................................................    36
Section 3.07       Optional Redemption........................................................................    36
Section 3.08       Redemption Pursuant to Gaming Laws.........................................................    37
Section 3.09       Mandatory Redemption.......................................................................    38

ARTICLE 4
COVENANTS

Section 4.01       Payment of Notes...........................................................................    38
Section 4.02       Maintenance of Office or Agency............................................................    38
Section 4.03       Reports....................................................................................    39
Section 4.04       Compliance Certificate.....................................................................    40
Section 4.05       Taxes......................................................................................    40
Section 4.06       Stay, Extension and Usury Laws.............................................................    40
Section 4.07       Restricted Payments........................................................................    41
Section 4.08       [Intentionally Omitted]....................................................................    43
Section 4.09       Incurrence of Indebtedness and Issuance of Preferred Stock.................................    43

i

Section 4.10       [Intentionally Omitted]....................................................................    45
Section 4.11       Transactions with Affiliates...............................................................    45
Section 4.12       Liens......................................................................................    47
Section 4.13       [Intentionally Omitted]....................................................................    48
Section 4.14       Corporate Existence........................................................................    48
Section 4.15       Offer to Repurchase Upon Change of Control.................................................    49
Section 4.16       Maintenance of Interest Coverage...........................................................    50
Section 4.17       Maintenance of Total Unencumbered Assets...................................................    51
Section 4.18       Compliance with Law........................................................................    51
Section 4.19       No Investment Company......................................................................    51

ARTICLE 5
SUCCESSORS

Section 5.01       Merger, Consolidation, or Sale of Assets...................................................    51
Section 5.02       Relief from Obligation.....................................................................    54

ARTICLE 6
DEFAULTS AND REMEDIES

Section 6.01       Events of Default..........................................................................    54
Section 6.02       Acceleration...............................................................................    56
Section 6.03       Other Remedies.............................................................................    56
Section 6.04       Waiver of Past Defaults....................................................................    57
Section 6.05       Control by Majority........................................................................    57
Section 6.06       Limitation on Suits........................................................................    57
Section 6.07       Rights of Holders of Notes to Receive Payment..............................................    57
Section 6.08       Collection Suit by Trustee.................................................................    58
Section 6.09       Trustee May File Proofs of Claim...........................................................    58
Section 6.10       Priorities.................................................................................    58
Section 6.11       Undertaking for Costs......................................................................    59

ARTICLE 7
TRUSTEE

Section 7.01       Duties of Trustee..........................................................................    59
Section 7.02       Rights of Trustee..........................................................................    60
Section 7.03       Individual Rights of Trustee...............................................................    60
Section 7.04       Trustee's Disclaimer.......................................................................    61
Section 7.05       Notice of Defaults.........................................................................    61
Section 7.06       Reports by Trustee to Holders of the Notes.................................................    61
Section 7.07       Compensation and Indemnity.................................................................    61
Section 7.08       Replacement of Trustee.....................................................................    62
Section 7.09       Successor Trustee by Merger, etc...........................................................    63
Section 7.10       Eligibility; Disqualification..............................................................    63
Section 7.11       Preferential Collection of Claims Against Company..........................................    63

ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE

Section 8.01       Option to Effect Legal Defeasance or Covenant Defeasance...................................    63
Section 8.02       Legal Defeasance and Discharge.............................................................    63
Section 8.03       Covenant Defeasance........................................................................    64
Section 8.04       Conditions to Legal or Covenant Defeasance.................................................    64

ii

Section 8.05       Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous
Provisions. ...............................................................................    66
Section 8.06       Repayment to Company.......................................................................    66
Section 8.07       Reinstatement..............................................................................    66

ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER

Section 9.01       Without Consent of Holders of Notes........................................................    67
Section 9.02       With Consent of Holders of Notes...........................................................    68
Section 9.03       Compliance with Trust Indenture Act........................................................    69
Section 9.04       Revocation and Effect of Consents..........................................................    69
Section 9.05       Notation on or Exchange of Notes...........................................................    69
Section 9.06       Trustee to Sign Amendments, etc............................................................    69

ARTICLE 10
NOTE GUARANTEES

Section 10.01.     Guarantee..................................................................................    70
Section 10.02.     Limitation on Guarantor Liability..........................................................    71
Section 10.03.     Execution and Delivery of Note Guarantee...................................................    71
Section 10.04.     Guarantors May Consolidate, etc., on Certain Terms.........................................    71
Section 10.05.     Releases...................................................................................    72

ARTICLE 11
SATISFACTION AND DISCHARGE

Section 11.01      Satisfaction and Discharge.................................................................    73
Section 11.02      Application of Trust Money.................................................................    73

ARTICLE 12
MISCELLANEOUS

Section 12.01      Trust Indenture Act Controls...............................................................    74
Section 12.02      Notices....................................................................................    74
Section 12.03      Communication by Holders of Notes with Other Holders of Notes..............................    75
Section 12.04      Certificate and Opinion as to Conditions Precedent.........................................    75
Section 12.05      Statements Required in Certificate or Opinion..............................................    76
Section 12.06      Rules by Trustee and Agents................................................................    76
Section 12.07      No Personal Liability of Directors, Officers, Employees and Stockholders...................    76
Section 12.08      Governing Law..............................................................................    76
Section 12.09      No Adverse Interpretation of Other Agreements..............................................    76
Section 12.10      Successors.................................................................................    77
Section 12.11      Severability...............................................................................    77
Section 12.12      Counterpart Originals......................................................................    77
Section 12.13      Table of Contents, Headings, etc...........................................................    77
Section 12.14      Clarity....................................................................................    77

EXHIBITS

Exhibit A1    FORM OF NOTE
Exhibit A2    FORM OF REGULATION S TEMPORARY GLOBAL NOTE
Exhibit B     FORM OF CERTIFICATE OF TRANSFER
Exhibit C     FORM OF CERTIFICATE OF EXCHANGE

iii

Exhibit D     FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Exhibit E     FORM OF NOTATION OF GUARANTEE
Exhibit F     FORM OF SUPPLEMENTAL INDENTURE
Exhibit G     FORM OF SECURITY AND CONTROL AGREEMENT

iv

INDENTURE dated as of May 12, 2004 among American Real Estate Partners,
L.P., a Delaware limited partnership, as issuer ("AREP"), American Real Estate
Finance Corp., a Delaware corporation, as co-issuer ("AREP Finance", and
together with AREP, the "Company"), American Real Estate Holdings Limited
Partnership, as Guarantor and Wilmington Trust Company, as trustee.

The Company, the Guarantor and the Trustee agree as follows for the
benefit of each other and for the equal and ratable benefit of the Holders (as
defined) of the 8-1/8% Senior Notes due 2012 (the "Notes"):

ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE

Section 1.01 Definitions.

"144A Global Note" means a Global Note substantially in the form of
Exhibit A1 hereto bearing the Global Note Legend and the Private Placement
Legend and deposited with or on behalf of, and registered in the name of, the
Depositary or its nominee that will be issued in a denomination equal to the
outstanding principal amount of the Notes sold in reliance on Rule 144A.

"Acquired Debt" means, with respect to any specified Person:

(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified Person,
whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and

(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.

"Additional Notes" means additional Notes (other than the Initial Notes)
issued under this Indenture in accordance with Sections 2.02 and 4.09 hereof, as
part of the same series as the Initial Notes.

"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person will be deemed to be control. For purposes of this
definition, the terms "controlling, "controlled by" and "under common control
with" have correlative meanings.

"Agent" means any Registrar, co-registrar, Paying Agent or additional
paying agent.

"API" means American Property Investors, Inc. (and not any of its
subsidiaries).

"AREH" means American Real Estate Holdings Limited Partnership (and not
any of its subsidiaries).

"AREP" means American Real Estate Partners, L.P. (and not any of its
subsidiaries).

"AREP Finance" means American Real Estate Finance Corp.

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"AREP Partnership Agreement" means AREP's Amended and Restated Agreement
of Limited Partnership, dated May 12, 1987 as amended February 22, 1995 and
August 16, 1996.

"Bad Boy Guarantees" means the Indebtedness of any specified Person
attributable to "bad boy" indemnification or Guarantees, which Indebtedness
would be non-recourse to the AREP and the Guarantor other than recourse relating
to the specific events specified therein, which such events shall be usual and
customary exceptions typically found in non-recourse financings at such time as
determined by management in its reasonable judgment.

"Applicable Procedures" means, with respect to any transfer or exchange of
or for beneficial interests in any Global Note, the rules and procedures of the
Depositary, Euroclear and Clearstream that apply to such transfer or exchange.

"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.

"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" will be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only after the passage of time. The terms "Beneficially Owns" and
"Beneficially Owned" have a corresponding meaning.

"Board of Directors" means:

(1) with respect to a corporation, the board of directors of the
corporation or any committee thereof duly authorized to act on behalf of
such board;

(2) with respect to a partnership, the Board of Directors of the
general partner of the partnership;

(3) with respect to a limited liability company, the managing member
or members or any controlling committee of managing members thereof or the
Board of Directors of the managing member; and

(4) with respect to any other Person, the board or committee of such
Person serving a similar function.

"Broker-Dealer" has the meaning set forth in the Registration Rights
Agreement.

"Business Day" means any day excluding Saturday, Sunday and any day which
is a legal holiday under the laws of the State of New York or is a day on which
banking institutions located in such jurisdictions are authorized or required by
law or other governmental action to close.

"Capital Lease Obligation" means, at the time any determination is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet prepared in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be prepaid by the lessee without payment of a
penalty.

"Capital Stock" means:

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(1) in the case of a corporation, corporate stock;

(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;

(3) in the case of a partnership or limited liability company,
partnership interests (whether general or limited) or membership
interests; and

(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person but excluding from all of the foregoing any
debt securities convertible into Capital Stock, whether or not such debt
securities include any right of participation with Capital Stock.

"Cash Equivalents" means:

(1) United States dollars;

(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality of the
United States government (provided that the full faith and credit of the
United States is pledged in support of those securities) having maturities
of not more than one year from the date of acquisition;

(3) certificates of deposit and eurodollar time deposits with
maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year and overnight bank
deposits, in each case, with any domestic commercial bank having capital
and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of
"B" or better;

(4) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in clause (3) above;

(5) commercial paper having one of the two highest ratings
obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Rating Services and, in each case, maturing within one year after the date
of acquisition; and

(6) money market funds at least 95% of the assets of which
constitute Cash Equivalents of the kinds described in clauses (1) through
(5) of this definition.

"Cash Flow of AREP and the Guarantors" means, with respect to any period,
the Net Income of AREP and the Guarantors for such period plus, without
duplication:

(1) provision for taxes based on income or profits of AREP and the
Guarantors or any payments of Tax Amounts by AREP for such period, to the
extent that such provision for taxes or such payments of Tax Amounts were
deducted in computing such Net Income of AREP or any Guarantor; plus

(2) the Fixed Charges of AREP or any Guarantor for such period, to
the extent that such Fixed Charges of AREP and such Guarantor were
deducted in computing such Net Income of AREP and such Guarantor; plus

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(3) depreciation, amortization (including amortization of
intangibles but excluding amortization of prepaid cash expenses that were
paid in a prior period) and other non-cash expenses (excluding any such
non-cash expense to the extent that it represents an accrual of or reserve
for cash expenses in any future period or amortization of a prepaid cash
expense that was paid in a prior period) of AREP and any Guarantor for
such period to the extent that such depreciation, amortization and other
non-cash expenses were deducted in computing such Net Income of AREP and
any Guarantor; minus

(4) non-cash items increasing such Net Income of AREP and any
Guarantor for such period, other than the accrual of revenue in the
ordinary course of business,

in each case, consolidating such amounts for AREP and any Guarantor but
excluding any net income, provision for taxes, fixed charges, depreciation,
amortization or other amounts of any of the Subsidiaries of AREP (other than any
Guarantor) and otherwise determined in accordance with GAAP; provided, further,
that the Net Income of AREP and any Guarantor shall include income from
investments or Subsidiaries of AREP (other than any Guarantor) but only to the
extent such income is realized in Cash Equivalents by AREP or any Guarantor.

"Change of Control" means the occurrence of any of the following:

(1) the sale, lease, transfer, conveyance or other disposition by
AREP or the Guarantor (other than by way of merger or consolidation), in
one or a series of related transactions, of all or substantially all of
the properties or assets of AREP or AREH to any "person" (as that term is
used in Section 13(d) of the Exchange Act) other than the Principal or a
Related Party; provided, however, that (x) if AREP or AREH receives
consideration in Cash Equivalents and marketable securities with an
aggregate Fair Market Value determined at the time of the execution of
each relevant agreement of at least $1.0 billion for such sale, lease,
transfer, conveyance or other disposition of properties or assets, then
such transaction shall not be deemed a Change of Control and (y) any sale,
assignment, transfer or other disposition of Cash Equivalents, including,
without limitation, any investment or capital contribution of Cash
Equivalents or purchase of property, assets or Capital Stock with Cash
Equivalents, will not constitute a sale, assignment, transfer, conveyance
or other disposition of all or substantially all of the properties or
assets for purposes of this clause (1);

(2) the adoption of a plan relating to the liquidation or
dissolution of AREP;

(3) the consummation of any transaction (including, without
limitation, any merger or consolidation), the result of which is that any
"person" (as defined above), other than the Principal or the Related
Parties, becomes the Beneficial Owner, directly or indirectly, of more
than 50% of the Voting Stock of a Controlling Entity of AREP, measured by
voting power rather than number of shares;

(4) the first day on which a majority of the members of the Board of
Directors of the Controlling Entity are not Continuing Directors; or

(5) for so long as the Company is a partnership, upon any general
partner of AREP ceasing to be an Affiliate of the Principal or a Related
Party.

"Change of Control Offer" has the meaning assigned to that term in this
Indenture governing the Notes.

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"Clearstream" means Clearstream Banking, S.A.

"Company" means, collectively AREP and AREP Finance, and any and all
successors thereto.

"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of net income (loss) of such Person, on a consolidated
basis with its Subsidiaries, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends; provided that:

(1) the Net Income of any Person that is accounted for by the equity
method of accounting or that is a Subsidiary will be included only to the
extent of the amount of dividends or similar distributions paid in cash to
the specified Person or a Subsidiary of the Person;

(2) the Net Income of any of its Subsidiaries will be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has
not been obtained) or, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary or
its stockholders; and

(3) the cumulative effect of a change in accounting principles will
be excluded.

"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of AREP who:

(1) was a member of such Board of Directors on the date of this
Indenture; or

(2) was nominated for election or elected to such Board of Directors
with the approval of the Principal or any of the Related Parties or with
the approval of a majority of the Continuing Directors who were members of
such Board of Directors at the time of such nomination or election.

"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of management and policies of a Person, whether
through the ownership of Voting Stock, by agreement or otherwise.

"Controlling Entity" means (1) for so long as AREP is a partnership, any
general partner of AREP, (2) if AREP is a limited liability company, any
managing member of AREP or (3) if AREP is a corporation, AREP.

"Corporate Trust Office of the Trustee" will be at the address of the
Trustee specified in Section 12.02 hereof or such other address as to which the
Trustee may give notice to the Company.

"Credit Facilities" means, one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced (whether upon or after
termination or otherwise) or refinanced (including by means of sales of debt
securities to institutional investors) in whole or in part from time to time.

5

"Custodian" means the Trustee, as custodian with respect to the Notes in
global form, or any successor entity thereto.

"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.

"Definitive Note" means a certificated Note registered in the name of the
Holder thereof and issued in accordance with Section 2.06 hereof, substantially
in the form of Exhibit A1 hereto except that such Note shall not bear the Global
Note Legend and shall not have the "Schedule of Exchanges of Interests in the
Global Note" attached thereto.

"Depositary" means, with respect to the Notes issuable or issued in whole
or in part in global form, the Person specified in Section 2.03 hereof as the
Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.

"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case, at the option of the holder of the Capital Stock),
or upon the happening of any event, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or redeemable at the option
of the holder of the Capital Stock, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature. Notwithstanding the
preceding sentence, any Capital Stock that would constitute Disqualified Stock
solely because the holders of the Capital Stock have the right to require AREP
or any Guarantor to repurchase such Capital Stock upon the occurrence of a
change of control, event of loss, an asset sale or other special redemption
event will not constitute Disqualified Stock if the terms of such Capital Stock
provide that AREP or any Guarantor may not repurchase or redeem any such Capital
Stock pursuant to such provisions unless such repurchase or redemption complies
with Section 4.07 hereof or where the funds to pay for such repurchase was from
the net cash proceeds of such Capital Stock and such net cash proceeds was set
aside in a separate account to fund such repurchase. Furthermore, any Capital
Stock that would constitute Disqualified Stock solely because the holders of the
Capital Stock have the right to require AREP or any Guarantor to redeem such
Capital Stock, including, without limitation, upon maturity will not constitute
Disqualified Stock if the terms of such Capital Stock provide that AREP or any
Guarantor may redeem such Capital Stock for other Capital Stock that is not
Disqualified Stock. The amount of Disqualified Stock deemed to be outstanding at
any time for purposes of this Indenture will be the maximum amount that AREP and
its Subsidiaries (including any Guarantor) may become obligated to pay upon the
maturity of, or pursuant to any mandatory redemption provisions of, such
Disqualified Stock, exclusive of accrued dividends. For the avoidance of doubt,
and by way of example, the Preferred Units, as in effect on the date of this
Indenture, do not constitute Disqualified Stock.

"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

"Equity Offering" means an offer and sale of Capital Stock (other than
Disqualified Stock) of AREP (other than an offer and sale relating to equity
securities issuable under any employee benefit plan of AREP) or a capital
contribution in respect of Capital Stock (other than Disqualified Stock) of
AREP.

"Euroclear" means Euroclear Bank, S.A./N.V., as operator of the Euroclear
system.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

6

"Exchange Notes" means the Notes issued in the Exchange Offer pursuant to
Section 2.06(f) hereof.

"Exchange Offer" has the meaning set forth in the Registration Rights
Agreement.

"Exchange Offer Registration Statement" has the meaning set forth in the
Registration Rights Agreement.

"Existing Indebtedness" means up to $43.8 million in aggregate principal
amount of Indebtedness of AREP and any Guarantor, in existence on the Issuance
Date, until such amounts are repaid.

"Fair Market Value" means the value that would be paid by a willing buyer
to an unaffiliated willing seller in a transaction not involving distress or
necessity of either party, determined in good faith by the Board of Directors of
AREP (unless otherwise provided in this Indenture).

"Fixed Charge Coverage Ratio of AREP and the Guarantors" means the ratio
of the Cash Flow of AREP and the Guarantors for such period to the Fixed Charges
of AREP and the Guarantors for such period. In the event that AREP or any
Guarantor incurs, assumes, guarantees, repays, repurchases, redeems, defeases or
otherwise discharges any Indebtedness (other than ordinary working capital
borrowings) or issues, repurchases or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio of AREP and
the Guarantors is being calculated and on or prior to the Quarterly
Determination Date for which the calculation of the Fixed Charge Coverage Ratio
of AREP and the Guarantors is being made (the "Calculation Date"), then the
Fixed Charge Coverage Ratio of AREP and the Guarantors will be calculated giving
pro forma effect to such incurrence, assumption, Guarantee, repayment,
repurchase, redemption, defeasance or other discharge of Indebtedness, or such
issuance, repurchase or redemption of preferred stock, and the use of the
proceeds therefrom, as if the same had occurred at the beginning of the
applicable four-quarter reference period.

In addition, for purposes of calculating the Fixed Charge Coverage Ratio:

(1) acquisitions that have been made by the specified Person,
including through mergers or consolidations, or any Person acquired by the
specified Person, and including any related financing transactions, during
the four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be given pro forma effect
(in accordance with Regulation S-X under the Securities Act) as if they
had occurred on the first day of the four-quarter reference period;

(2) the Cash Flow of AREP and the Guarantors attributable to
discontinued operations, as determined in accordance with GAAP, and
operations or businesses (and ownership interests therein) disposed of
prior to the Calculation Date, shall be excluded;

(3) the Fixed Charges of AREP and the Guarantors attributable to
discontinued operations, as determined in accordance with GAAP, and
operations or businesses (and ownership interests therein) disposed of
prior to the Calculation Date, will be excluded, but only to the extent
that such Fixed Charges of AREP and the Guarantors are equal to or less
than the Cash Flow of AREP and the Guarantors from the related
discontinued operation excluded under this clause (3) for such period; and

(4) if any Indebtedness bears a floating rate of interest, the
interest expense on such Indebtedness will be calculated as if the rate in
effect on the Calculation Date had been the

7

applicable rate for the entire period (taking into account any Hedging
Obligation applicable to such Indebtedness if such Hedging Obligation has
a remaining term as at the Calculation Date in excess of 12 months).

"Fixed Charges of AREP and the Guarantors" means, with respect to any
period, the sum, without duplication, of:

(1) the interest expense of AREP, and any Guarantor for such period,
whether paid or accrued, including, without limitation, amortization of
debt issuance costs and original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net of
the effect of all payments made or received pursuant to Hedging
Obligations in respect of interest rates; plus

(2) the interest expense of AREP and any Guarantor that was
capitalized during such period; plus

(3) any interest on Indebtedness of another Person that is
guaranteed by AREP or any Guarantor (other than Bad Boy Guarantees unless
such Bad Boy Guarantee is called upon) or secured by a Lien on assets of
AREP or any additional Guarantor, whether or not such Guarantee or Lien is
called upon; provided that for purposes of calculating interest with
respect to Indebtedness that is Guaranteed or secured by a Lien, the
principal amount of Indebtedness will be calculated in accordance with the
last two paragraphs of the definition of Indebtedness; plus

(4) the product of (a) all dividends, whether paid or accrued and
whether or not in cash, on any series of preferred equity of AREP, other
than dividends on preferred stock to the extent payable in Equity
Interests of AREP (other than Disqualified Stock) or dividends on
preferred equity payable to AREP, times (b) a fraction, the numerator of
which is one and the denominator of which is one minus the then current
combined federal, state and local statutory income tax rate of AREP
(however, for so long as AREP is a partnership or otherwise a pass through
entity for federal income tax purposes, the combined federal, state and
local income tax rate shall be the rate that was utilized to calculate the
Tax Amount of such Person to the extent that the Tax Amount was actually
distributed with respect to such period (and if less than the Tax Amount
is distributed, such rate shall be proportionately reduced) and if no Tax
Amount was actually distributed during such period, such combined federal,
state and local income tax rate shall be zero), expressed as a decimal;
provided that this clause (4) will not include any Preferred Unit
Distribution paid in additional Preferred Units,

in each case, determined on a consolidated basis between AREP and any Guarantor
but on a nonconsolidated basis with the Subsidiaries of AREP (other than any
Guarantor) and otherwise in accordance with GAAP.

"GAAP" means generally accepted accounting principles in the United States
set forth in the statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as have been
approved by a significant segment of the accounting profession, which are in
effect on the Issuance Date. For the purposes of this Indenture, the term
"consolidated" with respect to any Person shall mean such Person consolidated
with its Subsidiaries.

"Gaming Authority" means any agency, authority, board, bureau, commission,
department, office or instrumentality of any nature whatsoever of the United
States or other national government, any state,

8

province or any city or other political subdivision, including, without
limitation, the State of Nevada, or the State of New Jersey, whether now or
hereafter existing, or any officer or official thereof and any other agency with
authority thereof to regulate any gaming operation (or proposed gaming
operation) owned, managed or operated by the Principal, its Related Parties, the
Company or any of their respective Subsidiaries or Affiliates.

"Gaming Law" means any gaming law or regulation of any jurisdiction or
jurisdictions to which the Company or any of its Subsidiaries (including AREH)
is, or may at any time after the issue date be, subject.

"GB Securities" means the 11% notes due 2005 issued by GB Property Funding
Corp.

"Global Note Legend" means the legend set forth in Section 2.06(g)(2)
hereof, which is required to be placed on all Global Notes issued under this
Indenture.

"Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes deposited with or on
behalf of and registered in the name of the Depository or its nominee,
substantially in the form of Exhibit A1 hereto and that bears the Global Note
Legend and that has the "Schedule of Exchanges of Interests in the Global Note"
attached thereto, issued in accordance with Section 2.01, 2.06(b)(3),
2.06(b)(4), 2.06(d)(2) or 2.06(f) hereof.

"Government Instrumentality" means any national, state or local government
(whether domestic or foreign), any political subdivision thereof or any other
governmental, quasi-governmental, judicial, public or statutory instrumentality,
authority, body, agency, court, tribunal, commission, bureau or entity or any
arbitrator with authority to bind a party at law.

"Government Securities" means securities that are (1) direct obligations
of the United States of America for the timely payment of which its full faith
and credit is pledged or (2) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Security
or a specific payment of principal of or interest on any such Government
Security held by such custodian for the account of the holder of such depository
receipt; provided, that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
Government Security or the specific payment of principal of or interest on the
Government Security evidenced by such depository receipt.

"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take or pay or to maintain financial statement
conditions or otherwise).

"Guarantor" means any Subsidiary of AREP (initially only AREH) that
executes a Note Guarantee in accordance with the provisions of this Indenture,
and their respective successors and assigns, in each case, until the Note
Guarantee of such Person has been released in accordance with the provisions of
this Indenture.

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"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:

(1) interest rate swap agreements (whether from fixed to floating or
from floating to fixed), interest rate cap agreements and interest rate
collar agreements;

(2) other agreements or arrangements designed to manage interest
rates or interest rate risk; and

(3) other agreements or arrangements designed to protect such Person
against fluctuations in currency exchange rates or commodity prices.

"Holder" means a Person in whose name a Note is registered.

"IAI Global Note" means a Global Note substantially in the form of Exhibit
A1 hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold to Institutional Accredited Investors.

"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person (excluding accrued expenses and trade payables),
whether or not contingent:

(1) in respect of borrowed money;

(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);

(3) in respect of banker's acceptances;

(4) representing Capital Lease Obligations;

(5) representing the balance deferred and unpaid of the purchase
price of any property or services due more than six months after such
property is acquired or such services are completed; or

(6) representing any Hedging Obligations,

if and to the extent any of the preceding items (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of the specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any Indebtedness of any other Person.

"Indenture" means this Indenture, as amended or supplemented from time to
time.

"Indirect Participant" means a Person who holds a beneficial interest in a
Global Note through a Participant.

"Initial Notes" means the first $353,000,000 aggregate principal amount of
Notes issued under this Indenture on the date hereof.

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"Initial Purchaser" means Bear, Stearns & Co. Inc.

"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.

"Issuance Date" means the closing date for the sale and original issuance
of the Notes.

"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue on
such payment for the intervening period.

"Letter of Transmittal" means the letter of transmittal to be prepared by
the Company and sent to all Holders of the Notes for use by such Holders in
connection with the Exchange Offer.

"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.

"Liquidated Damages" means all liquidated damages then owing pursuant to
the Registration Rights Agreement.

"NEG" means National Energy Group, Inc.

"NEG Credit Agreement" means the credit agreement, dated as of December
29, 2003, among NEG Operating LLC, certain commercial lending institutions party
thereto, including Mizuho Corporate Bank, Ltd. as the administrative agent, Bank
of Texas N.A. and Bank of Nova Scotia as co-agents.

"NEG Management Agreements" means the management agreement dated September
12, 2001, between NEG and NEG Operating LLC and the management agreement dated
August 28, 2003, between NEG and TransTexas Gas Corporation, each as in effect
on the date of this Indenture.

"Net Income" means, with respect to any specified Person for any four
consecutive fiscal quarter period, the net income (loss) of such Person
determined in accordance with GAAP and before any reduction in respect of
preferred stock dividends.

"Non-U.S. Person" means a Person who is not a U.S. Person.

"Note Guarantee" means the Guarantee by any Subsidiary of AREP of the
Company's obligations under this Indenture and the Notes, executed pursuant to
the provisions of this Indenture; which initially will only be by AREH.

"Notes" has the meaning assigned to it in the preamble to this Indenture.
The Initial Notes, the Exchange Notes and the Additional Notes shall be treated
as a single class for all purposes under this Indenture, and unless the context
otherwise requires, all references to the Notes shall include the Initial Notes,
the Exchange Notes and any Additional Notes.

11

"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.

"Offering Memorandum" means the offering memorandum dated May 6, 2004, as
supplemented by the Offering Memorandum supplement dated May 10, 2004, relating
to the issuance of the Notes.

"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Vice-President of such Person.

"Officers' Certificate" means a certificate signed on behalf of API or
AREP Finance by two Officers (or if AREP is (x) a limited liability company, two
Officers of the managing member of such limited liability company or (y) a
corporation, by two Officers thereof) of API or AREP Finance, one of whom must
be the principal executive officer, the principal financial officer, the
treasurer or the principal accounting officer of API or AREP Finance that meets
the requirements of Section 12.05 hereof.

"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee, that meets the requirements of Section 12.05 hereof.
The counsel may be an employee of or counsel to the Company, any Subsidiary of
the Company or any of its Affiliates or the Trustee.

"Other Liquidated Damages" means liquidated damages arising from a
registration default under a registration rights agreement with respect to the
registration of subordinated Indebtedness permitted to be incurred under this
Indenture.

"Participant" means, with respect to the Depositary, Euroclear or
Clearstream, a Person who has an account with the Depositary, Euroclear or
Clearstream, respectively (and, with respect to DTC, shall include Euroclear and
Clearstream).

"Partners' Equity" with respect to any Person means as of any date, the
partners' equity as of such date shown on the consolidated balance sheet of such
Person and its Subsidiaries or if such Person is not a partnership, the
comparable line-item on a balance sheet, each prepared in accordance with GAAP.

"Permitted Refinancing Indebtedness" means any Indebtedness of AREP or any
Guarantor issued in exchange for, or the net proceeds of which are used to
renew, refund, refinance, replace, defease or discharge other Indebtedness of
AREP or any Guarantor (other than intercompany Indebtedness); provided that:

(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount
(or accreted value, if applicable) of the Indebtedness renewed, refunded,
refinanced, replaced, defeased or discharged (plus all accrued interest on
the Indebtedness and the amount of all fees and expenses, including
premiums, and Other Liquidated Damages, incurred in connection therewith);

(2) in the case of any Indebtedness other than Notes redeemed in
accordance with Section 3.08 hereof, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date
of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being renewed,
refunded, refinanced, replaced, defeased or discharged; and

(3) if the Indebtedness being renewed, refunded, refinanced,
replaced, defeased or discharged is subordinated in right of payment to
the Notes, such Permitted Refinancing

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Indebtedness has a final maturity date later than the final maturity date
of, and is subordinated in right of payment to, the Notes on terms at
least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being renewed, refunded,
refinanced, replaced, defeased or discharged.

"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.

"Preferred Stock" means any Equity Interest with preferential right of
payment of dividends or upon liquidation, dissolution, or winding up.

"Preferred Units" means AREP's 5% Cumulative Pay-in-Kind Redeemable
Preferred Units payable on or before March 31, 2010.

"Preferred Unit Distribution" means the scheduled annual Preferred Unit
distribution, payable on March 31 of each year in additional Preferred Units at
the rate of 5% of the liquidation preference of $10.00 per Preferred Unit.

"Principal" means Carl Icahn.

"Principal Property" of a specified Person means any property, assets or
revenue of such Person now owned or hereafter acquired.

"Private Placement Legend" means the legend set forth in Section
2.06(g)(1) hereof to be placed on all Notes issued under this Indenture except
where otherwise permitted by the provisions of this Indenture.

"QIB" means a "qualified institutional buyer" as defined in Rule 144A.

"Quarterly Determination Date" means, in connection with AREP's first,
second and third fiscal quarters (commencing with the second fiscal quarter of
2004), the earlier of (i) the date AREP would have been required to file a
quarterly report with the SEC on Form 10-Q if AREP were required to file such
reports and (ii) the date AREP files its quarterly report with the SEC on Form
10-Q. In connection with AREP's fourth fiscal quarter, the earlier of (i) the
date AREP would have been required to file an annual report with the SEC on Form
10-K if AREP were required to file such a report and (ii) the date AREP files
its annual report with the SEC on Form 10-K.

"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of May __, 2004, among the Company, the Guarantor and the other parties
named on the signature pages thereof, as such agreement may be amended, modified
or supplemented from time to time and, with respect to any Additional Notes, one
or more registration rights agreements among the Company, the Guarantor and the
other parties thereto, as such agreement(s) may be amended, modified or
supplemented from time to time, relating to rights given by the Company to the
purchasers of Additional Notes to register such Additional Notes under the
Securities Act.

"Regulation S" means Regulation S promulgated under the Securities Act.

"Regulation S Global Note" means a Regulation S Temporary Global Note or
Regulation S Permanent Global Note, as appropriate.

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"Regulation S Permanent Global Note" means a permanent Global Note in the
form of Exhibit A1 hereto bearing the Global Note Legend and the Private
Placement Legend and deposited with or on behalf of and registered in the name
of the Depositary or its nominee, issued in a denomination equal to the
outstanding principal amount of the Regulation S Temporary Global Note upon
expiration of the Restricted Period.

"Regulation S Temporary Global Note" means a temporary Global Note in the
form of Exhibit A2 hereto deposited with or on behalf of and registered in the
name of the Depositary or its nominee, issued in a denomination equal to the
outstanding principal amount of the Notes initially sold in reliance on Rule 903
of Regulation S.

"Related Parties" means (1) Carl Icahn, any spouse and any child,
stepchild, sibling or descendant of Carl Icahn, (2) any estate of Carl Icahn or
any person under clause (1), (3) any person who receives a beneficial interest
in any estate under clause (2) to the extent of such interest, (4) any executor,
personal administrator or trustee who holds such beneficial interest in AREP for
the benefit of, or as fiduciary for, any person under clauses (1), (2) or (3) to
the extent of such interest and (5) any corporation, partnership, limited
liability company, trust, or similar entity, directly or indirectly owned or
Controlled by Carl Icahn or any other person or persons identified in clauses
(1), (2) or (3).

"Responsible Officer," when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.

"Restricted Definitive Note" means a Definitive Note bearing the Private
Placement Legend.

"Restricted Global Note" means a Global Note bearing the Private Placement
Legend.

"Restricted Period" means the 40-day distribution compliance period as
defined in Regulation S.

"Rule 144" means Rule 144 promulgated under the Securities Act.

"Rule 144A" means Rule 144A promulgated under the Securities Act.

"Rule 903" means Rule 903 promulgated under the Securities Act.

"Rule 904" means Rule 904 promulgated under the Securities Act.

"SEC" means the United States Securities and Exchange Commission.

"Secured Indebtedness" of any specified Person means any Indebtedness
secured by a Lien upon the property of such Person.

"Securities Act" means the Securities Act of 1933, as amended.

"Security and Control Agreement" means a security and control agreement
substantially in the form of Exhibit G hereto.

"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Registration Rights Agreement.

14

"Significant Subsidiary" means any Subsidiary which would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such regulation is in effect on
the Issuance Date.

"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest, accreted value, or principal
prior to the date originally scheduled for the payment or accretion thereof.

"Subordinated Indebtedness" means any Indebtedness that by its terms is
expressly subordinated in right of payment in any respect (either in the payment
of principal or interest) to the payment of principal, Liquidated Damages or
interest on the Notes.

"Subsidiary" means, with respect to any specified Person:

(1) any corporation, association or other business entity of which
more than 50% of the total Voting Stock is at the time owned or
Controlled, directly or indirectly, by that Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); and

(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are that Person or one or more
Subsidiaries of that Person (or any combination thereof).

For the avoidance of doubt, AREH will be deemed to be a Subsidiary of AREP
so long as AREH remains a Guarantor.

"Tangible Net Worth" of any specified Person as of any date means, the
total shareholders' equity (or if such Person were not a corporation, the
equivalent account) of such Person and its Subsidiaries on a consolidated basis
determined in conformity with GAAP less any and all goodwill and other
intangible assets reflected on the consolidated balance sheet of such Person as
of the last day of the fiscal quarter most recently completed before the date of
determination for which financial statements are then available, but taking into
account any change in total shareholders' equity (or the equivalent account) as
a result of any (x) Restricted Payments made, (y) asset sales or (z)
contributions to equity or from the issuance or sale of Equity Interests
(excluding Disqualified Stock) or from the exchange or conversion (other than to
Disqualified Stock) of Disqualified Stock or debt securities, completed since
such fiscal quarter end.

"Tax Amount" means, for any period, the combined federal, state and local
income taxes, including estimated taxes, that would be payable by AREP if it
were a Delaware corporation filing separate tax returns with respect to its
Taxable Income for such period and owned 100% of AREH; provided, that in
determining the Tax Amount, the effect thereon of any net operating loss
carryforwards or other carryforwards or tax attributes, such as alternative
minimum tax carryforwards, that would have arisen if AREP were a Delaware
corporation shall be taken into account; provided, further that (i) if there is
an adjustment in the amount of the Taxable Income for any period, an appropriate
positive or negative adjustment shall be made in the Tax Amount, and if the Tax
Amount is negative, then the Tax Amount for succeeding periods shall be reduced
to take into account such negative amount until such negative amount is reduced
to zero and (ii) any Tax Amount other than amounts relating to estimated taxes
shall be computed by a nationally recognized accounting firm (but, including in
any event, AREP's auditors). Notwithstanding anything to the contrary, the Tax
Amount shall not include taxes resulting from AREP's change in the status to a
corporation for tax purposes.

15

"Taxable Income" means, for any period, the taxable income or loss of AREP
for such period for federal income tax purposes.

"TIA" means the Trust Indenture Act of 1939, as amended (15
U.S.C. Sections 77aaa-77bbbb).

"Total Unencumbered Assets" means, as of any Quarterly Determination Date,
the book value of all of the assets of AREP and any Guarantor (including,
without limitation, the Capital Stock of their Subsidiaries, but excluding
goodwill and intangibles) that do not secure, by a Lien, any portion of any
Indebtedness (other than assets secured by a Lien in favor of the Notes and such
assets are not secured by a Lien in favor of any other Indebtedness) as of such
date (determined on a consolidated basis between AREP and any Guarantor but not
on a consolidated basis with their Subsidiaries and otherwise in accordance with
GAAP).

"Trustee" means Wilmington Trust Company until a successor replaces it in
accordance with the applicable provisions of this Indenture and thereafter means
the successor serving hereunder.

"Unrestricted Definitive Note" means a Definitive Note that does not bear
and is not required to bear the Private Placement Legend.

"Unrestricted Global Note" means a Global Note that does not bear and is
not required to bear the Private Placement Legend.

"Unsecured Indebtedness" of AREP, AREH and any additional Guarantor means
any Indebtedness of such Person that is not Secured Indebtedness.

"U.S. Person" means a U.S. Person as defined in Rule 902(k) promulgated
under the Securities Act.

"Voting Stock" means, with respect to any Person that is (a) a
corporation, any class or series of capital stock of such Person that is
ordinarily entitled to vote in the election of directors thereof at a meeting of
stockholders called for such purpose, without the occurrence of any additional
event or contingency, (b) a limited liability company, membership interests
entitled to manage, or to elect or appoint the Persons that will manage the
operations or business of the limited liability company, or (c) a partnership,
partnership interests entitled to elect or replace the general partner thereof.

"Weighted Average Life to Maturity" means, when applied to any
Indebtedness or Disqualified Stock, as the case may be, at any date, the number
of years (calculated to the nearest one-twelfth) obtained by dividing (1) the
sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required payments
of principal or liquidation preference, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment,
by (2) the then outstanding principal amount or liquidation preference, as
applicable, of such Indebtedness or Disqualified Stock, as the case may be.

Section 1.02 Other Definitions.

16

Defined in
Term                                                                                      Section
----                                                                                      -------

"Affiliate Transaction".............................................................       4.11
"Application Date"..................................................................       3.08
"Authentication Order"..............................................................       2.02
"Calculation Date"..................................................................       1.01
"Change of Control Offer"...........................................................       4.15
"Change of Control Payment".........................................................       4.15
"Change of Control Payment Date"....................................................       4.15
"Covenant Defeasance"...............................................................       8.03
"DTC"...............................................................................       2.03
"Event of Default"..................................................................       6.01
"incur".............................................................................       4.09
"Legal Defeasance"..................................................................       8.02
"Paying Agent"......................................................................       2.03
"Permitted Debt"....................................................................       4.09
"Payment Default" ..................................................................       6.01
"Registrar".........................................................................       2.03
"Restricted Payments"...............................................................       4.07

Section 1.03 Incorporation by Reference of Trust Indenture Act.

Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.

The following TIA terms used in this Indenture have the following
meanings:

"indenture securities" means the Notes;

"indenture security Holder" means a Holder of a Note;

"indenture to be qualified" means this Indenture;

"indenture trustee" or "institutional trustee" means the Trustee; and

"obligor" on the Notes and the Note Guarantees means the Company and any
Guarantor, respectively, and any successor obligor upon the Notes and the Note
Guarantees, respectively.

Section 1.04 Rules of Construction.

Unless the context otherwise requires:

(1) a term has the meaning assigned to it;

(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;

(3) "or" is not exclusive;

(4) words in the singular include the plural, and in the plural
include the singular;

17

(5) "will" shall be interpreted to express a command;

(6) provisions apply to successive events and transactions; and

(7) references to sections of or rules under the Securities Act will
be deemed to include substitute, replacement of successor sections or
rules adopted by the SEC from time to time.

ARTICLE 2
THE NOTES

Section 2.01 Form and Dating.

(a) General. The Notes and the Trustee's certificate of authentication
will be substantially in the form of Exhibits A1 and A2 hereto. The Notes may
have notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note will be dated the date of its authentication. The Notes shall
be in denominations of $1,000 and integral multiples thereof.

The terms and provisions contained in the Notes will constitute, and are
hereby expressly made, a part of this Indenture and the Company, the Guarantor
and the Trustee, by their execution and delivery of this Indenture, expressly
agree to such terms and provisions and to be bound thereby. However, to the
extent any provision of any Note conflicts with the express provisions of this
Indenture, the provisions of this Indenture shall govern and be controlling.

(b) Global Notes. Notes issued in global form will be substantially in the
form of Exhibits A1 or A2 attached hereto (including the Global Note Legend
thereon and the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Notes issued in definitive form will be substantially in the form of
Exhibit A1 hereto (but without the Global Note Legend thereon and without the
"Schedule of Exchanges of Interests in the Global Note" attached thereto). Each
Global Note will represent such of the outstanding Notes as will be specified
therein and each shall provide that it represents the aggregate principal amount
of outstanding Notes from time to time endorsed thereon and that the aggregate
principal amount of outstanding Notes represented thereby may from time to time
be reduced or increased, as appropriate, to reflect exchanges and redemptions.
Any endorsement of a Global Note to reflect the amount of any increase or
decrease in the aggregate principal amount of outstanding Notes represented
thereby will be made by the Trustee or the Custodian, at the direction of the
Trustee, in accordance with instructions given by the Holder thereof as required
by Section 2.06 hereof.

(c) Temporary Global Notes. Notes offered and sold in reliance on
Regulation S will be issued initially in the form of the Regulation S Temporary
Global Note, which will be deposited on behalf of the purchasers of the Notes
represented thereby with the Trustee, at its New York office, as custodian for
the Depositary, and registered in the name of the Depositary or the nominee of
the Depositary for the accounts of designated agents holding on behalf of
Euroclear or Clearstream, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. The Restricted Period will be terminated upon
the receipt by the Trustee of:

(1) a written certificate from the Depositary, together with copies
of certificates from Euroclear and Clearstream certifying that they have
received certification of non-United States beneficial ownership of 100%
of the aggregate principal amount of the Regulation S Temporary Global
Note (except to the extent of any beneficial owners thereof who acquired
an interest therein during the Restricted Period pursuant to another
exemption from registration under the Securities Act and who will take
delivery of a beneficial ownership interest in a 144A Global

18

Note or an IAI Global Note bearing a Private Placement Legend, all as
contemplated by Section 2.06(b) hereof); and

(2) an Officers' Certificate from the Company.

Following the termination of the Restricted Period, beneficial interests
in the Regulation S Temporary Global Note will be exchanged for beneficial
interests in the Regulation S Permanent Global Note pursuant to the Applicable
Procedures. Simultaneously with the authentication of the Regulation S Permanent
Global Note, the Trustee will cancel the Regulation S Temporary Global Note. The
aggregate principal amount of the Regulation S Temporary Global Note and the
Regulation S Permanent Global Note may from time to time be increased or
decreased by adjustments made on the records of the Trustee and the Depositary
or its nominee, as the case may be, in connection with transfers of interest as
hereinafter provided.

(3) Euroclear and Clearstream Procedures Applicable. The provisions
of the "Operating Procedures of the Euroclear System" and "Terms and
Conditions Governing Use of Euroclear" and the "General Terms and
Conditions of Clearstream Banking" and "Customer Handbook" of Clearstream
will be applicable to transfers of beneficial interests in the Regulation
S Temporary Global Note and the Regulation S Permanent Global Note that
are held by Participants through Euroclear or Clearstream.

Section 2.02 Execution and Authentication.

At least one Officer must sign the Notes for the Company by manual or
facsimile signature.

If an Officer whose signature is on a Note no longer holds that office at
the time a Note is authenticated, the Note will nevertheless be valid.

A Note will not be valid until authenticated by the manual signature of
the Trustee. The signature will be conclusive evidence that the Note has been
authenticated under this Indenture.

The Trustee will, upon receipt of a written order of the Company signed by
two Officers (an "Authentication Order"), authenticate Notes for original issue
that may be validly issued under this Indenture, including any Additional Notes
up to the aggregate principal amount stated in such Authentication Order. The
aggregate principal amount of Notes outstanding at any time may not exceed the
aggregate principal amount of Notes authorized for issuance by the Company
pursuant to one or more Authentication Orders, except as provided in Section
2.07 hereof.

The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Notes. An authenticating agent may authenticate Notes whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with Holders or an Affiliate of the Company.

Section 2.03 Registrar and Paying Agent.

The Company will maintain an office or agency where Notes may be presented
for registration of transfer or for exchange ("Registrar") and an office or
agency where Notes may be presented for payment ("Paying Agent"). The Registrar
will keep a register of the Notes and of their transfer and exchange. The
Company may appoint one or more co-registrars and one or more additional paying
agents. The term "Registrar" includes any co-registrar and the term "Paying
Agent" includes any additional paying agent. The Company may change any Paying
Agent or Registrar without notice to any Holder. The Company

19

will notify the Trustee in writing of the name and address of any Agent not a
party to this Indenture. If the Company fails to appoint or maintain another
entity as Registrar or Paying Agent, the Trustee shall act as such. The Company
or any of its Subsidiaries may act as Paying Agent or Registrar.

The Company initially appoints The Depository Trust Company ("DTC") to act
as Depositary with respect to the Global Notes.

The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Custodian with respect to the Global Notes.

Section 2.04 Paying Agent to Hold Money in Trust.

The Company will require each Paying Agent other than the Trustee to agree
in writing that the Paying Agent will hold in trust for the benefit of Holders
or the Trustee all money held by the Paying Agent for the payment of principal,
premium or Liquidated Damages, if any, or interest on the Notes, and will notify
the Trustee of any default by the Company in making any such payment. While any
such default continues, the Trustee may require a Paying Agent to pay all money
held by it to the Trustee. The Company at any time may require a Paying Agent to
pay all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent (if other than the Company or a Subsidiary) will have no further
liability for the money. If the Company or a Subsidiary acts as Paying Agent, it
will segregate and hold in a separate trust fund for the benefit of the Holders
all money held by it as Paying Agent. Upon any bankruptcy or reorganization
proceedings relating to the Company, the Trustee will serve as Paying Agent for
the Notes.

Section 2.05 Holder Lists.

The Trustee will preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, the Company will furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA Section 312(a).

Section 2.06 Transfer and Exchange.

(a) Transfer and Exchange of Global Notes. A Global Note may not be
transferred except as a whole by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, or by the Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary. All Global Notes will be exchanged by
the Company for Definitive Notes if:

(1) the Company delivers to the Trustee notice from the Depositary
that it is unwilling or unable to continue to act as Depositary or that it
is no longer a clearing agency registered under the Exchange Act and, in
either case, a successor Depositary is not appointed by the Company within
120 days after the date of such notice from the Depositary;

(2) the Company in its sole discretion determines that the Global
Notes (in whole but not in part) should be exchanged for Definitive Notes
and delivers a written notice to such effect to the Trustee; provided that
in no event shall the Regulation S Temporary Global Note be exchanged by
the Company for Definitive Notes prior to (A) the expiration of the
Restricted

20

Period and (B) the receipt by the Registrar of any certificates required
pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act; or

(3) there has occurred and is continuing a Default or Event of
Default with respect to the Notes.

Upon the occurrence of either of the preceding events in (1) or (2) above,
Definitive Notes shall be issued in such names as the Depositary shall instruct
the Trustee. Global Notes also may be exchanged or replaced, in whole or in
part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and
delivered in exchange for, or in lieu of, a Global Note or any portion thereof,
pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be
authenticated and delivered in the form of, and shall be, a Global Note. A
Global Note may not be exchanged for another Note other than as provided in this
Section 2.06(a), however, beneficial interests in a Global Note may be
transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof.

(b) Transfer and Exchange of Beneficial Interests in the Global Notes. The
transfer and exchange of beneficial interests in the Global Notes will be
effected through the Depositary, in accordance with the provisions of this
Indenture and the Applicable Procedures. Beneficial interests in the Restricted
Global Notes will be subject to restrictions on transfer comparable to those set
forth herein to the extent required by the Securities Act. Transfers of
beneficial interests in the Global Notes also will require compliance with
either subparagraph (1) or (2) below, as applicable, as well as one or more of
the other following subparagraphs, as applicable:

(1) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in
the same Restricted Global Note in accordance with the transfer
restrictions set forth in the Private Placement Legend; provided, however,
that prior to the expiration of the Restricted Period, transfers of
beneficial interests in the Regulation S Temporary Global Note may not be
made to a U.S. Person or for the account or benefit of a U.S. Person
(other than an Initial Purchaser). Beneficial interests in any
Unrestricted Global Note may be transferred to Persons who take delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note. No written orders or instructions shall be required to be delivered
to the Registrar to effect the transfers described in this Section
2.06(b)(1).

(2) All Other Transfers and Exchanges of Beneficial Interests in
Global Notes. In connection with all transfers and exchanges of beneficial
interests that are not subject to Section 2.06(b)(1) above, the transferor
of such beneficial interest must deliver to the Registrar either:

(A) both:

(i) a written order from a Participant or an Indirect
Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to credit or
cause to be credited a beneficial interest in another Global
Note in an amount equal to the beneficial interest to be
transferred or exchanged; and

(ii) instructions given in accordance with the
Applicable Procedures containing information regarding the
Participant account to be credited with such increase; or

(B) both:

21

(i) a written order from a Participant or an Indirect
Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to cause to be
issued a Definitive Note in an amount equal to the beneficial
interest to be transferred or exchanged; and

(ii) instructions given by the Depositary to the
Registrar containing information regarding the Person in whose
name such Definitive Note shall be registered to effect the
transfer or exchange referred to in (1) above; provided that
in no event shall Definitive Notes be issued upon the transfer
or exchange of beneficial interests in the Regulation S
Temporary Global Note prior to (A) the expiration of the
Restricted Period and (B) the receipt by the Registrar of any
certificates required pursuant to Rule 903 under the
Securities Act. Upon consummation of an Exchange Offer by the
Company in accordance with Section 2.06(f) hereof, the
requirements of this Section 2.06(b)(2) shall be deemed to
have been satisfied upon receipt by the Registrar of the
instructions contained in the Letter of Transmittal delivered
by the Holder of such beneficial interests in the Restricted
Global Notes. Upon satisfaction of all of the requirements for
transfer or exchange of beneficial interests in Global Notes
contained in this Indenture and the Notes or otherwise
applicable under the Securities Act, the Trustee shall adjust
the principal amount of the relevant Global Note(s) pursuant
to Section 2.06(h) hereof.

(3) Transfer of Beneficial Interests to Another Restricted Global
Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.06(b)(2) above and the
Registrar receives the following:

(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Note, then the transferor
must deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof;

(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Temporary Global Note or the
Regulation S Permanent Global Note, then the transferor must deliver
a certificate in the form of Exhibit B hereto, including the
certifications in item (2) thereof; and

(C) if the transferee will take delivery in the form of a
beneficial interest in the IAI Global Note, then the transferor must
deliver a certificate in the form of Exhibit B hereto, including the
certifications, certificates and Opinion of Counsel required by item
(3) thereof, if applicable.

(4) Transfer and Exchange of Beneficial Interests in a Restricted
Global Note for Beneficial Interests in an Unrestricted Global Note. A
beneficial interest in any Restricted Global Note may be exchanged by any
holder thereof for a beneficial interest in an Unrestricted Global Note or
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note if the exchange or
transfer complies with the requirements of Section 2.06(b)(2) above and:

(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder of the beneficial interest to be transferred, in the
case of an exchange, or the transferee, in the case of a

22

transfer, certifies in the applicable Letter of Transmittal that it
is not (i) a Broker-Dealer, (ii) a Person participating in the
distribution of the Exchange Notes or (iii) a Person who is an
affiliate (as defined in Rule 144) of the Company;

(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;

(C) such transfer is effected by a Broker-Dealer pursuant to
the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or

(D) the Registrar receives the following:

(i) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a beneficial interest in an Unrestricted Global
Note, a certificate from such holder in the form of Exhibit C
hereto, including the certifications in item (1)(a) thereof;
or

(ii) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the
form of a beneficial interest in an Unrestricted Global Note,
a certificate from such holder in the form of Exhibit B
hereto, including the certifications in item (4) thereof;

and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained
herein and in the Private Placement Legend are no longer required in
order to maintain compliance with the Securities Act.

If any such transfer is effected pursuant to subparagraph (B) or (D) above
at a time when an Unrestricted Global Note has not yet been issued, the Company
shall issue and, upon receipt of an Authentication Order in accordance with
Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted
Global Notes in an aggregate principal amount equal to the aggregate principal
amount of beneficial interests transferred pursuant to subparagraph (B) or (D)
above.

Beneficial interests in an Unrestricted Global Note cannot be exchanged
for, or transferred to Persons who take delivery thereof in the form of, a
beneficial interest in a Restricted Global Note.

(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.

(1) Beneficial Interests in Restricted Global Notes to Restricted
Definitive Notes. If any holder of a beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a Restricted
Definitive Note or to transfer such beneficial interest to a Person who
takes delivery thereof in the form of a Restricted Definitive Note, then,
upon receipt by the Registrar of the following documentation:

(A) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
Restricted Definitive Note, a certificate from such holder in the
form of Exhibit C hereto, including the certifications in item
(2)(a) thereof;

23

(B) if such beneficial interest is being transferred to a QIB
in accordance with Rule 144A, a certificate to the effect set forth
in Exhibit B hereto, including the certifications in item (1)
thereof;

(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule
903 or Rule 904, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (2) thereof;

(D) if such beneficial interest is being transferred pursuant
to an exemption from the registration requirements of the Securities
Act in accordance with Rule 144, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item
(3)(a) thereof;

(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than those
listed in subparagraphs (B) through (D) above, a certificate to the
effect set forth in Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3) thereof, if
applicable;

(F) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item
(3)(b) thereof; or

(G) if such beneficial interest is being transferred pursuant
to an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (3)(c) thereof,

the Trustee shall cause the aggregate principal amount of the applicable Global
Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the
Company shall execute and the Trustee shall authenticate and deliver to the
Person designated in the instructions a Definitive Note in the appropriate
principal amount. Any Definitive Note issued in exchange for a beneficial
interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be
registered in such name or names and in such authorized denomination or
denominations as the holder of such beneficial interest shall instruct the
Registrar through instructions from the Depositary and the Participant or
Indirect Participant. The Trustee shall deliver such Definitive Notes to the
Persons in whose names such Notes are so registered. Any Definitive Note issued
in exchange for a beneficial interest in a Restricted Global Note pursuant to
this Section 2.06(c)(1) shall bear the Private Placement Legend and shall be
subject to all restrictions on transfer contained therein.

(2) Beneficial Interests in Regulation S Temporary Global Note to
Definitive Notes. Notwithstanding Sections 2.06(c)(1)(A) and (C) hereof, a
beneficial interest in the Regulation S Temporary Global Note may not be
exchanged for a Definitive Note or transferred to a Person who takes
delivery thereof in the form of a Definitive Note prior to (A) the
expiration of the Restricted Period and (B) the receipt by the Registrar
of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the
Securities Act, except in the case of a transfer pursuant to an exemption
from the registration requirements of the Securities Act other than Rule
903 or Rule 904.

(3) Beneficial Interests in Restricted Global Notes to Unrestricted
Definitive Notes. A holder of a beneficial interest in a Restricted Global
Note may exchange such beneficial interest

24

for an Unrestricted Definitive Note or may transfer such beneficial
interest to a Person who takes delivery thereof in the form of an
Unrestricted Definitive Note only if:

(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder of such beneficial interest, in the case of an
exchange, or the transferee, in the case of a transfer, certifies in
the applicable Letter of Transmittal that it is not (i) a
Broker-Dealer, (ii) a Person participating in the distribution of
the Exchange Notes or (iii) a Person who is an affiliate (as defined
in Rule 144) of the Company;

(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;

(C) such transfer is effected by a Broker-Dealer pursuant to
the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or

(D) the Registrar receives the following:

(i) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for an Unrestricted Definitive Note, a certificate
from such holder in the form of Exhibit C hereto, including
the certifications in item (1)(b) thereof; or

(ii) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the
form of an Unrestricted Definitive Note, a certificate from
such holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;

and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained
herein and in the Private Placement Legend are no longer required in
order to maintain compliance with the Securities Act.

(4) Beneficial Interests in Unrestricted Global Notes to
Unrestricted Definitive Notes. If any holder of a beneficial interest in
an Unrestricted Global Note proposes to exchange such beneficial interest
for a Definitive Note or to transfer such beneficial interest to a Person
who takes delivery thereof in the form of a Definitive Note, then, upon
satisfaction of the conditions set forth in Section 2.06(b)(2) hereof, the
Trustee will cause the aggregate principal amount of the applicable Global
Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the
Company will execute and the Trustee will authenticate and deliver to the
Person designated in the instructions a Definitive Note in the appropriate
principal amount. Any Definitive Note issued in exchange for a beneficial
interest pursuant to this Section 2.06(c)(4) will be registered in such
name or names and in such authorized denomination or denominations as the
holder of such beneficial interest requests through instructions to the
Registrar from or through the Depositary and the Participant or Indirect
Participant. The Trustee will deliver such Definitive Notes to the Persons
in whose names such Notes are so registered. Any Definitive Note issued in
exchange for a beneficial interest pursuant to this Section 2.06(c)(4)
will not bear the Private Placement Legend.

25

(d) Transfer and Exchange of Definitive Notes for Beneficial Interests.

(1) Restricted Definitive Notes to Beneficial Interests in
Restricted Global Notes. If any Holder of a Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a Restricted
Global Note or to transfer such Restricted Definitive Notes to a Person
who takes delivery thereof in the form of a beneficial interest in a
Restricted Global Note, then, upon receipt by the Registrar of the
following documentation:

(A) if the Holder of such Restricted Definitive Note proposes
to exchange such Note for a beneficial interest in a Restricted
Global Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (2)(b) thereof;

(B) if such Restricted Definitive Note is being transferred to
a QIB in accordance with Rule 144A, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item (1)
thereof;

(C) if such Restricted Definitive Note is being transferred to
a Non-U.S. Person in an offshore transaction in accordance with Rule
903 or Rule 904, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (2) thereof;

(D) if such Restricted Definitive Note is being transferred
pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in item (3)(a) thereof;

(E) if such Restricted Definitive Note is being transferred to
an Institutional Accredited Investor in reliance on an exemption
from the registration requirements of the Securities Act other than
those listed in subparagraphs (B) through (D) above, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications, certificates and Opinion of Counsel required by item
(3) thereof, if applicable;

(F) if such Restricted Definitive Note is being transferred to
the Company or any of its Subsidiaries, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in item
(3)(b) thereof; or

(G) if such Restricted Definitive Note is being transferred
pursuant to an effective registration statement under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(c) thereof,

the Trustee will cancel the Restricted Definitive Note, increase or
cause to be increased the aggregate principal amount of, in the case
of clause (A) above, the appropriate Restricted Global Note, in the
case of clause (B) above, the 144A Global Note, in the case of
clause (C) above, the Regulation S Global Note, and in all other
cases, the IAI Global Note.

(2) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Restricted Definitive Note to a Person who takes
delivery thereof in the form of a beneficial interest in an Unrestricted
Global Note only if:

26

(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (i) a Broker-Dealer, (ii) a Person
participating in the distribution of the Exchange Notes or (iii) a
Person who is an affiliate (as defined in Rule 144) of the Company;

(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;

(C) such transfer is effected by a Broker-Dealer pursuant to
the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or

(D) the Registrar receives the following:

(i) if the Holder of such Definitive Notes proposes to
exchange such Notes for a beneficial interest in the
Unrestricted Global Note, a certificate from such Holder in
the form of Exhibit C hereto, including the certifications in
item (1)(c) thereof; or

(ii) if the Holder of such Definitive Notes proposes to
transfer such Notes to a Person who shall take delivery
thereof in the form of a beneficial interest in the
Unrestricted Global Note, a certificate from such Holder in
the form of Exhibit B hereto, including the certifications in
item (4) thereof;

and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained
herein and in the Private Placement Legend are no longer required in
order to maintain compliance with the Securities Act.

Upon satisfaction of the conditions of any of the subparagraphs in
this Section 2.06(d)(2), the Trustee will cancel the Definitive Notes and
increase or cause to be increased the aggregate principal amount of the
Unrestricted Global Note.

(3) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note at any time. Upon receipt of a request for such an exchange or
transfer, the Trustee will cancel the applicable Unrestricted Definitive
Note and increase or cause to be increased the aggregate principal amount
of one of the Unrestricted Global Notes.

If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (2)(B), (2)(D)
or (3) above at a time when an Unrestricted Global Note has not yet been
issued, the Company will issue and, upon receipt of an Authentication
Order in accordance with Section 2.02 hereof, the Trustee will
authenticate one or more Unrestricted Global Notes in an aggregate
principal amount equal to the principal amount of Definitive Notes so
transferred.

27

(e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon
request by a Holder of Definitive Notes and such Holder's compliance with the
provisions of this Section 2.06(e), the Registrar will register the transfer or
exchange of Definitive Notes. Prior to such registration of transfer or
exchange, the requesting Holder must present or surrender to the Registrar the
Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by its attorney, duly authorized in writing. In addition, the requesting Holder
must provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this Section
2.06(e).

(1) Restricted Definitive Notes to Restricted Definitive Notes. Any
Restricted Definitive Note may be transferred to and registered in the
name of Persons who take delivery thereof in the form of a Restricted
Definitive Note if the Registrar receives the following:

(A) if the transfer will be made pursuant to Rule 144A, then
the transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications in item (1) thereof;

(B) if the transfer will be made pursuant to Rule 903 or Rule
904, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (2) thereof;
and

(C) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities Act,
then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications, certificates and
Opinion of Counsel required by item (3) thereof, if applicable.

(2) Restricted Definitive Notes to Unrestricted Definitive Notes.
Any Restricted Definitive Note may be exchanged by the Holder thereof for
an Unrestricted Definitive Note or transferred to a Person or Persons who
take delivery thereof in the form of an Unrestricted Definitive Note if:

(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (i) a Broker-Dealer, (ii) a Person
participating in the distribution of the Exchange Notes or (iii) a
Person who is an affiliate (as defined in Rule 144) of the Company;

(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;

(C) any such transfer is effected by a Broker-Dealer pursuant
to the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or

(D) the Registrar receives the following:

(i) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for an Unrestricted Definitive
Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(d) thereof;
or

28

(ii) if the Holder of such Restricted Definitive Notes
proposes to transfer such Notes to a Person who shall take
delivery thereof in the form of an Unrestricted Definitive
Note, a certificate from such Holder in the form of Exhibit B
hereto, including the certifications in item (4) thereof;

and, in each such case set forth in this subparagraph (D), if the
Registrar so requests, an Opinion of Counsel in form reasonably
acceptable to the Registrar to the effect that such exchange or
transfer is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain
compliance with the Securities Act.

(3) Unrestricted Definitive Notes to Unrestricted Definitive Notes.
A Holder of Unrestricted Definitive Notes may transfer such Notes to a
Person who takes delivery thereof in the form of an Unrestricted
Definitive Note. Upon receipt of a request to register such a transfer,
the Registrar shall register the Unrestricted Definitive Notes pursuant to
the instructions from the Holder thereof.

(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company will issue and,
upon receipt of an Authentication Order in accordance with Section 2.02 hereof,
the Trustee will authenticate:

(1) one or more Unrestricted Global Notes in an aggregate principal
amount equal to the principal amount of the beneficial interests in the
Restricted Global Notes accepted for exchange in the Exchange Offer by
Persons that certify in the applicable Letters of Transmittal that (A)
they are not Broker-Dealers, (B) they are not participating in a
distribution of the Exchange Notes and (C) they are not affiliates (as
defined in Rule 144) of the Company; and

(2) Unrestricted Definitive Notes in an aggregate principal amount
equal to the principal amount of the Restricted Definitive Notes accepted
for exchange in the Exchange Offer by Persons that certify in the
applicable Letters of Transmittal that (A) they are not Broker-Dealers,
(B) they are not participating in a distribution of the Exchange Notes and
(C) they are not affiliates (as defined in Rule 144) of the Company.

Concurrently with the issuance of such Notes, the Trustee will cause the
aggregate principal amount of the applicable Restricted Global Notes to be
reduced accordingly, and the Company will execute and the Trustee will
authenticate and deliver to the Persons designated by the Holders of Definitive
Notes so accepted Unrestricted Definitive Notes in the appropriate principal
amount.

(g) Legends. The following legends will appear on the face of all Global
Notes and Definitive Notes issued under this Indenture unless specifically
stated otherwise in the applicable provisions of this Indenture.

(1) Private Placement Legend.

(A) Except as permitted by subparagraph (B) below, each Global
Note and each Definitive Note (and all Notes issued in exchange
therefor or substitution thereof) shall bear the legend in
substantially the following form:

"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND THE

29

SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE
BENEFIT OF American REal Estate Partners, L.P. AND AMERICAN REAL ESTATE FINANCE
CORP. THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY (1) (a) IN THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES
IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) OUTSIDE THE
UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (c) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER
THE SECURITIES ACT, (d) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN
RULE 501 (a) (1), (2), (3) OR (7) OF THE SECURITIES ACT) THAT, PRIOR TO SUCH
TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH CAN BE OBTAINED FROM THE
TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF
NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO AMERICAN REAL
ESTATE PARTNERS, L.P. THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES
ACT OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF
AMERICAN REAL ESTATE PARTNERS, L.P. SO REQUESTS), (2) TO AMERICAN REAL ESTATE
PARTNERS, L.P. OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND
EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE
SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. IF
AT ANY TIME THE NEVADA GAMING COMMISSION OR THE NEW JERSEY CASINO CONTROL
COMMISSION FIND THAT A HOLDER OF THIS SECURITY IS UNSUITABLE TO CONTINUE TO OWN
THE SECURITY, AMERICAN REAL ESTATE PARTNERS, L.P. SHALL HAVE THE RIGHT TO
REQUIRE SUCH HOLDER TO DISPOSE OF SUCH SECURITY AS PROVIDED BY THE GAMING LAWS
OF THE STATE OF NEVADA OR THE STATE OF NEW JERSEY AND THE RESPECTIVE REGULATIONS
PROMULGATED THEREUNDER. ALTERNATIVELY, AMERICAN REAL ESTATE PARTNERS, L.P. SHALL
HAVE THE RIGHT TO REDEEM THE SECURITY FROM THE HOLDER AT A PRICE SPECIFIED IN
THE INDENTURE GOVERNING THE SECURITY. NEVADA AND NEW JERSEY GAMING LAWS AND
REGULATIONS RESTRICT THE RIGHT UNDER CERTAIN CIRCUMSTANCES: (A) TO PAY OR
RECEIVE ANY INTEREST UPON SUCH SECURITY; (B) TO EXERCISE, DIRECTLY OR THROUGH
ANY TRUSTEE OR NOMINEE, ANY VOTING RIGHT CONFERRED BY SUCH SECURITY; OR (C) TO
RECEIVE ANY REMUNERATION IN ANY FORM FROM AMERICAN REAL ESTATE PARTNERS, L.P.,
FOR SERVICES RENDERED OR OTHERWISE."

(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(4), (c)(3),
(c)(4), (d)(2), (d)(3), (e)(2), (e)(3) or (f) of this Section 2.06
(and all Notes issued in exchange therefor or substitution thereof)
will not bear the Private Placement Legend.

(2) Global Note Legend. Each Global Note will bear a legend in
substantially the following form:

30

"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED
IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS
GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR
DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF AMERICAN REAL ESTATE PARTNERS, L.P.

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN."

(3) Regulation S Temporary Global Note Legend. The Regulation S
Temporary Global Note will bear a Legend in substantially the following
form:

"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON."

(h) Cancellation and/or Adjustment of Global Notes. At such time as all
beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note will be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for or transferred to a Person who will take delivery thereof in
the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note will be
reduced accordingly and an endorsement will be made on such Global Note by the
Trustee or by the Depositary at the direction of the Trustee to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Note, such other Global Note will be increased accordingly and
an endorsement will be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.

(i) General Provisions Relating to Transfers and Exchanges.

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(1) To permit registrations of transfers and exchanges, the Company
will execute and the Trustee will authenticate Global Notes and Definitive
Notes upon receipt of an Authentication Order in accordance with Section
2.02 hereof or at the Registrar's request.

(2) No service charge will be made to a Holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes
or similar governmental charge payable upon exchange or transfer pursuant
to Sections 2.10, 3.06, 4.15 and 9.05 hereof).

(3) The Registrar will not be required to register the transfer of
or exchange of any Note selected for redemption in whole or in part,
except the unredeemed portion of any Note being redeemed in part.

(4) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive Notes
will be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Global
Notes or Definitive Notes surrendered upon such registration of transfer
or exchange.

(5) Neither the Registrar nor the Company will be required:

(A) to issue, to register the transfer of or to exchange any
Notes during a period beginning at the opening of business 15 days
before the day of any selection of Notes for redemption under
Section 3.02 hereof and ending at the close of business on the day
of selection;

(B) to register the transfer of or to exchange any Note
selected for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part; or

(C) to register the transfer of or to exchange a Note between
a record date and the next succeeding interest payment date.

(6) Prior to due presentment for the registration of a transfer of
any Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Note is registered as the absolute owner of such
Note for the purpose of receiving payment of principal of and interest on
such Notes and for all other purposes, and none of the Trustee, any Agent
or the Company shall be affected by notice to the contrary.

(7) The Trustee will authenticate Global Notes and Definitive Notes
in accordance with the provisions of Section 2.02 hereof.

(8) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06 to
effect a registration of transfer or exchange may be submitted by
facsimile.

Section 2.07 Replacement Notes.

If any mutilated Note is surrendered to the Trustee or the Company and the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Note, the Company will issue and the Trustee, upon receipt of an
Authentication Order, will authenticate a replacement Note if the Trustee's
requirements are met. If required by the Trustee or the Company, an indemnity
bond must be supplied by

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the Holder that is sufficient in the judgment of the Trustee and the Company to
protect the Company, the Trustee, any Agent and any authenticating agent from
any loss that any of them may suffer if a Note is replaced. The Company may
charge for its expenses in replacing a Note.

Every replacement Note is an additional obligation of the Company and will
be entitled to all of the benefits of this Indenture equally and proportionately
with all other Notes duly issued hereunder.

Section 2.08 Outstanding Notes.

The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those canceled by it, those delivered to it for cancellation,
those reductions in the interest in a Global Note effected by the Trustee in
accordance with the provisions hereof, and those described in this Section 2.08
as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not
cease to be outstanding because the Company or an Affiliate of the Company holds
the Note; however, Notes held by the Company or a Subsidiary of the Company
shall not be deemed to be outstanding for purposes of Sections 3.07(a) or 9.02
hereof.

If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a protected purchaser.

If the principal amount of any Note is considered paid under Section 4.01
hereof, it ceases to be outstanding and interest on it ceases to accrue.

If the Paying Agent (other than the Company, a Subsidiary or an Affiliate
of any thereof) holds, on a redemption date or maturity date, money sufficient
to pay Notes payable on that date, then on and after that date such Notes will
be deemed to be no longer outstanding and will cease to accrue interest.

Section 2.09 Treasury Notes.

In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company or any Guarantor, or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or any
Guarantor, will be considered as though not outstanding, except that for the
purposes of determining whether the Trustee will be protected in relying on any
such direction, waiver or consent, only Notes that the Trustee knows are so
owned will be so disregarded.

Section 2.10 Temporary Notes.

Until certificates representing Notes are ready for delivery, the Company
may prepare and the Trustee, upon receipt of an Authentication Order, will
authenticate temporary Notes. Temporary Notes will be substantially in the form
of certificated Notes but may have variations that the Company considers
appropriate for temporary Notes and as may be reasonably acceptable to the
Trustee. Without unreasonable delay, the Company will prepare and the Trustee
will authenticate definitive Notes in exchange for temporary Notes.

Holders of temporary Notes will be entitled to all of the benefits of this
Indenture.

Section 2.11 Cancellation.

The Company at any time may deliver Notes to the Trustee for cancellation.
The Registrar and Paying Agent will forward to the Trustee any Notes surrendered
to them for registration of transfer,

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exchange or payment. The Trustee and no one else will cancel all Notes
surrendered for registration of transfer, exchange, payment, replacement or
cancellation and will destroy canceled Notes (subject to the record retention
requirement of the Exchange Act). Certification of the destruction of all
canceled Notes will be delivered to the Company. The Company may not issue new
Notes to replace Notes that it has paid or that have been delivered to the
Trustee for cancellation.

Section 2.12 Defaulted Interest.

If the Company defaults in a payment of interest on the Notes, it will pay
the defaulted interest in any lawful manner plus, to the extent lawful, interest
payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Notes
and in Section 4.01 hereof. The Company will notify the Trustee in writing of
the amount of defaulted interest proposed to be paid on each Note and the date
of the proposed payment. The Company will fix or cause to be fixed each such
special record date and payment date; provided that no such special record date
may be less than 10 days prior to the related payment date for such defaulted
interest. At least 15 days before the special record date, the Company (or, upon
the written request of the Company, the Trustee in the name and at the expense
of the Company) will mail or cause to be mailed to Holders a notice that states
the special record date, the related payment date and the amount of such
interest to be paid.

ARTICLE 3
REDEMPTION AND PREPAYMENT

Section 3.01 Notices to Trustee.

If the Company elects to redeem Notes pursuant to the optional redemption
provisions of Section 3.07 hereof, it must furnish to the Trustee, at least 15
days but not more than 60 days before a redemption date, an Officers'
Certificate setting forth:

(1) the clause of this Indenture pursuant to which the redemption
shall occur;

(2) the redemption date;

(3) the principal amount of Notes to be redeemed; and

(4) the redemption price.

Section 3.02 Selection of Notes to Be Redeemed or Purchased.

If less than all of the Notes are to be redeemed or purchased in an offer
to purchase at any time, the Trustee will select Notes for redemption or
purchase on a pro rata basis except:

(1) if the Notes are listed on any national securities exchange, in
compliance with the requirements of the principal national securities
exchange on which the Notes are listed; or

(2) if otherwise required by law.

In the event of partial redemption or purchase by lot, the particular
Notes to be redeemed or purchased will be selected, unless otherwise provided
herein, not less than 15 nor more than 60 days prior to the redemption or
purchase date by the Trustee from the outstanding Notes not previously called
for redemption or purchase.

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The Trustee will promptly notify the Company in writing of the Notes
selected for redemption or purchase and, in the case of any Note selected for
partial redemption or purchase, the principal amount thereof to be redeemed or
purchased. Notes and portions of Notes selected will be in amounts of $1,000 or
whole multiples of $1,000; except that if all of the Notes of a Holder are to be
redeemed or purchased, the entire outstanding amount of Notes held by such
Holder, even if not a multiple of $1,000, shall be redeemed or purchased. Except
as provided in the preceding sentence, provisions of this Indenture that apply
to Notes called for redemption or purchase also apply to portions of Notes
called for redemption or purchase.

Section 3.03 Notice of Redemption.

The Company will mail or cause to be mailed, at least 15 days but not more
than 60 days before a redemption date, by first class mail, a notice of
redemption to each Holder whose Notes are to be redeemed at its registered
address, except that redemption notices may be mailed more than 60 days prior to
a redemption date if the notice is issued in connection with a defeasance of the
Notes or a satisfaction and discharge of this Indenture pursuant to Articles 8
or 11 hereof.

The notice will identify the Notes to be redeemed and will state:

(1) the redemption date;

(2) the redemption price;

(3) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion will be issued upon
cancellation of the original Note;

(4) the name and address of the Paying Agent;

(5) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;

(6) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the redemption date;

(7) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and

(8) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Notes.

At the Company's request, the Trustee will give the notice of redemption
in the Company's name and at its expense; provided, however, that the Company
has delivered to the Trustee, at least 45 days prior to the redemption date, an
Officers' Certificate requesting that the Trustee give such notice and setting
forth the information to be stated in such notice as provided in the preceding
paragraph.

Section 3.04 Effect of Notice of Redemption.

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Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.

Section 3.05 Deposit of Redemption or Purchase Price.

One Business Day prior to the redemption or purchase date, the Company
will deposit with the Trustee or with the Paying Agent money sufficient to pay
the redemption or purchase price of and accrued interest and Liquidated Damages,
if any, on all Notes to be redeemed or purchased on that date. The Trustee or
the Paying Agent will promptly return to the Company any money deposited with
the Trustee or the Paying Agent by the Company in excess of the amounts
necessary to pay the redemption or purchase price of, and accrued interest and
Liquidated Damages, if any, on, all Notes to be redeemed or purchased.

If the Company complies with the provisions of the preceding paragraph, on
and after the redemption or purchase date, interest will cease to accrue on the
Notes or the portions of Notes called for redemption or purchase. If a Note is
redeemed or purchased on or after an interest record date but on or prior to the
related interest payment date, then any accrued and unpaid interest shall be
paid to the Person in whose name such Note was registered at the close of
business on such record date. If any Note called for redemption or purchase is
not so paid upon surrender for redemption or purchase because of the failure of
the Company to comply with the preceding paragraph, interest shall be paid on
the unpaid principal, from the redemption or purchase date until such principal
is paid, and to the extent lawful on any interest not paid on such unpaid
principal, in each case at the rate provided in the Notes and in Section 4.01
hereof.

Section 3.06 Notes Redeemed or Purchased in Part.

Upon surrender of a Note that is redeemed or purchased in part, the
Company will issue and, upon receipt of an Authentication Order, the Trustee
will authenticate for the Holder at the expense of the Company a new Note equal
in principal amount to the unredeemed or unpurchased portion of the Note
surrendered.

Section 3.07 Optional Redemption.

(a) At any time prior to June 1, 2007, the Company may on one or more
occasions redeem up to 35% of the aggregate principal amount of Notes (including
Additional Notes) issued under this Indenture at a redemption price of 108.125%
of the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the redemption date, with the net cash proceeds of one or
more Equity Offerings; provided, however, that:

(1) at least 65% of the aggregate principal amount of Notes issued
under this Indenture remains outstanding immediately after the occurrence
of such redemption (excluding Notes held by AREP and its Subsidiaries
(including any Guarantor)); and

(2) the redemption occurs within 60 days of the date of the closing
of such Equity Offering.

(b) Except pursuant to the preceding paragraph, the Notes will not be
redeemable at the Company's option prior to June 1, 2008.

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(c) On or after June 1, 2008, the Company may redeem all or a part of the
Notes upon not less than 15 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest and Liquidated Damages, if any, on the Notes
redeemed, to the applicable redemption date, if redeemed during the twelve-month
period beginning on one of the years indicated below:

Year                                                                                      Percentage
----                                                                                      ----------

2008.............................................................................          104.063%
2009.............................................................................          102.031%
2010 and thereafter..............................................................          100.000%

Unless the Company defaults in the payment of the redemption price,
interest will cease to accrue on the Notes or portions thereof called for
redemption on the applicable redemption date.

(d) Any redemption pursuant to this Section 3.07 shall be made pursuant to
the provisions of Sections 3.01 through 3.06 hereof.

Section 3.08 Redemption Pursuant to Gaming Laws.

(a) Notwithstanding any other provision of this Article 3, if any Gaming
Authority requires that a Holder or Beneficial Owner of Notes be licensed,
qualified or found suitable under any applicable Gaming Law and such Holder or
Beneficial Owner:

(1) fails to apply for a license, qualification or a finding of
suitability within 30 days (or such shorter period as may be required by
the applicable Gaming Authority) after being requested to do so by the
Gaming Authority; or

(2) is denied such license or qualification or not found suitable;

AREP shall then have the right, at its option:

(1) to require each such Holder or Beneficial Owner to dispose of
its Notes within 30 days (or such earlier date as may be required by the
applicable Gaming Authority) of the occurrence of the event described in
clause (1) or (2) above, or

(2) to redeem the Notes of each such Holder or Beneficial Owner, in
accordance with Rule 14e-1, if applicable, at a redemption price equal to
the lowest of:

(a) the principal amount thereof, together with accrued and
unpaid interest and Liquidated Damages, if any, to the earlier of the date
of redemption, the date 30 days after such Holder or Beneficial Owner is
required to apply for a license, qualification or finding of suitability
(or such shorter period that may be required by any applicable Gaming
Authority) if such Holder or Beneficial Owner fails to do so ("Application
Date") or of the date of denial of license or qualification or of the
finding of unsuitability by such Gaming Authority;

(b) the price at which such Holder or Beneficial Owner
acquired the Notes, together with accrued and unpaid interest and
Liquidated Damages, if any, to the earlier of the date of redemption, the
Application Date or the date of the denial of license or qualification or
of the finding of unsuitability by such Gaming Authority; and

37

(c) such other lesser amount as may be required by any Gaming
Authority.

Immediately upon a determination by a Gaming Authority that a Holder or
Beneficial Owner of the Notes will not be licensed, qualified or found suitable
and must dispose of the Notes, the Holder or Beneficial Owner will, to the
extent required by applicable Gaming Laws, have no further right:

(1) to exercise, directly or indirectly, through any trustee or
nominee or any other person or entity, any right conferred by the Notes,
the Note Guarantee or this Indenture; or

(2) to receive any interest, Liquidated Damages, dividend, economic
interests or any other distributions or payments with respect to the Notes
and the Note Guarantee or any remuneration in any form with respect to the
Notes and the Note Guarantee from the Company, any Note Guarantor or the
Trustee, except the redemption price referred to above.

(b) AREP shall notify the Trustee in writing of any such redemption as
soon as practicable. Any Holder or Beneficial Owner that is required to apply
for a license, qualification or a finding of suitability will be responsible for
all fees and costs of applying for and obtaining the license, qualification or
finding of suitability and of any investigation by the applicable Gaming
Authorities and the Company and any Note Guarantor will not reimburse any Holder
or Beneficial Owner for such expense.

(c) In connection with any redemption pursuant to this Section 3.08, and
except as may be required by a Gaming Authority, the Company shall be required
to comply with Sections 3.01 through 3.06 hereof.

Section 3.09 Mandatory Redemption.

The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.

ARTICLE 4
COVENANTS

Section 4.01 Payment of Notes.

The Company shall pay or cause to be paid the principal of, premium, if
any, and interest and Liquidated Damages, if any, on, the Notes on the dates and
in the manner provided in the Notes. Principal, premium, if any, and interest
and Liquidated Damages, if any will be considered paid on the date due if the
Paying Agent, if other than the Company or a Subsidiary thereof, holds as of
10:00 a.m. Eastern Time on the due date money deposited by the Company in
immediately available funds and designated for and sufficient to pay all
principal, premium, if any, and interest then due. The Company shall pay all
Liquidated Damages, if any, in the same manner on the dates and in the amounts
set forth in the Registration Rights Agreement.

The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Notes to the
extent lawful; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace period) at the same
rate to the extent lawful.

Section 4.02 Maintenance of Office or Agency.

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The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
fails to maintain any such required office or agency or fails to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee.

The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
the City of New York for such purposes. The Company shall give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.

The Company hereby designates the Corporate Trust Office of the Trustee as
one such office or agency of the Company in accordance with Section 2.03 hereof.

Section 4.03 Reports.

Whether or not required by the rules and regulations of the SEC, so long
as any Notes are outstanding, the Company shall furnish to the Holders of Notes
or cause the Trustee to furnish to the Holders of Notes, within the time periods
specified in the SEC's rules and regulations:

(1) all quarterly and annual reports that would be required to be
filed with the SEC on Forms 10-Q and 10-K if the Company were required to
file such reports; and

(2) all current reports that would be required to be filed with the
SEC on Form 8-K if the Company were required to file such reports.

All such reports shall be prepared in all material respects in accordance
with all of the rules and regulations applicable to such reports. Each annual
report on Form 10-K shall include a report on the Company's consolidated
financial statements by the Company's certified independent accountants. In
addition, the Company shall file a copy of each of the reports referred to in
clauses (1) and (2) above with the SEC for public availability within the time
periods specified in the rules and regulations applicable to such reports
(unless the SEC will not accept such a filing) and, if the SEC will not accept
such a filing, shall post the reports on its website within those time periods.

If, at any time, the Company is no longer subject to the periodic
reporting requirements of the Exchange Act for any reason, the Company shall
nevertheless continue filing the reports specified in the preceding paragraphs
of this Section 4.03 with the SEC within the time periods specified above unless
the SEC will not accept such a filing. The Company shall not take any action for
the purpose of causing the SEC not to accept any such filings. If,
notwithstanding the foregoing, the SEC will not accept the Company's filings for
any reason, the Company shall post the reports referred to in the preceding
paragraphs on its website within the time periods that would apply if the
Company were required to file those reports with the SEC.

In addition, the Company agrees that, for so long as any Notes remain
outstanding, if at any time it is not required to file with the SEC the reports
required by the preceding paragraphs, it shall furnish to

39

the Holders of Notes and to securities analysts and prospective investors, upon
their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.

Section 4.04 Compliance Certificate.

(a) The Company and each Guarantor (to the extent that such Guarantor is
so required under the TIA) shall deliver to the Trustee, within 90 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during the preceding fiscal
year has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default has occurred, describing all such Defaults or Events of Default
of which he or she may have knowledge and what action the Company is taking or
proposes to take with respect thereto) and that to the best of his or her
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action the Company is taking or proposes to take with respect thereto.

(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03 above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.

(c) So long as any of the Notes are outstanding, the Company shall deliver
to the Trustee, forthwith upon any Officer becoming aware of any Default or
Event of Default, an Officers' Certificate specifying such Default or Event of
Default and what action the Company is taking or proposes to take with respect
thereto.

Section 4.05 Taxes.

The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except such as are contested in good faith and by appropriate proceedings or
where the failure to effect such payment is not adverse in any material respect
to the Holders of the Notes.

Section 4.06 Stay, Extension and Usury Laws.

The Company and each of the Guarantors covenants (to the extent that it
may lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and the Company and
each of the Guarantors (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not, by resort to any such law, hinder, delay or impede the

40

execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been enacted.

Section 4.07 Restricted Payments.

AREP shall not, and shall not permit any of its Subsidiaries (including
any Guarantor) to:

(1) declare or pay any dividend or make any other distribution on
account of AREP's or any of its Subsidiaries' (including any Guarantor's)
Equity Interests or to the Holders of AREP's or any of its Subsidiaries'
(including AREH's) Equity Interests in their capacity as such (other than
dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of AREP or to AREP or a Subsidiary of AREP (including
AREH));

(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving AREP) any Equity Interests of AREP; or

(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness of AREP
or any Guarantor that is contractually subordinated to the Notes or to any
Note Guarantee (excluding any intercompany Indebtedness between or among
AREP and any of its Subsidiaries (including any Guarantor)), except a
payment of interest, Other Liquidated Damages or principal at the Stated
Maturity on such subordinated Indebtedness (all such payments and other
actions set forth in these clauses (1) through (3) (except as excluded
therein) above being collectively referred to as "Restricted Payments"),

unless, at the time of and after giving effect to such Restricted
Payment:

(1) no Default or Event of Default has occurred and is continuing or
would occur as a consequence of such Restricted Payment;

(2) AREP or any Guarantor would, at the time of such Restricted
Payment and after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the most recently ended
four-quarter period for which financial statements are available, have
been permitted to incur at least $1.00 of additional Indebtedness pursuant
to Section 4.09(a); and

(3) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by AREP and its Subsidiaries (including
any Guarantor) after the Issuance Date (excluding Restricted Payments
permitted by clauses (2), (3), (4), (6) and (8) of the second paragraph of
Section 4.07) is less than the sum, without duplication, of.

(A) 50% of the Consolidated Net Income of AREP for the period
(taken as one accounting period) from July 1, 2006 to the end of
AREP's most recently ended fiscal quarter for which financial
statements are available at the time of such Restricted Payment (or,
if such Consolidated Net Income for such period is a deficit, less
100% of such deficit); provided, however, that to the extent any
payments of Tax Amounts were not deducted in the calculation of
Consolidated Net Income during the applicable period, for purposes
of this clause (a), such payments of Tax Amounts shall be deducted
from Consolidated Net Income, plus

41

(B) 100% of the aggregate net cash proceeds received by AREP
since the date of this Indenture as a contribution to its equity
capital or from the issue or sale of Equity Interests of AREP
(excluding Disqualified Stock) or from the issue or sale of
convertible or exchangeable Disqualified Stock or convertible or
exchangeable debt securities of AREP that have been converted into
or exchanged for such Equity Interests (other than Equity Interests
or Disqualified Stock or debt securities sold to a Subsidiary of
AREP (including AREH)).

So long as no Default or Event of Default has occurred and is continuing
or would be caused thereby (except with respect to clauses (6) and (8), which
payments shall be permitted notwithstanding a Default or Event of Default), the
preceding provisions shall not prohibit:

(1) the payment of any dividend or the consummation of any
irrevocable redemption or payment within 60 days after the date of
declaration of the dividend or giving of the redemption notice or becoming
irrevocably obligated to make such payment, as the case may be, if at the
date of declaration or notice or becoming irrevocably obligated to make
such payment, the dividend or payment would have complied with the
provisions of this Indenture;

(2) the making of any Restricted Payment in exchange for, or out of
the net cash proceeds of the substantially concurrent sale (other than to
a Subsidiary of AREP (including any Guarantor)) of, Equity Interests
(other than Disqualified Stock) or from the substantially concurrent
contribution of equity capital to AREP (including any contribution of
equity capital by or to, or sale of Equity Interests of a successor or
substitute entity pursuant to Section 5.01); provided, however, that the
amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition shall
be excluded from clause (3)(B) of the preceding paragraph;

(3) the repurchase, redemption, defeasance or other acquisition or
retirement for value of Indebtedness of AREP or any Guarantor that is
contractually subordinated to the Notes with the net cash proceeds from a
substantially concurrent incurrence of Permitted Refinancing Indebtedness;

(4) the declaration or payment of any dividend or distribution by a
Subsidiary of AREP (including any Guarantor) to the holders of its Equity
Interests; provided, that if any such dividend or distribution is paid to
an Affiliate of the Principal (other than AREP or any of its Subsidiaries
(including any Guarantor)), that any such dividend or distribution is paid
on a pro rata basis to all Holders (including AREP or any of its
Subsidiaries (including any Guarantor)) that hold securities whose terms
(either contractually or by law) entitle them to the same distribution
upon which such dividend or distribution is paid;

(5) the repurchase, redemption or other acquisition or retirement
for value of any Equity Interests of AREP or any Subsidiary of AREP
(including any Guarantor) held by any member of AREP's (or any of its
Subsidiaries' (including any Guarantors)) management pursuant to any
management equity subscription agreement, stock option agreement or
similar agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $2.0 million;

(6) for so long as AREP is a partnership or otherwise a pass-through
entity for federal income tax purposes for any period, AREP may make cash
distributions to its equity holders or partners in an amount not to exceed
the Tax Amount for such period; provided that a distribution of the Tax
Amount shall be made no earlier than 20 days prior to the due date for
such tax (or the

42

date that quarterly estimated taxes are required to be paid) that would be
payable by AREP if it were a Delaware corporation;

(7) the purchase, redemption or retirement for value of Capital
Stock of AREP not owned by the Principal or any Affiliate of the
Principal, provided that (a) AREP would, at the time of such Restricted
Payment and after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the most recently ended
four-quarter period for which financial statements are available, have
been permitted to incur at least $1.00 of additional Indebtedness pursuant
to Section 4.09(a) hereof and (b) after giving effect to such purchase,
redemption or retirement, the Partners' Equity is at least $1.0 billion;

(8) the payment of dividends on the Preferred Units in the form of
additional Preferred Units or other Capital Stock of AREP (that is not
Disqualified Stock) or the payment of cash dividends on the Preferred
Units in lieu of fractional Preferred Units; provided that the aggregate
amount of cash under this clause (8) does not exceed $100,000 in any
calendar year;

(9) the purchase, redemption or retirement for value of the
Preferred Units on or before March 31, 2010, provided that (a) AREP would,
at the time of such Restricted Payment and after giving pro forma effect
thereto as if such Restricted Payment had been made at the beginning of
the most recently ended four-quarter period for which financial statements
are available, have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the first paragraph of Section 4.09 and (b) after
giving effect to such purchase, redemption or retirement, the Partners'
Equity is at least $1.0 billion; and

(10) other Restricted Payments in an aggregate amount not to exceed
$50.0 million since the date of this Indenture.

For purposes of determining compliance with this Section 4.07, in the
event that a proposed Restricted Payment meets the criteria of more than one of
the categories of Restricted Payments described in clauses (1) through (10) of
the immediately preceding paragraph, or is permitted to be made pursuant to the
first paragraph of this Section 4.07, AREP shall, in its sole discretion,
classify (or later reclassify, in whole or in part, in its sole discretion) such
Restricted Payment in any manner that complies with this Section 4.07.

The amount of all Restricted Payments (other than cash) shall be the Fair
Market Value on the date of the Restricted Payment of the assets, property or
securities proposed to be transferred or issued by AREP or such Subsidiary
(including AREH), as the case may be, pursuant to the Restricted Payment.

Section 4.08 [Intentionally Omitted]

Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock.

(a) Neither AREP nor any Guarantor shall create, incur, issue, assume,
guarantee or otherwise become liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt), and neither
AREP nor any Guarantor shall issue any Disqualified Stock; provided, however,
that AREP or any Guarantor may incur Indebtedness (including Acquired Debt) or
issue Disqualified Stock, if immediately after giving effect to the incurrence
of additional Indebtedness (including Acquired Debt) or issuance of Disqualified
Stock (including a pro forma application of the net proceeds therefrom), the
ratio of the aggregate principal amount of all outstanding Indebtedness
(excluding Indebtedness incurred pursuant to clauses (4), (7) and (8) of Section
4.09(b) and any Hedging Obligations of AREP's Subsidiaries that are not
Guarantors) of AREP and its Subsidiaries (including any

43

Guarantor) on a consolidated basis determined in accordance with GAAP (including
an amount of Indebtedness equal to the principal amount of any Guarantees by
AREP or its Subsidiaries (including any Guarantor) of any Indebtedness of a
Person (that is not AREP or a Subsidiary) to the extent such Guarantees were not
included in computing AREP's or its Subsidiaries' (including any Guarantor's)
outstanding Indebtedness) to the Tangible Net Worth of AREP and its Subsidiaries
(including any Guarantor) on a consolidated basis, would have been less than
1.75 to 1.

(b) The provisions of Section 4.09(a) shall not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):

(1) the incurrence by AREP or any Guarantor of Indebtedness
represented by the Notes to be issued on the date of this Indenture and
the Exchange Notes to be issued pursuant to the Registration Rights
Agreement;

(2) the incurrence by AREP or any Guarantor of Permitted Refinancing
Indebtedness in exchange for, or the net proceeds of which are used to
refund, refinance or replace Indebtedness (other than intercompany
Indebtedness) that was incurred under Section 4.09(a) or clauses (1), (2)
or (9) of this Section 4.09(b) or any Existing Indebtedness;

(3) the incurrence by AREP or any Guarantor of intercompany
Indebtedness between or among AREP and any of its Subsidiaries (including
AREH) or the issuance of Disqualified Stock by any Guarantor to AREP;

(4) the incurrence by AREP or any Guarantor of Hedging Obligations
that are incurred in the normal course of business;

(5) the incurrence by AREP or any Guarantor of Indebtedness arising
from the honoring by a bank or other financial institution of a check,
draft or similar instrument inadvertently drawn against insufficient
funds, so long as such Indebtedness is covered within five Business Days;

(6) the incurrence by AREP or any Guarantor of the Existing
Indebtedness;

(7) Indebtedness arising from any agreement entered into by AREP or
AREH providing for indemnification, purchase price adjustment or similar
obligations, in each case, incurred or assumed in connection with an asset
sale;

(8) Indebtedness of AREP or any Guarantor attributable to Bad Boy
Guarantees; and

(9) the incurrence by AREP or any Guarantor of additional
Indebtedness in an aggregate principal amount at any time outstanding,
including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this clause
(9), not to exceed $10.0 million at any one time outstanding.

Neither AREP nor any Guarantor shall incur any Indebtedness (including
Permitted Debt) that is contractually subordinated in right of payment to any
other Indebtedness of AREP or any Guarantor unless such Indebtedness is also
contractually subordinated in right of payment to the Notes and the Note
Guarantee, as applicable, on substantially identical terms; provided, however,
that no Indebtedness of AREP or any Guarantor shall be deemed to be
contractually subordinated in right of payment to any other Indebtedness of AREP
or any Guarantor for purposes of this paragraph solely by virtue of being
unsecured or secured to a lesser extent or on a junior Lien basis.

44

To the extent AREP or any Guarantor incurs any intercompany Indebtedness,
(a) if AREP or any Guarantor is the obligor on such Indebtedness, such
Indebtedness (other than intercompany Indebtedness of any Guarantor to or from
AREP or another Guarantor) must be expressly subordinated to the prior payment
in full in cash of all Obligations with respect to the Notes and (b)(i) any
subsequent issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than AREP or a Subsidiary of AREP
(including any Guarantor) and (ii) any sale or other transfer of any such
Indebtedness to a Person that is not either AREP or a Subsidiary of AREP
(including any Guarantor) shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by AREP or any Guarantor, that is not
intercompany Indebtedness; provided that in the case of clause (a), that no
restriction on the payment of principal, interest or other obligations in
connection with such intercompany Indebtedness shall be required by such
subordinated terms except during the occurrence and continuation of a Default or
Event of Default.

For purposes of determining compliance with Section 4.09, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (9) above or is
entitled to be incurred pursuant to Section 4.09(a), in each case, as of the
date of incurrence thereof, AREP shall, in its sole discretion, classify (or
later reclassify in whole or in part, in its sole discretion) such item of
Indebtedness in any manner that complies with this Section 4.09 and such
Indebtedness shall be treated as having been incurred pursuant to such clauses
or Section 4.09(a), as the case may be, designated by AREP.

The accrual of interest, the accretion or amortization of original issue
discount, the payment of interest or Other Liquidated Damages on any
Indebtedness in the form of additional Indebtedness with the same terms, the
reclassification of preferred stock as Indebtedness due to a change in
accounting principles, and the payment of dividends on Disqualified Stock in the
form of additional shares of the same class of Disqualified Stock shall not be
deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock
for purposes of this Section 4.09. Notwithstanding any other provision of
Section 4.09, the maximum amount of Indebtedness that AREP or any Guarantor may
incur pursuant to Section 4.09 shall not be deemed to be exceeded solely as a
result of fluctuations in exchange rates or currency values.

The amount of any Indebtedness outstanding as of any date shall be:

(1) the accreted value of the Indebtedness, in the case of any
Indebtedness issued with original issue discount;

(2) the principal amount of the Indebtedness, in the case of any
other Indebtedness; and

(3) in respect of Indebtedness of another Person secured by a Lien
on the assets of the specified Person, the lesser of:

(A) the Fair Market Value of such assets at the date of
determination; and

(B) the amount of the Indebtedness of the other Person.

Section 4.10 [Intentionally Omitted]

Section 4.11 Transactions with Affiliates.

(a) AREP shall not, and shall not permit any of its Subsidiaries
(including any Guarantor) to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or

45

purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, any Affiliate of AREP (each, an "Affiliate Transaction"), unless:

(1) the Affiliate Transaction is on terms that are not materially
less favorable to AREP or the relevant Subsidiary (including any
Guarantor) than those that would have been obtained in a comparable
transaction by AREP or such Subsidiary (including any Guarantor) with an
unrelated Person as determined in good faith by the Board of Directors of
AREP; and

(2) AREP delivers to the Trustee:

(a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess
of $2.0 million, a resolution of the Board of Directors of AREP set forth
in an Officers' Certificate certifying that such Affiliate Transaction
complies with this Section 4.11 and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board of
Directors of AREP; and

(b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess
of $10.0 million, an opinion as to the fairness to AREP or such Subsidiary
(including any Guarantor) of such Affiliate Transaction from a financial
point of view issued by an accounting, appraisal or investment banking
firm of recognized standing.

(b) The following items shall not be deemed to be Affiliate Transactions
and, therefore, shall not be subject to the provisions of Section 4.11(a):

(1) any employment agreement, employee benefit plan, officer or
director indemnification agreement or any similar arrangement entered into
by AREP or any of its Subsidiaries (including any Guarantor) in the
ordinary course of business and payments pursuant thereto including
payments or reimbursement of payments by API with respect to any such
agreement, plan or arrangement entered into by API with respect to or for
the benefit of officers or directors of API (other than any such
agreements, plans or arrangements entered into by AREP or any of its
Subsidiaries (including AREH) with Carl Icahn (other than employee benefit
plans and officer or director indemnification agreements generally
applicable to officers and directors of API, AREP or its Subsidiaries
(including AREH)));

(2) transactions between or among AREP, any Guarantor and/or their
respective Subsidiaries (except any Subsidiaries of which Carl Icahn or
Affiliates of Carl Icahn (other then AREP, AREH or their Subsidiaries) own
more than 10% of the Voting Stock);

(3) payment (or reimbursement of payments by API) of directors' fees
to Persons who are not otherwise Affiliates of AREP;

(4) any issuance of Equity Interests (other than Disqualified Stock)
and Preferred Unit Distributions of AREP to Affiliates of AREP;

(5) Restricted Payments that do not violate Section 4.07 hereof;

(6) the acquisition of the membership interests of Charlie's Holding
LLC pursuant to the membership interest purchase agreement, dated as of
January 5, 2004, by and among American

46

Casino and Entertainment Properties LLC, Starfire Holding Corporation and
Carl Icahn, as amended, and the other transactions contemplated thereby;

(7) transactions between AREP and/or any of its Subsidiaries
(including any Guarantor), on the one hand, and other Affiliates, on the
other hand, for the provision of goods or services in the ordinary course
of business by such other Affiliates; provided that such other Affiliate
is in the business of providing such goods or services in the ordinary
course of business to unaffiliated third parties and the terms and pricing
for such goods and services overall are not less favorable to AREP and/or
its Subsidiaries (including AREH) than the terms and pricing upon which
such goods and services are provided to unaffiliated third parties;

(8) the provision or receipt of accounting, financial, management,
information technology and other ancillary services to or from Affiliates,
provided that AREP or its Subsidiaries (including any Guarantor) in the
case of the provision of such services, are paid a fee not less than its
out of pocket costs and allocated overhead (including a portion of
salaries and benefits) and in the case of the receipt of such services,
paid a fee not more than such Person's out-of-pocket costs and allocated
overhead (including a portion of salaries and benefits), in each case, as
determined by AREP in its reasonable judgment;

(9) the license of a portion of office space pursuant to a license
agreement, dated as of February 1, 1997, between AREP and an Affiliate of
API and any renewal thereof;

(10) the payment to API and reimbursements of payments made by API
of expenses relating to AREP's, AREH's or any Guarantors' status as a
public company;

(11) services provided and payments received by NEG from NEG
Operating LLC and TransTexas Gas Corporation pursuant to the NEG
Management Agreements;

(12) the pledge by NEG of its interest in the Capital Stock of NEG
Holding LLC pursuant to the NEG Credit Agreement;

(13) the exchange by AREH of its GB Securities for other securities
of GB Holdings, Inc.; provided that such exchange is on terms no less
favorable to AREH as the exchange of GB Securities offered to other
non-Affiliated Persons; and

(14) payments by AREH, AREP or any Subsidiary to API in connection
with services provided to AREH, AREP or any Subsidiary in accordance with
the AREP Partnership Agreement.

Section 4.12 Liens.

Neither AREP nor any Guarantor shall, (a) issue, assume or guarantee any
Indebtedness if such Indebtedness is secured by a Lien upon, or (b) secure any
then outstanding Indebtedness by granting a Lien upon, any Principal Property of
AREP or any Guarantor, now owned or hereafter acquired by AREP or any Guarantor,
without effectively providing that the Notes and the Note Guarantee shall be
secured equally and ratably with such Indebtedness, except that the foregoing
restrictions shall not apply to:

(1) Liens on any Principal Property acquired after the Issuance Date
to secure or provide for the payment of the purchase price or acquisition
cost thereof,

47

(2) Liens on Principal Property acquired after the Issuance Date
existing at the time such Principal Property is acquired;

(3) Liens on any Principal Property acquired from a corporation
merged with or into AREP or any Guarantor;

(4) Liens in favor of AREP or any Guarantor;

(5) Liens in existence on any Principal Property on the Issuance
Date;

(6) Liens on any Principal Property constituting unimproved real
property constructed or improved after the Issuance Date to secure or
provide for the payment or cost of such construction or improvement;

(7) Liens in favor of, or required by, governmental authorities;

(8) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insure carriers under insurance arrangements;

(9) Liens for taxes, assessments or governmental charges or
statutory liens of landlords, carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other similar Liens arising in the
ordinary course of business or in the improvement or repair of any
Principal Property not yet due or which are being contested in good faith
by appropriate proceedings;

(10) any judgment attachment or judgment Lien not constituting an
Event of Default;

(11) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like
nature incurred in the ordinary course of business and in the improvement
or repair of any Principal Property and which obligations are not
expressly prohibited by this Indenture;

(12) Liens to secure Indebtedness of AREP or any Guarantor
attributable to Bad Boy Guarantees;

(13) Liens in favor of the Trustee and required by Section 4.16;

(14) Liens to secure margin Indebtedness; provided that such Liens
are secured solely by the applicable margin securities; or

(15) any extension, renewal, substitution or replacement (or
successive extensions, renewals, substitutions or replacements), in whole
or in part, of any Lien referred to in the foregoing clauses (1) through
(14), inclusive;

provided that in the case of clauses (1), (2) and (3) such Liens shall
only extend to the Principal Property so acquired (including through any merger
or consolidation) and not to any other Principal Property of AREP or any
Guarantor.

Section 4.13 [Intentionally Omitted]

Section 4.14 Corporate Existence.

48

Subject to Article 5 hereof, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect:

(1) its partnership or corporate or limited liability company
existence, in accordance with the respective organizational documents (as
the same may be amended from time to time) of the Company; and

(2) the rights (charter and statutory), licenses and franchises of
the Company.

Section 4.15 Offer to Repurchase Upon Change of Control.

(a) Upon the occurrence of a Change of Control, the Company shall make an
offer (a "Change of Control Offer") to each Holder to repurchase all or any part
(equal to $1,000 or an integral multiple of $1,000) of that Holder's Notes at a
purchase price in cash equal to 101% of the aggregate principal amount of Notes
repurchased plus accrued and unpaid interest and Liquidated Damages, if any, on
the Notes repurchased to the date of purchase, subject to the rights of Holders
on the relevant record date to receive interest due on the relevant interest
payment date (the "Change of Control Payment"). Within thirty days following any
Change of Control, the Company shall mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and stating:

(1) that the Change of Control Offer is being made pursuant to this
Section 4.15 and that all Notes tendered shall be accepted for payment;

(2) the purchase price and the purchase date, which shall be no
earlier than 30 days and no later than 60 days from the date such notice
is mailed (the "Change of Control Payment Date");

(3) that any Note not tendered shall continue to accrue interest;

(4) that, unless the Company defaults in the payment of the Change
of Control Payment, all Notes accepted for payment pursuant to the Change
of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;

(5) that Holders electing to have any Notes purchased pursuant to a
Change of Control Offer shall be required to surrender the Notes, with the
form entitled "Option of Holder to Elect Purchase" attached to the Notes
completed, or transfer by book-entry transfer, to the Paying Agent at the
address specified in the notice prior to the close of business on the
third Business Day preceding the Change of Control Payment Date;

(6) that Holders shall be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the second
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have the Notes
purchased; and

(7) that Holders whose Notes are being purchased only in part shall
be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered, which unpurchased portion must be equal to
$1,000 in principal amount or an integral multiple thereof.

The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in

49

connection with the repurchase of the Notes as a result of a Change in Control.
To the extent that the provisions of any securities laws or regulations conflict
with the provisions of this Section 4.15, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section 4.15 by virtue of such compliance.

(b) On the Change of Control Payment Date, the Company shall, to the
extent lawful:

(1) accept for payment all Notes or portions of Notes properly
tendered and not withdrawn pursuant to the Change of Control Offer;

(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Notes or portions of Notes properly
tendered; and

(3) deliver or cause to be delivered to the Trustee the Notes
properly accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions of Notes being purchased
by the Company.

The Paying Agent shall promptly mail (but in any case not later than five
days after the Change of Control Payment Date) to each Holder of Notes properly
tendered the Change of Control Payment for such Notes, and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that any new Note shall be in a
principal amount of $1000 or an integral multiple of $1,000. The Company shall
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.

(c) Notwithstanding anything to the contrary in this Section 4.15, the
Company shall not be required to make a Change of Control Offer upon a Change of
Control if (1) a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in this
Section 4.15 and purchases all Notes properly tendered and not withdrawn under
the Change of Control Offer, or (2) notice of redemption has been given pursuant
to Section 3.07 hereof, unless and until there is a default in payment of the
applicable redemption price.

Section 4.16 Maintenance of Interest Coverage.

On each Quarterly Determination Date, the Fixed Charge Coverage Ratio of
AREP and the Guarantors shall be at least 1.5 to 1.0 for the four consecutive
fiscal quarters most recently completed prior to such Quarterly Determination
Date; provided that, in the event that the Fixed Charge Coverage Ratio of AREP
and the Guarantors is less than 1.5 to 1.0 for such four consecutive fiscal
quarters, the Company shall be deemed to have satisfied this maintenance test if
there is deposited, within 2 Business Days of such Quarterly Determination Date,
an amount in cash such that the deposited funds, together with any funds
previously deposited pursuant to this Section 4.16 (and that have not been paid
out or otherwise released) are in an amount equal to the Company's obligations
to pay interest on the Notes for one year; provided further, that the Company
shall grant to the Trustee, on behalf of the Holders of the Notes, a first
priority security interest in such deposited funds by executing and delivering a
Security and Control Agreement and by delivering to the Trustee an Opinion of
Counsel to the effect that the Security and Control Agreement (i) has been duly
authorized, executed and delivered and is the legal, valid and binding
obligation of the Company, enforceable against the Company, (ii) creates a valid
security interest in the Pledged Account and Collateral (each as defined in the
Security and Control Agreement) in favor of the Trustee on behalf of the Holders
and (iii) upon compliance with the terms thereof, the security interest in the
Pledged Account and Collateral in favor of the Trustee on behalf of the Holders
is perfected. At any subsequent Quarterly Determination Date, if the Fixed
Charge Coverage Ratio of

50

AREP and the Guarantors is at least 1.5 to 1.0 for the four consecutive fiscal
quarters most recently completed prior to such Quarterly Determination Date,
such deposited funds shall be released from the security interest granted to the
Trustee and paid to or at the direction of AREP.

Section 4.17 Maintenance of Total Unencumbered Assets

On each Quarterly Determination Date, the ratio of Total Unencumbered
Assets to the then outstanding principal amount of the Unsecured Indebtedness
shall be greater than 1.5 to 1.0 as of the last day of the fiscal quarter most
recently completed.

Section 4.18 Compliance with Law

AREP shall, and shall cause its Subsidiaries (including any Guarantor) to,
comply in all material respects with all applicable laws, rules and regulations.

Section 4.19 No Investment Company

Neither AREP nor any Guarantor shall register as an "investment company"
as such term is defined in the Investment Company Act of 1940, as amended.

ARTICLE 5
SUCCESSORS

Section 5.01 Merger, Consolidation, or Sale of Assets.

(a) AREP will not: (1) consolidate or merge with or into another Person
(whether or not AREP, is the surviving entity) or (2) sell, assign, transfer,
convey or otherwise dispose of all or substantially all of the properties or
assets of AREP in one or more related transactions, to another Person; unless:

(1) either:

(A) AREP is the surviving entity, or

(B) the Person formed by or surviving any such consolidation
or merger (if other than AREP) or to which such sale, assignment,
transfer, conveyance or other disposition has been made is a
corporation, limited liability company or limited partnership entity
organized or existing under the laws of the United States, any state
of the United States or the District of Columbia;

(2) the Person formed by or surviving any such consolidation or
merger (if other than AREP) or the Person to which such sale, assignment,
transfer, conveyance or other disposition has been made assumes all the
obligations of AREP under the Notes, this Indenture and the Registration
Rights Agreement and upon such assumption such Person will become the
successor to, and be substituted for, AREP hereunder and thereunder and
all references to AREP in each thereof shall then become references to
such Person and such Person shall thereafter be able to exercise every
right and power of AREP hereunder and thereunder;

(3) immediately after such transaction no Default or Event of
Default exists;

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(4) AREP or the Person formed by or surviving any such consolidation
or merger (if other than AREP), or to which such sale, assignment,
transfer, conveyance or other disposition has been made would, on the date
of such transaction after giving pro forma effect thereto and any related
financing transactions as if the same had occurred at the last day of the
immediately preceding quarter, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to Section 4.09(a); and

(5) AREP has delivered to the Trustee an Officers' Certificate and
Opinion of Counsel, which may be an opinion of in-house counsel of AREP or
an Affiliate, each stating that such transaction complies with the terms
of this Indenture.

Clauses (1), (2) or (4) above will not apply to, or be required to be
complied with in connection with, any merger or consolidation or the sale,
assignment, transfer, conveyance or other disposition of all or substantially
all of AREP's properties or assets to:

(1) an Affiliate that has no material assets or liabilities where
the primary purpose of such transaction is to change AREP into a
corporation or other form of business entity or to change the jurisdiction
of formation of AREP and such transaction does not cause the realization
of any material federal or state tax liability that will be paid by AREP
or any of its Subsidiaries (including AREH). For purposes of this
paragraph (1), the term material refers to any assets, liabilities or tax
liabilities that are greater than 5.0% of the Tangible Net Worth of AREP
and its Subsidiaries (including AREH) on a consolidated basis; or

(2) any Person; provided that AREP receives consideration in Cash
Equivalents and marketable securities with an aggregate Fair Market Value
determined at the time of the execution of such relevant agreement of at
least $1.0 billion for such merger or consolidation or the sale,
assignment, transfer, conveyance or other disposition of all or
substantially all of AREP's properties or assets. In any transaction
referred to in this clause (2), and subject to the terms and conditions
thereof, the Trustee shall, without the need of any action by the Holders,
(x) confirm that such other Person shall not be liable for and shall
release such other Person from any obligation of AREP's under this
Indenture and the Notes and (y) release any Guarantor from all obligations
under its Note Guarantee if such Guarantor was directly or indirectly
sold, assigned, transferred, conveyed or otherwise disposed of to such
Person in such transaction.

AREP or the Person formed by or surviving any merger or consolidation will
not have to comply with clause (4) above in connection with any merger or
consolidation if the effect of the merger or consolidation is to cause the
Capital Stock of AREP not owned by the Principal or any Affiliate of the
Principal to be retired or extinguished for consideration that was provided by
the Principal or an Affiliate of the Principal (other than AREP or its
Subsidiaries (including AREH) or the Person formed by or surviving any merger or
consolidation) and the Partners' Equity immediately after giving effect to the
merger or consolidation is not less than the Partners' Equity immediately prior
to such merger or consolidation.

In addition, AREP may not lease all or substantially all of its properties
or assets, in one or more related transactions, to any other Person. In the case
of a lease of all or substantially all of the assets of AREP, AREP will not be
released from its obligations under the Notes or this Indenture, as applicable.

(b) AREH will not: (1) consolidate or merge with or into another Person
(whether or not AREH, is the surviving entity) or (2) sell, assign, transfer,
convey or otherwise dispose of all or substantially all of the properties or
assets of AREH in one or more related transactions, to another Person; unless:

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(1) either: (a) AREH is the surviving entity, or (b) the Person
formed by or surviving any such consolidation or merger (if other than
AREH) or to which such sale, assignment, transfer, conveyance or other
disposition has been made is a corporation, limited liability company or
limited partnership entity organized or existing under the laws of the
United States, any state of the United States or the District of Columbia;

(2) the Person formed by or surviving any such consolidation or
merger (if other than AREH) or the Person to which such sale, assignment,
transfer, conveyance or other disposition has been made assumes all the
obligations of AREH under the Note Guarantee (and becomes a Guarantor),
the Notes, this Indenture and the Registration Rights Agreement, and upon
such assumption such Person will become the successor to, and be
substituted for, AREH hereunder and thereunder, and all references to AREH
in each thereof shall than become references to such Person and such
Person shall thereafter be able to exercise every right and power of AREH
hereunder and thereunder;

(3) immediately after such transaction no Default or Event of
Default exists;

(4) AREH or the Person formed by or surviving any such consolidation
or merger (if other than AREP), or to which such sale, assignment,
transfer, conveyance or other disposition has been made would, on the date
of such transaction after giving pro forma effect thereto and any related
financing transactions as if the same had occurred at the last day of the
immediately preceding quarter, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to Section 4.09(a); and

(5) AREH has delivered to the Trustee an Officers' Certificate and
Opinion of Counsel which may be an opinion of in-house counsel of AREP or
an Affiliate, each stating that such transaction complies with the terms
of this Indenture.

Clauses (1), (2) or (4) above will not apply to, or be required to be
complied with in connection with, any merger or consolidation or the sale,
assignment, transfer, conveyance or other disposition of all or substantially
all of AREH's properties or assets to:

(1) an Affiliate that has no material assets or liabilities where
the primary purpose of such transaction is to change AREH into a
corporation or other form of business entity or to change the jurisdiction
of formation of AREH and such transaction does not cause the realization
of any material federal or state tax liability that will be paid by AREH
or any of its Subsidiaries. For purposes of this paragraph (1), the term
material refers to any assets, liabilities or tax liabilities that are
greater than 5.0% of the Tangible Net Worth of AREP and its Subsidiaries
(including AREH) on a consolidated basis;

(2) any Person; provided that AREP receives consideration in Cash
Equivalents and marketable securities with an aggregate Fair Market Value
determined at the time of the execution of such relevant agreement of at
least $1.0 billion for such merger or consolidation or the sale,
assignment, transfer, conveyance or other disposition of all or
substantially all of AREH's properties or assets; or

(3) any Person; provided that AREH receives consideration in Cash
Equivalents and marketable securities with an aggregate Fair Market Value
determined at the time of the execution of such relevant agreement of at
least $1.0 billion for such merger or consolidation or the sale,
assignment, transfer, conveyance or other disposition of all or
substantially all of AREH's properties or assets and AREH remains a
Subsidiary of AREP.

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In any transaction referred to in clause (2) or (3) above, and subject to
the terms and conditions thereof, the Trustee shall, without the need of any
action by the Holders, (x) confirm that such other Person shall not be liable
for and shall release such other Person from any obligation of AREP's or AREH's
under this Indenture, the Notes and the Note Guarantees, and (y) release any
Guarantor from all obligations under its Note Guarantee if such Guarantor was
directly or indirectly sold, assigned, transferred, conveyed or otherwise
disposed of to such Person in such transaction.

(c) This Section 5.01 will not apply to:

(1) any consolidation or merger, or any sale, assignment, transfer,
conveyance, lease or other disposition of assets between or among AREP,
AREH or any one or more Guarantors; or

(2) any sale, assignment, transfer, conveyance or other disposition
of Cash Equivalents, including, without limitation, any investment or
capital contribution of Cash Equivalents, or any purchase of property and
assets, including, without limitation, securities, debt obligations or
Capital Stock, with Cash Equivalents.

Section 5.02 Relief from Obligation.

Except as provided in the Indenture, neither AREP nor AREH shall be
relieved from the obligation to pay the principal of and interest on the Notes.

ARTICLE 6
DEFAULTS AND REMEDIES

Section 6.01 Events of Default.

Each of the following is an "Event of Default":

(1) the Company defaults for 30 days in the payment when due of
interest on, or Liquidated Damages with respect to, the Notes or under any
Note Guarantee;

(2) the Company defaults in the payment when due and payable (at
maturity, upon redemption or otherwise) of the principal of, or premium,
if any, on the Notes or under any Note Guarantee;

(3) failure by the Company to comply with the provisions of Section
4.15 hereof;

(4) failure by AREP or any Guarantor for 30 days after written
notice from the Trustee to comply with the provisions Sections 4.07, 4.09;
4.16 or 4.17 hereof;

(5) the Company or any Guarantor fails to observe or perform any
other covenant, representation, warranty or other agreement in this
Indenture or the Notes or the Note Guarantee for 60 days after notice to
the Company by the Trustee or the Holders of at least 25% in aggregate
principal amount of the Notes then outstanding voting as a single class;

(6) default under any mortgage, indenture or instrument under which
there is issued or by which there is secured or evidenced any Indebtedness
for money borrowed by the Company or any Guarantor or default on any
Guarantee by the Company or AREH of Indebtedness, whether such
Indebtedness or Guarantee now exists or is created after the Issuance
Date, which default

54

(A) is caused by a failure to pay when due at final maturity
(giving effect to any grace period or waiver related thereto) the
principal of such Indebtedness (a "Payment Default"); or

(B) results in the acceleration of such Indebtedness prior to
its express maturity and, in each case, the principal amount of any
such Indebtedness as to which AREP or any Guarantor is obligated to
pay, together with the principal amount of any other such
Indebtedness under which a Payment Default then exists or with
respect to which the maturity thereof has been so accelerated or
which has not been paid at maturity as to which AREP or any
Guarantor is obligated to pay, aggregates $10.0 million or more;

(7) failure by the Company or any Guarantor to pay final judgments
aggregating in excess of $10.0 million, which final judgments remain
unpaid, undischarged or unstayed for a period of more than 60 days after
such judgment becomes a final judgment;

(8) except as permitted by this Indenture, any Note Guarantee shall
be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect, or AREH or any other
Guarantor, or any Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligations under its Note Guarantee;

(9) the Company or any Subsidiary of the Company that is a
Significant Subsidiary or any group of Subsidiaries of the Company that,
taken together, would constitute a Significant Subsidiary pursuant to or
within the meaning of Bankruptcy Law:

(A) commences a voluntary case,

(B) consents to the entry of an order for relief against it in
an involuntary case,

(C) consents to the appointment of a custodian of it or for
all or substantially all of its property,

(D) makes a general assignment for the benefit of its
creditors, or

(E) generally is not paying its debts as they become due; or

(10) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:

(A) is for relief against the Company or any Subsidiary of the
Company that is a Significant Subsidiary or any group of
Subsidiaries of the Company that, taken together, would constitute a
Significant Subsidiary in an involuntary case;

(B) appoints a custodian of the Company or any of its
Subsidiaries that is a Significant Subsidiary or any group of
Subsidiaries of the Company that, taken together, would constitute a
Significant Subsidiary or for all or substantially all of the
property of the Company or any of its Subsidiaries that is a
Significant Subsidiary or any group of Subsidiaries of the Company
that, taken together, would constitute a Significant Subsidiary; or

55

(C) orders the liquidation of the Company or any of its
Subsidiaries that is a Significant Subsidiary or any group of
Subsidiaries of the Company that, taken together, would constitute a
Significant Subsidiary;

(D) and the order or decree remains unstayed and in effect for
60 consecutive days.

Section 6.02 Acceleration.

In the case of an Event of Default specified in clause (9) or (10) of
Section 6.01 hereof, with respect to the Company, any Guarantor that is a
Significant Subsidiary or any group of Subsidiaries of the Company that, taken
together, would constitute a Significant Subsidiary, all outstanding Notes will
become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the Trustee or the Holders of
at least 25% in aggregate principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately.

Upon any such declaration, the Notes shall become due and payable
immediately.

The Holders of a majority in aggregate principal amount of the then
outstanding Notes by written notice to the Trustee may, on behalf of all of the
Holders, rescind an acceleration and its consequences, if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal, interest or premium or Liquidated Damages, if
any, that has become due solely because of the acceleration) have been cured or
waived.

If an Event of Default occurs on or after June 1, 2008 by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the Company
with the intention of avoiding payment of the premium that the Company would
have had to pay if the Company then had elected to redeem the Notes pursuant to
Section 3.07 hereof, then, upon acceleration of the Notes, an equivalent premium
shall also become and be immediately due and payable, to the extent permitted by
law, anything in this Indenture or in the Notes to the contrary notwithstanding.
If an Event of Default occurs prior to June 1, 2008 by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding the prohibition on redemption of the Notes prior to
such date, then, upon acceleration of the Notes, an additional premium shall
also become and be immediately due and payable, to the extent permitted by law,
in an amount, for each of the years beginning on June 1 of the years set forth
below, as set forth below (expressed as a percentage of the principal amount of
the Notes on the date of payment that would otherwise be due but for the
provisions of this sentence):

YEAR                                                                                         PERCENTAGE
----                                                                                         ----------

2004.............................................................................              8.125%
2005.............................................................................              7.109%
2006.............................................................................              6.094%
2007.............................................................................              5.078%

Section 6.03 Other Remedies.

If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium and Liquidated
Damages, if any, and interest on the Notes or to enforce the performance of any
provision of the Notes or this Indenture.

The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or omission
by the Trustee or any Holder of a Note in

56

exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. All remedies are cumulative to the extent permitted by law.

Section 6.04 Waiver of Past Defaults.

Holders of not less than a majority in aggregate principal amount of the
then outstanding Notes by notice to the Trustee may on behalf of the Holders of
all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal of, premium and Liquidated Damages, if any, or interest
on, the Notes (including in connection with an offer to purchase); provided,
however, that the Holders of a majority in aggregate principal amount of the
then outstanding Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration. Upon
any such waiver, such Default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.

Section 6.05 Control by Majority.

Holders of a majority in aggregate principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee determines
may be unduly prejudicial to the rights of other Holders of Notes or that may
involve the Trustee in personal liability.

Section 6.06 Limitation on Suits.

A Holder may pursue a remedy with respect to this Indenture or the Notes
only if:

(1) such Holder gives to the Trustee written notice that an Event of
Default is continuing;

(2) Holders of at least 25% in aggregate principal amount of the
then outstanding Notes make a written request to the Trustee to pursue the
remedy;

(3) such Holder or Holders offer and, if requested, provide to the
Trustee security or indemnity reasonably satisfactory to the Trustee
against any loss, liability or expense;

(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of security or indemnity; and

(5) during such 60-day period, Holders of a majority in aggregate
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with such request.

A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.

Section 6.07 Rights of Holders of Notes to Receive Payment.

Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium and Liquidated
Damages, if any, and interest on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or

57

to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of such
Holder.

Section 6.08 Collection Suit by Trustee.

If an Event of Default specified in Section 6.01(1) or (2) hereof occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on, the Notes and interest on overdue principal and, to the extent
lawful, interest and such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.

Section 6.09 Trustee May File Proofs of Claim.

The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.

Section 6.10 Priorities.

If the Trustee collects any money pursuant to this Article 6, it shall pay
out the money in the following order:

First: to the Trustee, its agents and attorneys for amounts due
under Section 7.07 hereof, including payment of all compensation, expenses
and liabilities incurred, and all advances made, by the Trustee and the
costs and expenses of collection;

Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium and Liquidated Damages, if any, and interest,
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Notes for principal, premium and Liquidated
Damages, if any and interest, respectively; and

Third: to the Company or to such party as a court of competent
jurisdiction shall direct.

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The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.

Section 6.11 Undertaking for Costs.

In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of
a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
aggregate principal amount of the then outstanding Notes.

ARTICLE 7
TRUSTEE

Section 7.01 Duties of Trustee.

(a) If an Event of Default has occurred and is continuing of which a
Responsible Officer of the Trustee has actual knowledge or of which written
notice shall have been given to the Trustee in accordance with the terms of the
Indenture, the Trustee will exercise such of the rights and powers vested in it
by this Indenture, and use the same degree of care and skill in its exercise, as
a prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.

(b) Except during the continuance of an Event of Default of which a
Responsible Officer of the Trustee has actual knowledge or of which written
notice shall have been given to the Trustee in accordance with the terms of the
Indenture:

(1) the duties of the Trustee will be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and

(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee will examine the certificates and opinions to
determine whether or not they conform on their face to the requirements of
this Indenture, but shall not verify the contents thereof.

(c) The Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:

(1) this paragraph does not and shall not be construed to limit the
effect of paragraph (b) of this Section 7.01;

(2) the Trustee will not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and

59

(3) the Trustee will not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.

(4) the Trustee shall not be required to examine any of the reports,
information or documents delivered to it under this Indenture to determine
whether there has been any breach of the covenants of the Company
contained herein, except that if any breach or default is expressly stated
in any such reports, information or documents, the Trustee shall be deemed
to have actual knowledge of such breach or default.

(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b), and (c) of this Section 7.01.

(e) No provision of this Indenture will require the Trustee to expend or
risk its own funds or incur any liability.

(f) The Trustee will not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.

Section 7.02 Rights of Trustee.

(a) The Trustee may conclusively rely upon any document believed by it to
be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in any such document.

(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee will not be
liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel of its choice and the written advice of such counsel or any Opinion of
Counsel will be full and complete authorization and protection from liability in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.

(c) The Trustee may act through its attorneys and agents and will not be
responsible for the misconduct or negligence of any attorney or agent appointed
with due care.

(d) The Trustee will not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.

(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company or any Guarantor will be
sufficient if signed by an Officer of the Company or any Guarantor, as
applicable.

(f) The Trustee will be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders unless such Holders have offered to the Trustee indemnity or
security satisfactory to it against the losses, liabilities and expenses that
might be incurred by it in compliance with such request or direction.

Section 7.03 Individual Rights of Trustee.

The Trustee in its individual or any other capacity may become the owner
or pledgee of Notes and, subject to TIA Section 310(b), may otherwise deal with
the Company or any Affiliate of the Company with

60

the same rights it would have if it were not Trustee. Any Agent may do the same
with like rights and duties.

Section 7.04 Trustee's Disclaimer.

The Trustee will not be responsible for and makes no representation as to
the validity or adequacy of this Indenture, the Notes or the Note Guarantee, it
shall not be accountable for the Company's use of the proceeds from the Notes or
any money paid to the Company or upon the Company's direction under any
provision of this Indenture, it will not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it will not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.

Section 7.05 Notice of Defaults.

If a Default or Event of Default occurs and is continuing of which a
Responsible Officer of the Trustee has actual knowledge, the Trustee will mail
to Holders of Notes a notice of the Default or Event of Default within 90 days
after such Responsible Officer has actual knowledge of such Default or Event of
Default. Except in the case of a Default or Event of Default in payment of
principal of, premium or Liquidated Damages, if any, or interest on, any Note,
the Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interests of the Holders of the Notes.

Section 7.06 Reports by Trustee to Holders of the Notes.

(a) Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee will mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA Section 313(a) (but if no event described
in TIA Section 313(a) has occurred within the twelve months preceding the
reporting date, no report need be transmitted). The Trustee also will comply
with TIA Section 313(b)(2). The Trustee will also transmit by mail all reports
as required by TIA Section 313(c).

(b) A copy of each report at the time of its mailing to the Holders of
Notes will be mailed by the Trustee to the Company and filed by the Trustee with
the SEC and each stock exchange on which the Notes are listed in accordance with
TIA Section 313(d). The Company will promptly notify the Trustee when the Notes
are listed on any stock exchange.

Section 7.07 Compensation and Indemnity.

(a) The Company and the Guarantor will pay to the Trustee from time to
time reasonable compensation for its acceptance of this Indenture and services
hereunder. The Trustee's compensation will not be limited by any law on
compensation of a trustee of an express trust. The Company will reimburse the
Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in addition to the compensation for its
services. Such expenses will include the reasonable compensation, disbursements,
costs and expenses of the Trustee's agents, consultants and counsel (including
the costs and expenses of collection on the Notes and the Note Guarantees and
the enforcement and administration of any right or remedy or observing any of
its duties under this Indenture).

(b) The Company and the Guarantor will indemnify the Trustee and hold the
Trustee harmless against any and all losses, liabilities or expenses incurred by
it arising out of or in connection with the

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acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company and the
Guarantor (including this Section 7.07) and defending itself against any claim
(whether asserted by the Company, the Guarantor, any Holder or any other Person)
or liability in connection with the exercise or performance of any of its powers
or duties hereunder, except any such loss, liability or expense attributable to
its negligence or bad faith. The Trustee will notify the Company and the
Guarantor promptly of any claim for which it may seek indemnity. Failure by the
Trustee to so notify the Company and the Guarantor will not relieve the Company
or any of the Guarantors of their obligations hereunder. The Company or such
Guarantor will defend the claim and the Trustee will cooperate in the defense.
The Trustee may have separate counsel and the Company will pay the reasonable
fees and expenses of such counsel. Neither the Company nor any Guarantor need
pay for any settlement made without its consent, which consent will not be
unreasonably withheld.

(c) The obligations of the Company and the Guarantor under this Section
7.07 shall constitute additional Indebtedness hereunder and will survive the
satisfaction and discharge of this Indenture.

(d) To secure the Company's and the Guarantor's payment obligations in
this Section 7.07, the Trustee will have a Lien prior to the Notes on all money
or property held or collected by the Trustee, except that held in trust to pay
principal and interest on particular Notes. Such Lien will survive the
satisfaction and discharge of this Indenture.

(e) When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(9) or (10) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.

(f) The Trustee will comply with the provisions of TIA Section 313(b)(2)
to the extent applicable.

Section 7.08 Replacement of Trustee.

(a) A resignation or removal of the Trustee and appointment of a successor
Trustee will become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.08.

(b) The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of a majority
in aggregate principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:

(1) the Trustee fails to comply with Section 7.10 hereof;

(2) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy
Law;

(3) a custodian or public officer takes charge of the Trustee or its
property; or

(4) the Trustee becomes incapable of acting.

(c) If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company will promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in aggregate principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.

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(d) If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of at least 10% in aggregate principal amount of the then
outstanding Notes may petition any court of competent jurisdiction, at the
expense of the Company for the appointment of a successor Trustee.

(e) If the Trustee, after written request by any Holder who has been a
Holder for at least six months, fails to comply with Section 7.10 hereof, such
Holder may petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.

(f) A successor Trustee will deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee will become effective, and the
successor Trustee will have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee will mail a notice of its succession
to Holders. The retiring Trustee will promptly transfer all property held by it
as Trustee to the successor Trustee; provided all sums owing to the Trustee
hereunder have been paid and subject to the Lien provided for in Section 7.07
hereof. Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 hereof will continue for the
benefit of the retiring Trustee.

Section 7.09 Successor Trustee by Merger, etc.

If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation without any further act will be the successor Trustee.

Section 7.10 Eligibility; Disqualification.

There will at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100.0
million as set forth in its most recent published annual report of condition.

This Indenture will always have a Trustee who satisfies the requirements
of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section
310(b).

Section 7.11 Preferential Collection of Claims Against Company.

The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.

ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE

Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance.

The Company may at any time, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8.

Section 8.02 Legal Defeasance and Discharge.

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Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company and each of the Guarantors will,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
be deemed to have been discharged from their obligations with respect to all
outstanding Notes (including the Note Guarantees) on the date the conditions set
forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose,
Legal Defeasance means that the Company and the Guarantors will be deemed to
have paid and discharged the entire Indebtedness represented by the outstanding
Notes (including the Note Guarantees), which will thereafter be deemed to be
"outstanding" only for the purposes of Section 8.05 hereof and the other
Sections of this Indenture referred to in clauses (1) and (2) below, and to have
satisfied all their other obligations under such Notes, the Note Guarantees and
this Indenture (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the same), except for the
following provisions which will survive until otherwise terminated or discharged
hereunder:

(1) the rights of Holders of outstanding Notes to receive payments
in respect of the principal of, or interest or premium and Liquidated
Damages, if any, on, such Notes when such payments are due from the trust
referred to in Section 8.04 hereof;

(2) the Company's obligations with respect to such Notes under
Article 2 and Section 4.02 hereof;

(3) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and the Company's and the Guarantors' obligations in connection
therewith; and

(4) this Article 8.

Subject to compliance with this Article 8, the Company may exercise its
option under this Section 8.02 notwithstanding the prior exercise of its option
under Section 8.03 hereof.

Section 8.03 Covenant Defeasance.

Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company and each of the Guarantors will,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
be released from each of their obligations under the covenants contained in
Sections 4.07, 4.09, 4.11, 4.12, 4.15, 4.16, 4.17, 4.18 and 4.19 hereof, Section
5.01(a)(4) and Section 5.01(b)(4) hereof with respect to the outstanding Notes
on and after the date the conditions set forth in Section 8.04 hereof are
satisfied (hereinafter, "Covenant Defeasance"), and the Notes will thereafter be
deemed not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but will continue to be deemed "outstanding" for
all other purposes hereunder (it being understood that such Notes will not be
deemed outstanding for accounting purposes). For this purpose, Covenant
Defeasance means that, with respect to the outstanding Notes and Note
Guarantees, the Company and the Guarantors may omit to comply with and will have
no liability in respect of any term, condition or limitation set forth in any
such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply will not constitute a Default or an Event of Default under
Section 6.01 hereof, but, except as specified above, the remainder of this
Indenture and such Notes and Note Guarantees will be unaffected thereby. In
addition, upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, subject to the satisfaction of the conditions
set forth in Section 8.04 hereof, Sections 6.01(3) through 6.01(6) hereof will
not constitute Events of Default.

Section 8.04 Conditions to Legal or Covenant Defeasance.

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In order to exercise either Legal Defeasance or Covenant Defeasance under
either Section 8.02 or 8.03 hereof:

(1) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized investment bank,
appraisal firm, or firm of independent public accountants, to pay the
principal of, premium and Liquidated Damages, if any, and interest on, the
outstanding Notes on the stated date for payment thereof or on the
applicable redemption date, as the case may be, and the Company must
specify whether the Notes are being defeased to such stated date for
payment or to a particular redemption date;

(2) in the case of an election under Section 8.02 hereof, the
Company must deliver to the Trustee an Opinion of Counsel confirming that:

(A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling; or

(B) since the date of this Indenture, there has been a change
in the applicable federal income tax law,

in either case to the effect that, and based thereon such Opinion of
Counsel shall confirm that, the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Legal Defeasance
had not occurred;

(3) in the case of an election under Section 8.03 hereof, the
Company must deliver to the Trustee an Opinion of Counsel confirming that
the Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred;

(4) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit) and the deposit will not result in a breach or violation of, or
constitute a default under, any other instrument to which the Company or
any Guarantor is a party or by which the Company or any Guarantor is
bound;

(5) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which the Company
or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound;

(6) the Company must deliver to the Trustee an Opinion of Counsel,
containing customary assumptions and exceptions, to the effect that upon
and immediately following the deposit, the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally under any applicable
law;

65

(7) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders of Notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding any
creditors of the Company or others; and

(8) the Company must deliver to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.

Section 8.05 Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.

Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
will be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium and Liquidated Damages, if
any, and interest, but such money need not be segregated from other funds except
to the extent required by law.

The Company will pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to Section 8.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.

Notwithstanding anything in this Article 8 to the contrary, the Trustee
will deliver or pay to the Company from time to time upon the request of the
Company any money or non-callable Government Securities held by it as provided
in Section 8.04 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
8.04(1) hereof), are in excess of the amount thereof that would then be required
to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.

Section 8.06 Repayment to Company.

Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium or Liquidated
Damages, if any, or interest on, any Note and remaining unclaimed for two years
after such principal, premium or Liquidated Damages, if any, or interest has
become due and payable shall be paid to the Company on its request or (if then
held by the Company) will be discharged from such trust; and the Holder of such
Note will thereafter be permitted to look only to the Company for payment
thereof, and all liability of the Trustee or such Paying Agent with respect to
such trust money, and all liability of the Company as trustee thereof, will
thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in the New York Times and The Wall Street
Journal (national edition), notice that such money remains unclaimed and that,
after a date specified therein, which will not be less than 30 days from the
date of such notification or publication, any unclaimed balance of such money
then remaining will be repaid to the Company.

Section 8.07 Reinstatement.

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If the Trustee or Paying Agent is unable to apply any U.S. dollars or
non-callable Government Securities in accordance with Section 8.02 or 8.03
hereof, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's and the Guarantors' obligations under this
Indenture and the Notes and the Note Guarantees will be revived and reinstated
as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until
such time as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 8.02 or 8.03 hereof, as the case may be; provided,
however, that, if the Company makes any payment of principal of, premium or
Liquidated Damages, if any, or interest on, any Note following the reinstatement
of its obligations, the Company will be subrogated to the rights of the Holders
of such Notes to receive such payment from the money held by the Trustee or
Paying Agent.

ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER

Section 9.01 Without Consent of Holders of Notes.

Notwithstanding Section 9.02 of this Indenture, the Company, the
Guarantors and the Trustee may amend or supplement this Indenture or the Notes
or the Note Guarantees without the consent of any Holder of Note:

(1) to cure any ambiguity, defect or inconsistency;

(2) to provide for uncertificated Notes in addition to or in place
of certificated Notes;

(3) to provide for the assumption of the Company's or a Guarantor's
obligations to the Holders of the Notes and Note Guarantees by a successor
to the Company or such Guarantor pursuant to Article 5 or Article 10
hereof;

(4) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the
legal rights hereunder of any Holder;

(5) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA;

(6) to conform the text of this Indenture or the Notes to any
provision of the "Description of Notes" section of the Company's Offering
Memorandum, relating to the initial offering of the Notes, to the extent
that such provision in that "Description of Notes" was intended to be a
verbatim recitation of a provision of this Indenture, the Note Guarantees
or the Notes;

(7) to provide for the issuance of Additional Notes in accordance
with the limitations set forth in this Indenture as of the date hereof; or

(8) to allow any Guarantor to execute a supplemental indenture
and/or a Note Guarantee with respect to the Notes.

Upon the request of the Company accompanied by a resolution of its Board
of Directors authorizing the execution of any such amended or supplemental
indenture, and upon receipt by the Trustee of the documents described in Section
7.02 hereof, the Trustee will join with the Company and the Guarantors in the
execution of any amended or supplemental indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be

67

therein contained, but the Trustee will not be obligated to enter into such
amended or supplemental indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.

Section 9.02 With Consent of Holders of Notes.

Except as provided below in this Section 9.02, the Company and the Trustee
may amend or supplement this Indenture (including, without limitation, Section
4.15 hereof) and the Notes and the Note Guarantees with the consent of the
Holders of at least a majority in aggregate principal amount of the then
outstanding Notes (including, without limitation, Additional Notes, if any)
voting as a single class (including, without limitation, consents obtained in
connection with a tender offer or exchange offer for, or purchase of, the
Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or
Event of Default (other than a Default or Event of Default in the payment of the
principal of, premium or Liquidated Damages, if any, or interest on, the Notes,
except a payment default resulting from an acceleration that has been rescinded)
or compliance with any provision of this Indenture or the Notes or the Note
Guarantees may be waived with the consent of the Holders of a majority in
aggregate principal amount of the then outstanding Notes (including, without
limitation, Additional Notes, if any) voting as a single class (including,
without limitation, consents obtained in connection with a tender offer or
exchange offer for, or purchase of, the Notes). Section 2.08 hereof shall
determine which Notes are considered to be "outstanding" for purposes of this
Section 9.02.

Upon the request of the Company accompanied by a resolution of its Board
of Directors authorizing the execution of any such amended or supplemental
indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by
the Trustee of the documents described in Section 7.02 hereof, the Trustee will
join with the Company and the Guarantors in the execution of such amended or
supplemental indenture unless such amended or supplemental indenture directly
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but will not be
obligated to, enter into such amended or supplemental Indenture.

It is not be necessary for the consent of the Holders of Notes under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it is sufficient if such consent approves the
substance thereof.

After an amendment, supplement or waiver under this Section 9.02 becomes
effective, the Company will mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, will not, however, in
any way impair or affect the validity of any such amended or supplemental
indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding voting as a
single class may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Notes or the Note Guarantees. However,
without the consent of each Holder affected, an amendment, supplement or waiver
under this Section 9.02 may not (with respect to any Notes held by a
non-consenting Holder):

(1) reduce the principal amount of Notes whose Holders must consent
to an amendment, supplement or waiver;

(2) reduce the principal of or change the fixed maturity of any Note
or alter or waive the provisions with respect to the redemption of the
Notes (except as provided above with respect to Section 4.15 hereof);

(3) reduce the rate of or change the time for payment of interest on
any Note;

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(4) waive a Default or Event of Default in the payment of principal
of, premium or interest on the Notes (except a rescission of acceleration
of the Notes by the Holders of at least a majority in aggregate principal
amount of the Notes and a waiver of the payment default that resulted from
such acceleration);

(5) make any Note payable in money other than that stated in the
Notes;

(6) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of or premium, if any, or interest on the Notes;

(7) waive a redemption payment with respect to any Note (other than
a payment required by Section 4.15 hereof);

(8) release any Guarantor from any of its obligations under its Note
Guarantee or this Indenture, except in accordance with the terms of this
Indenture; or

(9) make any change in this Article 9 relating to the amendment and
waiver provisions

Section 9.03 Compliance with Trust Indenture Act.

Every amendment or supplement to this Indenture or the Notes will be set
forth in a amended or supplemental indenture that complies with the TIA as then
in effect.

Section 9.04 Revocation and Effect of Consents.

Until an amendment, supplement or waiver becomes effective, a consent to
it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the amendment, supplement or waiver becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.

Section 9.05 Notation on or Exchange of Notes.

The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.

Failure to make the appropriate notation or issue a new Note will not
affect the validity and effect of such amendment, supplement or waiver.

Section 9.06 Trustee to Sign Amendments, etc.

The Trustee will sign any amended or supplemental indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
may not sign an amended or supplemental indenture until the Board of Directors
of AREP approves it. In executing any amended or supplemental indenture, the
Trustee will be entitled to receive and (subject to Section 7.01 hereof) will be
fully protected in relying upon, in addition

69

to the documents required by Section 12.04 hereof, an Officers' Certificate and
an Opinion of Counsel stating that the execution of such amended or supplemental
indenture is authorized or permitted by this Indenture.

ARTICLE 10
NOTE GUARANTEES

Section 10.01. Guarantee.

(a) Subject to this Article 10, the Guarantor hereby unconditionally
guarantees to each Holder of a Note authenticated and delivered by the Trustee
and to the Trustee and its successors and assigns, irrespective of the validity
and enforceability of this Indenture, the Notes or the obligations of the
Company hereunder or thereunder, that:

(1) the principal of, premium and Liquidated Damages, if any, and
interest on, the Notes will be promptly paid in full when due, whether at
maturity, by acceleration, redemption or otherwise, and interest on the
overdue principal of and interest on the Notes, if any, if lawful, and all
other obligations of the Company to the Holders or the Trustee hereunder
or thereunder will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; and

(2) in case of any extension of time of payment or renewal of any
Notes or any of such other obligations, that same will be promptly paid in
full when due or performed in accordance with the terms of the extension
or renewal, whether at stated maturity, by acceleration or otherwise.

Failing payment when due of any amount so guaranteed or any performance so
guaranteed for whatever reason, the Guarantor will pay the same immediately. The
Guarantor agrees that this is a guarantee of payment and not a guarantee of
collection.

(b) The Guarantor hereby agrees that its obligations hereunder are
unconditional, irrespective of the validity, regularity or enforceability of the
Notes or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any provisions
hereof or thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor. The Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenant that this Note Guarantee will not be discharged except by complete
performance of the obligations contained in the Notes and this Indenture.

(c) If any Holder or the Trustee is required by any court or otherwise to
return to the Company, the Guarantor or any custodian, trustee, liquidator or
other similar official acting in relation to either the Company or the
Guarantor, any amount paid by either to the Trustee or such Holder, this Note
Guarantee, to the extent theretofore discharged, will be reinstated in full
force and effect.

(d) The Guarantor agrees that it will not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby. The Guarantor
further agrees that, as between any Guarantors, on the one hand, and the Holders
and the Trustee, on the other hand, (1) the maturity of the obligations
guaranteed hereby may be accelerated as provided in Article 6 hereof for the
purposes of this Note Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed

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hereby, and (2) in the event of any declaration of acceleration of such
obligations as provided in Article 6 hereof, such obligations (whether or not
due and payable) will forthwith become due and payable by the Guarantor for the
purpose of this Note Guarantee. The Guarantors will have the right to seek
contribution from any non-paying Guarantor so long as the exercise of such right
does not impair the rights of the Holders under the Note Guarantee.

Section 10.02. Limitation on Guarantor Liability.

The Guarantor, and by its acceptance of Notes, each Holder, hereby
confirms that it is the intention of all such parties that the Note Guarantee
not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy
Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act
or any similar federal or state law to the extent applicable to any Note
Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and
the Guarantor hereby irrevocably agree that the obligations of such Guarantor
will be limited to the maximum amount that will, after giving effect to such
maximum amount and all other contingent and fixed liabilities of such Guarantor
that are relevant under such laws, and after giving effect to any collections
from, rights to receive contribution from or payments made by or on behalf of
any other Guarantor in respect of the obligations of such other Guarantor under
this Article 10, result in the obligations of such Guarantor under its Note
Guarantee not constituting a fraudulent transfer or conveyance.

Section 10.03. Execution and Delivery of Note Guarantee.

To evidence its Note Guarantee set forth in Section 10.01 hereof, each
Guarantor hereby agrees that a notation of such Note Guarantee substantially in
the form attached as Exhibit E hereto will be endorsed by an Officer of such
Guarantor on each Note authenticated and delivered by the Trustee and that this
Indenture will be executed on behalf of such Guarantor by one of its Officers.

Each Guarantor hereby agrees that its Note Guarantee set forth in Section
10.01 hereof will remain in full force and effect notwithstanding any failure to
endorse on each Note a notation of such Note Guarantee.

If an Officer whose signature is on this Indenture or on the Note
Guarantee no longer holds that office at the time the Trustee authenticates the
Note on which a Note Guarantee is endorsed, the Note Guarantee will be valid
nevertheless.

The delivery of any Note by the Trustee, after the authentication thereof
hereunder, will constitute due delivery of the Note Guarantee set forth in this
Indenture on behalf of the Guarantors.

Section 10.04. Guarantors May Consolidate, etc., on Certain Terms.

(a) Except as otherwise provided in Section 10.05 hereof and subject to
10.04(b) hereof, no Guarantor may sell or otherwise dispose of all or
substantially all of its assets to, or consolidate with or merge with or into
(whether or not such Guarantor is the surviving Person) another Person, other
than the Company or another Guarantor, unless:

(1) immediately after giving effect to such transaction, no Default or
Event of Default exists; and

(2) subject to Section 10.05 hereof, the Person acquiring the property in
any such sale or disposition or the Person formed by or surviving any such
consolidation or merger unconditionally assumes all the obligations of
that Guarantor under this Indenture, its Note

71

Guarantee and the Registration Rights Agreement on the terms set forth 
herein or therein, pursuant to a supplemental indenture in form and 
substance reasonably satisfactory to the Trustee.

In case of any such consolidation, merger, sale or conveyance and upon the
assumption by the successor Person, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to the Trustee, of the Note
Guarantee endorsed upon the Notes and the due and punctual performance of all of
the covenants and conditions of this Indenture to be performed by the Guarantor,
such successor Person will succeed to and be substituted for the Guarantor with
the same effect as if it had been named herein as a Guarantor. Such successor
Person thereupon may cause to be signed any or all of the Note Guarantees to be
endorsed upon all of the Notes issuable hereunder which theretofore shall not
have been signed by the Company and delivered to the Trustee. All the Note
Guarantees so issued will in all respects have the same legal rank and benefit
under this Indenture as the Note Guarantees theretofore and thereafter issued in
accordance with the terms of this Indenture as though all of such Note
Guarantees had been issued at the date of the execution hereof.

Except as set forth in Articles 4 and 5 hereof, and notwithstanding clause
2 above, nothing contained in this Indenture or in any of the Notes will prevent
any consolidation or merger of a Guarantor with or into the Company or another
Guarantor, or will prevent any sale or conveyance of the property of a Guarantor
as an entirety or substantially as an entirety to the Company or another
Guarantor.

(b) Notwithstanding the foregoing, any merger or consolidation of AREH (or
an Affiliate referred to in clause (1) of the second paragraph of Section
5.01(b) or any Person that is the successor of AREH or any such successor ad
infinitum) or any sale of all or substantially all of AREH's assets (or of an
Affiliate referred to in clause (1) of the second paragraph of Section 5.01(b)
or any Person that is the successor of AREH or any such successor ad infinitum)
shall be governed by Section 5.01(b) hereof and Section 10.04(a) shall not apply
to any such transaction.

Section 10.05. Releases.

(a) In the event of any sale or other disposition of all or substantially
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the Capital Stock of any
Guarantor, in each case to a Person that is not (either before or after giving
effect to such transactions) the Company or another Guarantor, then such
Guarantor (in the event of a sale or other disposition, by way of merger,
consolidation or otherwise, of all of the Capital Stock of such Guarantor) or
the entity acquiring the property (in the event of a sale or other disposition
of all or substantially all of the assets of such Guarantor) will be released
and relieved of any obligations under its Note Guarantee. Upon delivery by the
Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to
the effect that such sale or other disposition was made by the Company in
accordance with the provisions of this Indenture the Trustee will execute any
documents reasonably required in order to evidence the release of any Guarantor
from its obligations under its Note Guarantee.

(b) Upon Legal Defeasance in accordance with Article 8 hereof or
satisfaction and discharge of this Indenture in accordance with Article 11
hereof, each Guarantor will be released and relieved of any obligations under
its Note Guarantee.

Any Guarantor not released from its obligations under its Note Guarantee
as provided in this Section 10.05 will remain liable for the full amount of
principal of and interest and premium and Liquidated Damages, if any, on the
Notes and for the other obligations of any Guarantor under this Indenture as
provided in this Article 10.

72

ARTICLE 11
SATISFACTION AND DISCHARGE

Section 11.01 Satisfaction and Discharge.

This Indenture will be discharged and will cease to be of further effect
as to all Notes and Note Guarantees issued hereunder, when:

(1) either:

(a) all Notes that have been authenticated, except lost,
stolen or destroyed Notes that have been replaced or paid and Notes for
whose payment money has theretofore been deposited in trust and thereafter
repaid to AREP, have been delivered to the Trustee for cancellation; or

(b) all Notes that have not been delivered to the Trustee for
cancellation (1) have become due and payable by reason of the mailing of a
notice of redemption or otherwise, (2) will become due and payable within
one year or (3) are to be called for redemption within 12 months under
arrangements reasonably satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the reasonable
expense of the Company, and the Company or any Guarantor have irrevocably
deposited or caused to be deposited with the Trustee as trust funds in
trust solely for the benefit of the Holders, cash in U.S. dollars,
non-callable Government Securities, or a combination of cash in U.S.
dollars and non-callable Government Securities, in amounts as will be
sufficient without consideration of any reinvestment of interest, to pay
and discharge the entire Indebtedness on the Notes not delivered to the
Trustee for cancellation for principal and premium, if any, and accrued
but unpaid interest to the date of maturity or redemption;

(2) no Default of Event of Default has occurred and is continuing on
the date of the deposit or will occur as a result of the deposit and the
deposit will not result in a breach or violation of, or constitute a
default under, any other material instrument to which the Company is a
party or by which the Company is bound;

(3) the Company has paid or caused to be paid all sums payable by it
under this Indenture; and

(4) the Company or any Guarantor have delivered irrevocable
instructions to the Trustee under this Indenture to apply the deposited
money toward the payment of the Notes at maturity or the redemption date,
as the case may be.

In addition, the Company must deliver an Officers' Certificate and an Opinion of
Counsel to the Trustee stating that all conditions precedent to satisfaction and
discharge have been satisfied.

Notwithstanding the satisfaction and discharge of this Indenture, if money
has been deposited with the Trustee pursuant to subclause (b) of clause (1) of
this Section 11.01, the provisions of Sections 11.02 and 8.06 hereof will
survive. In addition, nothing in this Section 11.01 will be deemed to discharge
those provisions of Section 7.07 hereof, that, by their terms, survive the
satisfaction and discharge of this Indenture.

Section 11.02 Application of Trust Money.

73

Subject to the provisions of Section 8.06 hereof, all money deposited with
the Trustee pursuant to Section 11.01 hereof shall be held in trust and applied
by it, in accordance with the provisions of the Notes and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Persons
entitled thereto, of the principal (and premium and Liquidated Damages, if any)
and interest for whose payment such money has been deposited with the Trustee;
but such money need not be segregated from other funds except to the extent
required by law.

If the Trustee or Paying Agent is unable to apply any money or Government
Securities in accordance with Section 11.01 hereof by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's and any Guarantor's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 11.01 hereof; provided that if the Company has made any payment of
principal of, premium or Liquidated Damages, if any, or interest on, any Notes
because of the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Notes to receive such payment from the
money or Government Securities held by the Trustee or Paying Agent.

ARTICLE 12
MISCELLANEOUS

Section 12.01 Trust Indenture Act Controls.

If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA Section 318(c), the imposed duties will control.

Section 12.02 Notices.

Any notice or communication by the Company, any Guarantor or the Trustee
to the others is duly given if in writing and delivered in Person or by first
class mail (registered or certified, return receipt requested), facsimile
transmission or overnight air courier guaranteeing next day delivery, to the
others' address:

If to the Company and/or any Guarantor:

American Real Estate Partners, L.P.
American Real Estate Finance Corp.
100 South Bedford Road
Mt. Kisco, NY 10549
Facsimile No.: (914) 242-9282
Attention: Felicia P.
Buebel, Esq.

With a copy to:

Piper Rudnick LLP
1251 Avenue of the Americas
New York, New York 10020
Telecopier No.: (212) 835-6001
Attention: Steven L. Wasserman, Esq.

74

If to the Trustee:

Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Telecopier No.:(302) 636-4140
Attention: Michael G. Oller

With a copy to:
Curtis, Mallet-Prevost, Colt & Mosle LLP
101 Park Avenue
Suite 3500
New York, New York 10178
Telecopier No.:(212) 697-1559
Attention: Kathryn Alisbah, Esq.
Steven J. Reisman, Esq.

The Company, any Guarantor or the Trustee, by notice to the others, may
designate additional or different addresses for subsequent notices or
communications.

All notices and communications (other than those sent to Holders) will be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when receipt acknowledged, if transmitted by facsimile; and
the next Business Day after timely delivery to the courier, if sent by overnight
air courier guaranteeing next day delivery.

Any notice or communication to a Holder will be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication will also be so mailed to any
Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it will
not affect its sufficiency with respect to other Holders.

If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.

If the Company mails a notice or communication to Holders, it will mail a
copy to the Trustee and each Agent at the same time.

Section 12.03 Communication by Holders of Notes with Other Holders of Notes.

Holders may communicate pursuant to TIA Section 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and anyone else shall have the protection of TIA Section
312(c).

Section 12.04 Certificate and Opinion as to Conditions Precedent.

Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:

75

(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which must include the statements set forth
in Section 12.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and

(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which must include the statements set forth
in Section 12.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.

Section 12.05 Statements Required in Certificate or Opinion.

Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) must comply with the provisions of TIA
Section 314(e) and must include:

(1) a statement that the Person making such certificate or opinion
has read such covenant or condition;

(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;

(3) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him or
her to express an informed opinion as to whether or not such covenant or
condition has been satisfied; and

(4) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.

Section 12.06 Rules by Trustee and Agents.

The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.

Section 12.07 No Personal Liability of Directors, Officers, Employees and
Stockholders.

No director, officer, employee, incorporator, manager (or managing member)
direct or indirect member, partner or stockholder of the Company, AREH, API or
any additional Guarantor shall have any liability for any obligations of the
Company, AREH, API or any additional Guarantor under the Notes, this Indenture,
any Note Guarantee or for any claim based on, in respect of, or by reason of
such obligations or its creation. Each Holder of the Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.

Section 12.08 Governing Law.

THE INTERNAL LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES WITHOUT GIVING EFFECT
TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION
OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

Section 12.09 No Adverse Interpretation of Other Agreements.

76

This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.

Section 12.10 Successors.

All agreements of the Trustee in this Indenture will bind its successors.
All agreements of each Guarantor in this Indenture will bind its successors,
except as otherwise provided in Sections 5.01 and 10.05 hereof.

Section 12.11 Severability.

In case any provision in this Indenture, the Note Guarantees or in the
Notes is invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions will not in any way be affected or
impaired thereby.

Section 12.12 Counterpart Originals.

The parties may sign any number of copies of this Indenture. Each signed
copy will be an original, but all of them together represent the same agreement.

Section 12.13 Table of Contents, Headings, etc.

The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part of this Indenture and will in no way
modify or restrict any of the terms or provisions hereof.

Section 12.14 Clarity.

For the avoidance of doubt, the inclusion of exceptions to the provisions
(including covenants and definitions) set forth in this Indenture will not be
interpreted to imply that the matters permitted by the exception would be
limited by the terms of such provisions but for such exceptions.

[Signatures on following page]

77

SIGNATURES

Dated as of May 12, 2004

AMERICAN REAL ESTATE  PARTNERS L.P.

By: American Property Investors, Inc.,
its general partner

By: /s/ Keith A. Meister
-----------------------------------
Name:  Keith A. Meister
Title: President and Chief
Executive Officer

AMERICAN REAL ESTATE  FINANCE CORP.

By: /s/  Keith A. Meister
-----------------------------------
Name:  Keith A. Meister
Title: President and Chief
Executive Officer

AMERICAN REAL ESTATE HOLDINGS LIMITED
PARTNERSHIP

By: American Property Investors, Inc.,
its general partner

By: /s/  Keith A. Meister
-----------------------------------
Name:  Keith A. Meister
Title: President and Chief
Executive Officer

WILMINGTON TRUST COMPANY

By: /s/  Michael G. Oller, Jr.
-----------------------------------
Name:  Michael G. Oller, Jr.
Title: Senior Financial Services
Officer

EXHIBIT A1

[Face of Note]

CUSIP/CINS ____________

8-1/8% Senior Notes due 2012

No. ___                                                            $____________

AMERICAN REAL ESTATE PARTNERS, L.P.
AMERICAN REAL ESTATE FINANCE CORP.

promises to pay to ___________ or registered assigns,

the principal sum of __________________________________________________________
DOLLARS on June 1, 2012.

Interest Payment Dates: June 1 and December 1

Record Dates: May 15 and November 15

Dated:

AMERICAN REAL ESTATE PARTNERS, L.P.

By: American Property Investors, Inc.,
its general partner

By: ___________________________________
Name:
Title:

AMERICAN REAL ESTATE FINANCE CORP.

By: ___________________________________
Name:
Title:

This is one of the Notes referred to
in the within-mentioned Indenture:

WILMINGTON TRUST COMPANY,
as Trustee

By: _______________________________
Authorized Signatory

A1-1

[Back of Note]
8-1/8% Senior Notes due 2012

[Insert the Global Note Legend, if applicable pursuant to the provisions of the
Indenture]

[Insert the Private Placement Legend, if applicable pursuant to the provisions
of the Indenture]

Capitalized terms used herein have the meanings assigned to them in the
Indenture referred to below unless otherwise indicated.

(1) INTEREST. American Real Estate Partners, L.P., a Delaware
limited partnership ("AREP") and American Real Estate Finance Corp. ("AREP
Finance", together with AREP, the "Company"), promises to pay interest on
the principal amount of this Note at 8-1/8% per annum from
________________, 20__ until maturity and shall pay the Liquidated
Damages, if any, payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company will pay interest and Liquidated
Damages, if any, semi-annually in arrears on June 1 and December 1 of each
year, or if any such day is not a Business Day, on the next succeeding
Business Day (each, an "Interest Payment Date"). Interest on the Notes
will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from the date of issuance; provided that if
there is no existing Default in the payment of interest, and if this Note
is authenticated between a record date referred to on the face hereof and
the next succeeding Interest Payment Date, interest shall accrue from such
next succeeding Interest Payment Date; provided further that the first
Interest Payment Date shall be _____________, 20__. The Company will pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to
time on demand at a rate that is 1% per annum in excess of the rate then
in effect to the extent lawful; it will pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest and Liquidated Damages, if any, (without
regard to any applicable grace periods) from time to time on demand at the
same rate to the extent lawful. Interest will be computed on the basis of
a 360-day year of twelve 30-day months.

(2) METHOD OF PAYMENT. The Company will pay or cause to pay interest
on the Notes (except defaulted interest) and Liquidated Damages, if any,
to the Persons who are registered Holders of Notes at the close of
business on the May 15 or November 15 next preceding the Interest Payment
Date, even if such Notes are canceled after such record date and on or
before such Interest Payment Date, except as provided in Section 2.12 of
the Indenture with respect to defaulted interest. The Notes will be
payable as to principal, premium and Liquidated Damages, if any, and
interest at the office or agency of the Company maintained for such
purpose within or without the City and State of New York, or, at the
option of the Company, payment of interest and Liquidated Damages, if any,
may be made by check mailed to the Holders at their addresses set forth in
the register of Holders; provided that payment by wire transfer of
immediately available funds will be required with respect to principal of
and interest, premium and Liquidated Damages, if any, on, all Global Notes
and all other Notes the Holders of which will have provided wire transfer
instructions to the Company or the Paying Agent. Such payment will be in
such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.

(3) PAYING AGENT AND REGISTRAR. Initially, Wilmington Trust Company,
the Trustee under the Indenture, will act as Paying Agent and Registrar.
The Company may change any

A1-2

Paying Agent or Registrar without notice to any Holder. The Company or any
of its Subsidiaries may act in any such capacity.

(4) INDENTURE. The Company issued the Notes under an Indenture dated
as of May 12, 2004 (the "Indenture") among the Company, the Guarantor and
the Trustee. The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the TIA. The Notes
are subject to all such terms, and Holders are referred to the Indenture
and such Act for a statement of such terms. To the extent any provision of
this Note conflicts with the express provisions of the Indenture, the
provisions of the Indenture shall govern and be controlling. The Notes are
unsecured obligations of the Company.

(5) OPTIONAL REDEMPTION.

(a) Except as set forth in subparagraph (b) of this Paragraph 5, the
Company will not have the option to redeem the Notes prior to June 1, 2008. On
or after June 1, 2008, the Company will have the option to redeem all or a part
of the Notes upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest and Liquidated Damages, if any, on the Notes
redeemed to the applicable redemption date, if redeemed during the twelve-month
period beginning on June 1 of the years indicated below, subject to the rights
of Holders on the relevant record date to receive interest on the relevant
interest payment date:

Year                                                                                      Percentage
----                                                                                      ----------

2008.............................................................................          104.063%
2009.............................................................................          102.031%
2010 and thereafter..............................................................          100.000%

Unless the Company defaults in the payment of the redemption price,
interest will cease to accrue on the Notes or portions thereof called for
redemption on the applicable redemption date.

(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph
5, at any time prior to June 1, 2007, the Company may on one or more occasions
redeem up to 35% of the aggregate principal amount of Notes (including
Additional Notes) issued under the Indenture at a redemption price of 108.125%
of the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the redemption date, with the net cash proceeds of one or
more Equity Offerings; provided that at least 65% of the aggregate principal
amount of Notes issued under the Indenture remains outstanding immediately after
the occurrence of such redemption (excluding Notes held by AREP and its
Subsidiaries (including any Guarantor)) and such redemption occurs within 60
days of the date of the closing of such Equity Offering.

(6) MANDATORY REDEMPTION.

Other than in connection with redemption pursuant to Gaming Laws, the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.

(7) REDEMPTION PURSUANT TO GAMING LAWS

If any Gaming Authority requires that a Holder or Beneficial Owner of
Notes be licensed, qualified or found suitable under any applicable Gaming Law
and such Holder or Beneficial Owner:

A1-3

(1) fails to apply for a license, qualification or a finding of
suitability within 30 days (or such shorter period as may be required by the
applicable Gaming Authority) after being requested to do so by the Gaming
Authority; or

(2) is denied such license or qualification or not found suitable;

AREP shall then have the right, at its option:

(1) to require each such Holder or Beneficial Owner to dispose of its
Notes within 30 days (or such earlier date as may be required by the applicable
Gaming Authority) of the occurrence of the event described in clause (1) or (2)
above, or

(2) to redeem the Notes of each such Holder or Beneficial Owner, in
accordance with Rule 14e-1 of the Exchange Act, if applicable, at a redemption
price equal to the lowest of:

(a) the principal amount thereof, together with accrued and unpaid
interest and Liquidated Damages, if any, to the earlier of the date of
redemption, the date 30 days after such Holder or Beneficial Owner is required
to apply for a license, qualification or finding of suitability (or such shorter
period that may be required by any applicable Gaming Authority) if such Holder
or Beneficial Owner fails to do so ("Application Date") or of the date of denial
of license or qualification or of the finding of unsuitability by such Gaming
Authority;

(b) the price at which such Holder or Beneficial Owner acquired the Notes,
together with accrued and unpaid interest and Liquidated Damages, if any, to the
earlier of the date of redemption, the Application Date or the date of the
denial of license or qualification or of the finding of unsuitability by such
Gaming Authority; and

(c) such other lesser amount as may be required by any Gaming Authority.

Immediately upon a determination by a Gaming Authority that a Holder or
Beneficial Owner of the Notes will not be licensed, qualified or found suitable
and must dispose of the Notes, the Holder or Beneficial Owner will, to the
extent required by applicable Gaming Laws, have no further right:

(1) to exercise, directly or indirectly, through any trustee or nominee or
any other person or entity, any right conferred by the Notes, the Note Guarantee
or the Indenture; or

(2) to receive any interest, Liquidated Damages, dividend, economic
interests or any other distributions or payments with respect to the Notes and
the Note Guarantee or any remuneration in any form with respect to the Notes and
the Note Guarantee from the Company, any Note Guarantor or the Trustee, except
the redemption price referred to above.

AREP shall notify the Trustee in writing of any such redemption as soon as
practicable. Any Holder or Beneficial Owner that is required to apply for a
license, qualification or a finding of suitability will be responsible for all
fees and costs of applying for and obtaining the license, qualification or
finding of suitability and of any investigation by the applicable Gaming
Authorities and the Company and any Note Guarantor will not reimburse any Holder
or Beneficial Owner for such expense.

(8) REPURCHASE AT THE OPTION OF HOLDER.

(a) If there is a Change of Control, the Company will be
required to make an offer (a "Change of Control Offer") to each Holder to
repurchase all or any part (equal to $1,000

A1-4

or an integral multiple thereof) of each Holder's Notes at a purchase
price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
date of purchase, subject to the rights of Holders on the relevant record
date to receive interest due on the relevant interest payment date (the
"Change of Control Payment"). Within 30 days following any Change of
Control, the Company will mail a notice to each Holder setting forth the
procedures governing the Change of Control Offer as required by the
Indenture.

(9) NOTICE OF REDEMPTION. Notice of redemption will be mailed at
least 15 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address, except
that redemption notices may be mailed more than 60 days prior to a
redemption date if the notice is issued in connection with a defeasance of
the Notes or a satisfaction or discharge of the Indenture. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed.

(10) DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged
as provided in the Indenture. The Registrar and the Trustee may require a
Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes
and fees required by law or permitted by the Indenture. The Company need
not exchange or register the transfer of any Note or portion of a Note
selected for redemption, except for the unredeemed portion of any Note
being redeemed in part. Also, the Company need not exchange or register
the transfer of any Notes for a period of 15 days before a selection of
Notes to be redeemed or during the period between a record date and the
corresponding Interest Payment Date.

(11) PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.

(12) AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture or the Notes or the Note Guarantees may be
amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount of the then outstanding Notes
including Additional Notes, if any, voting as a single class, and any
existing Default or Event or Default or compliance with any provision of
the Indenture or the Notes or the Note Guarantees may be waived with the
consent of the Holders of a majority in aggregate principal amount of the
then outstanding Notes including Additional Notes, if any, voting as a
single class. Without the consent of any Holder of a Note, the Indenture
or the Notes or the Note Guarantees may be amended or supplemented to cure
any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's or a Guarantor's obligations to Holders of the
Notes and Note Guarantees in case of a merger or consolidation, to make
any change that would provide any additional rights or benefits to the
Holders of the Notes or that does not adversely affect the legal rights
under the Indenture of any such Holder, to comply with the requirements of
the SEC in order to effect or maintain the qualification of the Indenture
under the TIA, to conform the text of the Indenture or the Notes to any
provision of the "Description of Notes" section of the Company's Offering
Memorandum dated May 6, 2004, as supplemented, relating to the initial
offering of the Notes, to the extent that such provision in that
"Description of Notes" was intended to be a verbatim recitation of a
provision of the Indenture, the Note Guarantees or the Notes; to provide
for the issuance of Additional Notes in accordance with the limitations
set forth in the Indenture, or to

A1-5

allow any Guarantor to execute a supplemental indenture to the Indenture
and/or a Note Guarantee with respect to the Notes.

(13) DEFAULTS AND REMEDIES. Events of Default include: (i) default
for 30 days in the payment when due of interest on, or Liquidated Damages,
if any, with respect to the Notes, whether or not prohibited by the
subordination provisions of the Indenture; (ii) default in the payment
when due of the principal of, or premium, if any, on, the Notes when the
same becomes due and payable at maturity, upon redemption (including in
connection with an offer to purchase) or otherwise, (iii) failure by the
Company to comply with Section 4.15, of the Indenture; (iv) failure by the
Company or any Guarantor to comply with Sections 4.07, 4.09, 4.16 or 4.17
for 30 days after written notice from the Trustee, (v) failure by the
Company or any Guarantor for 60 days after written notice to the Company
by the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes including Additional Notes, if any, then outstanding
voting as a single class to comply with any of the other agreements in the
Indenture or the Notes; (vi) default under certain other agreements
relating to Indebtedness of the Company or any Guarantor which default
results in the acceleration of such Indebtedness prior to its express
maturity; (vii) certain final judgments for the payment of money that
remain undischarged for a period of 60 days; (viii) certain events of
bankruptcy or insolvency with respect to the Company or any Guarantor that
is a Significant Subsidiary and (ix) except as permitted by the Indenture,
any Note Guarantee is held in any judicial proceeding to be unenforceable
or invalid or ceases for any reason to be in full force and effect or AREH
or any other Guarantor or any Person acting on behalf of any Guarantor
denies or disaffirms its obligations under such Guarantor's Note
Guarantee. If any Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in aggregate principal amount of the then
outstanding Notes may declare all the Notes to be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency, all
outstanding Notes will become due and payable immediately without further
action or notice. Holders may not enforce the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in aggregate principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of
Default relating to the payment of principal or interest or premium or
Liquidated Damages, if any,) if it determines that withholding notice is
in their interest. The Holders of a majority in aggregate principal amount
of the then outstanding Notes by notice to the Trustee may, on behalf of
the Holders of all of the Notes, rescind an acceleration or waive any
existing Default or Event of Default and its consequences under the
Indenture except a continuing Default or Event of Default in the payment
of interest or premium or Liquidated Damages, if any, on, or the principal
of, the Notes. The Company is required to deliver to the Trustee annually
a statement regarding compliance with the Indenture, and the Company is
required, upon becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of
Default.

(14) TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal
with the Company or its Affiliates, as if it were not the Trustee.

(15) NO RECOURSE AGAINST OTHERS. A director, officer, manager (or
managing member), direct or indirect member, partner, employee,
incorporator or stockholder of the Company API, or the general partner of
the Company or any Guarantor or any of the Guarantors, as such, will not
have any liability for any obligations of the Company or the Guarantors
under the Notes, the Note Guarantees or the Indenture or for any claim
based on, in respect of, or by

A1-6

reason of, such obligations or their creation. Each Holder by accepting a
Note waives and releases all such liability. The waiver and release are
part of the consideration for the issuance of the Notes.

(16) AUTHENTICATION. This Note will not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.

(17) ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).

(18) ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders
of Notes under the Indenture, Holders of Restricted Global Notes and
Restricted Definitive Notes will have all the rights set forth in the
Registration Rights Agreement dated as of May 12, 2004, among the Company,
the Guarantor and the other parties named on the signature pages thereof
or, in the case of Additional Notes, Holders of Restricted Global Notes
and Restricted Definitive Notes will have the rights set forth in one or
more registration rights agreements, if any, among the Company, the
Guarantor and the other parties thereto, relating to rights given by the
Company and the Guarantor to the purchasers of any Additional Notes
(collectively, the "Registration Rights Agreement").

(19) CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes, and the Trustee may use
CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as
printed on the Notes or as contained in any notice of redemption, and
reliance may be placed only on the other identification numbers placed
thereon.

(20) GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK WILL
GOVERN AND BE USED TO CONSTRUE THE INDENTURE, THIS NOTE AND THE NOTE
GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF
LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION
WOULD BE REQUIRED THEREBY.

The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:

American Real Estate Partners, L.P.
American Real Estate Finance Corp.
100 South Bedford Road
Mt. Kisco, NY 10549
Facsimile No.: (914) 242-9282
Attention: Felicia P. Buebel, Esq.

A1-7

ASSIGNMENT FORM

To assign this Note, fill in the form below:

(I) or (we) assign and transfer this Note to:___________________________________
(Insert assignee's legal name)

________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________
(Print or type assignee's name, address and zip code)

and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company.  The agent may substitute
another to act for him.

Date:  _______________

Your Signature:________________________
(Sign exactly as your name appears
on the face of this Note)

Signature Guarantee*:  _____________________

* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).

A1-8

OPTION OF HOLDER TO ELECT PURCHASE

If you want to elect to have this Note purchased by the Company pursuant
to Section 4.15 of the Indenture, check the box below:

Section 4.15

If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.15 of the Indenture, state the amount you elect to
have purchased:

$________________

Date:  _______________

Your Signature:________________________
(Sign exactly as your name appears on
the face of this Note)

Tax Identification No.:________________

Signature Guarantee*:  ____________________

* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).

A1-9

SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE *

The following exchanges of a part of this Global Note for an interest in
another Global Note or for a Definitive Note, or exchanges of a part of another
Global Note or Definitive Note for an interest in this Global Note, have been
made:

Principal Amount
Amount of decrease    Amount of increase in    at maturity of this        Signature of
in Principal Amount      Principal Amount     Global Note following     authorized officer
at maturity of          at maturity of         such  decrease           of Trustee or
Date of Exchange        this Global Note        this Global Note         (or increase)             Custodian
----------------       -------------------   ---------------------   ---------------------     ------------------ 

* This schedule should be included only if the Note is issued in global form.

A1-10

EXHIBIT A2

[Face of Regulation S Temporary Global Note]

CUSIP/CINS __________

8-1/8% Senior Notes due 2012

No. ___                                                              $__________

AMERICAN REAL ESTATE PARTNERS, L.P.
AMERICAN REAL ESTATE FINANCE CORP.

promises to pay to CEDE & CO. or registered assigns,

the principal sum of ____________________________________________________DOLLARS
on June 1, 2012.

Interest Payment Dates:  June 1 and December 1

Record Dates:  May 15 and November 15

Dated:

AMERICAN REAL ESTATE PARTNERS, L.P.

By: American Property Investors, Inc.,
its general partner

By:____________________________________
Name:
Title:

AMERICAN REAL ESTATE FINANCE CORP.

By:____________________________________
Name:
Title:

This is one of the Notes referred to 
in the within-mentioned Indenture:

WILMINGTON TRUST COMPANY,
as Trustee

By: ______________________________
Authorized Signatory

A2-1

[Back of Regulation S Temporary Global Note]
8-1/8% Senior Notes due 2012

THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON.

THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED
IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS
GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR
DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF AMERICAN REAL ESTATE PARTNERS, L.P.

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND THE SECURITY
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE
BENEFIT OF American REal Estate Partners, L.P. AND AMERICAN REAL ESTATE FINANCE
CORP. THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY (1) (a) IN THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES
IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) OUTSIDE THE
UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE

A2-2

SECURITIES ACT, (c) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER
THE SECURITIES ACT, (d) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN
RULE 501 (a) (1), (2), (3) OR (7) OF THE SECURITIES ACT) THAT, PRIOR TO SUCH
TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH CAN BE OBTAINED FROM THE
TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF
NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO AMERICAN REAL
ESTATE PARTNERS, L.P. THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES
ACT OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF
AMERICAN REAL ESTATE PARTNERS, L.P. SO REQUESTS), (2) TO AMERICAN REAL ESTATE
PARTNERS, L.P. OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND
EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE
SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.

Capitalized terms used herein have the meanings assigned to them in the
Indenture referred to below unless otherwise indicated.

(1) INTEREST. American Real Estate Partners, L.P., a Delaware
limited partnership ("AREP") and American Real Estate Finance Corp. ("AREP
Finance", together with AREP, the "Company"), promises to pay interest on
the principal amount of this Note at 8-1/8% per annum from
________________, 20__ until maturity and shall pay the Liquidated
Damages, if any, payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company will pay interest and Liquidated
Damages, if any, semi-annually in arrears on June 1 and December 1 of each
year, or if any such day is not a Business Day, on the next succeeding
Business Day (each, an "Interest Payment Date"). Interest on the Notes
will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from the date of issuance; provided that if
there is no existing Default in the payment of interest, and if this Note
is authenticated between a record date referred to on the face hereof and
the next succeeding Interest Payment Date, interest shall accrue from such
next succeeding Interest Payment Date; provided further that the first
Interest Payment Date shall be _____________, 20__. The Company will pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to
time on demand at a rate that is 1% per annum in excess of the rate then
in effect to the extent lawful; it will pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest and Liquidated Damages, if any, (without
regard to any applicable grace periods) from time to time on demand at the
same rate to the extent lawful. Interest will be computed on the basis of
a 360-day year of twelve 30-day months.

Until this Regulation S Temporary Global Note is exchanged for one or more
Regulation S Permanent Global Notes, the Holder hereof shall not be entitled to
receive payments of interest hereon; until so exchanged in full, this Regulation
S Temporary Global Note shall in all other respects be entitled to the same
benefits as other Notes under the Indenture.

(2) METHOD OF PAYMENT. The Company will pay or cause to pay interest
on the Notes (except defaulted interest) and Liquidated Damages, if any,
to the Persons who are registered Holders of Notes at the close of
business on the May 15 or November 15 next preceding the

A2-3

Interest Payment Date, even if such Notes are canceled after such record
date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. The
Notes will be payable as to principal, premium and Liquidated Damages, if
any, and interest at the office or agency of the Company maintained for
such purpose within or without the City and State of New York, or, at the
option of the Company, payment of interest and Liquidated Damages, if any,
may be made by check mailed to the Holders at their addresses set forth in
the register of Holders; provided that payment by wire transfer of
immediately available funds will be required with respect to principal of
and interest, premium and Liquidated Damages, if any, on, all Global Notes
and all other Notes the Holders of which will have provided wire transfer
instructions to the Company or the Paying Agent. Such payment will be in
such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.

(3) PAYING AGENT AND REGISTRAR. Initially, Wilmington Trust Company,
the Trustee under the Indenture, will act as Paying Agent and Registrar.
The Company may change any Paying Agent or Registrar without notice to any
Holder. The Company or any of its Subsidiaries may act in any such
capacity.

(4) INDENTURE. The Company issued the Notes under an Indenture dated
as of May 12, 2004 (the "Indenture") among the Company, the Guarantor and
the Trustee. The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the TIA. The Notes
are subject to all such terms, and Holders are referred to the Indenture
and such Act for a statement of such terms. To the extent any provision of
this Note conflicts with the express provisions of the Indenture, the
provisions of the Indenture shall govern and be controlling. The Notes are
unsecured obligations of the Company.

(5) OPTIONAL REDEMPTION.

(a) Except as set forth in subparagraph (b) of this Paragraph
5, the Company will not have the option to redeem the Notes prior to June
1, 2008. On or after June 1, 2008, the Company will have the option to
redeem all or a part of the Notes upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages, if any, on the Notes redeemed to the applicable
redemption date, if redeemed during the twelve-month period beginning on
June 1 of the years indicated below, subject to the rights of Holders on
the relevant record date to receive interest on the relevant interest
payment date:

Year                                                                                      Percentage
----                                                                                      ----------

2008.............................................................................          104.063%
2009.............................................................................          102.031%
2010 and thereafter..............................................................          100.000%

Unless the Company defaults in the payment of the redemption price,
interest will cease to accrue on the Notes or portions thereof called for
redemption on the applicable redemption date.

(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, at any time prior to June 1, 2007, the Company may on one or
more occasions redeem up to 35% of the aggregate principal amount of Notes
(including Additional Notes) issued under the Indenture at a redemption
price of 108.125% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the redemption date, with the
net cash proceeds of one or more Equity Offerings; provided that at least
65% of the aggregate principal amount of

A2-4

Notes issued under the Indenture remains outstanding immediately after the
occurrence of such redemption (excluding Notes held by AREP and its
Subsidiaries (including any Guarantor)) and such redemption occurs within
60 days of the date of the closing of such Equity Offering.

(6) MANDATORY REDEMPTION.

Other than in connection with redemption pursuant to Gaming Laws, the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.

(7) REDEMPTION PURSUANT TO GAMING LAWS

If any Gaming Authority requires that a Holder or Beneficial Owner of
Notes be licensed, qualified or found suitable under any applicable Gaming Law
and such Holder or Beneficial Owner:

(1) fails to apply for a license, qualification or a finding of
suitability within 30 days (or such shorter period as may be required by the
applicable Gaming Authority) after being requested to do so by the Gaming
Authority; or

(2) is denied such license or qualification or not found suitable;

AREP shall then have the right, at its option:

(1) to require each such Holder or Beneficial Owner to dispose of its
Notes within 30 days (or such earlier date as may be required by the applicable
Gaming Authority) of the occurrence of the event described in clause (1) or (2)
above, or

(2) to redeem the Notes of each such Holder or Beneficial Owner, in
accordance with Rule 14e-1 of the Exchange Act, if applicable, at a redemption
price equal to the lowest of:

(a) the principal amount thereof, together with accrued and unpaid
interest and Liquidated Damages, if any, to the earlier of the date of
redemption, the date 30 days after such Holder or Beneficial Owner is required
to apply for a license, qualification or finding of suitability (or such shorter
period that may be required by any applicable Gaming Authority) if such Holder
or Beneficial Owner fails to do so ("Application Date") or of the date of denial
of license or qualification or of the finding of unsuitability by such Gaming
Authority;

(b) the price at which such Holder or Beneficial Owner acquired the Notes,
together with accrued and unpaid interest and Liquidated Damages, if any, to the
earlier of the date of redemption, the Application Date or the date of the
denial of license or qualification or of the finding of unsuitability by such
Gaming Authority; and

(c) such other lesser amount as may be required by any Gaming Authority.

Immediately upon a determination by a Gaming Authority that a Holder or
Beneficial Owner of the Notes will not be licensed, qualified or found suitable
and must dispose of the Notes, the Holder or Beneficial Owner will, to the
extent required by applicable Gaming Laws, have no further right:

(1) to exercise, directly or indirectly, through any trustee or nominee or
any other person or entity, any right conferred by the Notes, the Note Guarantee
or the Indenture; or

A2-5

(2) to receive any interest, Liquidated Damages, dividend, economic
interests or any other distributions or payments with respect to the Notes and
the Note Guarantee or any remuneration in any form with respect to the Notes and
the Note Guarantee from the Company, any Note Guarantor or the Trustee, except
the redemption price referred to above.

AREP shall notify the Trustee in writing of any such redemption as soon as
practicable. Any Holder or Beneficial Owner that is required to apply for a
license, qualification or a finding of suitability will be responsible for all
fees and costs of applying for and obtaining the license, qualification or
finding of suitability and of any investigation by the applicable Gaming
Authorities and the Company and any Note Guarantor will not reimburse any Holder
or Beneficial Owner for such expense.

(8) REPURCHASE AT THE OPTION OF HOLDER.

(a) If there is a Change of Control, the Company will be
required to make an offer (a "Change of Control Offer") to each Holder to
repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of each Holder's Notes at a purchase price in cash equal to 101%
of the aggregate principal amount thereof plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of purchase, subject
to the rights of Holders on the relevant record date to receive interest
due on the relevant interest payment date (the "Change of Control
Payment"). Within 30 days following any Change of Control, the Company
will mail a notice to each Holder setting forth the procedures governing
the Change of Control Offer as required by the Indenture.

(9) NOTICE OF REDEMPTION. Notice of redemption will be mailed at
least 15 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address, except
that redemption notices may be mailed more than 60 days prior to a
redemption date if the notice is issued in connection with a defeasance of
the Notes or a satisfaction or discharge of the Indenture. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed.

(10) DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged
as provided in the Indenture. The Registrar and the Trustee may require a
Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes
and fees required by law or permitted by the Indenture. The Company need
not exchange or register the transfer of any Note or portion of a Note
selected for redemption, except for the unredeemed portion of any Note
being redeemed in part. Also, the Company need not exchange or register
the transfer of any Notes for a period of 15 days before a selection of
Notes to be redeemed or during the period between a record date and the
corresponding Interest Payment Date.

This Regulation S Temporary Global Note is exchangeable in whole or in
part for one or more Global Notes only (i) on or after the termination of the
40-day distribution compliance period (as defined in Regulation S) and (ii) upon
presentation of certificates (accompanied by an Opinion of Counsel, if
applicable) required by Article 2 of the Indenture. Upon exchange of this
Regulation S Temporary Global Note for one or more Global Notes, the Trustee
shall cancel this Regulation S Temporary Global Note.

A2-6

(11) PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.

(12) AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture or the Notes or the Note Guarantees may be
amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount of the then outstanding Notes
including Additional Notes, if any, voting as a single class, and any
existing Default or Event or Default or compliance with any provision of
the Indenture or the Notes or the Note Guarantees may be waived with the
consent of the Holders of a majority in aggregate principal amount of the
then outstanding Notes including Additional Notes, if any, voting as a
single class. Without the consent of any Holder of a Note, the Indenture
or the Notes or the Note Guarantees may be amended or supplemented to cure
any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's or a Guarantor's obligations to Holders of the
Notes and Note Guarantees in case of a merger or consolidation, to make
any change that would provide any additional rights or benefits to the
Holders of the Notes or that does not adversely affect the legal rights
under the Indenture of any such Holder, to comply with the requirements of
the SEC in order to effect or maintain the qualification of the Indenture
under the TIA, to conform the text of the Indenture or the Notes to any
provision of the "Description of Notes" section of the Company's Offering
Memorandum dated May 6, 2004, as supplemented, relating to the initial
offering of the Notes, to the extent that such provision in that
"Description of Notes" was intended to be a verbatim recitation of a
provision of the Indenture, the Note Guarantees or the Notes; to provide
for the issuance of Additional Notes in accordance with the limitations
set forth in the Indenture, or to allow any Guarantor to execute a
supplemental indenture to the Indenture and/or a Note Guarantee with
respect to the Notes.

(13) DEFAULTS AND REMEDIES. Events of Default include: (i) default
for 30 days in the payment when due of interest on, or Liquidated Damages,
if any, with respect to the Notes, whether or not prohibited by the
subordination provisions of the Indenture; (ii) default in the payment
when due of the principal of, or premium, if any, on, the Notes when the
same becomes due and payable at maturity, upon redemption (including in
connection with an offer to purchase) or otherwise, (iii) failure by the
Company to comply with Section 4.15, of the Indenture; (iv) failure by the
Company or any Guarantor to comply with Sections 4.07, 4.09, 4.16 or 4.17
for 30 days after written notice from the Trustee, (v) failure by the
Company or any Guarantor for 60 days after written notice to the Company
by the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes including Additional Notes, if any, then outstanding
voting as a single class to comply with any of the other agreements in the
Indenture or the Notes; (vi) default under certain other agreements
relating to Indebtedness of the Company or any Guarantor which default
results in the acceleration of such Indebtedness prior to its express
maturity; (vii) certain final judgments for the payment of money that
remain undischarged for a period of 60 days; (viii) certain events of
bankruptcy or insolvency with respect to the Company or any Guarantor that
is a Significant Subsidiary and (ix) except as permitted by the Indenture,
any Note Guarantee is held in any judicial proceeding to be unenforceable
or invalid or ceases for any reason to be in full force and effect or AREH
or any other Guarantor or any Person acting on behalf of any Guarantor
denies or disaffirms its obligations under such Guarantor's Note
Guarantee. If any Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in aggregate principal amount of the then
outstanding Notes may declare all the Notes to be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency, all
outstanding Notes will become due and payable immediately without further
action or notice. Holders may not enforce the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations,
Holders of a

A2-7

majority in aggregate principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or
Event of Default (except a Default or Event of Default relating to the
payment of principal or interest or premium or Liquidated Damages, if
any,) if it determines that withholding notice is in their interest. The
Holders of a majority in aggregate principal amount of the then
outstanding Notes by notice to the Trustee may, on behalf of the Holders
of all of the Notes, rescind an acceleration or waive any existing Default
or Event of Default and its consequences under the Indenture except a
continuing Default or Event of Default in the payment of interest or
premium or Liquidated Damages, if any, on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the
Trustee a statement specifying such Default or Event of Default.

(14) TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal
with the Company or its Affiliates, as if it were not the Trustee.

(15) NO RECOURSE AGAINST OTHERS. A director, officer, manager (or
managing member), direct or indirect member, partner, employee,
incorporator or stockholder of the Company API, or the general partner of
the Company or any Guarantor or any of the Guarantors, as such, will not
have any liability for any obligations of the Company or the Guarantors
under the Notes, the Note Guarantees or the Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.

(16) AUTHENTICATION. This Note will not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.

(17) ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).

(18) ADDITIONAL RIGHTS OF HOLDERS. In addition to the rights
provided to Holders of Notes under the Indenture, Holders of Restricted
Global Notes and Restricted Definitive Notes will have all the rights set
forth in the Registration Rights Agreement dated as of May 12, 2004, among
the Company, the Guarantor and the other parties named on the signature
pages thereof or, in the case of Additional Notes, Holders of Restricted
Global Notes and Restricted Definitive Notes will have the rights set
forth in one or more registration rights agreements, if any, among the
Company, the Guarantor and the other parties thereto, relating to rights
given by the Company and the Guarantor to the purchasers of any Additional
Notes (collectively, the "Registration Rights Agreement").

(19) CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes, and the Trustee may use
CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as
printed on the Notes or as contained in any notice of redemption, and
reliance may be placed only on the other identification numbers placed
thereon.

A2-8

(20) GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK WILL
GOVERN AND BE USED TO CONSTRUE THE INDENTURE, THIS NOTE AND THE NOTE
GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF
LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION
WOULD BE REQUIRED THEREBY.

The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:

American Real Estate Partners, L.P.
American Real Estate Finance Corp.
100 South Bedford Road
Mt. Kisco, NY 10549
Facsimile No.: (914) 242-9282
Attention: Felicia P. Buebel, Esq.

A2-9

ASSIGNMENT FORM

To assign this Note, fill in the form below:

(I) or (we) assign and transfer this Note to: __________________________________
(Insert assignee's legal name)

________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________
(Print or type assignee's name, address and zip code)

and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.

Date:  _______________

Your Signature: ______________________________
(Sign exactly as your name appears on the
face of this Note)

Signature Guarantee*:  _________________________

* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).

A2-10

OPTION OF HOLDER TO ELECT PURCHASE

If you want to elect to have this Note purchased by the Company pursuant
to Section 4.15 of the Indenture, check the box below:

Section 4.15

If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.15 of the Indenture, state the amount you elect to
have purchased:

$______________

Date:  _______________

Your Signature:_____________________________
(Sign exactly as your name appears on
the face of this Note)

Tax Identification No.:_____________________

Signature Guarantee*:  _____________________

* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).

A2-11

SCHEDULE OF EXCHANGES OF INTERESTS IN THE REGULATION S TEMPORARY GLOBAL NOTE

The following exchanges of a part of this Regulation S Temporary Global
Note for an interest in another Global Note, or exchanges of a part of another
other Restricted Global Note for an interest in this Regulation S Temporary
Global Note, have been made:

Principal Amount
Amount of decrease    Amount of increase in    at maturity of this            Signature of
in Principal Amount      Principal Amount     Global Note following        authorized officer
at maturity of          at maturity of          such decrease              of Trustee or
Date of Exchange        this Global Note        this Global Note         (or increase)                Custodian
----------------       -------------------   ---------------------   ---------------------        ------------------

A2-12

EXHIBIT B

FORM OF CERTIFICATE OF TRANSFER

American Real Estate Partners, L.P.
American Real Estate Finance Corp.
100 South Bedford Road
Mt. Kisco, NY 10549
Facsimile No.: (914) 242-9282
Attention: Felicia P. Buebel, Esq.

Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Telecopier No.:  (302) 636-4140
Attention:  Michael G. Oller

Re: 8 1/8% Senior Notes due 2012

Reference is hereby made to the Indenture, dated as of May 12, 2004 (the
"Indenture"), among American Real Estate Partners, L.P. ("AREP"), American Real
Estate Finance Corp. ("AREP Finance", together with AREP, the "Company"), the
Guarantor party thereto and Wilmington Trust Company, as trustee. Capitalized
terms used but not defined herein shall have the meanings given to them in the
Indenture.

___________________, (the "Transferor") owns and proposes to transfer the
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
to ___________________________ (the "Transferee"), as further specified in Annex
A hereto. In connection with the Transfer, the Transferor hereby certifies that:

[CHECK ALL THAT APPLY]

1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN
THE 144A GLOBAL NOTE OR A RESTRICTED DEFINITIVE NOTE PURSUANT TO RULE 144A. The
Transfer is being effected pursuant to and in accordance with Rule 144A under
the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly,
the Transferor hereby further certifies that the beneficial interest or
Definitive Note is being transferred to a Person that the Transferor reasonably
believes is purchasing the beneficial interest or Definitive Note for its own
account, or for one or more accounts with respect to which such Person exercises
sole investment discretion, and such Person and each such account is a
"qualified institutional buyer" within the meaning of Rule 144A in a transaction
meeting the requirements of Rule 144A, and such Transfer is in compliance with
any applicable blue sky securities laws of any state of the United States. Upon
consummation of the proposed Transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Note will be
subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the 144A Global Note and/or the Restricted Definitive Note and
in the Indenture and the Securities Act.

2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN
THE REGULATION S TEMPORARY GLOBAL NOTE, THE REGULATION S PERMANENT GLOBAL NOTE
OR A RESTRICTED DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being
effected pursuant to and in accordance with Rule 903 or Rule 904 under the
Securities Act and, accordingly, the Transferor hereby further certifies that
(i) the Transfer is not being made to a Person in the United States and (x) at
the time the buy order was

B-1

originated, the Transferee was outside the United States or such Transferor and
any Person acting on its behalf reasonably believed and believes that the
Transferee was outside the United States or (y) the transaction was executed in,
on or through the facilities of a designated offshore securities market and
neither such Transferor nor any Person acting on its behalf knows that the
transaction was prearranged with a buyer in the United States, (ii) no directed
selling efforts have been made in contravention of the requirements of Rule
903(b) or Rule 904(b) of Regulation S under the Securities Act (iii) the
transaction is not part of a plan or scheme to evade the registration
requirements of the Securities Act and (iv) if the proposed transfer is being
made prior to the expiration of the Restricted Period, the transfer is not being
made to a U.S. Person or for the account or benefit of a U.S. Person (other than
an Initial Purchaser). Upon consummation of the proposed transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will be subject to the restrictions on Transfer enumerated in
the Private Placement Legend printed on the Regulation S Permanent Global Note,
the Regulation S Temporary Global Note and/or the Restricted Definitive Note and
in the Indenture and the Securities Act.

3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN THE IAI GLOBAL NOTE OR A RESTRICTED DEFINITIVE NOTE PURSUANT TO ANY
PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The
Transfer is being effected in compliance with the transfer restrictions
applicable to beneficial interests in Restricted Global Notes and Restricted
Definitive Notes and pursuant to and in accordance with the Securities Act and
any applicable blue sky securities laws of any state of the United States, and
accordingly the Transferor hereby further certifies that (check one):

(a) [ ] such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;

or

(b) [ ] such Transfer is being effected to the Company or a
subsidiary thereof;

or

(c) [ ] such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with the
prospectus delivery requirements of the Securities Act;

or

(d) [ ] such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144, Rule
903 or Rule 904, and the Transferor hereby further certifies that it has
not engaged in any general solicitation within the meaning of Regulation D
under the Securities Act and the Transfer complies with the transfer
restrictions applicable to beneficial interests in a Restricted Global
Note or Restricted Definitive Notes and the requirements of the exemption
claimed, which certification is supported by (1) a certificate executed by
the Transferee in the form of Exhibit D to the Indenture and (2) if such
Transfer is in respect of a principal amount of Notes at the time of
transfer of less than $250,000, an Opinion of Counsel provided by the
Transferor or the Transferee (a copy of which the Transferor has attached
to this certification), to the effect that such Transfer is in compliance
with the Securities Act. Upon consummation of the proposed transfer in
accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the IAI
Global Note and/or the Restricted Definitive Notes and in the Indenture
and the Securities Act.

B-2

4. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN
AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE.

(a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is
being effected pursuant to and in accordance with Rule 144 under the Securities
Act and in compliance with the transfer restrictions contained in the Indenture
and any applicable blue sky securities laws of any state of the United States
and (ii) the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act. Upon consummation of the proposed Transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Definitive
Note will no longer be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the Restricted Global Notes, on Restricted
Definitive Notes and in the Indenture.

(b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is
being effected pursuant to and in accordance with Rule 903 or Rule 904 under the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any state of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.

(c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer
is being effected pursuant to and in compliance with an exemption from the
registration requirements of the Securities Act other than Rule 144, Rule 903 or
Rule 904 and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any State of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will not be subject to the restrictions on transfer enumerated
in the Private Placement Legend printed on the Restricted Global Notes or
Restricted Definitive Notes and in the Indenture.

This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.

__________________________________
[Insert Name of Transferor]

By:_______________________________
Name:
Title:

Dated: __________________

B-3

ANNEX A TO CERTIFICATE OF TRANSFER

1.    The Transferor owns and proposes to transfer the following:

[CHECK ONE OF (a) OR (b)]

(a) [ ] a beneficial interest in the:

(i)   [ ] 144A Global Note (CUSIP _________), or

(ii)  [ ] Regulation S Global Note (CUSIP _________), or

(iii) [ ] IAI Global Note (CUSIP _________); or

(b) [ ] a Restricted Definitive Note.

2.    After the Transfer the Transferee will hold:

[CHECK ONE]

(a) [ ] a beneficial interest in the:

(i)   [ ]  144A Global Note (CUSIP _________), or

(ii)  [ ] Regulation S Global Note (CUSIP _________), or

(iii) [ ] IAI Global Note (CUSIP _________); or

(iv)  [ ] Unrestricted Global Note (CUSIP _________); or

(b)  [ ] a Restricted Definitive Note; or

(c)  [ ] an Unrestricted Definitive Note,

in accordance with the terms of the Indenture.

B-4

EXHIBIT C

FORM OF CERTIFICATE OF EXCHANGE

American Real Estate Partners, L.P.
American Real Estate Finance Corp.
100 South Bedford Road
Mt. Kisco, NY 10549
Facsimile No.: (914) 242-9282
Attention: Felicia P. Buebel, Esq.

Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Telecopier No.:  (302) 636-4140
Attention:  Michael G. Oller

Re: 8 1/8% Senior Notes due 2012

(CUSIP ____________)

Reference is hereby made to the Indenture, dated as of May 12, 2004 (the
"Indenture"), among American Real Estate Partners, L.P. ("AREP"), American Real
Estate Finance Corp. ("AREP Finance", together with AREP, the "Company"), the
Guarantor party thereto and Wilmington Trust Company, as trustee. Capitalized
terms used but not defined herein shall have the meanings given to them in the
Indenture.

__________________________, (the "Owner") owns and proposes to exchange
the Note[s] or interest in such Note[s] specified herein, in the principal
amount of $____________ in such Note[s] or interests (the "Exchange"). In
connection with the Exchange, the Owner hereby certifies that:

1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A
RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN AN UNRESTRICTED GLOBAL NOTE

(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection
with the Exchange of the Owner's beneficial interest in a Restricted Global Note
for a beneficial interest in an Unrestricted Global Note in an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner's own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the Global
Notes and pursuant to and in accordance with the Securities Act of 1933, as
amended (the "Securities Act"), (iii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act and (iv) the beneficial interest in
an Unrestricted Global Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.

(b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for an Unrestricted
Definitive Note, the Owner hereby certifies (i) the Definitive Note is being
acquired for the Owner's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and

C-1

pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Definitive Note is being acquired in compliance with any applicable blue sky
securities laws of any state of the United States.

(c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL
INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Owner's Exchange
of a Restricted Definitive Note for a beneficial interest in an Unrestricted
Global Note, the Owner hereby certifies (i) the beneficial interest is being
acquired for the Owner's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to
Restricted Definitive Notes and pursuant to and in accordance with the
Securities Act, (iii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.

(d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.

2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN RESTRICTED GLOBAL NOTES

(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Note issued will continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the Indenture
and the Securities Act.

(b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL
INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange of the
Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE]
|_|144A Global Note, |_|Regulation S Global Note, |_|IAI Global Note with an
equal principal amount, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer and (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, and in compliance with any applicable blue sky securities
laws of any state of the United States. Upon consummation of the proposed
Exchange in accordance with the terms of the Indenture, the beneficial interest
issued will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the relevant Restricted Global Note and in the
Indenture and the Securities Act.

This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.

C-2

___________________________________
[Insert Name of Transferor]

By: _______________________________
Name:
Title:

Dated:  ______________________

C-3

EXHIBIT D

FORM OF CERTIFICATE FROM

ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR

American Real Estate Partners, L.P.
American Real Estate Finance Corp.
100 South Bedford Road
Mt. Kisco, NY 10549
Facsimile No.: (914) 242-9282
Attention: Felicia P. Buebel, Esq.

Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Telecopier No.:  (302) 636-4140
Attention:  Michael G. Oller

Re: 8 1/8% Senior Notes due 2012

Reference is hereby made to the Indenture, dated as of May 12, 2004 (the
"Indenture"), among American Real Estate Partners, L.P. ("AREP"), American Real
Estate Finance Corp. ("AREP Finance", together with AREP, the "Company"), the
Guarantor party thereto and Wilmington Trust Company, as trustee. Capitalized
terms used but not defined herein shall have the meanings given to them in the
Indenture.

In connection with our proposed purchase of $____________ aggregate
principal amount of:

(a) [ ] a beneficial interest in a Global Note, or

(b) [ ] a Definitive Note,

we confirm that:

1. We understand that any subsequent transfer of the Notes or any interest
therein is subject to certain restrictions and conditions set forth in the
Indenture and the undersigned agrees to be bound by, and not to resell, pledge
or otherwise transfer the Notes or any interest therein except in compliance
with, such restrictions and conditions and the Securities Act of 1933, as
amended (the "Securities Act").

2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes and any interest therein
may not be offered or sold except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are acting
as hereinafter stated, that if we should sell the Notes or any interest therein,
we will do so only (A) to the Company or any subsidiary thereof, (B) in
accordance with Rule 144A under the Securities Act to a "qualified institutional
buyer" (as defined therein), (C) to an institutional "accredited investor" (as
defined below) that, prior to such transfer, furnishes (or has furnished on its
behalf by a U.S. broker-dealer) to you and to the Company a signed letter
substantially in the form of this letter and, if such transfer is in respect of
a principal amount of Notes, at the time of transfer of less than $250,000, an
Opinion of Counsel in form reasonably acceptable to the Company to the effect
that such transfer is in compliance with the Securities Act, (D) outside the
United States in accordance with Rule 904 of Regulation S under the

D-1

EXHIBIT D

Securities Act, (E) pursuant to the provisions of Rule 144(k) under the
Securities Act or (F) pursuant to an effective registration statement under the
Securities Act, and we further agree to provide to any Person purchasing the
Definitive Note or beneficial interest in a Global Note from us in a transaction
meeting the requirements of clauses (A) through (E) of this paragraph a notice
advising such purchaser that resales thereof are restricted as stated herein.

D-2

3. We understand that, on any proposed resale of the Notes or beneficial
interest therein, we will be required to furnish to you and the Company such
certifications, legal opinions and other information as you and the Company may
reasonably require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Notes purchased by us will bear a
legend to the foregoing effect.

4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.

5. We are acquiring the Notes or beneficial interest therein purchased by
us for our own account or for one or more accounts (each of which is an
institutional "accredited investor") as to each of which we exercise sole
investment discretion.

You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.

______________________________________
[Insert Name of Accredited Investor]

By:__________________________________
Name:
Title:

Dated:  _____________________

D-3

EXHIBIT E

FORM OF NOTATION OF GUARANTEE

For value received, each Guarantor (which term includes any successor
Person under the Indenture) has, jointly and severally, unconditionally
guaranteed, to the extent set forth in the Indenture and subject to the
provisions in the Indenture dated as of May 12, 2004 (the "Indenture"), among
American Real Estate Partners, L.P. ("AREP"), American Real Estate Finance Corp.
("AREP Finance", together with AREP, the "Company"), the Guarantor party thereto
and Wilmington Trust Company, as trustee (the "Trustee"), (a) the due and
punctual payment of the principal of, premium and Liquidated Damages, if any,
and interest on, the Notes, whether at maturity, by acceleration, redemption or
otherwise, the due and punctual payment of interest on overdue principal of and
interest on the Notes, if any, if lawful, and the due and punctual performance
of all other obligations of the Company to the Holders or the Trustee all in
accordance with the terms of the Indenture and (b) in case of any extension of
time of payment or renewal of any Notes or any of such other obligations, that
the same will be promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at stated maturity, by
acceleration or otherwise. The obligations of the Guarantors to the Holders of
Notes and to the Trustee pursuant to the Note Guarantee and the Indenture are
expressly set forth in Article 10 of the Indenture and reference is hereby made
to the Indenture for the precise terms of the Note Guarantee. Each Holder of a
Note, by accepting the same, (a) agrees to and shall be bound by such provisions
and (b) appoints the Trustee attorney-in-fact of such Holder for all purposes

Capitalized terms used but not defined herein have the meanings given to
them in the Indenture.

[NAME OF GUARANTOR(S)]

By:____________________________________
Name:
Title:

E-1

EXHIBIT F

FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS

SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
________________, 200__, among __________________ (the "Guaranteeing
Subsidiary"), a subsidiary of American Real Estate Partners, L.P., a Delaware
limited partnership, as issuer ("AREP") (or its permitted successor), American
Real Estate Finance Corp., a Delaware corporation, as co-issuer ("AREP Finance",
together with AREP, the "Company"), the other Guarantors (as defined in the
Indenture referred to herein) and Wilmington Trust Company, as trustee under the
Indenture referred to below (the "Trustee").

W I T N E S S E T H

WHEREAS, the Company has heretofore executed and delivered to the Trustee
an indenture (the "Indenture"), dated as of May 12, 2004 providing for the
issuance of 8 1/8% Senior Notes due 2012 (the "Notes");

WHEREAS, the Indenture provides that a Guaranteeing Subsidiary may execute
and deliver to the Trustee a supplemental indenture pursuant to which the
Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's
Obligations under the Notes and the Indenture on the terms and conditions set
forth herein (the "Note Guarantee"); and

WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.

NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:

1. CAPITALIZED TERMS. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.

2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby agrees to
provide an unconditional Guarantee on the terms and subject to the conditions
set forth in the Note Guarantee and in the Indenture including but not limited
to Article 10 thereof.

4. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator, manager (or managing member) direct or indirect member, partner or
stockholder of the Company, AREH, API or any additional Guarantor shall have any
liability for any obligations of the Company, AREH, API or any additional
Guarantor under the Notes, this Indenture, any Note Guarantee or for any claim
based on, in respect of, or by reason of such obligations or its creation. Each
Holder of the Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Notes.

5. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL
GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE WITHOUT GIVING EFFECT
TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION
OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

F-1

6. COUNTERPARTS. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.

7. EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not affect the construction hereof.

8. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made solely by the Guaranteeing Subsidiary and the Company.

F-2

IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.

Dated:  _______________, 20___

[GUARANTEEING SUBSIDIARY]

By: _______________________________
Name:
Title:

AMERICAN REAL ESTATE PARTNERS, L.P.

By: American Property Investors, Inc.,
its general   partner

By: _______________________________
Name:
Title:

AMERICAN REAL ESTATE FINANCE CORP.

By: _______________________________
Name:
Title:

AMERICAN REAL ESTATE HOLDINGS LIMITED
PARTNERSHIP

By: American Property Investors, Inc.,
its general   partner

By: _______________________________
Name:
Title:

WILMINGTON TRUST COMPANY,
as Trustee

By: _______________________________
Authorized Signatory

F-3

EXHIBIT G

FORM OF SECURITY AND CONTROL AGREEMENT

This Security and Control Agreement (this "Agreement") dated as of
[__________], 200[ ] among American Real Estate Partners, L.P. (the "Grantor" or
"AREP"), Wilmington Trust Company in its capacity as Trustee on behalf of the
Holders (as defined in the Indenture) (the "Secured Party") and Wilmington Trust
Company in its capacity as a "bank" as defined in Section 9-102 of the UCC (in
such capacity, the "Financial Institution"). Capitalized terms used but not
defined herein shall have the meanings assigned in the Indenture, dated as of
May 12, 2004, between the Grantor, American Real Estate Holdings Limited
Partnership, a Delaware limited partnership ("AREH") and the Secured Party (the
"Indenture"). All references herein to the "UCC" shall mean the Uniform
Commercial Code as in effect in the State of New York.

WHEREAS, the Grantor, AREH and the Secured Party on behalf of the
Noteholders have entered into the Indenture relating to the Grantor's and
AMERICAN Real Estate Finance Corp.'s, a Delaware corporation ("Finance Corp",
together with the Grantor, the "Issuers"), 8 1/8% senior notes due 2012;

WHEREAS, the Grantor and the Secured Party are entering into this
Agreement to grant the Secured Party a security interest in the Pledged Account
(as hereinafter defined) and the Collateral (as hereinafter defined);

WHEREAS, the parties hereto are entering into this Agreement to perfect
and ensure the priority of such security interest;

NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

SECTION 1. GRANT OF SECURITY.

(a) The Grantor hereby assigns, grants, hypothecates and pledges to,
and grants a lien on and a security interest in favor of the Secured Party, on
behalf of the Noteholders, on all estate, right, title and interest of the
Grantor, whether now owned or hereafter acquired, in the Pledged Account and in
all cash and other assets or property held therein or credited thereto or
received in connection therewith and all proceeds thereof, including all rights
of the Grantor to receive moneys due in respect of such Pledged Account, and all
claims with respect to such Pledged Account, all income or gain earned in
respect of any assets held in or credited to such Pledged Account, and all
proceeds receivable or received when any asset held in or credited to such
Pledged Account is collected, exchanged or otherwise disposed of, whether
voluntarily or involuntarily (all of the foregoing being collectively referred
to as the "Collateral").

(b) The Grantor agrees that from time to time it shall promptly
execute and deliver all instruments and documents, and take all actions, that
may be reasonably necessary, or that the Secured Party may reasonably request,
in order to perfect and protect the assignment and security interest granted or
intended to be granted hereby or to enable the Secured Party to exercise or
enforce its rights and remedies hereunder with respect to the

G-1

Pledged Account and the Collateral. Furthermore, the Grantor hereby authorizes
the Secured Party to file such financing or continuation statements, or
amendments thereto, and such other instruments, endorsements or notices, as the
Secured Party may reasonably deem necessary or advisable in order to perfect and
preserve the assignment and security interest granted or purported to be granted
hereby.

(c) The Grantor represents and warrants that:

(i) the Agreement constitutes the valid and legally binding obligation of
the Grantor, enforceable in accordance with its terms and conditions;

(ii) it has not assigned any of its rights under the Pledged Account or
the Collateral;

(iii) it has not executed and is not aware of any effective financing
statement, security agreement, control agreement or other instrument similar in
effect covering all or any part of the Pledged Account or the Collateral;

(iv) it has full power and authority to grant a security interest in and
assign its right, title and interest in the Pledged Account and the Collateral;
and

(v) upon the execution and delivery of this Agreement by the Grantor, the
security interest granted to the Secured Party pursuant to this Agreement in and
to the Pledged Account and the Collateral will constitute, a first priority
perfected security interest.

SECTION 2. Establishment and Maintenance of Collateral Accounts.

(a) The Financial Institution hereby represents and warrants that it
has established and currently maintains the account listed on Schedule 1 hereto
as a separate account segregated from all other custodial, collateral or other
accounts, and that the Grantor is its sole customer with respect to such account
(such account and any successor account being referred to herein as the "Pledged
Account.") The Financial Institution agrees to act as bank with respect to the
Pledged Account and covenants and agrees that it shall not change the name or
account number of the Pledged Account without the prior written consent of the
Secured Party or, except in an Event of Default, the Grantor;

(b) The Financial Institution represents and warrants that the
Pledged Account is a "deposit account" (as defined in Section 9-102(a)(29) of
the UCC); and

(c) Each of the Financial Institution and the Grantor represents,
warrants and covenants that no investment property (as defined in Section
9-102(a)(49) of the UCC) shall be deposited or otherwise included in the Pledged
Account and agrees no funds on deposit in the Pledged Account shall be invested
in any investment property.

SECTION 3. SECURED PARTY'S CONTROL OF THE PLEDGED ACCOUNTS. If at any time
the Financial Institution shall receive any instruction (within the meaning of
Section 9-104 of the UCC, i.e., an order directing the disposition of funds in a
Pledged Account) originated by

G-2

the Secured Party, the Financial Institution shall comply with such instruction
without further consent by the Grantor or any other person.

SECTION 4. GRANTOR'S ACCESS TO THE ACCOUNT.

(a) It is understood and agreed that until this Agreement is
terminated in accordance with the terms hereof, the Financial Institution shall
not comply with instructions of the Grantor or any person other than the Secured
Party without the express consent of the Secured Party to each such instruction;

(b) Except if an Event of Default shall have occurred and be
continuing, if at any Quarterly Determination Date the amount of Collateral
exceeds the amount required to then be deposited in the Pledged Account pursuant
to Section 4.16 of the Indenture, the Grantor may provide a Notice of Partial
Release in substantially the form of Exhibit A hereto requesting that the
Secured Party instruct the Financial Institution to release such excess amount
to the Grantor.

SECTION 5. SUBORDINATION OF LIEN; WAIVER OF SET-OFF. In the event that the
Financial Institution has or subsequently obtains by agreement, by operation of
law or otherwise a security interest in the Pledged Account or the Collateral,
the Financial Institution hereby agrees that such security interest shall be
subordinate to the security interest of the Secured Party. The money and other
items credited to the Pledged Account will not be subject to deduction, set-off,
banker's lien, or any other right in favor of any person other than the Secured
Party.

SECTION 6. REMEDIES. If any Event of Default shall have occurred and be
continuing, the Secured Party may exercise in respect of the Pledged Account and
the Collateral, in addition to all other rights and remedies provided for
herein, in the Indenture or otherwise available to it at law or in equity, all
right and remedies of the Secured Party on default under the UCC (whether or not
the UCC applies to the affected Pledged Account or any Collateral) to collect,
enforce or satisfy any Obligation then owing, whether by acceleration or
otherwise, including, without limitation, applying any or all of the cash in the
Pledged Account in full or partial satisfaction of the Obligations, or otherwise
selling in one or more public or private sales or retaining in full or partial
satisfaction of the Obligations any or all of the Collateral granted hereunder.

SECTION 7. CHOICE OF LAW. This Agreement shall each be governed by the
laws of the State of New York. Regardless of any provision in any other
agreement, for purposes of the UCC, with respect to the Pledged Account, New
York shall be deemed to be the bank's jurisdiction (within the meaning of
Section 9-304 of the UCC). The Pledged Account shall be governed by the laws of
the State of New York.

SECTION 8. CONFLICT WITH OTHER AGREEMENTS. The Financial Institution
hereby represents, warrants, covenants and agrees that:

(a) There are no other agreements entered into between the Financial
Institution and the Grantor (or any other person) with respect to the Pledged
Account or the Collateral;

G-3

(b) It has not entered into, and until the termination of this
Agreement will not enter into, any agreement with any person other than the
Secured Party relating to the Pledged Account or the Collateral pursuant to
which it agrees or has agreed to comply with instructions (within the meaning of
Section 9-104 of the UCC) of such other person;

(c) It has not entered into, and until the termination of this
Agreement will not enter into, any agreement with the Grantor or the Secured
Party purporting to limit or condition the obligation of the Financial
Institution to comply with instructions with respect to the Pledged Account or
the Collateral; and

(d) In the event of any conflict between this Agreement (or any
portion thereof) and any other agreement now existing or hereafter entered into
with respect to the Pledged Account or the Collateral, the terms of this
Agreement shall prevail.

SECTION 9. ADVERSE CLAIMS. The Financial Institution represents and
warrants that except for the claims and interest of the Secured Party and of the
Grantor in the Pledged Account and the Collateral, it does not know of any
security interest in, lien on or claim to, or other interest in, the Pledged
Account or the Collateral. If any person asserts any lien, encumbrance or
adverse claim (including any writ, garnishment, judgment, warrant of attachment,
execution or similar process) against the Pledged Account or the Collateral, the
Financial Institution will promptly notify the Secured Party and the Grantor
thereof.

SECTION 10. ADDITIONAL PROVISIONS REGARDING MAINTENANCE OF ACCOUNTS. The
Financial Institution covenants and agrees:

(a) Statements and Confirmations. The Financial Institution will
promptly send copies of all statements, confirmations and other correspondence
concerning the Pledged Account or the Collateral, simultaneously to each of the
Grantor and the Secured Party at the address for each set forth in Section 14 of
this Agreement.

(b) Tax Reporting. All interest, if any, relating to the Pledged
Account, shall be reported to the Internal Revenue Service and all state and
local taxing authorities under the name and taxpayer identification number of
the Grantor.

SECTION 11. ADDITIONAL REPRESENTATION AND WARRANTY OF THE FINANCIAL
INSTITUTION. The Financial Institution represents and warrants that this
Agreement constitutes the valid and legally binding obligation of the Financial
Institution, enforceable in accordance with its terms and conditions.

SECTION 12. INDEMNIFICATION OF FINANCIAL INSTITUTION AND SECURED PARTY.

(a) The Grantor hereby agrees that the Financial Institution shall be
relieved from liabilities (i) arising from the error of judgment made in good
faith by it, unless it is proved that the Financial Institution was negligent in
ascertaining the pertinent facts; and (ii) with respect to any action it takes
or omits to take in good faith in accordance with a direction received pursuant
to the terms of this Agreement.

G-4

The Financial Institution (i) will not be liable for any action it takes
or omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Agreement; (ii) may act through its
attorneys and agents and will not be responsible for the misconduct or
negligence of any attorney or agent appointed with due care; (iii) may
conclusively rely upon any document believed by it to be genuine and to have
been signed or presented by the proper person and it need not investigate any
fact or matter stated in any such document; and (iv) may consult with counsel of
its choice and the written advice of such counsel will be full and complete
authorization and protection from liability in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon.

The Grantor will indemnify the Financial Institution and hold it harmless
against any and all losses, liabilities or expenses incurred by it arising out
of or in connection with the acceptance or administration of its duties under
this Agreement, including the costs and expenses of enforcing this Agreement
against the Grantor (including this Section 12) and defending itself against any
claim (whether asserted by the Grantor or any other person) or liability in
connection with the exercise or performance of any of its powers or duties
hereunder, except any such loss, liability or expense attributable to its
negligence or bad faith. The Financial Institution will notify the Grantor
promptly of any claim for which it may seek indemnity. Failure by the Financial
Institution to so notify the Grantor will not relieve the Grantor of its
obligations hereunder. The Grantor will defend the claim and the Financial
Institution will cooperate in the defense. The Financial Institution may have
separate counsel and the Grantor will pay the reasonable fees and expenses of
such counsel. The Grantor need not pay for any settlement made without its
consent, which consent will not be unreasonably withheld.

(b) The Secured Party shall be entitled to all benefits and rights arising
under the protections and indemnification granted to it by Grantor under the
terms of the Indenture in connection with any actions taken or omissions made by
the Secured Party with respect to its duties and obligations hereunder as if
such protections and indemnification were explicitly granted hereunder.

(c) The obligations of the Grantor under this Section 12 will survive the
termination of this Agreement.

SECTION 13. SUCCESSORS; ASSIGNMENT. The terms of this Agreement shall be
binding upon, and shall inure to the benefit of, the parties hereto and their
respective successors and assigns, except that neither the Grantor nor the
Financial Institution may delegate their obligations hereunder without the prior
written consent of the Secured Party. Additionally, in the event that the
Secured Party is replaced as Trustee under the Indenture any entity that
succeeds to such role shall be entitled to the benefits of this Agreement. The
Secured Party agrees to send written notice to the Financial Institution of any
such replacement.

SECTION 14. NOTICES. Any notice, request or other communication required
or permitted to be given under this Agreement shall be in writing and deemed to
have been properly given when delivered in person, or when sent by telecopy or
other electronic means and electronic confirmation of error free receipt is
received or two days after being sent by certified or registered United States
mail, return receipt requested, postage prepaid, addressed to the party at the
address set forth below.

G-5

Grantor:

American Real Estate Partners, L.P.
100 South Bedford Road
Mt. Kisco, New York 10549
Attention: Chief Financial Officer
Facsimile: [       ]

Secured Party:

Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention:  Corporate Trust Administration
Michael G. Oller
Facsimile:  (302) 636-4140

Financial Institution:

Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention:  Corporate Capital Markets
Trust Officer
Facsimile: (302) 636-4140

Any party may change its address for notices by giving notice to the other
parties hereto in the manner set forth above.

SECTION 15. AMENDMENT. No amendment or modification of this Agreement or
waiver of any right hereunder shall be binding on any party hereto unless it is
in writing and is signed by all of the parties hereto.

SECTION 16. TERMINATION.

(a) The obligations of the Financial Institution to the Secured
Party pursuant to this Agreement shall continue in effect until the security
interests of the Secured Party in the Pledged Account and the Collateral have
been terminated pursuant to the terms of the Indenture and the Secured Party has
notified the Financial Institution of such termination in writing. The Secured
Party agrees to provide Notice of Termination in substantially the form of
Exhibit B hereto to the Financial Institution upon the request of the Grantor on
or after the termination of the Secured Party's security interest in the Pledged
Account and the Collateral pursuant to the terms of the Indenture. The
termination of this Agreement shall not terminate the Pledged Account or alter
the obligations of the Financial Institution to the Grantor pursuant to any
other agreement with respect to the Pledged Account.

G-6

(b) Without limitation to the foregoing, if at any Quarterly
Determination Date, the Fixed Charge Coverage Ratio of AREP and the Guarantors
is at least 1.5 to 1.0 for the four consecutive fiscal quarters most recently
completed prior to such Quarterly Determination Date, the Secured Party shall
provide to the Financial Institution a Notice of Termination in the form of
Exhibit B.

SECTION 17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which shall constitute one and the same instrument, and any
party hereto may execute this Agreement by signing and delivering one or more
counterparts.

[Remainder of page intentionally left blank]

G-7

IN WITNESS WHEREOF, each of the Grantor, the Secured Party and the
Financial Institution have caused this Agreement to be duly executed and
delivered by their respective officers thereunto duly authorized as of the date
first written above.

AMERICAN REAL ESTATE PARTNERS,
L.P., as Grantor

By: American Property Investors, Inc.,
its general partner

By: ___________________________________
Name:
Title:

WILMINGTON TRUST COMPANY, as Secured
Party in its capacity as Trustee on
behalf of the Noteholders

By: ___________________________________
Name:
Title:

WILMINGTON TRUST COMPANY, in its
capacity as Financial Institution

By: ___________________________________
Name:
Title:

G-8

SCHEDULE 1

Existing Deposit Account Subject to this Agreement

Exact Name of Account                        Account Number

G-9

Exhibit A

[Letterhead of Grantor]

[Date]

[Name and Address of Secured Party]

Attention:   ______

Re: Notice of Partial Release

Reference is made to the Security and Control Agreement, between you, the
Financial Institution and the undersigned, dated as of [__________, 200__]. We
hereby notify you that as of [________, 200__] the Collateral held in the
Pledged Account exceeded the amount required to be deposited in the Pledged
Account, as follows:

QUARTERLY DETERMINATION BALANCE:      $[           ]

LESS: ONE YEAR OF INTEREST PAYMENTS:  $[           ]

AMOUNT OF PARTIAL RELEASE:            $[           ]

We hereby request that you instruct the Financial Institution to release
to us such Amount of Partial Release.

We hereby certify that no Event of Default has occurred and is continuing
under the Indenture.

Very truly yours,

[Grantor]

By: ___________________________________
Title:

G-10

Exhibit B

[Letterhead of Grantor]

[Date]

[Name and Address of Secured Party]

Attention:   ______

Re: Termination of Security and Control Agreement

You are hereby notified that the Security and Control Agreement between
you, the Grantor and the undersigned is terminated and you have no further
obligations to the undersigned pursuant to such Agreement. Notwithstanding any
previous instructions to you, you are hereby instructed to accept all future
directions with respect to account number _______from the Grantor. This notice
terminates any obligations you may have to the undersigned with respect to such
account, however nothing contained in this notice shall alter any obligations
which you may otherwise owe to the Grantor pursuant to any other agreement.

You are instructed to deliver a copy of this notice by facsimile
transmission to American Real Estate Partners, L.P.

Very truly yours,

[Name of Secured Party]

By: _______________________________
Title:

G-11

EXHIBIT 4.3
EXECUTION COPY

================================================================================

REGISTRATION RIGHTS AGREEMENT

DATED AS OF MAY 12, 2004
BY AND AMONG

AMERICAN REAL ESTATE PARTNERS, L.P.,
AMERICAN REAL ESTATE FINANCE CORP.,
AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP

AND

BEAR, STEARNS & CO. INC.

================================================================================

EXHIBIT 4.3
EXECUTION COPY

This Registration Rights Agreement (this "AGREEMENT") is made and entered
into as of May 12, 2004, by and among American Real Estate Partners, L.P., a
Delaware limited partnership, as issuer ("AREP"), American Real Estate Finance
Corp., a Delaware corporation, as co-issuer ("AREP FINANCE"), American Real
Estate Holdings Limited Partnership, a Delaware limited partnership (the
"GUARANTOR", and together with AREP and AREP Finance, the "COMPANY") and Bear,
Stearns & Co. Inc. (the "INITIAL PURCHASER"), who has agreed to purchase AREP's
8 1/8% Senior Notes due 2012 (the "INITIAL NOTES") pursuant to the Purchase
Agreement (as defined below). The Initial Notes are to be guaranteed (the
"GUARANTEE", and together with the Initial Notes, the "OFFERED SECURITIES") by
the Guarantor.

This Agreement is made pursuant to the Purchase Agreement, dated May 6,
2004 (the "PURCHASE AGREEMENT"), by and among the AREP, AREP Finance, AREH, as
Guarantor and the Initial Purchaser. In order to induce the Initial Purchaser to
purchase the Initial Notes, the Company has agreed to provide the registration
rights set forth in this Agreement. The execution and delivery of this Agreement
is a condition to the obligations of the Initial Purchaser set forth in Section
10(q) of the Purchase Agreement. Capitalized terms used herein and not otherwise
defined shall have the meanings assigned to them in the Indenture, dated as of
May 12, 2004, among the Company and Wilmington Trust Company, as trustee,
relating to the Offered Securities and the Exchange Securities (the
"INDENTURE").

The parties hereby agree as follows:

SECTION 1. DEFINITIONS

As used in this Agreement, the following capitalized terms shall have the
following meanings:

ACT: The Securities Act of 1933, as amended.

AFFILIATE: As defined in Rule 144.

AREH: Shall have the meaning set forth in the preamble of this Agreement.

AREP: Shall have the meaning set forth in the preamble of this Agreement.

AREP FINANCE: Shall have the meaning set forth in the preamble of this
Agreement.

BROKER-DEALER: Any broker or dealer registered under the Exchange Act.

BUSINESS DAY: Any day other than a Saturday, a Sunday or a day on which
banking institutions in the City of New York or at place of payment are
authorized by law, regulation or executive order to remain closed.

CLOSING DATE: The date hereof.

COMMISSION: The Securities and Exchange Commission.

COMPANY: Shall have the meaning set forth in the preamble of this
Agreement.

CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for purposes
of this Agreement upon the occurrence of (a) the filing and effectiveness under
the Act of the Exchange Offer Registration Statement relating to the Exchange
Securities to be issued in the Exchange Offer, (b) the maintenance of the
continuous effectiveness of such Exchange Offer Registration Statement and the
keeping of the Exchange Offer open for a period not less than the period
required pursuant to Section 3(b) hereof and (c) the delivery by the Company to
the Registrar under the Indenture of Exchange Securities in the same aggregate
principal amount as the aggregate principal amount of Offered Securities
tendered by Holders thereof pursuant to the Exchange Offer.

CONSUMMATION DEADLINE: As defined in Section 3(b) hereof.

EFFECTIVENESS DEADLINE: As defined in Sections 3(a) and 4(a) hereof.

EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.

EXCHANGE OFFER: The exchange and issuance by the Company of a principal
amount of Exchange Securities (which shall be registered pursuant to the
Exchange Offer Registration Statement) equal to the outstanding principal amount
of Offered Securities that are tendered by such Holders in connection with such
exchange and issuance.

EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement relating
to the Exchange Offer, including the related Prospectus.

EXCHANGE SECURITIES: AREP and AREP Finance's 8 1/8% Senior Notes due 2012
to be issued pursuant to the Indenture: (a) in the Exchange Offer or (b) as
contemplated by Section 4 hereof.

FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof.

GUARANTEE: Shall have the meaning set forth in the preamble of this
Agreement.

HOLDERS: As defined in Section 2 hereof.

INDENTURE: Shall have the meaning set forth in the preamble of this
Agreement.

INITIAL NOTES: Shall have the meaning set forth in the preamble of this
Agreement.

INITIAL PURCHASER: Shall have the meaning set forth in the preamble of
this Agreement.

LIQUIDATED DAMAGES: As defined in Section 5 hereof.

OFFERED SECURITIES: Shall have the meaning set forth in the preamble of
this Agreement.

PROSPECTUS: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.

2

PURCHASE AGREEMENT: Shall have the meaning set forth in the preamble of
this Agreement.

RECOMMENCEMENT DATE: As defined in Section 6(d) hereof.

REGISTRATION DEFAULT: As defined in Section 5 hereof.

REGISTRATION STATEMENT: Any registration statement of the Company relating
to (a) an offering of Exchange Securities pursuant to an Exchange Offer or (b)
the registration for resale of Transfer Restricted Securities pursuant to the
Shelf Registration Statement, in each case, (i) that is filed pursuant to the
provisions of this Agreement, (ii) including the Prospectus included therein and
(iii) including all amendments and supplements thereto (including post-effective
amendments) and all exhibits and material incorporated by reference therein.

RULE 144: Rule 144 promulgated under the Act.

SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.

SUSPENSION NOTICE: As defined in Section 6(d) hereof.

TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as
in effect on the date of the Indenture.

TRANSFER RESTRICTED SECURITIES: Each Offered Security until the earliest
to occur of (a) the date on which such Offered Security has been exchanged by a
Person other than a Broker-Dealer for an Exchange Security in the Exchange
Offer, (b) following the exchange by a Broker-Dealer in the Exchange Offer of an
Offered Security for an Exchange Security, the date on which such Exchange
Security is sold to a purchaser who receives from such Broker-Dealer on or prior
to the date of such sale a copy of the Prospectus contained in the Exchange
Offer Registration Statement, (c) the date on which such Offered Security has
been effectively registered under the Act and disposed of in accordance with the
Shelf Registration Statement or (d) the date on which such Offered Security is
distributed to the public pursuant to Rule 144.

SECTION 2. HOLDERS

A Person is deemed to be a holder of Transfer Restricted Securities (each,
a "HOLDER") whenever such Person owns Transfer Restricted Securities.

SECTION 3. REGISTERED EXCHANGE OFFER

(a) Unless the Exchange Offer shall not be permitted by applicable law or
Commission rule, regulation or policy (after the procedures set forth in Section
6(a)(i) below have been complied with), the Company shall (i) cause the Exchange
Offer Registration Statement to be filed with the Commission no later than 90
days after the Closing Date (such 90th day being the "FILING DEADLINE"), (ii)
use all commercially reasonable efforts to cause such Exchange Offer
Registration Statement to become effective no later than 180 days after the
Closing Date (such 180th day being the "EFFECTIVENESS DEADLINE"), (iii) in
connection with the foregoing, (A) file all pre-effective amendments to such
Exchange Offer Registration Statement as may be necessary in order to cause it
to become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A

3

under the Act and (C) cause all necessary filings, if any, in connection with
the registration and qualification of the Exchange Securities to be made under
the Blue Sky laws of such jurisdictions as are necessary to permit Consummation
of the Exchange Offer, and (iv) upon the effectiveness of such Exchange Offer
Registration Statement, commence and Consummate the Exchange Offer. The Exchange
Offer shall be on the appropriate form permitting (i) registration of the
Exchange Securities to be offered in exchange for the Offered Securities that
are Transfer Restricted Securities and (ii) resales of Exchange Securities by
Broker-Dealers that tendered into the Exchange Offer Offered Securities that
such Broker-Dealer acquired for its own account as a result of market-making
activities or other trading activities (other than Offered Securities acquired
directly from the Company or any of its Affiliates) as contemplated by Section
3(c) below.

(b) The Company shall use all commercially reasonable efforts to cause the
Exchange Offer Registration Statement to be effective continuously, and shall
keep the Exchange Offer open for a period of not less than the minimum period
required under applicable federal and state securities laws to Consummate the
Exchange Offer; provided, however, that in no event shall such period be less
than 20 Business Days. The Company shall cause the Exchange Offer to comply in
all material respects with all applicable federal and state securities laws. No
securities other than the Exchange Securities shall be included in the Exchange
Offer Registration Statement. The Company shall use all commercially reasonable
efforts to cause the Exchange Offer to be Consummated on the earliest
practicable date after the Exchange Offer Registration Statement has become
effective, but in no event later than 30 Business Days thereafter, or longer, if
required by federal securities laws (the last day of such period being the
"CONSUMMATION DEADLINE").

(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Offered Securities acquired
directly from the Company or any Affiliate of the Company), may exchange such
Transfer Restricted Securities pursuant to the Exchange Offer. Such "Plan of
Distribution" section shall also contain all other information with respect to
such sales by such Broker-Dealers that the Commission may require in order to
permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Transfer Restricted
Securities held by any such Broker-Dealer, except to the extent required by the
Commission as a result of a change in policy, rules or regulations after the
date of this Agreement.

Because such Broker-Dealer may be deemed to be an "underwriter" within the
meaning of the Act and must, therefore, deliver a prospectus meeting the
requirements of the Act in connection with its initial sale of any Exchange
Securities received by such Broker-Dealer in the Exchange Offer, the Company
shall permit the use of the Prospectus contained in the Exchange Offer
Registration Statement by such Broker-Dealer to satisfy such prospectus delivery
requirement. To the extent necessary to ensure that the Prospectus contained in
the Exchange Offer Registration Statement is available for sales of Exchange
Securities by Broker-Dealers, the Company agrees to use all commercially
reasonable efforts to keep the Exchange Offer Registration Statement
continuously effective, supplemented, amended and current as required by and
subject to the provisions of Sections 6(a) and (c) hereof and in conformity with
the requirements of this Agreement, the Act and the policies, rules and
regulations of the

4

Commission as announced from time to time, for a period of 270 days from the
Consummation Deadline or such shorter period as will terminate when all Transfer
Restricted Securities covered by such Registration Statement have been sold
pursuant thereto. The Company shall provide sufficient copies of the latest
version of such Prospectus to such Broker-Dealers, promptly upon request, and in
no event later than two Business Days after such request, at any time during
such period.

SECTION 4. SHELF REGISTRATION

(a) Shelf Registration. If (i) the Company is not (A) required to file the
Exchange Offer Registration Statement or (B) permitted to Consummate the
Exchange Offer because the Exchange Offer is not permitted by applicable law or
Commission regulations, rules or policy (after the Company has complied with the
procedures set forth in Section 6(a)(i) below) or (ii) any Holder of Transfer
Restricted Securities notifies the Company prior to 20 Business Days following
Consummation of the Exchange Offer that (A) such Holder was prohibited by law or
Commission policy from participating in the Exchange Offer, (B) such Holder may
not resell the Exchange Securities acquired by it in the Exchange Offer to the
public without delivering a prospectus and the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such Holder or (C) such Holder is a Broker-Dealer and holds Offered
Securities acquired directly from the Company or any of its Affiliates, then the
Company shall:

(x) use all commercially reasonable efforts on or prior to 30 days after
the earlier of (i) the date as of which the Company determines that the Exchange
Offer Registration Statement will not be or cannot be, as the case may be, filed
as a result of clause (a)(i) above (after the Company has complied with the
procedures set forth in Section 6(a)(i) below, and (ii) the date on which the
Company receives the notice specified in clause (a)(ii) above (such earlier
date, the "FILING DEADLINE"), to file a shelf registration statement pursuant to
Rule 415 under the Act (which may be an amendment to the Exchange Offer
Registration Statement (the "SHELF REGISTRATION STATEMENT")), relating to all
Transfer Restricted Securities, and

(y) shall use all commercially reasonable efforts to cause such Shelf
Registration Statement to become effective on or prior to 90 days after the
Filing Deadline such obligation arises (such 90th day being the "EFFECTIVENESS
DEADLINE").

If, after the Company has filed an Exchange Offer Registration Statement
that satisfies the requirements of Section 3(a) above, the Company is required
to file and make effective a Shelf Registration Statement solely because the
Exchange Offer is not permitted under applicable federal law (i.e., clause
(a)(i)(B) above), then the filing of the Exchange Offer Registration Statement
shall be deemed to satisfy the requirements of clause (x) above; provided that,
in such event, the Company shall remain obligated to meet the Effectiveness
Deadline set forth in clause (y).

To the extent necessary to ensure that the Shelf Registration Statement is
available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 4(a) and the other securities required
to be registered therein pursuant to Section 6(b)(ii) hereof, the Company shall
use all commercially reasonable efforts to keep any Shelf Registration Statement
required by this Section 4(a) continuously effective, supplemented, amended and
current as required by and subject to the provisions of Sections 6(b) and (c)
hereof and in

5

conformity with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, until
the expiration of the period referred to in Rule 144(k) (as extended pursuant to
Section 6(d)), or such shorter period as will terminate when all Transfer
Restricted Securities covered by such Shelf Registration Statement have been
sold pursuant thereto.

(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 Business Days after receipt of a request
therefor, (x) the information specified in Item 507 or 508 of Regulation S-K, as
applicable, of the Act for use in connection with any Shelf Registration
Statement or Prospectus or preliminary prospectus included therein, (y) an
agreement to update such information, from time to time, as required or
appropriate, and (z) an agreement to comply with the prospectus delivery
requirements in connection with the offer and sale of Transfer Restricted
Securities. No Holder of Transfer Restricted Securities shall be entitled to
Liquidated Damages pursuant to Section 5 hereof unless and until such Holder
shall have provided all such information and agreements. Each selling Holder
agrees to promptly furnish additional information required to be disclosed in
order to make the information previously furnished to the Company by such Holder
not materially misleading.

SECTION 5. LIQUIDATED DAMAGES

If: (i) any Registration Statement required by this Agreement is not filed
with the Commission on or prior to the applicable Filing Deadline, (ii) any such
Registration Statement has not been declared effective by the Commission on or
prior to the applicable Effectiveness Deadline, (iii) the Exchange Offer has not
been Consummated within 30 Business Days of the applicable Effectiveness
Deadline or (iv) any Registration Statement required by this Agreement is filed
and declared effective but shall thereafter cease to be effective or usable in
connection with resales of Transfer Restricted Securities during the periods
specified herein (each such event referred to in clauses (i) through (iv), a
"REGISTRATION DEFAULT"), then the Company hereby jointly and severally agrees to
pay to each Holder of Transfer Restricted Securities affected thereby Liquidated
Damages in an amount equal to $.05 per week per $1,000 in principal amount of
Transfer Restricted Securities held by such Holder for each week or portion
thereof that the Registration Default continues for the first 90-day period
immediately following the occurrence of such Registration Default. The amount of
the Liquidated Damages shall increase by an additional $.05 per week per $1,000
in principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages for all Registration Defaults of $.50 per
week per $1,000 in principal amount of Transfer Restricted Securities; provided
that the Company shall in no event be required to pay Liquidated Damages for
more than one Registration Default at any given time. Notwithstanding anything
to the contrary set forth herein, (1) upon filing of the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange
Offer Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (ii) above, (3) upon Consummation of the Exchange
Offer, in the case of (iii) above, or (4) upon the filing of a post-effective
amendment to the Registration Statement or an additional Registration Statement
that causes the Exchange Offer Registration Statement (and/or, if applicable,
the Shelf Registration Statement) to again be declared effective or made usable,
in

6

the case of (iv) above, the Liquidated Damages payable with respect to the
Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or
(iv), as applicable, shall cease.

All accrued Liquidated Damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Initial Notes. Notwithstanding the fact that any securities for which Liquidated
Damages are due cease to be Transfer Restricted Securities, all obligations of
the Company to pay Liquidated Damages with respect to securities shall survive
until such time as such obligations with respect to such securities shall have
been satisfied in full.

SECTION 6. REGISTRATION PROCEDURES

(a)   Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company shall (x) comply with all applicable provisions of
Section 6(c) below, (y) use all commercially reasonable efforts to effect such
exchange and to permit the resale of Exchange Securities by Broker-Dealers that
tendered in the Exchange Offer Offered Securities that such Broker-Dealer
acquired for its own account as a result of its market-making activities or
other trading activities (other than Offered Securities acquired directly from
the Company or any of its Affiliates) being sold in accordance with the intended
method or methods of distribution thereof, and (z) comply with all of the
following provisions:

(i)   If, following the date hereof there has been announced a
change in Commission policy with respect to exchange offers such as the
Exchange Offer, that in the reasonable opinion of counsel to the Company
raises a substantial question as to whether the Exchange Offer is
permitted by applicable federal law, the Company hereby agrees to seek a
no-action letter or other favorable decision from the Commission or the
staff of the Commission allowing the Company to Consummate an Exchange
Offer for such Transfer Restricted Securities. The Company hereby agrees
to pursue the issuance of such a no-action letter or decision to the
Commission staff level. In connection with the foregoing, the Company
hereby agrees to take all such other actions as may be requested by the
Commission or otherwise required by the Commission in connection with the
issuance of such decision, including without limitation (A) participating
in telephonic conferences with the Commission, (B) delivering to the
Commission staff an analysis prepared by counsel to the Company setting
forth the legal bases, if any, upon which such counsel has concluded that
such an Exchange Offer should be permitted and (C) diligently pursuing a
resolution (which need not be favorable) by the Commission staff; provided
that this Section 6(a)(i) shall not restrict or limit the Company from
complying with the requirements of Section 4, including filing and making
effect a Shelf Registration Statement before obtaining a no-action letter
or other decision or resolution from the Commission or the staff of the
Commission.

(ii)  As a condition to its participation in the Exchange Offer,
each Holder of Transfer Restricted Securities (including, without
limitation, any Holder who is a Broker-Dealer) shall furnish, upon the
request of the Company, prior to the Consummation of the Exchange Offer, a
written representation to the Company (which may be contained in the
letter of transmittal contemplated by the Exchange Offer Registration
Statement) to the effect that (A) it is not an Affiliate of the Company,
(B) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the Exchange Securities to be issued in the Exchange

7

Offer and (C) it is acquiring the Exchange Securities in its ordinary
course of business. As a condition to its participation in the Exchange
Offer each Holder using the Exchange Offer to participate in a
distribution of the Exchange Securities shall acknowledge and agree that,
if the resales are of Exchange Securities obtained by such Holder in
exchange for Offered Securities acquired directly from the Company or an
Affiliate thereof, it (1) could not, under Commission policy as in effect
on the date of this Agreement, rely on the position of the Commission
enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and
Exxon Capital Holdings Corporation (available May 13, 1988), as
interpreted in the Commission's letter to Shearman & Sterling dated July
2, 1993, and similar no-action letters (including, if applicable, any
no-action letter obtained pursuant to clause (i) above), and (2) must
comply with the registration and prospectus delivery requirements of the
Act in connection with a secondary resale transaction and that such a
secondary resale transaction must be covered by an effective registration
statement containing the selling security holder information required by
Item 507 or 508, as applicable, of Regulation S-K.

(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company shall, upon request of the Commission, provide a
supplemental letter to the Commission (A) stating that the Company is
registering the Exchange Offer in reliance on the position of the
Commission enunciated in Exxon Capital Holdings Corporation (available May
13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) as
interpreted in the Commission's letter to Shearman & Sterling dated July
2, 1993, and, if applicable, any no-action letter obtained pursuant to
clause (i) above, (B) including a representation that the Company has not
entered into any arrangement or understanding with any Person to
distribute the Exchange Securities to be received in the Exchange Offer
and that, to the best of the Company's information and belief, each Holder
participating in the Exchange Offer is acquiring the Exchange Securities
in its ordinary course of business and has no arrangement or understanding
with any Person to participate in the distribution of the Exchange
Securities received in the Exchange Offer and (C) any other undertaking or
representation required by the Commission as set forth in any no-action
letter obtained pursuant to clause (i) above, if applicable.

(b)   Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall:

(i)   comply with all the provisions of Section 6(c) below and use
all commercially reasonable efforts to effect such registration to permit
the sale of the Transfer Restricted Securities being sold in accordance
with the intended method or methods of distribution thereof (as indicated
in the information furnished to the Company pursuant to Section 4(b)
hereof), and pursuant thereto the Company will prepare and file with the
Commission a Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale
of the Transfer Restricted Securities in accordance with the intended
method or methods of distribution thereof within the time periods and
otherwise in accordance with the provisions hereof, and

(ii)  issue, upon the request of any Holder or purchaser of Offered
Securities covered by any Shelf Registration Statement contemplated by
this Agreement, Exchange Securities having an aggregate principal amount
equal to the aggregate principal amount

8

of Offered Securities sold pursuant to the Shelf Registration Statement
and surrendered to the Company for cancellation; the Company shall
register Exchange Securities on the Shelf Registration Statement for this
purpose and issue the Exchange Securities to the purchaser(s) of
securities subject to the Shelf Registration Statement in the names as
such purchaser(s) shall designate.

(c)   General Provisions. In connection with any Registration Statement
and any related Prospectus required by this Agreement, the Company shall:

(i)   use all commercially reasonable efforts to keep such
Registration Statement continuously effective and provide all requisite
financial statements for the period specified in Section 3 or 4 of this
Agreement, as applicable. Upon the occurrence of any event that would
cause any such Registration Statement or the Prospectus contained therein
(A) to contain an untrue statement of material fact or omit to state any
material fact necessary to make the statements therein in light of the
circumstances under which they were made not misleading or (B) not to be
effective and usable for resale of Transfer Restricted Securities during
the period required by this Agreement, the Company shall file promptly an
appropriate amendment to such Registration Statement or supplement to the
Prospectus curing such defect, and, if Commission review is required of
any such amendment, use all commercially reasonable efforts to cause such
amendment to be declared effective as soon as practicable;

(ii)  prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as may
be necessary to keep such Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, as the case may be;
cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under
the Act, and to comply fully with Rules 424 and 430A, as applicable, under
the Act in a timely manner; and comply with the provisions of the Act with
respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended
method or methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;

(iii) advise each Holder promptly and, if requested by such Holder,
confirm such advice in writing, (A) when the Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement has
been filed, and, with respect to any applicable Registration Statement or
any post-effective amendment thereto, when the same has become effective,
(B) of any request by the Commission for amendments to the Registration
Statement or amendments or supplements to the Prospectus or for additional
information relating thereto, (C) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement
under the Act or of the suspension by any state securities commission of
the qualification of the Transfer Restricted Securities for offering or
sale in any jurisdiction, or the initiation of any proceeding for any of
the preceding purposes, and (D) of the existence of any fact or the
happening of any event that makes any statement of a material fact made in
the Registration Statement, the Prospectus, any amendment or supplement
thereto or any document incorporated by reference therein untrue, or that
requires the making of any additions to or changes in the
Registration Statement in order to make the statements therein not
misleading, or that requires the making of any additions to or changes in
the

9

Prospectus in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that
any notice required pursuant to this Section 6(c)(iii) shall be provided
by the Company on its behalf and on behalf of the Guarantors. If at any
time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue an order suspending
the qualification or exemption from qualification of the Transfer
Restricted Securities under state securities or Blue Sky laws, the Company
shall use all commercially reasonable efforts to obtain the withdrawal or
lifting of such order at the earliest possible time;

(iv)  subject to Section 6(c)(i), if any fact or event contemplated
by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a
supplement or amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers
of Transfer Restricted Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;

(v)   furnish to each Holder in connection with such exchange or
sale, if any, before filing with the Commission, copies of any
Registration Statement or any Prospectus included therein or any
amendments or supplements to any such Registration Statement or Prospectus
(including all documents incorporated by reference after the initial
filing of such Registration Statement), which documents, upon such
Holders' request, will be subject to the review and comment of such
Holders in connection with such sale, if any, for a period of at least
five Business Days, and the Company will not file any such Registration
Statement or Prospectus or any amendment or supplement to any such
Registration Statement or Prospectus (including all such documents
incorporated by reference) to which such Holders shall reasonably object
within five Business Days after the receipt thereof. A Holder shall be
deemed to have reasonably objected to such filing if such Registration
Statement, amendment, Prospectus or supplement, as applicable, as proposed
to be filed, contains an untrue statement of a material fact or omits any
material fact necessary to make the statements therein in light of the
circumstances under which they were made not misleading or fails to comply
with the applicable requirements of the Act;

(vi)  promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus in
connection with such exchange or sale, if any, provide copies of such
document to each Holder, make the Company's representatives available for
discussion of such document and other customary due diligence matters, and
include such information in such document prior to the filing thereof as
such Holders may reasonably request;

(vii) make available, at reasonable times, for inspection by each
Holder and any attorney or accountant retained by such Holders at the
offices at which such information normally is kept during normal business
hours, all financial and other records, pertinent corporate documents of
the Company and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such Holder, attorney

10

or accountant in connection with such Registration Statement or any
post-effective amendment thereto subsequent to the filing thereof and
prior to its effectiveness;

(viii) if requested by any Holders in connection with such exchange
or sale, promptly include in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such Holders may reasonably request to have included
therein, including, without limitation, information relating to the "Plan
of Distribution" of the Transfer Restricted Securities; and make all
required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after the Company is notified of the matters to be
included in such Prospectus supplement or post-effective amendment;

(ix)  furnish to each Holder in connection with such exchange or
sale, without charge, at least one copy of the Registration Statement, as
first filed with the Commission, and of each amendment thereto, including,
upon request, all documents incorporated by reference therein and all
exhibits (including exhibits incorporated therein by reference);

(x)   deliver to each Holder without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons reasonably may request; the Company
hereby consents to the use (in accordance with law) of the Prospectus and
any amendment or supplement thereto by each selling Holder in connection
with the offering and the sale of the Transfer Restricted Securities
covered by the Prospectus or any amendment or supplement thereto;

(xi)  upon the request of any Holder, enter into such agreements
(including underwriting agreements) and make such representations and
warranties and take all such other actions in connection therewith in
order to expedite or facilitate the disposition of the Transfer Restricted
Securities pursuant to any applicable Registration Statement contemplated
by this Agreement as may be reasonably requested by any Holder in
connection with any sale or resale pursuant to any applicable Registration
Statement. In such connection, the Company shall:

(A)   upon request of any Holder, furnish (or, in the case of
paragraphs (2), (3) and (4), use all commercially reasonable efforts
to cause to be furnished) to each Holder, upon the effectiveness of
the Shelf Registration Statement:

(1)   a certificate, dated such date, signed on behalf
of the Company, in form and substance reasonably satisfactory
to the Initial Purchaser, including such matters as such
Holders may reasonably request;

(2)   an opinion, dated the date of effectiveness of the
Shelf Registration Statement, of counsel for the Company, in
form and substance reasonably satisfactory to the Initial
Purchaser and counsel for the Initial Purchaser, to the effect
set forth in Exhibit C to the Purchase Agreement and such
other similar matters as such Holders may reasonably request;

11

(3)   an opinion, dated the date of effectiveness of the
Shelf Registration Statement, of Nevada counsel for the
Company, in form and substance reasonably satisfactory to the
Initial Purchaser and counsel for the Initial Purchaser, to
the effect set forth in Exhibit D to the Purchase Agreement
and such other similar matters as such Holders may reasonably
request;

(4)   an opinion, dated the date of effectiveness of the
Shelf Registration Statement, of New Jersey counsel for the
Company, in form and substance reasonably satisfactory to the
Initial Purchaser and counsel for the Initial Purchaser, to
the effect set forth in Exhibit E to the Purchase Agreement
and such other similar matters as such Holders may reasonably
request;

(5)   a customary comfort letter, dated the date of
effectiveness of the Shelf Registration Statement, from the
Company's independent accountants, in the customary form and
covering matters of the type customarily covered in comfort
letters to underwriters in connection with underwritten
offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 10(j) and (k) of the
Purchase Agreement, provided that any Holder so requesting a
comfort letter confirms in writing to the Company's
independent accountants that it is of the class of persons
entitled to receive a comfort letter under applicable
accounting standards or pronouncements; and

(B)   deliver such other documents and certificates as may be
reasonably requested by the selling Holders to evidence compliance
with clause (A) above and with any customary conditions contained in
the any agreement entered into by the Company pursuant to this
clause (xi);

(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders and their counsel in
connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders may reasonably request and do any and
all other acts or things necessary or advisable to enable the disposition
in such jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; provided, however, that the Company
shall not be required to register or qualify as a foreign corporation
where it is not now so qualified or to take any action that would subject
it to the service of process in suits or to taxation, other than as to
matters and transactions relating to the Registration Statement, in any
jurisdiction where it is not now so subject;

(xiii) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Transfer Restricted
Securities to be sold and not bearing any restrictive legends; and to
register such Transfer Restricted Securities in such denominations and
such names as the selling Holders may request at least two Business Days
prior to such sale of Transfer Restricted Securities;

12

(xiv) use all commercially reasonable efforts to cause the
disposition of the Transfer Restricted Securities covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in clause (xii)
above;

(xv)  obtain a CUSIP number for all Transfer Restricted Securities
not later than the effective date of a Registration Statement covering
such Transfer Restricted Securities and provide the Trustee under the
Indenture with printed certificates for the Transfer Restricted Securities
which are in a form eligible for deposit with the Depository Trust
Company;

(xvi) otherwise use all commercially efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 under the Act (which need
not be audited) covering a twelve-month period beginning after the
effective date of the Registration Statement (as such term is defined in
paragraph (c) of Rule 158 under the Act);

(xvii) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement and, in connection therewith, cooperate with the Trustee
and the Holders to effect such changes to the Indenture as may be required
for such Indenture to be so qualified in accordance with the terms of the
TIA; and execute and use all commercially reasonable efforts to cause the
Trustee to execute, all documents that may be required to effect such
changes and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely manner;
and

(xviii) provide promptly to each Holder, upon request, each document
filed with the Commission pursuant to the requirements of Section 13 or
Section 15(d) of the Exchange Act.

(d)   Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iii)(C) or any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"SUSPENSION NOTICE"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration Statement
until (i) such Holder has received copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is
advised in writing by the Company that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus (in each case, the "RECOMMENCEMENT
DATE"). Each Holder receiving a Suspension Notice hereby agrees that it will
either (i) destroy any Prospectuses, other than permanent file copies, then in
such Holder's possession which have been replaced by the Company with more
recently dated Prospectuses or (ii) deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Holder's
possession of the Prospectus covering such Transfer Restricted Securities that
was current at the time of receipt of the Suspension Notice. The time period
regarding the effectiveness of such Registration Statement set forth in Section
3 or 4 hereof, as applicable,

13

shall be extended by a number of days equal to the number of days in the period
from and including the date of delivery of the Suspension Notice to the
Recommencement Date.

SECTION 7. REGISTRATION EXPENSES

(a)   All expenses incident to the Company's performance of or compliance
with this Agreement will be borne by the Company, regardless of whether a
Registration Statement becomes effective, including without limitation: (i) all
registration and filing fees and expenses; (ii) all fees and expenses of
compliance with federal securities and state Blue Sky or securities laws; (iii)
all expenses of printing (including printing certificates for the Exchange
Securities to be issued in the Exchange Offer and printing of Prospectuses),
messenger and delivery services and telephone; (iv) all fees and disbursements
of counsel for the Company and the Holders of Transfer Restricted Securities
(subject to (b) below); (v) all application and filing fees in connection with
listing the Exchange Securities on a national securities exchange or automated
quotation system pursuant to the requirements hereof; and (vi) all fees and
disbursements of independent certified public accountants of the Company
(including the expenses of any special audit and comfort letters required by or
incident to such performance).

The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.

Anything contained herein to the contrary notwithstanding, the Company
shall not have any obligation whatsoever in respect of any brokerage
commissions, dealers' selling concessions, transfer taxes or, except as
otherwise expressly set forth herein, any other selling expenses incurred in
connection herewith or the Exchange Offer or sale of Transfer Restricted Notes,
Offered Securities or Exchange Securities.

(b)   In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Initial Purchaser and the Holders of Transfer Restricted Securities who are
tendering Initial Securities in the Exchange Offer and/or selling or reselling
Offered Securities or Exchange Securities pursuant to the "Plan of Distribution"
contained in the Exchange Offer Registration Statement or the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not more
than one counsel, who shall be Latham & Watkins LLP, unless another firm shall
be chosen by the Holders of a majority in principal amount of the Transfer
Restricted Securities for whose benefit such Registration Statement is being
prepared; provided that the Company's reimbursement obligation relating to such
fees and disbursements shall not exceed $15,000.

SECTION 8. INDEMNIFICATION

(a)   Indemnification by Company. The Company agrees to indemnify and hold
harmless each Holder, its directors, officers and each Person, if any, who
controls such Holder (within the meaning of Section 15 of the Act or Section 20
of the Exchange Act), from and against any and all losses, claims, damages,
liabilities, judgments, (including without limitation, any reasonable legal or
other expenses incurred in connection with investigating or defending any
matter, including any action that could give rise to any such losses, claims,
damages,

14

liabilities or judgments) caused by any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement,
preliminary prospectus or Prospectus (or any amendment or supplement thereto)
provided by the Company to any Holder or any prospective purchaser of Exchange
Securities or registered Offered Securities, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein in light of the circumstances under
which they were made not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by an untrue statement or omission
or alleged untrue statement or omission that is based upon information relating
to any of the Holders furnished in writing to the Company by any of the Holders.

(b)   Indemnification by Holders. Each Holder of Transfer Restricted
Securities agrees, severally and not jointly, to indemnify and hold harmless the
Company and its directors and officers, and each person, if any, who controls
(within the meaning of Section 15 of the Act or Section 20 of the Exchange Act)
the Company to the same extent as the foregoing indemnity from the Company set
forth in section (a) above, but only with reference to information relating to
such Holder furnished in writing to the Company by such Holder expressly for use
in any Registration Statement. In no event shall any Holder, its directors,
officers or any Person who controls such Holder be liable or responsible for any
amount in excess of the amount by which the total amount received by such Holder
with respect to its sale of Transfer Restricted Securities pursuant to a
Registration Statement exceeds (i) the amount paid by such Holder for such
Transfer Restricted Securities and (ii) the amount of any damages that such
Holder, its directors, officers or any Person who controls such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.

(c)   Notice. In case any action shall be commenced involving any person
in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b)
(the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a) and 8(b), a Holder shall not be required
to assume the defense of such action pursuant to this Section 8(c), but may
employ separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
the Holder). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by counsel that there may be one or more legal defenses available to it
which are different from or additional to those available to the indemnifying
party (in which case the indemnifying party shall not have the right to assume
the defense of such action on behalf of the indemnified party). In any such
case, the indemnifying party shall not, in connection with any one action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all

15

indemnified parties and all such fees and expenses shall be reimbursed as they
are incurred. Such firm shall be designated in writing by a majority of the
Holders, in the case of the parties indemnified pursuant to Section 8(a), and by
the Company, in the case of parties indemnified pursuant to Section 8(b). The
indemnifying party shall indemnify and hold harmless the indemnified party from
and against any and all losses, claims, damages, liabilities and judgments by
reason of any settlement of any action effected with its written consent;
provided that such consent was not unreasonably withheld. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the indemnified party
is or could have been a party and indemnity or contribution may be or could have
been sought hereunder by the indemnified party, unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability on claims that are or could have been the subject
matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
indemnified party.

(d)   Contribution. To the extent that the indemnification provided for in
this Section 8 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company, on
the one hand, and the Holders, on the other hand, from their sale of Transfer
Restricted Securities or (ii) if the allocation provided by clause 8(d)(i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause 8(d)(i) above but
also the relative fault of the Company, on the one hand, and of the Holder, on
the other hand, in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative fault of the Company, on the one
hand, and of the Holder, on the other hand, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company, on the one hand, or by the Holder, on the
other hand, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and judgments referred to above shall be deemed to include, subject
to the limitations set forth in the second paragraph of Section 8(a), any legal
or other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.

The Company and each Holder agree that it would not be just and equitable
if contribution pursuant to this Section 8(d) were determined by pro rata
allocation (even if the Holders were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any matter, including any action
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 8, no Holder, its
directors, its

16

officers or any Person, if any, who controls such Holder shall be required to
contribute, in the aggregate, any amount in excess of the amount by which the
total received by such Holder with respect to the sale of Transfer Restricted
Securities pursuant to a Registration Statement exceeds (i) the amount paid by
such Holder for such Transfer Restricted Securities and (ii) the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Holders' obligations to contribute
pursuant to this Section 8(d) are several in proportion to the respective
principal amount of Transfer Restricted Securities held by each Holder hereunder
and not joint.

SECTION 9. RULE 144A AND RULE 144

AREP agrees with each Holder, for so long as any Transfer Restricted
Securities remain outstanding and during any period in which AREP (i) is not
subject to Section 13 or 15(d) of the Exchange Act, to make available, upon
request of any Holder, to such Holder or beneficial owner of Transfer Restricted
Securities in connection with any sale thereof and any prospective purchaser of
such Transfer Restricted Securities designated by such Holder or beneficial
owner, the information required by Rule 144A(d)(4) under the Act in order to
permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and
(ii) is subject to Section 13 or 15 (d) of the Exchange Act, to make all filings
required thereby in a timely manner in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144.

SECTION 10. MISCELLANEOUS

(a)   Remedies. The Company acknowledges and agrees that any failure by
the Company to comply with its obligations under Sections 3 and 4 hereof may
result in material irreparable injury to the Initial Purchaser or the Holders
for which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Initial Purchaser or any Holder may obtain such relief as may be
required to specifically enforce the Company's obligations under Sections 3 and
4 hereof. The Company further agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.

(b)   No Inconsistent Agreements. The Company will not, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The Company has not previously
entered into, and is not currently a party to, any agreement granting any
registration rights with respect to its securities to any Person that would
require such securities to be included in any Registration Statement filed
hereunder. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the Company's securities under any agreement in effect on the date hereof.

(c)   Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities (except that in the
event Holders of less than all outstanding Transfer

17

Restricted Securities provide their written consent, such amendment,
modification or supplement and waiver or consent shall only be enforceable
against such Holders that provided their written consent) and (ii) in the case
of all other provisions hereof, the Company has obtained the written consent of
Holders of a majority of the outstanding principal amount of Transfer Restricted
Securities (excluding Transfer Restricted Securities held by the Company or its
Affiliates). Notwithstanding the foregoing, a waiver or consent to departure
from the provisions hereof that relates exclusively to the rights of Holders
whose Transfer Restricted Securities are being tendered pursuant to the Exchange
Offer, and that does not affect directly or indirectly the rights of other
Holders whose Transfer Restricted Securities are not being tendered pursuant to
such Exchange Offer, may be given by the Holders of a majority of the
outstanding principal amount of Transfer Restricted Securities subject to such
Exchange Offer.

(d)   Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchaser, on the other hand, and shall have the right to
enforce such agreements directly to the extent they may deem such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.

(e)   Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telecopier or air courier
guaranteeing overnight delivery:

(i)   if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and

(ii)  if to the Company:

American Real Estate Partners, L.P.
100 Bedford Road
Mt. Kisco, N.Y. 10549
Telecopier No.: (914) 242-9282
Attention: Chief Financial Officer

With a copy to:

Piper Rudnick LLP
1251 Avenue of the Americas
New York, New York 10020
Telecopier No.: (212) 884-8448
Attention: Steven L. Wasserman, Esq.

All notices and communications will be deemed to have been duly given: at
the time delivered by hand, if personally delivered; five Business Days after
being deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt acknowledged in writing, if telecopied; and on the next
Business Day, if timely delivered to an overnight air courier guaranteeing next
day delivery.

18

Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.

(f)   Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Transfer Restricted Securities; provided that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Transfer
Restricted Securities in violation of the terms hereof or of the Purchase
Agreement, the terms of the offering described in the Offering Memorandum under
the caption "Notice to Investors" or the Indenture. If any transferee of any
Holder shall acquire Transfer Restricted Securities in any manner, whether by
operation of law or otherwise, such Transfer Restricted Securities shall be held
subject to all of the terms of this Agreement, and by taking and holding such
Transfer Restricted Securities such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement, including the restrictions on resale set forth in this Agreement and,
if applicable, the Purchase Agreement, and such Person shall be entitled to
receive the benefits hereof.

(g)   Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

(h)   Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

(i)   Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.

(j)   Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.

(k)   Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.

[Remainder of page intentionally left blank]

19

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

AMERICAN REAL ESTATE PROPERTIES, L.P.

By:  /s/  Keith A. Meister
-----------------------------------
Name:   Keith A. Meister
Title:  President and Chief
Executive Officer

AMERICAN REAL ESTATE Finance Corp.

By: /s/  Keith A. Meister
------------------------------------
Name:  Keith A. Meister
Title: President and Chief Executive
Officer

AMERICAN REAL ESTATE HOLDINGS LIMITED
PARTNERSHIP

By: /s/  Keith A. Meister
------------------------------------
Name:  Keith A. Meister
Title: President and Chief Executive
Officer

BEAR, STEARNS & CO. INC.

By:  /s/  Stephen A. Mongillo
-----------------------------------
Name:  Stephen A. Mongillo
Title: Senior Managing Director

20

EXHIBIT 12.1

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS)

Three Months
Ended
March 31,                   Years Ended December 31,
----------------     -------------------------------------------
2004        2003        2002       2001         2000        1999
----        ----        ----       ----         ----        ----

Income from continuing operations before income taxes, 
income or loss from equity investees and minority
interest                                              54,041      55,576      76,977      67,283     76,778     105,984
Fixed Charges:                                                     
Interest Expense                                       5,919      20,640      27,369      34,765     17,820      19,010
Amortized capitalized expenses related                         
to indebtedness                                     193         320         191         178        222         215
Estimated interest within rental expense                 32         122         124         103        100          93
------      ------     -------     -------     ------     -------

Earnings as defined                                       60,185      76,658     104,661     102,329     94,920     125,302
======      ======     =======     =======     ======     =======

Fixed Charges (including capitalized items)                        
Interest Expense                                       5,919      20,640      27,369      34,765     17,820      19,010
Amortized capitalized expenses related                         
to indebtedness                                     193         320         191         178        222         215
Estimated interest within rental expense                 32         122         124         103        100          93
------      ------     -------     -------     ------     -------
Fixed charges as defined                                   6,144      21,082      27,684      35,046     18,142      19,318
======      ======     =======     =======     ======     =======
Ratio of earnings to fixed charges                           9.8         3.6         3.8         2.9        5.2         6.5
======      ======     =======     =======     ======     =======

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Partners and the Board of Directors
American Real Estate Partners, L.P.:

We consent to the use of our reports dated March 12, 2004, with respect to the
consolidated balance sheets of each of American Real Estate Partners, L.P. and
American Real Estate Holdings Limited Partnership as of December 31, 2003 and
2002, 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, 2003, included in this registration 
statement on Form S-4, and to the reference to our firm under the heading 
"Experts" in the registration statement.

/s/ KPMG LLP

New York, New York
August 5, 2004

Exhibit 23.2

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
American Property Investors, Inc.:

We consent to the use of our report dated July 29, 2004, with respect to the 
balance sheet of American Property Investors, Inc. as of December 31, 2003, 
included in this registration statement on Form S-4, and to the reference to 
our firm under the heading "Experts" in the registration statement.

/s/ KPMG LLP

New York, New York
July 29, 2004

EXHIBIT 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

----------------------------------------
FORM T-1

STATEMENT OF ELIGIBILITY UNDER
THE TRUST INDENTURE ACT OF 1939 OF A

CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility of
a Trustee Pursuant to Section 305(b)(2)

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

WILMINGTON TRUST COMPANY
(Exact name of Trustee as specified in its charter)

DELAWARE                                51-0055023
(Jurisdiction of incorporation or     (I.R.S. Employer Identification No.)
organization if not a U.S. national bank)

Rodney Square North
1100 North Market Street                             19890-0001
Wilmington, Delaware
(Address of principal executive offices)                    (Zip Code)

CYNTHIA L. CORLISS
VICE PRESIDENT AND ASSISTANT GENERAL COUNSEL
WILMINGTON TRUST COMPANY
1100 NORTH MARKET STREET
WILMINGTON, DELAWARE 19890-0001
(302) 651-8516
(Name, address and telephone number of agent for service)

AMERICAN REAL ESTATE PARTNERS, L.P.
(Exact name of obligor as specified in its charter)

DELAWARE                                     13-3398766
(State or other jurisdiction or            (I.R.S. Employer Identification No.)
incorporation or organization)

AMERICAN REAL ESTATE FINANCE CORP.
(Exact name of obligor as specified in its charter)
DELAWARE                                     20-1059842
(State or other jurisdiction or            (I.R.S. Employer Identification No.)
incorporation or organization)

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
DELAWARE                                     13-3398767
(State or other jurisdiction or            (I.R.S. Employer Identification No.)
incorporation or organization)

100 South Bedford Road
Mt. Kisco, New York                                       10549
(Address of principal executive offices)               (Zip Code)

8 1/8% SENIOR SECURED NOTES DUE 2012
GUARANTEES OF 8 1/8% SENIOR SECURED NOTES DUE 2012

(Title of the Indenture Securities)

================================================================================

ITEM 1.      GENERAL INFORMATION.

Furnish the following information as to the trustee:

(a)  Name and address of each examining or supervising authority
to which it is subject.

Federal Deposit Insurance Co.         State Bank Commissioner
Five Penn Center                      Dover, Delaware
Suite #2901
Philadelphia, PA

(b)  Whether it is authorized to exercise corporate trust powers.

The trustee is authorized to exercise corporate trust powers.

ITEM 2. AFFILIATIONS WITH THE OBLIGOR.

If the obligor is an affiliate of the trustee, describe each
affiliation:

Based upon an examination of the books and records of the trustee
and upon information furnished by the obligor, the obligor is not an
affiliate of the trustee.

ITEM 16.  LIST OF EXHIBITS.

List below all exhibits filed as part of this Statement of Eligibility
and Qualification.

1.   Copy of the Charter of Wilmington Trust Company, which includes the
certificate of authority of Wilmington Trust Company to commence
business and the authorization of Wilmington Trust Company to
exercise corporate trust powers.

4.   Copy of By-Laws of Wilmington Trust Company.

6.   Consent of Wilmington Trust Company required by Section 321(b) of 
Trust Indenture Act.

7.   Copy of most recent Report of Condition of Wilmington Trust Company
published pursuant to law or the requirements of its supervising or
examining authority.

Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the ___ day
of August, 2004.

WILMINGTON TRUST COMPANY

[SEAL]

Attest: /s/ Michael G. Oller, Jr.               By: /s/ Denise M. Geran
--------------------------------            -------------------------- 
Assistant Secretary                         Name:  Denise M. Geran
Title: Vice President

2

EXHIBIT 1

AMENDED CHARTER

WILMINGTON TRUST COMPANY

WILMINGTON, DELAWARE

AS EXISTING ON MAY 9, 1987

AMENDED CHARTER
OR
ACT OF INCORPORATION
OF
WILMINGTON TRUST COMPANY

WILMINGTON TRUST COMPANY, originally incorporated by an Act of the
General Assembly of the State of Delaware, entitled "An Act to Incorporate the
Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name
of which company was changed to "WILMINGTON TRUST COMPANY" by an amendment filed
in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter
or Act of Incorporation of which company has been from time to time amended and
changed by merger agreements pursuant to the corporation law for state banks and
trust companies of the State of Delaware, does hereby alter and amend its
Charter or Act of Incorporation so that the same as so altered and amended shall
in its entirety read as follows:

FIRST: - The name of this corporation is WILMINGTON TRUST COMPANY.

SECOND: - The location of its principal office in the State of Delaware
is at Rodney Square North, in the City of Wilmington, County of New
Castle; the name of its resident agent is WILMINGTON TRUST COMPANY whose
address is Rodney Square North, in said City. In addition to such
principal office, the said corporation maintains and operates branch
offices in the City of Newark, New Castle County, Delaware, the Town of
Newport, New Castle County, Delaware, at Claymont, New Castle County,
Delaware, at Greenville, New Castle County Delaware, and at Milford
Cross Roads, New Castle County, Delaware, and shall be empowered to
open, maintain and operate branch offices at Ninth and Shipley Streets,
418 Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in
the City of Wilmington, New Castle County, Delaware, and such other
branch offices or places of business as may be authorized from time to
time by the agency or agencies of the government of the State of
Delaware empowered to confer such authority.

THIRD: - (a) The nature of the business and the objects and purposes
proposed to be transacted, promoted or carried on by this Corporation
are to do any or all of the things herein mentioned as fully and to the
same extent as natural persons might or could do and in any part of the
world, viz.:

(1) To sue and be sued, complain and defend in any Court of law or
equity and to make and use a common seal, and alter the seal at
pleasure, to hold, purchase, convey, mortgage or otherwise deal in
real and personal estate and property, and to appoint such officers
and agents as the business of the Corporation shall require, to
make by-laws not inconsistent with the Constitution or laws of the
United States or of this State, to discount bills, notes or other
evidences of debt, to receive deposits of money, or securities for
money, to buy gold and silver bullion and foreign coins, to buy and
sell bills of exchange, and generally to use,

exercise and enjoy all the powers, rights, privileges and
franchises incident to a corporation which are proper or necessary
for the transaction of the business of the Corporation hereby
created.

(2) To insure titles to real and personal property, or any estate
or interests therein, and to guarantee the holder of such property,
real or personal, against any claim or claims, adverse to his
interest therein, and to prepare and give certificates of title for
any lands or premises in the State of Delaware, or elsewhere.

(3) To act as factor, agent, broker or attorney in the receipt,
collection, custody, investment and management of funds, and the
purchase, sale, management and disposal of property of all
descriptions, and to prepare and execute all papers which may be
necessary or proper in such business.

(4) To prepare and draw agreements, contracts, deeds, leases,
conveyances, mortgages, bonds and legal papers of every
description, and to carry on the business of conveyancing in all
its branches.

(5) To receive upon deposit for safekeeping money, jewelry, plate,
deeds, bonds and any and all other personal property of every sort
and kind, from executors, administrators, guardians, public
officers, courts, receivers, assignees, trustees, and from all
fiduciaries, and from all other persons and individuals, and from
all corporations whether state, municipal, corporate or private,
and to rent boxes, safes, vaults and other receptacles for such
property.

(6) To act as agent or otherwise for the purpose of registering,
issuing, certificating, countersigning, transferring or
underwriting the stock, bonds or other obligations of any
corporation, association, state or municipality, and may receive
and manage any sinking fund therefor on such terms as may be agreed
upon between the two parties, and in like manner may act as
Treasurer of any corporation or municipality.

(7) To act as Trustee under any deed of trust, mortgage, bond or
other instrument issued by any state, municipality, body politic,
corporation, association or person, either alone or in conjunction
with any other person or persons, corporation or corporations.

(8) To guarantee the validity, performance or effect of any
contract or agreement, and the fidelity of persons holding places
of responsibility or trust; to become surety for any person, or
persons, for the faithful performance of any trust, office, duty,
contract or agreement, either by itself or in conjunction with any
other person, or persons, corporation, or corporations, or in like
manner become surety upon any bond, recognizance, obligation,
judgment, suit, order, or 

2

decree to be entered in any court of record within the State of
Delaware or elsewhere, or which may now or hereafter be required by
any law, judge, officer or court in the State of Delaware or
elsewhere.

(9) To act by any and every method of appointment as trustee,
trustee in bankruptcy, receiver, assignee, assignee in bankruptcy,
executor, administrator, guardian, bailee, or in any other trust
capacity in the receiving, holding, managing, and disposing of any
and all estates and property, real, personal or mixed, and to be
appointed as such trustee, trustee in bankruptcy, receiver,
assignee, assignee in bankruptcy, executor, administrator, guardian
or bailee by any persons, corporations, court, officer, or
authority, in the State of Delaware or elsewhere; and whenever this
Corporation is so appointed by any person, corporation, court,
officer or authority such trustee, trustee in bankruptcy, receiver,
assignee, assignee in bankruptcy, executor, administrator,
guardian, bailee, or in any other trust capacity, it shall not be
required to give bond with surety, but its capital stock shall be
taken and held as security for the performance of the duties
devolving upon it by such appointment.

(10) And for its care, management and trouble, and the exercise of
any of its powers hereby given, or for the performance of any of
the duties which it may undertake or be called upon to perform, or
for the assumption of any responsibility the said Corporation may
be entitled to receive a proper compensation.

(11) To purchase, receive, hold and own bonds, mortgages,
debentures, shares of capital stock, and other securities,
obligations, contracts and evidences of indebtedness, of any
private, public or municipal corporation within and without the
State of Delaware, or of the Government of the United States, or of
any state, territory, colony, or possession thereof, or of any
foreign government or country; to receive, collect, receipt for,
and dispose of interest, dividends and income upon and from any of
the bonds, mortgages, debentures, notes, shares of capital stock,
securities, obligations, contracts, evidences of indebtedness and
other property held and owned by it, and to exercise in respect of
all such bonds, mortgages, debentures, notes, shares of capital
stock, securities, obligations, contracts, evidences of
indebtedness and other property, any and all the rights, powers and
privileges of individual owners thereof, including the right to
vote thereon; to invest and deal in and with any of the moneys of
the Corporation upon such securities and in such manner as it may
think fit and proper, and from time to time to vary or realize such
investments; to issue bonds and secure the same by pledges or deeds
of trust or mortgages of or upon the whole or any part of the
property held or owned by the Corporation, and to sell and pledge
such bonds, as and when the Board of Directors shall determine, and
in the promotion of its said corporate business of investment and
to the extent authorized by law, to lease, purchase, hold, sell,
assign, transfer, pledge, mortgage and convey real

3

and personal property of any name and nature and any estate or
interest therein.

(b) In furtherance of, and not in limitation, of the powers conferred by
the laws of the State of Delaware, it is hereby expressly provided that
the said Corporation shall also have the following powers:

(1) To do any or all of the things herein set forth, to the same
extent as natural persons might or could do, and in any part of the
world.

(2) To acquire the good will, rights, property and franchises and
to undertake the whole or any part of the assets and liabilities of
any person, firm, association or corporation, and to pay for the
same in cash, stock of this Corporation, bonds or otherwise; to
hold or in any manner to dispose of the whole or any part of the
property so purchased; to conduct in any lawful manner the whole or
any part of any business so acquired, and to exercise all the
powers necessary or convenient in and about the conduct and
management of such business.

(3) To take, hold, own, deal in, mortgage or otherwise lien, and to
lease, sell, exchange, transfer, or in any manner whatever dispose
of property, real, personal or mixed, wherever situated.

(4) To enter into, make, perform and carry out contracts of every
kind with any person, firm, association or corporation, and,
without limit as to amount, to draw, make, accept, endorse,
discount, execute and issue promissory notes, drafts, bills of
exchange, warrants, bonds, debentures, and other negotiable or
transferable instruments.

(5) To have one or more offices, to carry on all or any of its
operations and businesses, without restriction to the same extent
as natural persons might or could do, to purchase or otherwise
acquire, to hold, own, to mortgage, sell, convey or otherwise
dispose of, real and personal property, of every class and
description, in any State, District, Territory or Colony of the
United States, and in any foreign country or place.

(6) It is the intention that the objects, purposes and powers
specified and clauses contained in this paragraph shall (except
where otherwise expressed in said paragraph) be nowise limited or
restricted by reference to or inference from the terms of any other
clause of this or any other paragraph in this charter, but that the
objects, purposes and powers specified in each of the clauses of
this paragraph shall be regarded as independent objects, purposes
and powers.

FOURTH: - (a) The total number of shares of all classes of stock which the
Corporation shall have authority to issue is forty-one million
(41,000,000) shares, consisting of:

4

(1) One million (1,000,000) shares of Preferred stock, par value
$10.00 per share (hereinafter referred to as "Preferred Stock");
and

(2) Forty million (40,000,000) shares of Common Stock, par value
$1.00 per share (hereinafter referred to as "Common Stock").

(b) Shares of Preferred Stock may be issued from time to time in one or
more series as may from time to time be determined by the Board of
Directors each of said series to be distinctly designated. All shares of
any one series of Preferred Stock shall be alike in every particular,
except that there may be different dates from which dividends, if any,
thereon shall be cumulative, if made cumulative. The voting powers and the
preferences and relative, participating, optional and other special rights
of each such series, and the qualifications, limitations or restrictions
thereof, if any, may differ from those of any and all other series at any
time outstanding; and, subject to the provisions of subparagraph 1 of
Paragraph (c) of this Article FOURTH, the Board of Directors of the
Corporation is hereby expressly granted authority to fix by resolution or
resolutions adopted prior to the issuance of any shares of a particular
series of Preferred Stock, the voting powers and the designations,
preferences and relative, optional and other special rights, and the
qualifications, limitations and restrictions of such series, including,
but without limiting the generality of the foregoing, the following:

(1) The distinctive designation of, and the number of shares of
Preferred Stock which shall constitute such series, which number
may be increased (except where otherwise provided by the Board of
Directors) or decreased (but not below the number of shares thereof
then outstanding) from time to time by like action of the Board of
Directors;

(2) The rate and times at which, and the terms and conditions on
which, dividends, if any, on Preferred Stock of such series shall
be paid, the extent of the preference or relation, if any, of such
dividends to the dividends payable on any other class or classes,
or series of the same or other class of stock and whether such
dividends shall be cumulative or non-cumulative;

(3) The right, if any, of the holders of Preferred Stock of such
series to convert the same into or exchange the same for, shares of
any other class or classes or of any series of the same or any
other class or classes of stock of the Corporation and the terms
and conditions of such conversion or exchange;

(4) Whether or not Preferred Stock of such series shall be subject
to redemption, and the redemption price or prices and the time or
times at which, and the terms and conditions on which, Preferred
Stock of such series may be redeemed.

(5) The rights, if any, of the holders of Preferred Stock of such
series upon the voluntary or involuntary liquidation, merger,
consolidation, distribution or sale 

5

of assets, dissolution or winding-up, of the Corporation.

(6) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Preferred Stock of such
series; and

(7) The voting powers, if any, of the holders of such series of
Preferred Stock which may, without limiting the generality of the
foregoing include the right, voting as a series or by itself or
together with other series of Preferred Stock or all series of
Preferred Stock as a class, to elect one or more directors of the
Corporation if there shall have been a default in the payment of
dividends on any one or more series of Preferred Stock or under
such circumstances and on such conditions as the Board of Directors
may determine.

(c) (1) After the requirements with respect to preferential dividends on
the Preferred Stock (fixed in accordance with the provisions of section
(b) of this Article FOURTH), if any, shall have been met and after the
Corporation shall have complied with all the requirements, if any, with
respect to the setting aside of sums as sinking funds or redemption or
purchase accounts (fixed in accordance with the provisions of section (b)
of this Article FOURTH), and subject further to any conditions which may
be fixed in accordance with the provisions of section (b) of this Article
FOURTH, then and not otherwise the holders of Common Stock shall be
entitled to receive such dividends as may be declared from time to time by
the Board of Directors.

(2) After distribution in full of the preferential amount, if any,
(fixed in accordance with the provisions of section (b) of this
Article FOURTH), to be distributed to the holders of Preferred
Stock in the event of voluntary or involuntary liquidation,
distribution or sale of assets, dissolution or winding-up, of the
Corporation, the holders of the Common Stock shall be entitled to
receive all of the remaining assets of the Corporation, tangible
and intangible, of whatever kind available for distribution to
stockholders ratably in proportion to the number of shares of
Common Stock held by them respectively.

(3) Except as may otherwise be required by law or by the provisions
of such resolution or resolutions as may be adopted by the Board of
Directors pursuant to section (b) of this Article FOURTH, each
holder of Common Stock shall have one vote in respect of each share
of Common Stock held on all matters voted upon by the stockholders.

(d) No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or
series of stock or of other securities of the Corporation shall have any
preemptive right to purchase or subscribe for any unissued stock of any
class or series or any additional shares of any class or series to be
issued by reason of any increase of the authorized capital stock of the
Corporation of any class or series, or bonds, certificates of
indebtedness, debentures or other securities 

6

convertible into or exchangeable for stock of the Corporation of any class
or series, or carrying any right to purchase stock of any class or series,
but any such unissued stock, additional authorized issue of shares of any
class or series of stock or securities convertible into or exchangeable
for stock, or carrying any right to purchase stock, may be issued and
disposed of pursuant to resolution of the Board of Directors to such
persons, firms, corporations or associations, whether such holders or
others, and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.

(e) The relative powers, preferences and rights of each series of
Preferred Stock in relation to the relative powers, preferences and rights
of each other series of Preferred Stock shall, in each case, be as fixed
from time to time by the Board of Directors in the resolution or
resolutions adopted pursuant to authority granted in section (b) of this
Article FOURTH and the consent, by class or series vote or otherwise, of
the holders of such of the series of Preferred Stock as are from time to
time outstanding shall not be required for the issuance by the Board of
Directors of any other series of Preferred Stock whether or not the
powers, preferences and rights of such other series shall be fixed by the
Board of Directors as senior to, or on a parity with, the powers,
preferences and rights of such outstanding series, or any of them;
provided, however, that the Board of Directors may provide in the
resolution or resolutions as to any series of Preferred Stock adopted
pursuant to section (b) of this Article FOURTH that the consent of the
holders of a majority (or such greater proportion as shall be therein
fixed) of the outstanding shares of such series voting thereon shall be
required for the issuance of any or all other series of Preferred Stock.

(f) Subject to the provisions of section (e), shares of any series of
Preferred Stock may be issued from time to time as the Board of Directors
of the Corporation shall determine and on such terms and for such
consideration as shall be fixed by the Board of Directors.

(g) Shares of Common Stock may be issued from time to time as the Board of
Directors of the Corporation shall determine and on such terms and for
such consideration as shall be fixed by the Board of Directors.

(h) The authorized amount of shares of Common Stock and of Preferred Stock
may, without a class or series vote, be increased or decreased from time
to time by the affirmative vote of the holders of a majority of the stock
of the Corporation entitled to vote thereon.

FIFTH: - (a) The business and affairs of the Corporation shall be
conducted and managed by a Board of Directors. The number of directors
constituting the entire Board shall be not less than five nor more than
twenty-five as fixed from time to time by vote of a majority of the whole
Board, provided, however, that the number of directors shall not be
reduced so as to shorten the term of any director at the time in

7

office, and provided further, that the number of directors constituting
the whole Board shall be twenty-four until otherwise fixed by a majority
of the whole Board.

(b) The Board of Directors shall be divided into three classes, as nearly
equal in number as the then total number of directors constituting the
whole Board permits, with the term of office of one class expiring each
year. At the annual meeting of stockholders in 1982, directors of the
first class shall be elected to hold office for a term expiring at the
next succeeding annual meeting, directors of the second class shall be
elected to hold office for a term expiring at the second succeeding annual
meeting and directors of the third class shall be elected to hold office
for a term expiring at the third succeeding annual meeting. Any vacancies
in the Board of Directors for any reason, and any newly created
directorships resulting from any increase in the directors, may be filled
by the Board of Directors, acting by a majority of the directors then in
office, although less than a quorum, and any directors so chosen shall
hold office until the next annual election of directors. At such election,
the stockholders shall elect a successor to such director to hold office
until the next election of the class for which such director shall have
been chosen and until his successor shall be elected and qualified. No
decrease in the number of directors shall shorten the term of any
incumbent director.

(c) Notwithstanding any other provisions of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and notwithstanding the
fact that some lesser percentage may be specified by law, this Charter or
Act of Incorporation or the By-Laws of the Corporation), any director or
the entire Board of Directors of the Corporation may be removed at any
time without cause, but only by the affirmative vote of the holders of
two-thirds or more of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class) cast at a meeting of the
stockholders called for that purpose.

(d) Nominations for the election of directors may be made by the Board of
Directors or by any stockholder entitled to vote for the election of
directors. Such nominations shall be made by notice in writing, delivered
or mailed by first class United States mail, postage prepaid, to the
Secretary of the Corporation not less than 14 days nor more than 50 days
prior to any meeting of the stockholders called for the election of
directors; provided, however, that if less than 21 days' notice of the
meeting is given to stockholders, such written notice shall be delivered
or mailed, as prescribed, to the Secretary of the Corporation not later
than the close of the seventh day following the day on which notice of the
meeting was mailed to stockholders. Notice of nominations which are
proposed by the Board of Directors shall be given by the Chairman on
behalf of the Board.

(e) Each notice under subsection (d) shall set forth (i) the name, age,
business address and, if known, residence address of each nominee proposed
in such notice, (ii) the principal occupation or employment of such
nominee and (iii) the number of shares of

8

stock of the Corporation which are beneficially owned by each such
nominee.

(f) The Chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with
the foregoing procedure, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be disregarded.

(g) No action required to be taken or which may be taken at any annual or
special meeting of stockholders of the Corporation may be taken without a
meeting, and the power of stockholders to consent in writing, without a
meeting, to the taking of any action is specifically denied.

SIXTH: - The Directors shall choose such officers, agents and servants as
may be provided in the By-Laws as they may from time to time find
necessary or proper.

SEVENTH: - The Corporation hereby created is hereby given the same powers,
rights and privileges as may be conferred upon corporations organized
under the Act entitled "An Act Providing a General Corporation Law",
approved March 10, 1899, as from time to time amended.

EIGHTH: - This Act shall be deemed and taken to be a private Act.

NINTH: - This Corporation is to have perpetual existence.

TENTH: - The Board of Directors, by resolution passed by a majority of the
whole Board, may designate any of their number to constitute an Executive
Committee, which Committee, to the extent provided in said resolution, or
in the By-Laws of the Company, shall have and may exercise all of the
powers of the Board of Directors in the management of the business and
affairs of the Corporation, and shall have power to authorize the seal of
the Corporation to be affixed to all papers which may require it.

ELEVENTH: - The private property of the stockholders shall not be liable
for the payment of corporate debts to any extent whatever.

TWELFTH: - The Corporation may transact business in any part of the world.

THIRTEENTH: - The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the By-Laws of the Corporation by a
vote of the majority of the entire Board. The stockholders may make, alter
or repeal any By-Law whether or not adopted by them, provided however,
that any such additional By-Laws, alterations or repeal may be adopted
only by the affirmative vote of the holders of two-thirds or more of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class).

9

FOURTEENTH: - Meetings of the Directors may be held outside of the State
of Delaware at such places as may be from time to time designated by the
Board, and the Directors may keep the books of the Company outside of the
State of Delaware at such places as may be from time to time designated by
them.

FIFTEENTH: - (a) (1) In addition to any affirmative vote required by law,
and except as otherwise expressly provided in sections (b) and (c) of this
Article FIFTEENTH:

(A) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with or into (i) any Interested
Stockholder (as hereinafter defined) or (ii) any other corporation
(whether or not itself an Interested Stockholder), which, after
such merger or consolidation, would be an Affiliate (as hereinafter
defined) of an Interested Stockholder, or

(B) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of related
transactions) to or with any Interested Stockholder or any
Affiliate of any Interested Stockholder of any assets of the
Corporation or any Subsidiary having an aggregate fair market value
of $1,000,000 or more, or

(C) the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of related transactions) of any
securities of the Corporation or any Subsidiary to any Interested
Stockholder or any Affiliate of any Interested Stockholder in
exchange for cash, securities or other property (or a combination
thereof) having an aggregate fair market value of $1,000,000 or
more, or

(D)  the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation, or

(E) any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or
any similar transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect, directly
or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities
of the Corporation or any Subsidiary which is directly or
indirectly owned by any Interested Stockholder, or any Affiliate of
any Interested Stockholder,

shall require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purpose of this
Article FIFTEENTH as one class ("Voting Shares"). Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.

10

(2) The term "business combination" as used in this Article
FIFTEENTH shall mean any transaction which is referred to in any
one or more of clauses (A) through (E) of paragraph 1 of the
section (a).

(b) The provisions of section (a) of this Article FIFTEENTH shall
not be applicable to any particular business combination and such
business combination shall require only such affirmative vote as is
required by law and any other provisions of the Charter or Act of
Incorporation or By-Laws if such business combination has been
approved by a majority of the whole Board.

(c) For the purposes of this Article FIFTEENTH:

(1) A "person" shall mean any individual, firm, corporation or other
entity.

(2) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any Subsidiary) who
or which as of the record date for the determination of stockholders
entitled to notice of and to vote on such business combination, or
immediately prior to the consummation of any such transaction:

(A) is the beneficial owner, directly or indirectly, of more
than 10% of the Voting Shares, or

(B) is an Affiliate of the Corporation and at any time within two
years prior thereto was the beneficial owner, directly or
indirectly, of not less than 10% of the then outstanding voting
Shares, or

(C) is an assignee of or has otherwise succeeded in any share of
capital stock of the Corporation which were at any time within two
years prior thereto beneficially owned by any Interested
Stockholder, and such assignment or succession shall have occurred
in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities
Act of 1933.

(3) A person shall be the "beneficial owner" of any Voting Shares:

(A) which such person or any of its Affiliates and Associates (as
hereafter defined) beneficially own, directly or indirectly, or

(B) which such person or any of its Affiliates or Associates has
(i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise, 

11

or (ii) the right to vote pursuant to any agreement, arrangement or
understanding, or

(C) which are beneficially owned, directly or indirectly, by any
other person with which such first mentioned person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of capital stock of the Corporation.

(4) The outstanding Voting Shares shall include shares deemed owned
through application of paragraph (3) above but shall not include any other
Voting Shares which may be issuable pursuant to any agreement, or upon
exercise of conversion rights, warrants or options or otherwise.

(5) "Affiliate" and "Associate" shall have the respective meanings given
those terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on December 31, 1981.

(6) "Subsidiary" shall mean any corporation of which a majority of any
class of equity security (as defined in Rule 3a11-1 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as in effect on
December 31, 1981) is owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of Investment
Stockholder set forth in paragraph (2) of this section (c), the term
"Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by the
Corporation.

(d) majority of the directors shall have the power and duty to
determine for the purposes of this Article FIFTEENTH on the basis
of information known to them, (1) the number of Voting Shares
beneficially owned by any person (2) whether a person is an
Affiliate or Associate of another, (3) whether a person has an
agreement, arrangement or understanding with another as to the
matters referred to in paragraph (3) of section (c), or (4) whether
the assets subject to any business combination or the consideration
received for the issuance or transfer of securities by the
Corporation, or any Subsidiary has an aggregate fair market value
of $1,000,000 or more.

(e) Nothing contained in this Article FIFTEENTH shall be construed
to relieve any Interested Stockholder from any fiduciary obligation
imposed by law.

SIXTEENTH: Notwithstanding any other provision of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and in addition to any
other vote that may be required by law, this Charter or Act of
Incorporation by the By-Laws), the affirmative vote of the holders of at
least two-thirds of the outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class) shall be required to amend,
alter or repeal any 

12

provision of Articles FIFTH, THIRTEENTH, FIFTEENTH or Sixteenth of this
Charter or Act of Incorporation.

SEVENTEENTH: (a) a Director of this Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, except to the extent such exemption from
liability or limitation thereof is not permitted under the Delaware
General Corporation Laws as the same exists or may hereafter be amended.

(b) Any repeal or modification of the foregoing paragraph shall not
adversely affect any right or protection of a Director of the
Corporation existing hereunder with respect to any act or omission
occurring prior to the time of such repeal or modification."

13

EXHIBIT 4

BY-LAWS

WILMINGTON TRUST COMPANY

WILMINGTON, DELAWARE

AS EXISTING ON JANUARY 16, 2003

BY-LAWS OF WILMINGTON TRUST COMPANY

ARTICLE I
STOCKHOLDERS' MEETINGS

Section 1. Annual Meeting. The annual meeting of stockholders shall be
held on the third Thursday in April each year at the principal office at the
Company or at such other date, time or place as may be designated by resolution
by the Board of Directors.

Section 2. Special Meetings. Special meetings of stockholders may be
called at any time by the Board of Directors, the Chairman of the Board, the
Chief Executive Officer or the President.

Section 3. Notice. Notice of all meetings of the stockholders shall be
given by mailing to each stockholder at least ten (10) days before said meeting,
at his last known address, a written or printed notice fixing the time and place
of such meeting.

Section 4. Quorum. A majority in the amount of the capital stock of the
Company issued and outstanding on the record date, as herein determined, shall
constitute a quorum at all meetings of stockholders for the transaction of any
business, but the holders of a smaller number of shares may adjourn from time to
time, without further notice, until a quorum is secured. At each annual or
special meeting of stockholders, each stockholder shall be entitled to one vote,
either in person or by proxy, for each share of stock registered in the
stockholder's name on the books of the Company on the record date for any such
meeting as determined herein.

ARTICLE 2
DIRECTORS

Section 1. Management. The affairs and business of the Company shall be
managed by or under the direction of the Board of Directors.

Section 2. Number. The authorized number of directors that shall
constitute the Board of Directors shall be fixed from time to time by or
pursuant to a resolution passed by a majority of the Board of Directors within
the parameters set by the Charter of the Company. No more than two directors may
also be employees of the Company or any affiliate thereof.

Section 3. Qualification. In addition to any other provisions of these
Bylaws, to be qualified for nomination for election or appointment to the Board
of Directors, a person must have not attained the age of sixty-nine years at the
time of such election or appointment, provided however, the Nominating and
Corporate Governance Committee may waive such qualification as to a particular
candidate otherwise qualified to serve as a director upon a good faith
determination by such committee that such a waiver is in the best interests of
the Company and its stockholders. The

Chairman of the Board and the Chief Executive Officer shall not be qualified to
continue to serve as directors upon the termination of their service in those
offices for any reason.

Section 4. Meetings. The Board of Directors shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members, or at the call of the Chairman of the
Board of Directors, the Chief Executive Officer or the President.

Section 5. Special Meetings. Special meetings of the Board of Directors
may be called at any time by the Chairman of the Board, the Chief Executive
Officer or the President, and shall be called upon the written request of a
majority of the directors.

Section 6. Quorum. A majority of the directors elected and qualified
shall be necessary to constitute a quorum for the transaction of business at any
meeting of the Board of Directors.

Section 7. Notice. Written notice shall be sent by mail to each
director of any special meeting of the Board of Directors, and of any change in
the time or place of any regular meeting, stating the time and place of such
meeting, which shall be mailed not less than two days before the time of holding
such meeting.

Section 8. Vacancies. In the event of the death, resignation, removal,
inability to act or disqualification of any director, the Board of Directors,
although less than a quorum, shall have the right to elect the successor who
shall hold office for the remainder of the full term of the class of directors
in which the vacancy occurred, and until such director's successor shall have
been duly elected and qualified.

Section 9. Organization Meeting. The Board of Directors at its first
meeting after its election by the stockholders shall appoint an Executive
Committee, an Audit Committee, a Compensation Committee and a Nominating and
Corporate Governance Committee, and shall elect from its own members a Chairman
of the Board, a Chief Executive Officer and a President, who may be the same
person. The Board of Directors shall also elect at such meeting a Secretary and
a Chief Financial Officer, who may be the same person, and may appoint at any
time such committees as it may deem advisable. The Board of Directors may also
elect at such meeting one or more Associate Directors. The Board of Directors,
the Executive Committee or another committee designated by the Board of
Directors may elect or appoint such other officers as they may deem advisable.

Section 10. Removal. The Board of Directors may at any time remove,
with or without cause, any member of any committee appointed by it or any
associate director or officer elected by it and may appoint or elect his
successor.

Section 11. Responsibility of Officers. The Board of Directors may
designate an officer to be in charge of such departments or divisions of the
Company as it may deem advisable.

2

Section 12. Participation in Meetings. The Board of Directors or any
committee of the Board of Directors may participate in a meeting of the Board of
Directors or such committee, as the case may be, by conference telephone, video
facilities or other communications equipment. Any action required or permitted
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken without a meeting if all of the members of the Board of Directors
or the committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of the Board of Directors or such
committee.

ARTICLE 3
COMMITTEES OF THE BOARD OF DIRECTORS

Section 1. Executive Committee.

(A) The Executive Committee shall be composed of not more than nine (9)
members, who shall be selected by the Board of Directors from its own members,
and who shall hold office at the pleasure of the Board of Directors.

(B) The Executive Committee shall have and may exercise, to the fullest
extent permitted by law, all of the powers of the Board of Directors when it is
not in session to transact all business for and on behalf of the Company that
may be brought before it.

(C) The Executive Committee shall meet at the principal office of the
Company or elsewhere in its discretion at such times to be determined by a
majority of its members, or at the call of the Chairman of the Executive
Committee, the Chairman of the Board, the Chief Executive Officer or the
President. The majority of its members shall be necessary to constitute a quorum
for the transaction of business. Special meetings of the Executive Committee may
be held at any time when a quorum is present.

(D) Minutes of each meeting of the Executive Committee shall be kept
and submitted to the Board of Directors at its next meeting.

(E) In the event of an emergency of sufficient severity to prevent the
conduct and management of the affairs and business of the Company by its
directors and officers as contemplated by these Bylaws, any two available
members of the Executive Committee as constituted immediately prior to such
emergency shall constitute a quorum of that Committee for the full conduct and
management of the affairs and business of the Company in accordance with the
provisions of Article 3 of these Bylaws. In the event of the unavailability, at
such time, of a minimum of two members of the Executive Committee, any three
available directors shall constitute the Executive Committee for the full
conduct and management of the affairs and business of the Company in accordance
with the foregoing provisions of this Section. This Bylaw shall be subject to
implementation by resolutions of the Board of Directors presently existing or
hereafter passed from time to time for that purpose, and any provisions of these
Bylaws (other than this Section) and any resolutions which are contrary

3

to the provisions of this Section or to the provisions of any such implementing
resolutions shall be suspended during such a disaster period until it shall be
determined by any interim Executive Committee acting under this Section that it
shall be to the advantage of the Company to resume the conduct and management of
its affairs and business under all of the other provisions of these Bylaws.

Section 2. Audit Committee.

(A) The Audit Committee shall be composed of not more than five (5)
members, who shall be selected by the Board of Directors from its own members,
none of whom shall be an officer or employee of the Company, and shall hold
office at the pleasure of the Board.

(B) The Audit Committee shall have general supervision over the Audit
Services Division in all matters however subject to the approval of the Board of
Directors; it shall consider all matters brought to its attention by the officer
in charge of the Audit Services Division, review all reports of examination of
the Company made by any governmental agency or such independent auditor employed
for that purpose, and make such recommendations to the Board of Directors with
respect thereto or with respect to any other matters pertaining to auditing the
Company as it shall deem desirable.

(C) The Audit Committee shall meet whenever and wherever its
Chairperson, the Chairman of the Board, the Chief Executive Officer, the
President or a majority of the Committee's members shall deem it to be proper
for the transaction of its business. A majority of the Committee's members shall
constitute a quorum for the transaction of business. The acts of the majority at
a meeting at which a quorum is present shall constitute action by the Committee.

Section 3. Compensation Committee.

(A) The Compensation Committee shall be composed of not more than five
(5) members, who shall be selected by the Board of Directors from its own
members, none of whom shall be an officer or employee of the Company, and shall
hold office at the pleasure of the Board of Directors.

(B) The Compensation Committee shall in general advise upon all matters
of policy concerning compensation, including salaries and employee benefits.

(C) The Compensation Committee shall meet whenever and wherever its
Chairperson, the Chairman of the Board, the Chief Executive Officer, the
President or a majority of the Committee's members shall deem it to be proper
for the transaction of its business. A majority of the Committee's members shall
constitute a quorum for the transaction of business. The acts of the majority at
a meeting at which a quorum is present shall constitute action by the Committee.

SECTION 4. NOMINATING AND CORPORATE GOVERNANCE COMMITTEE.

4

(A) The Nominating and Corporate Governance Committee shall be composed
of not more than five members, who shall be selected by the Board of Directors
from its own members, none of whom shall be an officer or employee of the
Company, and shall hold office at the pleasure of the Board of Directors.

(B) The Nominating and Corporate Governance Committee shall provide
counsel and make recommendations to the Chairman of the Board and the full Board
with respect to the performance of the Chairman of the Board and the Chief
Executive Officer, candidates for membership on the Board of Directors and its
committees, matters of corporate governance, succession planning for the
Company's executive management and significant shareholder relations issues.

(C) The Nominating and Corporate Governance Committee shall meet
whenever and wherever its Chairperson, the Chairman of the Board, the Chief
Executive Officer, the President, or a majority of the Committee's members shall
deem it to be proper for the transaction of its business. A majority of the
Committee's members shall constitute a quorum for the transaction of business.
The acts of the majority at a meeting at which a quorum is present shall
constitute action by the Committee.

Section 5. Other Committees. The Company may have such other committees
with such powers as the Board may designate from time to time by resolution or
by an amendment to these Bylaws.

Section 6. Associate Directors.

(A) Any person who has served as a director may be elected by the Board
of Directors as an associate director, to serve at the pleasure of the Board of
Directors.

(B) Associate directors shall be entitled to attend all meetings of
directors and participate in the discussion of all matters brought to the Board
of Directors, but will not have a right to vote.

Section 7. Absence or Disqualification of Any Member of a Committee. In
the absence or disqualification of any member of any committee created under
Article III of these Bylaws, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.

ARTICLE 4
OFFICERS

5

Section 1. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the Board of Directors and shall have such further
authority and powers and shall perform such duties the Board of Directors may
assign to him from time to time.

Section 2. Chief Executive Officer. The Chief Executive Officer shall
have the powers and duties pertaining to the office of Chief Executive Officer
conferred or imposed upon him by statute, incident to his office or as the Board
of Directors may assign to him from time to time. In the absence of the Chairman
of the Board, the Chief Executive Officer shall have the powers and duties of
the Chairman of the Board.

Section 3. President. The President shall have the powers and duties
pertaining to the office of the President conferred or imposed upon him by
statute, incident to his office or as the Board of Directors may assign to him
from time to time. In the absence of the Chairman of the Board and the Chief
Executive Officer, the President shall have the powers and duties of the
Chairman of the Board.

Section 4. Duties. The Chairman of the Board, the Chief Executive
Officer or the President, as designated by the Board of Directors, shall carry
into effect all legal directions of the Executive Committee and of the Board of
Directors and shall at all times exercise general supervision over the interest,
affairs and operations of the Company and perform all duties incident to his
office.

Section 5. Vice Presidents. There may be one or more Vice Presidents,
however denominated by the Board of Directors, who may at any time perform all
of the duties of the Chairman of the Board, the Chief Executive Officer and/or
the President and such other powers and duties incident to their respective
offices or as the Board of Directors, the Executive Committee, the Chairman of
the Board, the Chief Executive Officer or the President or the officer in charge
of the department or division to which they are assigned may assign to them from
time to time.

Section 6. Secretary. The Secretary shall attend to the giving of
notice of meetings of the stockholders and the Board of Directors, as well as
the committees thereof, to the keeping of accurate minutes of all such meetings,
recording the same in the minute books of the Company and in general notifying
the Board of Directors of material matters affecting the Company on a timely
basis. In addition to the other notice requirements of these Bylaws and as may
be practicable under the circumstances, all such notices shall be in writing and
mailed well in advance of the scheduled date of any such meeting. He shall have
custody of the corporate seal, affix the same to any documents requiring such
corporate seal, attest the same and perform other duties incident to his office.

Section 7. Chief Financial Officer. The Chief Financial Officer shall
have general supervision over all assets and liabilities of the Company. He
shall be custodian of and responsible for all monies, funds and valuables of the
Company and for the keeping of proper records of the evidence of property or
indebtedness and of all transactions of the Company. He shall have general
supervision of the expenditures of the Company and periodically shall report to
the Board of Directors the condition of the Company, and perform such other
duties incident to his office or as

6

Board of Directors, the Executive Committee, the Chairman of the Board, the
Chief Executive Officer or the President may assign to him from time to time.

Section 8. Controller. There may be a Controller who shall exercise
general supervision over the internal operations of the Company, including
accounting, and shall render to the Board of Directors or the Audit Committee at
appropriate times a report relating to the general condition and internal
operations of the Company and perform other duties incident to his office.

There may be one or more subordinate accounting or controller officers
however denominated, who may perform the duties of the Controller and such
duties as may be prescribed by the Controller.

Section 9. Audit Officers. The officer designated by the Board of
Directors to be in charge of the Audit Services Division of the Company, with
such title as the Board of Directors shall prescribe, shall report to and be
directly responsible to the Audit Committee and the Board of Directors.

There shall be an Auditor and there may be one or more Audit Officers,
however denominated, who may perform all the duties of the Auditor and such
duties as may be prescribed by the officer in charge of the Audit Services
Division.

Section 10. Other Officers. There may be one or more officers, subordinate
in rank to all Vice Presidents with such functional titles as shall be
determined from time to time by the Board of Directors, who shall ex officio
hold the office of Assistant Secretary of the Company and who may perform such
duties as may be prescribed by the officer in charge of the department or
division to which they are assigned.

Section 11. Powers and Duties of Other Officers. The powers and duties of
all other officers of the Company shall be those usually pertaining to their
respective offices, subject to the direction of the Board of Directors, the
Executive Committee, the Chairman of the Board, the Chief Executive Officer or
the President and the officer in charge of the department or division to which
they are assigned.

Section 12. Number of Offices. Any one or more offices of the Company may
be held by the same person, except that (A) no individual may hold more than one
of the offices of Chief Financial Officer, Controller or Audit Officer and (B)
none of the Chairman of the Board, the Chief Executive Officer or the President
may hold any office mentioned in Section 12(A).

ARTICLE 5
STOCK AND STOCK CERTIFICATES

7

Section 1. Transfer. Shares of stock shall be transferable on the books of
the Company and a transfer book shall be kept in which all transfers of stock
shall be recorded.

Section 2. Certificates. Every holder of stock shall be entitled to have a
certificate signed by or in the name of the Company by the Chairman of the
Board, the Chief Executive Officer or the President or a Vice President, and by
the Secretary or an Assistant Secretary, of the Company, certifying the number
of shares owned by him in the Company. The corporate seal affixed thereto, and
any of or all the signatures on the certificate, may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Company with the same effect as if he were such officer, transfer agent
or registrar at the date of issue. Duplicate certificates of stock shall be
issued only upon giving such security as may be satisfactory to the Board of
Directors or the Executive Committee.

Section 3. Record Date. The Board of Directors is authorized to fix in
advance a record date for the determination of the stockholders entitled to
notice of, and to vote at, any meeting of stockholders and any adjournment
thereof, or entitled to receive payment of any dividend, or to any allotment of
rights, or to exercise any rights in respect of any change, conversion or
exchange of capital stock, or in connection with obtaining the consent of
stockholders for any purpose, which record date shall not be more than 60 nor
less than 10 days preceding the date of any meeting of stockholders or the date
for the payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall go into
effect, or a date in connection with obtaining such consent.

ARTICLE 6
SEAL

The corporate seal of the Company shall be in the following form:

Between two concentric circles the words "Wilmington Trust Company"
within the inner circle the words "Wilmington, Delaware."

ARTICLE 7
FISCAL YEAR

The fiscal year of the Company shall be the calendar year.

ARTICLE 8
EXECUTION OF INSTRUMENTS OF THE COMPANY

8

The Chairman of the Board, the Chief Executive Officer, the President or
any Vice President, however denominated by the Board of Directors, shall have
full power and authority to enter into, make, sign, execute, acknowledge and/or
deliver and the Secretary or any Assistant Secretary shall have full power and
authority to attest and affix the corporate seal of the Company to any and all
deeds, conveyances, assignments, releases, contracts, agreements, bonds, notes,
mortgages and all other instruments incident to the business of this Company or
in acting as executor, administrator, guardian, trustee, agent or in any other
fiduciary or representative capacity by any and every method of appointment or
by whatever person, corporation, court officer or authority in the State of
Delaware, or elsewhere, without any specific authority, ratification, approval
or confirmation by the Board of Directors or the Executive Committee, and any
and all such instruments shall have the same force and validity as though
expressly authorized by the Board of Directors and/or the Executive Committee.

ARTICLE 9
COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES

Directors and associate directors of the Company, other than salaried
officers of the Company, shall be paid such reasonable honoraria or fees for
attending meetings of the Board of Directors as the Board of Directors may from
time to time determine. Directors and associate directors who serve as members
of committees, other than salaried employees of the Company, shall be paid such
reasonable honoraria or fees for services as members of committees as the Board
of Directors shall from time to time determine and directors and associate
directors may be authorized by the Company to perform such special services as
the Board of Directors may from time to time determine in accordance with any
guidelines the Board of Directors may adopt for such services, and shall be paid
for such special services so performed reasonable compensation as may be
determined by the Board of Directors.

ARTICLE 10
INDEMNIFICATION

Section 1. Persons Covered. The Company shall indemnify and hold harmless,
to the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
the fact that he, or a person for whom he is the legal representative, is or was
a director of the Company or is or was serving at the request of the Company as
a director, officer, employee, fiduciary or agent of another corporation,
partnership, limited liability company, joint venture, trust, enterprise or
non-profit entity that is not a subsidiary or affiliate of the Company,
including service with respect to employee benefit plans, against all liability
and loss suffered and expenses reasonably incurred by such person. The Company
shall be required to indemnify such a person in connection with a proceeding
initiated by such person only if the proceeding was authorized by the Board of
Directors.

9

The Company may indemnify and hold harmless, to the fullest extent
permitted by applicable law as it presently exists or may hereafter be amended,
any person who was or is made or threatened to be made a party or is otherwise
involved in any proceeding by reason of the fact that he, or a person for whom
he is the legal representative, is or was an officer, employee or agent of the
Company or a director, officer, employee or agent of a subsidiary or affiliate
of the Company, against all liability and loss suffered and expenses reasonably
incurred by such person. The Company may indemnify any such person in connection
with a proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board of Directors.

Section 2. Advance of Expenses. The Company shall pay the expenses
incurred in defending any proceeding involving a person who is or may be
indemnified pursuant to Section 1 in advance of its final disposition, provided,
however, that the payment of expenses incurred by such a person in advance of
the final disposition of the proceeding shall be made only upon receipt of an
undertaking by that person to repay all amounts advanced if it should be
ultimately determined that the person is not entitled to be indemnified under
this Article 10 or otherwise.

Section 3. Certain Rights. If a claim under this Article 10 for (A)
payment of expenses or (B) indemnification by a director or person who is or was
serving at the request of the Company as a director, officer, employee,
fiduciary or agent of another corporation, partnership, limited liability
company, joint venture, trust, enterprise or nonprofit entity that is not a
subsidiary or affiliate of the Company, including service with respect to
employee benefit plans, is not paid in full within sixty days after a written
claim therefor has been received by the Company, the claimant may file suit to
recover the unpaid amount of such claim and, if successful in whole or in part,
shall be entitled to be paid the expense of prosecuting such claim. In any such
action, the Company shall have the burden of proving that the claimant was not
entitled to the requested indemnification or payment of expenses under
applicable law.

Section 4. Non-Exclusive. The rights conferred on any person by this
Article 10 shall not be exclusive of any other rights which such person may have
or hereafter acquire under any statute, provision of the Charter or Act of
Incorporation, these Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.

Section 5. Reduction of Amount. The Company's obligation, if any, to
indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such person
may collect as indemnification from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit entity.

Section 6. Effect of Modification. Any amendment, repeal or modification
of the foregoing provisions of this Article 10 shall not adversely affect any
right or protection hereunder of any person in respect of any act or omission
occurring prior to the time of such amendment, repeal or modification.

10

ARTICLE 11
AMENDMENTS TO THE BYLAWS

These Bylaws may be altered, amended or repealed, in whole or in part, and
any new Bylaw or Bylaws adopted at any regular or special meeting of the Board
of Directors by a vote of a majority of all the members of the Board of
Directors then in office.

ARTICLE 12
MISCELLANEOUS

Whenever used in these Bylaws, the singular shall include the plural, the
plural shall include the singular unless the context requires otherwise and the
use of either gender shall include both genders.

11

EXHIBIT 6

SECTION 321(B) CONSENT

Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as
amended, Wilmington Trust Company hereby consents that reports of examinations
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.

WILMINGTON TRUST COMPANY

Dated: August 5, 2004                    By:  /s/ Denise M. Geran
--------------------------------
Name:  Denise M. Geran
Title: Vice President

EXHIBIT 7

NOTICE

This form is intended to assist state nonmember banks and savings
banks with state publication requirements. It has not been approved
by any state banking authorities. Refer to your appropriate state
banking authorities for your state publication requirements.

REPORT OF CONDITION

Consolidating domestic subsidiaries of the

WILMINGTON TRUST COMPANY    of    WILMINGTON    
------------------------------    ----------------
Name of Bank                  City

in the State of DELAWARE, at the close of business on March 31, 2004.

ASSETS
Thousands of dollars
--------------------

Cash and balances due from depository institutions:                         
Noninterest-bearing balances and currency and coins ................         173,842
Interest-bearing balances ..........................................               0
Held-to-maturity securities ..............................................           3,355
Available-for-sale securities ............................................       1,624,384
Federal funds sold in domestic offices ...................................         485,666
Securities purchased under agreements to resell ..........................          13,700
Loans and lease financing receivables:                                      
Loans and leases held for sale .....................................               0
Loans and leases, net of unearned income ...........................       5,839,156
LESS:  Allowance for loan and lease losses .........................          80,750
Loans and leases, net of unearned income, allowance, and reserve ...       5,758,406
Assets held in trading accounts ..........................................               0
Premises and fixed assets (including capitalized leases) .................         141,663
Other real estate owned ..................................................           1,061
Investments in unconsolidated subsidiaries and associated companies ......           1,755
Customers' liability to this bank on acceptances outstanding .............               0
Intangible assets:                                                          
a Goodwill .........................................................             157
b Other intangible assets ..........................................          11,615
Other assets .............................................................         151,998
Total assets .............................................................       8,367,602

CONTINUED ON NEXT PAGE

LIABILITIES                                                                 

Deposits:                                                                   
In domestic offices ......................................................       6,716,153
Noninterest-bearing ................................................       1,056,474
Interest-bearing ...................................................       5,659,679
Federal funds purchased in domestic offices ..............................          79,544
Securities sold under agreements to repurchase ...........................         190,877
Trading liabilities (from Schedule RC-D) .................................               0
Other borrowed money (includes mortgage indebtedness and                    
obligations under capitalized leases: ..................................         596,427
Bank's liability on acceptances executed and outstanding .................               0
Subordinated notes and debentures ........................................               0
Other liabilities (from Schedule RC-G) ...................................         116,370
Total liabilities ........................................................       7,699,371

EQUITY CAPITAL                                                              

Perpetual preferred stock and related surplus ............................               0
Common Stock .............................................................             500
Surplus (exclude all surplus related to preferred stock) .................         112,358
a Retained earnings ......................................................         565,939
b Accumulated other comprehensive income .................................         (10,566)
Total equity capital .....................................................         668,231
Total liabilities, limited-life preferred stock, and equity capital ......       8,367,602

14