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

(Mark One)

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

For the Fiscal Year Ended December 31, 1999

OR

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

For the transition period from                  to
----------------    --------

Commission File Number 1-9516

AMERICAN REAL ESTATE PARTNERS, L.P.
-----------------------------------
(Exact name of registrant as specified in its charter)

DELAWARE                                    13-3398766
--------                                    ----------
(State or other jurisdiction of                      (IRS Employer
incorporation or organization)                       Identification No.)

100 South Bedford Road, Mt. Kisco, New York               10549
-------------------------------------------            --------
(Address of principal executive offices)               (Zip Code)

(914) 242-7700
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(AREP's telephone number, including area code)

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

Name of each exchange
Title of each class                             on which registered
-------------------                            --------------------
Depositary Units Representing                       New York Stock Exchange
Limited Partner Interests

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

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

None

Indicate by check mark whether AREP (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.

YES X    NO
---     ---

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Based upon the closing price of Depositary Units on March 6, 2000, as reported
on the New York Stock Exchange Composite Tape (as reported by The Wall Street
Journal), the aggregate market value of AREP's Depositary Units held by
nonaffiliates of AREP as of such date was $51,829,494.

Based upon the closing price of Preferred Units on March 6, 2000, as reported on
the New York Stock Exchange Composite Tape (as reported by The Wall Street
Journal), the aggregate market value of AREP's Preferred Units held by
nonaffiliates of AREP as of such date was $8,011,241.

Number of Depositary Units outstanding as of March 6, 2000:       46,098,284.
Number of Preferred Units outstanding as of March 6, 2000:        8,060,437.

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PART I

Item 1.       Business.

Introduction

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

AREP's general partner is American Property Investors, Inc. (the "General
Partner"), a Delaware corporation, which is wholly owned by Carl C. Icahn
("Icahn"). The General Partner's principal business address is 100 South Bedford
Road, Mt. Kisco, New York 10549, and its telephone number is (914) 242-7700.
AREP's business is conducted through a subsidiary limited partnership, American
Real Estate Holdings Limited Partnership (the "Subsidiary" or "AREH"), in which
AREP owns a 99% limited partnership interest. The General Partner also acts as
the general partner for the Subsidiary. The General Partner has a 1% general
partnership interest in each of AREP and the Subsidiary. References to AREP
herein include the Subsidiary, unless the context otherwise requires. As of
March 3, 2000, affiliates of Icahn owned 39,356,236 units representing limited
partner interests (the "Depositary Units"), representing approximately 85.4% of
the outstanding Depositary Units, and 6,974,167 5% cumulative pay in kind
redeemable preferred units representing limited partner interests (the
"Preferred Units"), representing approximately 86.5% of the outstanding
Preferred Units. See Item 12 - "Security Ownership of Certain Beneficial Owners
and Management."

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

General Description of Business

AREP is primarily engaged in the business of acquiring and managing real
estate and activities related thereto. Such acquisitions may be accomplished by
purchasing assets outright or by acquiring securities of entities which hold
significant real estate related assets. Historically, the properties owned by
AREP have been primarily office, retail, industrial, residential and hotel
properties. Most of the real estate assets currently owned by AREP were acquired
from the Predecessor Partnerships and such assets generally are net-leased to
single, corporate tenants. As of February 23, 2000, AREP owned 178 separate real
estate assets primarily consisting of fee and leasehold interests in 32 states.
For additional information, see Item 2 "Properties," as well as a description of
the Bayswater transaction below.

For each of the years ended December 31, 1999, 1998 and 1997, no single
real estate asset or series of assets leased to the same lessee accounted for
more than 10% of the gross revenues of AREP. However, at December 31, 1999, 1998
and 1997, Portland General Electric Company ("PGEC") occupied a property (the
"PGEC Property") which represented more than 10% of AREP's total real estate
assets. See Item 2 -- "Properties."

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AREP believes that it will benefit from diversification of its portfolio
of assets. By the end of the year 2002, net leases representing approximately
22.6% of AREP's net annual rentals from its real estate portfolio will be due
for renewal, and by the end of the year 2004, net leases representing
approximately 35.1% of AREP's net annual rentals will be due for renewal. Since
most of AREP's properties are net-leased to single corporate tenants, it may be
difficult and time consuming to re-lease or sell those properties that existing
tenants decline to re-let or purchase and that AREP may be required to incur
expenditures to renovate such properties for new tenants. In addition, AREP may
become responsible for the payment of certain operating expenses, including
maintenance, utilities, taxes, insurance and environmental compliance costs
associated with such properties which are presently the responsibility of the
tenant. As a result, AREP could experience an adverse impact on net cash flow
from such properties in the future.

AREP's primary investment strategy in recent periods has been to seek to
acquire undervalued assets including residential development projects, land
parcels for future residential and commercial development, commercial
properties, assets in the gaming industry, non-performing loans and securities
of entities which own, manage or develop significant real estate assets,
including limited partnership units and securities issued by real estate
investment trusts, debt or equity securities of companies which may be
undergoing restructuring and sub-performing properties that may require active
asset management and significant capital improvements.

In addition to holding real property, AREP may consider the acquisition
or seek effective control of land development companies and other real estate
operating companies which may have a significant inventory of assets under
development, as well as experienced personnel. As described below, during the
first quarter of 2000, AREP acquired the assets of Bayswater Realty & Capital
Corp. and all of the ownership interests of its affiliated entities
(collectively, "Bayswater") from Icahn. Bayswater and its personnel have
focused primarily on residential land development and the construction and sale
of single-family homes. Through the acquisition of Bayswater, AREP acquired
Bayswater's interests in ten residential subdivisions under development in New
York and Florida. 

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

In August 1996, AREP amended the Partnership Agreement to permit non-real
estate investments which, while AREP continues to seek undervalued investment
opportunities in the real estate market, will permit it to take advantage of
investment opportunities it believes exist outside of the real estate market in
order to seek to maximize Unitholder value and further diversify its assets.
Investments in non-real estate assets will consist of equity and debt securities
of domestic and foreign issuers that are not necessarily engaged as one of their
primary activities in the ownership, development or management of real estate,
and may include, for example, lower rated securities which may provide the
potential for higher yields and therefore may entail higher risk. AREP will
conduct these activities in such a manner so as not to be deemed an investment
company under the Investment Company Act of 1940 (the "1940 Act"). Generally,
this means that no more than 40% of AREP's total assets will be invested in
securities. In this regard, AREP invested approximately $175.3 million to
purchase 6,448,200 common shares of RJR Nabisco Holdings Corp. ("RJR") which
then represented over 10% of AREP's total assets. On June 14, 1999, AREP sold
its entire interest in RJR for net proceeds of approximately $204 million
realizing a gain of approximately $29 million. In addition, AREP will structure
its investments so as to continue to be taxed as a partnership rather than as a
corporation under the applicable publicly-traded partnership rules of the
Internal Revenue Code.   

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

Partnership Distributions

On March 30, 2000, AREP announced that no distributions on its Depositary
Units are expected to be made in 2000. No distributions were made in 1999, 1998
or 1997. In making its announcement, AREP noted that it intends to continue to
apply available cash flow toward its operations, repayment of maturing
indebtedness, tenant requirements and other capital expenditures and creation of
cash reserves for contingencies facing AREP, including environmental matters and
scheduled lease expirations. By the end of the year 2002, net leases
representing approximately 22.6% of AREP's net annual rentals from its portfolio
will be due for renewal, and by the end of the year 2004, 35.1% of such rentals
will be due for renewal. In making its decision, AREP also considered the number
of properties that are leased to retail tenants (approximately 25.4% of AREP's
net annual rentals from its portfolio) some of which are experiencing cash flow
difficulties and restructurings. Further, AREP noted that the types of
investments AREP is pursuing, including assets that may not be readily
financeable or generating positive cash flow, such as development properties,
non-performing mortgage loans or securities of companies which may be undergoing
restructuring or require significant capital investments, require AREP to
maintain a strong capital base in order to own, develop and reposition those
assets. AREP believes that it should continue to hold and invest, rather than
distribute, cash. See Item 5 -- "Market for AREP's Common Equity and Related
Security Holder Matters - Distributions" and Item 7 -- "Management's Discussion
and Analysis of the Financial Condition and Results of Operations -- Capital
Resources and Liquidity."

On March 31, 1999, AREP distributed to holders of record of its Preferred
Units as of March 15, 1999 approximately 383,830 additional Preferred Units.
Pursuant to the terms of the Preferred Units, on February 23, 2000, AREP
declared its scheduled annual preferred unit distribution payable in additional
Preferred Units at the rate of 5% of the liquidation preference of $10.00. The
distribution is payable March 31, 2000 to holders of record as of March 15,
2000.

The Preferred Units are subject to redemption at the option of AREP on
any payment date commencing on March 31, 2000, and the Preferred Units must be
redeemed by AREP on March 31, 2010. The redemption price is payable, at the
option of AREP either in all cash or by the issuance of Depositary Units, in an
amount equal to the liquidation preference of the Preferred Units plus any
accrued but unpaid distributions thereon. AREP announced that it will not elect
to redeem the Preferred Units on the payment date of March 31, 2000.

Real Estate Investments

As mentioned above, in selecting future real estate investments, AREP
intends to focus on assets that it believes are undervalued in the real estate
market, which investments may require substantial liquidity to maintain a
competitive advantage. Despite the substantial capital pursuing real estate
opportunities, management believes that there are still opportunities available
to acquire investments that are undervalued. This may include commercial
properties, residential and commercial development projects, land parcels for
future residential and commercial development, non-performing loans and the
securities of entities which own, manage or develop significant real estate
assets, including limited partnership units and securities issued by REITS, and
debt or equity securities of companies which may be undergoing restructuring and
subperforming properties that may require active asset management and
significant capital improvements. Management believes that, in the current
market, investments requiring some degree of active management or development
activity have the greatest potential for growth, both in terms of capital
appreciation and the generation of cash flow. In order to further these
investment 

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objectives, AREP may consider the acquisition or seek effective control of land
development companies and other real estate operating companies which may have a
significant inventory of assets under development, as well as experienced
personnel. This may enhance AREP's ability to further diversify its portfolio of
properties and gain access to additional operating and development capabilities.
Such acquisitions may include those from affiliates of the General Partner,
provided the terms thereof are fair and reasonable and are approved by the Audit
Committee of the Board of Directors of the General Partner (the "Audit
Committee").

During the first quarter of 2000, AREP acquired from Icahn the assets
of Bayswater Realty & Capital Corp., a land development company, and all of the
ownership interests of its affiliated entities (collectively, "Bayswater"). The
purchase price for the acquisition of Bayswater was approximately $84.35
million. The terms of the transaction have been reviewed and approved by the
Audit Committee, which was advised by CIBC World Markets Corp.,
PricewaterhouseCoopers and independent legal counsel. Bayswater is being
operated as a subsidiary of AREP.

Bayswater, a real estate investment, management and development company,
focuses primarily on the construction and sale of single-family homes,
multi-family homes and residential lots in subdivisions and in planned
communities. Bayswater presently is developing ten residential subdivisions in
New York and Florida. In New York, Bayswater owns four residential subdivisions
under development with approximately 115 units remaining to be constructed and
sold as of February 15, 2000. Also, Bayswater owns one subdivision in New York
approved for fifty condominium units on which construction has not yet
commenced. In addition, Bayswater owns three properties comprising land zoned
for 522 residential condominium units in Naples, Florida. Bayswater has
retained a local builder to provide management, sales and construction services
for these three properties. Bayswater also owns a fourth property in Naples,
Florida that has  been conditionally approved for 103 lots that are subject to
a purchase agreement with a local builder for the sale of such lots on a
quarterly basis at a predetermined price upon completion of infrastructure
improvements. Further, Bayswater owns a golf course community in San Antonio,
Florida which includes a 27-hole golf course, approximately seven acres of
commercially zoned land and land that is zoned for 1,047 residential lots. Such
lots are subject to a similar purchase agreement with a local builder, who also
has an interest in the golf course.

In addition to the acquisition of Bayswater's residential subdivisions,
AREP's management believes the transaction will enable AREP to better diversify
its real estate portfolio with the assistance of Bayswater's development team.
As part of the acquisition, AREP will hire approximately thirty individuals
employed by Bayswater, including Albo J. Antenucci, Jr., who joined AREP as an
Executive Vice President and Chief Operating Officer of the General Partner. In
recent years, AREP has engaged Bayswater to perform development, construction
management, marketing and sales services with respect to residential sites
being developed by AREP as described below. See Item 13. -- "Certain
Relationships and Related Transactions -- Property Management and Other Related
Transactions."

Other real estate investment opportunities AREP may pursue include
entering into joint venture arrangements or providing financing to developers
for the purpose of developing single-family homes, luxury garden apartments or
commercial properties. The loans may provide for a contractual rate of interest
to be paid as well as providing for a participation in the profits of the
development and/or an equity participation. Additionally, AREP will seek to
acquire underperforming properties through outright purchase or the purchase of
the debt or securities of such entities. For example, AREP may elect to
establish an ownership position by first acquiring debt secured by targeted
assets and then negotiate for the ownership or effective control of some or all
of the underlying equity in such assets. AREP may also seek to establish a
favorable economic and negotiating position through the acquisition of other
rights or interests that provide it with leverage in negotiating the acquisition
of targeted assets. AREP will also 

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seek to acquire assets that are not in financial distress but due to the
particular circumstances of their ownership, use or location, present
substantial opportunities for development or long-term growth. AREP may also
consider acquiring additional net-leased properties at appropriate yields or to
effectuate tax-free exchanges.

AREP has invested and expects to continue to invest in undeveloped land
and development properties in addition to the Bayswater assets. In particular,
AREP expects to continue to pursue this year the development of three
residential sites it owns in New Seabury, Massachusetts and Armonk and East
Hampton, New York. The Armonk site is in the process of being subdivided into 
approximately 36 residential building lots, and the East Hampton site
subdivision has been approved for 16 residential building lots. The New Seabury
site is comprised of two golf courses, other recreational facilities, a villa
rental program, condominium and time share units and land for future
residential development. Undeveloped land and development properties involve
more risk than properties on which development has been completed. Undeveloped
land and development properties do not generate any operating revenue, while
costs are incurred to develop the properties. In addition, undeveloped land and
development properties incur expenditures prior to completion, including
property taxes and development costs. Also, construction may not be completed
within budget or as scheduled and projected rental levels or sales prices may
not be achieved and other unpredictable contingencies beyond the control of
AREP could occur. AREP will not be able to recoup any of such costs until such
time as these properties, or parcels thereof, are either disposed of or
developed into income-producing assets. Accordingly, the greater the length of
time it takes to develop or dispose of these properties, or such parcels, the
greater will be the costs incurred by AREP without the benefit of income from
these properties, which may adversely affect the ability of AREP to
successfully develop such properties. Furthermore, the ultimate disposition
price of these properties may be less than the costs incurred by AREP with
respect thereto.

AREP may continue to purchase real estate limited partnership interests
by pursuing negotiated agreements or commencing tender offers. The illiquidity
of many of these securities and their "informal" trading market enable entities
such as AREP to purchase these interests at what may be significant discounts to
the value of their underlying real estate in many instances. It should also be
noted, however, that such illiquidity may adversely affect AREP's ability to
profit from these investments in the near term, although AREP believes that such
investments provide opportunities for long term appreciation.

Further, as reported generally, global economic and monetary conditions,
especially in Europe and Asia, may create opportunities for value-added
investors in those markets. AREP has begun to consider additional opportunities
in foreign markets, but there can be no assurance that any such transactions
will be pursued or consummated. It should be noted that such investments may be
subject to additional considerations relating to foreign political and
regulatory risks, as well as currency and exchange risks, which may affect the
liquidity and value of any such investments in the near term, although AREP
believes that such investments provide opportunities for long term appreciation.

In addition, AREP has made investments in the gaming industry and will
consider additional investment opportunities in the gaming industry. See Item 1
- Recent Acquisitions - Investment in Mortgages and Notes Receivable for a
further discussion on the Stratosphere Tower, Casino and Hotel transaction, as
well as a discussion on AREP's investments in the Sands Hotel and Casino and the
Claridge Hotel and Casino. As described herein, AREP, the General Partner, and
the directors and officers of the General Partner recently obtained licenses
from the Nevada Gaming Authority and are currently in the process of pursuing
gaming applications to obtain licenses from the New Jersey Casino Control
Commission. It should be noted that investments in the gaming industry involve
significant risks, including those relating to competitive pressures and
political and regulatory considerations. In recent years, there have been
several new gaming establishments opened as well as facility expansions,
providing increased supply of competitive products and properties in the
industry, which may adversely affect the operating margins and investment
returns. As new openings and expansion projects have been 

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completed, supply has grown more quickly than demand in some areas, and
competition has increased. Likewise, an increase in supply often leads to
increases in complimentary and promotional expenses in the industry. AREP
believes that these market conditions will lead some gaming properties to become
available for restructuring or purchase and will create potential investments
for opportunistic buyers such as AREP, and AREP intends to pursue such
additional investments in the gaming industry. In this regard, AREP recently
acquired approximately an additional 2% interest in the Stratosphere Tower,
Casino and Hotel from affiliates of the General Partner for approximately $2
million (giving AREP an aggregate interest in Stratosphere of approximately
51%), and may consider the possible acquisition of additional interests in the
Stratosphere Tower, Casino and Hotel from affiliates of the General Partner.
Any such acquisition by AREP of additional interests in Stratosphere may be
made for cash or in exchange for Units in AREP, provided the terms thereof are
fair and reasonable to AREP. While the increase in supply and competition may
provide additional investment opportunities for investors such as AREP, such
investments may require additional capital expenditures and restructurings and
there can be no assurance that such investments will not be adversely affected
by such pressures or prove to be successful. For example, AREP understands that
Stratosphere may seek approximately $70 million for expansion of its hotel and
casino facility, a substantial portion of which may be provided by AREP.
Furthermore, federal, state and local jurisdictions from time to time consider
legislation regarding the gaming industry which could adversely impact gaming
operations. AREP believes, however, that investments in the gaming industry
provide AREP with opportunities for long term appreciation.

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

Non-Real Estate Related Investments

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

The equity securities in which AREP may invest may include common stocks,
preferred stocks and securities convertible into common stocks, as well as
warrants to purchase such securities. The debt securities in which AREP may
invest may include bonds, debentures, notes, mortgage-related securities

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and municipal obligations. Certain of such securities may include lower rated
securities which may provide the potential for higher yields and therefore may
entail higher risk. In addition, AREP may engage in various investment
techniques, such as options and futures transactions, foreign currency
transactions and leveraging for either hedging or other purposes.

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

During 1998 and the first quarter of 1999, AREP purchased 6,448,200 shares
of RJR Nabisco Holdings Corp. ("RJR") representing approximately 2% of the total
outstanding RJR common shares, for approximately $175.3 million. On June 14,
1999, AREP sold its entire interest in RJR for net proceeds of approximately
$203.9 million realizing a gain of approximately $28.6 million.  

Recent Acquisitions

Investment in Mortgages and Notes Receivable

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

Stratosphere and its wholly owned subsidiary Stratosphere Gaming Corp.
filed voluntary petitions on January 27, 1997, for Chapter 11 Reorganization
pursuant to the United States Bankruptcy Code (the "Bankruptcy Code").
Stratosphere filed a Second Amended Plan of Reorganization which provided for
the holders of the First Mortgage Notes to receive 100% of the equity in the
reorganized entity and therefore provided AREP and the General Partner's
affiliate with a controlling interest. Such plan was approved by the Bankruptcy
Court on June 6, 1998 but was not effective until certain governmental approvals
were obtained including, among other things, certain licenses from the Nevada
Gaming Authority.

In October 1999, AREP, the General Partner and the directors and officers
of the General Partner obtained licenses from the Nevada Gaming Authority.
However, the licensing application of the affiliate of Icahn was reviewed and
approved by the authorities in October 1998, one year earlier than the approval
of AREP's application. In an effort to facilitate the consummation of the
Stratosphere reorganization process, AREP entered into an agreement (the
"Transfer/Repurchase Agreement") to transfer its interests in Stratosphere to an
affiliate of Icahn at a price equal to AREP's cost for such Notes. Pursuant to
the Transfer/Repurchase Agreement, the affiliate of Icahn was obligated to sell
back to AREP and AREP was obligated to repurchase such interest in Stratosphere
at the same price (together with a commercially reasonable interest factor),
when the appropriate licenses were obtained by AREP.

In October 1998, once the affiliate of the General Partner obtained its
license and in accordance with the Transfer/Repurchase Agreement, AREP received
approximately $60.7 million for its Stratosphere interest. Stratosphere's Second
Amended Plan of Reorganization became effective on October 14, 1998. In October
1999, as AREP obtained a license from the  Nevada Gaming Commission AREP
repurchased its Stratosphere interest for approximately $64.3 million
representing the original purchase                  

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price plus accrued interest less a Stratosphere bankruptcy distribution.
Finally, pursuant to the Second Amended Plan of Reorganization, in addition to
Icahn's becoming Chairman of the Board of Stratosphere, AREP appointed two
members to Stratosphere's board. In March, 2000, AREP acquired approximately an
additional 2% interest in Stratosphere from affiliates of Mr. Icahn
for approximately $2 million, thereby providing AREP with an aggregate interest
in Stratosphere of approximately 51%. 

As described above in "Real Estate Investments," AREP may consider
additional investments in the gaming industry, as it believes additional
opportunities may become available due to market conditions and other factors.
For example, AREP may consider the possibility of acquiring the interest in
Stratosphere held by the affiliate of the General Partner. Any such acquisition
by AREP of the General Partner's affiliate's interest in Stratosphere may be
made for cash or in exchange for Units in AREP and will be subject to review and
approval by the Audit Committee.

In 1998 and 1999, AREP acquired an interest in the Sands Hotel and Casino
(the "Sands") located in Atlantic City, New Jersey by purchasing the principal
amount of $31.4 million of First Mortgage 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 has an investment in Notes of GB Property. A total of
$185 million of such Notes were issued, which bear interest at 10.875% per annum
and are due on January 15, 2004.

Greate Bay owns and operates 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 U.S. Bankruptcy Code
to restructure Greate Bay's long term debt. In January 2000, the affiliate of
the General Partner proposed a reorganization plan for Greate Bay offering to
invest an additional $60 million in Greate Bay in return for 50% of the equity
in the reorganized entity. In addition, the current holders of approximately
$185 million of the First Mortgage Notes would receive the remaining 50% of the
equity in the reorganized entity along with $110 million in new First Mortgage
Notes. However, there can be no assurance that this reorganization plan will be
adopted.

Furthermore, in 1998 and 1999, AREP 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 Claridge
Corporation through its wholly-owned subsidiary, the Claridge at Park Place,
Incorporated, operates the Claridge Hotel, a destination resort complex located
in Atlantic City, New Jersey. The purchase price of such Notes was approximately
$15.1 million. A total of $85 million of such Notes were issued, which bear
interest at 11.75% payable semi-annually and are due February 1, 2002. An
affiliate of the General Partner also has an investment in the Notes of the
Claridge Corporation. In March 1999, AREP received the previously postponed
semi-annual interest payment due February 1, 1999. In August 1999, the Claridge
Corporation announced that it would not pay the interest due August 1, 1999 and
that it had filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy
code to facilitate a financial restructuring. In January 2000, the Claridge
Hotel proposed a reorganization plan whereby the holders of $85 million of the
First Mortgage Notes would be given 100% of the equity in the reorganized
entity. Also, as currently proposed the plan provides for Icahn to obtain
control of the reorganized entity. However, there can be no assurance that this
reorganization plan will be adopted.

AREP, the General Partner, and the directors and officers of the General
Partner are in the process of pursuing gaming applications to obtain licenses
from the New Jersey Casino Control Commission. AREP understands that the
application process may take a number of months. AREP has no reason to believe
that it will not obtain its necessary license; however, the licensing
application of the affiliate of the General Partner may be reviewed and approved
by the authorities earlier than AREP's application. In an effort to facilitate
the consummation of the reorganization process of Greate Bay and the Claridge
Hotel, AREP entered into a separate agreement to transfer its interests in such
entities to an affiliate of the General Partner at a price equal to AREP's cost
for the applicable Notes. In March, 2000, AREP transferred such interests to an
affiliate of the General Partner and received approximately $40.5 million
therefor, however, the affiliate of the General Partner is obligated to sell
back to AREP, and AREP is obligated to repurchase its 

I-8

10

interest in Greate Bay or the Claridge Hotel, as the case may be, at the same
price (together with a commercially reasonable interest factor), when the
appropriate licenses are obtained by AREP, as was done in the case of
Stratosphere in Nevada. AREP will also acquire its proportionate share of all
sale proceeds, stock rights, acquired shares and other benefits, if any, that
may have accreted to or been obtained in connection with the Greate Bay and
Claridge Hotel interests while held by the affiliate of the General Partner.

At December 31, 1999, AREP has classified the Claridge Corporation and GB
Property Notes as available for sale for accounting purposes. These investments
are carried at fair market value on the Consolidated Balance Sheet. At December
31, 1999 unrealized holding losses of approximately $6.8 million are reflected
in Partners Equity.

See Item 1 - "Investment Opportunities and Strategies -- Real Estate
Investments," above, for a discussion of certain considerations relating to the
gaming industry.

In 1998 and 1999, AREP purchased approximately $88.4 million of senior
debt of Philip Services Corp. and Philip Services (Delaware), Inc.
(collectively, "Philips") for approximately $39.6 million. In May 1999, AREP
received approximately $5.6 million as a return of capital. In addition, an
affiliate of Icahn purchased approximately $275 million of senior debt of
Philips . Philips, which is Canadian-based, is an integrated metals recovery and
industrial services company. In June 1999, Philips filed a voluntary application
to reorganize under the Companies' Creditors Arrangement Act with the Ontario
Superior Court of Justice in Toronto, Canada and voluntary petitions under
Chapter 11 of the U.S. Bankruptcy Code in the District of Delaware. Philips is
operating as a debtor-in-possession and expects to complete the reorganization
shortly, subject to establishing its exit financing. The affiliate of Icahn and
AREP may participate in the financing with AREP providing approximately $10
million of the $125 million financing.

In July 1999, AREP purchased an office and industrial facility located in
Madison, Wisconsin. The property is net leased to Rayovac Corporation. The
purchase price was $22,000,000. The lease term, which commenced December 15,
1985, is for twenty-eight years with rent currently at approximately $2 million
per year. The rent was increased from $1,641,000 per year as of December 31,
1999 in connection with a scheduled cumulative consumer price index ("CPI") rent
adjustment. There are several additional CPI adjustments over the initial term
of the lease which are based on the increase in the CPI since base year 1987.
There is one ten year renewal period with rent based on additional CPI
adjustments.

In the first quarter of 2000, AREP entered into an agreement to purchase
The Atrium Building, a five-story office building in Alexandria, Virginia, for a
purchase price of $27.5 million. The building which recently completed a major
restoration includes a two-level underground parking garage and has
approximately 140,000 square feet of rentable space. 

As described above, during the first quarter of 2000, AREP acquired
Bayswater and its ten residential subdivisions under development in New York and
Florida.

Financing Activities

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

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11

On September 15, 1999, AREP executed a mortgage loan and obtained funding
in the principal amount of $16.1 million, which is secured by a mortgage on an
office and industrial facility tenanted by Rayovac Corporation, located in
Madison, Wisconsin. The loan bears interest at 7.99% per annum and matures
September 2014, at which time the remaining principal balance of approximately
$6.3 million will be due. Annual debt service is approximately $1,416,000
through December 2003 and approximately $1,772,000 thereafter.

During 1999, AREP had approximately $5,400,000 in an additional maturing
balloon mortgage due, all of which was repaid. Approximately $3,300,000 and
$1,770,000 of additional balloon payments are due during 2000 and 2001. AREP may
seek to refinance a portion of these maturing mortgages or may repay them from
cash flow and reserves created from time to time, thereby reducing cash flow
otherwise available for other uses.

AREP is continuing to seek opportunities to refinance upon favorable
terms and sell certain of its properties to generate proceeds for future
investments. Management continues to seek to improve the long-term value of
AREP's portfolio by, among other means, using its available cash and reinvesting
capital transaction proceeds to maximize capital appreciation and
diversification of the portfolio.

Leasing Activities

In 1999, 23 leases covering 23 properties and representing approximately
$1,785,000 in annual rentals expired. Seven of these leases originally
representing approximately $958,000 in annual rental income were re-let or
renewed for approximately $963,000 in annual rentals. Such renewals are
generally for a term of five years. One property with an approximate annual
rental income of $20,000 was renewed at fair market value which is approximately
$175,000. Four properties with annual rental income of $255,000 have been
purchased by their tenants pursuant to the exercise of purchase options. Eleven
properties, with an approximate annual rental income of $552,000, are currently
being marketed for sale or lease.

In 2000, 39 leases covering 39 properties and representing approximately
$5.7 million in annual rentals are scheduled to expire. 28 of these leases,
originally representing approximately $3.7 million in annual rental income, have
been or will be re-let or renewed for approximately $3.7 million in annual
rentals. Such renewals are generally for a term of five years. Seven properties,
with an approximate annual rental income of $1.8 million will be marketed for 
sale or lease when the current lease term expires. The status of four
properties with approximate annual rentals of $200,000 is unknown at this time.

Entergy Louisiana, Inc., a tenant in 15 of the 39 properties owned by
AREP described above, with leases expiring in the year 2000, has notified AREP
that it will renew leases covering thirteen of the fifteen properties. The
thirteen properties which were leased for a total of approximately $2,400,000
per annum have been renewed for approximately $2,595,000 per annum. Leases
covering two properties with annual rents aggregating approximately $902,000
will not be renewed. The properties not being renewed have an estimated fair
market value of $3,000,000 and a carrying value of $4,548,000 resulting in AREP
recording a provision for loss on real estate in the amount of approximately
$1,548,000 in 1999.

By the end of the year 2002, net leases representing approximately 22.6%
of AREP's net annual rentals from its portfolio will be due for renewal, and by
the end of the year 2004, net leases representing approximately 35.1% of AREP's
net annual rentals will be due for renewal. In many of these leases, the tenant
has an option to renew at the same rents they are currently paying and in many
of the leases the tenant also has an option to purchase the property. AREP
believes that tenants acting in their best interests will renew those leases
which are at below market rents, and permit leases for properties that are less
marketable (either as a result of the condition of the property or its location)
or are at above-market 

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12

rents to expire. AREP expects that it may be difficult and time consuming to
re-lease or sell those properties that existing tenants decline to re-let or
purchase and that AREP may be required to incur expenditures to renovate such
properties for new tenants. AREP also may become responsible for the payment of
certain operating expenses, including maintenance, utilities, taxes, insurance
and environmental compliance costs associated with such properties which are
presently the responsibility of the tenant. In addition, net leases representing
approximately 25.4% of AREP's net annual rentals from its portfolio are with
tenants in the retail sector, many of which are currently experiencing cash flow
difficulties and a number of which are in bankruptcy. As a result, operating
expenses may be incurred with respect to the properties underlying any such
leases rejected in bankruptcy and those expenses, coupled with the effects of a
downturn in the retail markets, could have an adverse impact on AREP's net cash
flow.

Bankruptcies and Defaults

AREP is aware that 14 of its present and former tenants have been or are
currently involved in some type of bankruptcy or reorganization. Under the
Bankruptcy Code, a tenant may assume or reject its unexpired lease. In the event
a tenant rejects its lease, the Bankruptcy Code limits the amount of damages a
landlord, such as AREP, is permitted to claim in the bankruptcy proceeding as a
result of the lease termination. Generally, a claim resulting from a rejection
of an unexpired lease is a general unsecured claim. When a tenant rejects a
lease, there can be no assurance that AREP will be able to re-let the property
at an equivalent rental. As a result of tenant bankruptcies, AREP has incurred
and expects, at least in the near term, to continue to incur certain property
expenses and other related costs. Thus far, these costs have consisted largely
of legal fees, real estate taxes and property operating expenses. Of AREP's 14
present and former tenants involved in bankruptcy proceedings or reorganization,
eleven have rejected their leases, affecting 30 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).

In June 1995, Bradlees, a tenant leasing four properties owned by AREP,
filed a voluntary petition for reorganization pursuant to the provisions of
Chapter 11 of the Bankruptcy Code. The annual rentals for these four properties
is approximately $1,435,000. The tenant is current in its obligations under the
leases. The tenant emerged from bankruptcy in February, 1999 and affirmed three
of the leases and assigned the fourth. At December 31, 1999, the carrying value
of these four properties was approximately $6,358,000. One of the properties is
encumbered by a nonrecourse mortgage payable of approximately $557,000.

On September 18, 1995, Caldor Corp. ("Caldor"), a tenant leasing a
property owned by AREP, filed a voluntary petition for reorganization pursuant
to the provisions of Chapter 11 of the Bankruptcy Code. The annual rental for
this property was approximately $248,000. In January, 1999, Caldor announced it
would liquidate its holdings and close its stores. The tenant has exercised its
right to reject the lease effective July 31, 1999. At December 31, 1999, the
property was vacant and has a carrying value of approximately $1,751,000 and is
unencumbered by any mortgage.

On September 24, 1996 Best Products, a tenant leasing a property owned by
AREP, filed a voluntary petition for reorganization pursuant to the provisions
of Chapter 11 of the Bankruptcy Code. The annual rental for this property was
approximately $508,000. The tenant has exercised its right to reject the lease,
effective April 30, 1997, which has been approved by the Bankruptcy Court. At
December 31, 1999, the property was vacant and has a carrying value of
approximately $3,304,000 and is unencumbered by any mortgage.

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

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Environmental Matters

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

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

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

The Phase I Environmental Assessments received on these properties
inconclusively indicate that certain sites may have environmental conditions
that should be further reviewed. AREP has notified the responsible tenants to
attempt to ensure that they cause any required investigation and/or remediation
to be performed and most tenants continue to take appropriate action. However,
if the tenants fail to perform responsibilities under their leases in respect of
such sites, based solely upon the consultant's preliminary estimates resulting
from its Phase I Environmental Site Assessments referred to above, it is
presently estimated that AREP's exposure could amount to approximately $2-3
million. However, as no Phase II Environmental Site Investigations have been
conducted by the consultant, there can be no accurate estimation of the need for
or extent of any required remediation. AREP is in the process of updating its
Phase I Site Assessments for certain of its environmentally sensitive properties
including properties with open RCRA requirements. Approximately fifty updates
are expected to be completed in 2000 with another forty-three scheduled for the
year 2001.

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

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

Other Property Matters

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

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

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

Employees

Eighteen people, including three who are officers of the General Partner,
presently perform services for AREP on a full-time basis. These people perform
administrative services for AREP, including accounting, legal, financial,
investor services and secretarial, as well as real estate development and
management and other services. Management believes it currently has sufficient
staffing to operate effectively the day-to-day business of AREP. As part of the
acquisition of Bayswater discussed herein, AREP will hire approximately thirty
individuals employed by Bayswater. Such individuals perform services for
Bayswater relating to construction, sales and supervisory and administrative
functions.

Competition

Competition in leasing and selling remains strong. As previously
discussed, many of AREP's tenants have rights to renew at prior rental rates.
AREP's experience is that tenants will renew below market leases and permit
leases that are less marketable or at above market rents to expire, making it
difficult for AREP to re-let or sell on favorable terms properties vacated by
tenants. The real estate market continues to be weak in certain areas of the
country, particularly in the retail category. The impact on the retail markets
and ongoing corporate consolidations have contributed to increasing vacancy
rates 

I-13

15

and oversupply for retail tenants. AREP believes it is one of the largest real
estate entities of its kind and that it will continue to compete effectively
with other similar real estate companies, although there are real estate
entities with greater financial resources than AREP.

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

Item 2.       Properties.

As of February 23, 2000, AREP owned 177 separate real estate assets
(primarily consisting of fee and leasehold interests and, to a limited extent,
interests in real estate mortgages) in 32 states. Many of these properties are
net-leased to single corporate tenants or are residential properties under
development. Approximately 87% of these properties are currently net-leased, 5%
are operating properties, 1% are in the process of being developed and 7% are
vacant and being marketed for sale or lease.

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

Number                           Average Net Effective
Type of Property                           of Properties                       Rent Per Square Foot
----------------                           -------------                       --------------------

Retail                                         75                                 $4.59(1)
Industrial                                     20                                 $2.10(1)
Office                                         30                                 $6.71(1)
Supermarkets                                   18                                 $3.45(1)
Banks                                           6                                 $3.08(1)
Other:
Properties That
Collateralize Purchase
Money Mortgages                             9                                    N/A
Land                                         11                                    N/A
Truck Terminals                               4                                 $3.63(1)
Hotels                                        3                                    N/A
Apartment Complexes                           1                                    N/A

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

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

Location                                              Number
of Property                                         of Properties
-----------                                         ------------- 

United States:
Southeast                                              78
Northeast                                              41
South Central                                           9
Southwest                                               7
North Central                                          38
Northwest                                               4

For information regarding the Bayswater properties recently [acquired],
see Item 1. "Business - Real Estate Investments."

From January 1, 1999 through February 23, 2000, AREP sold or otherwise
disposed of 17 properties. In connection with such sales and dispositions, AREP
received an aggregate of approximately $28,000,000 in cash, net of closing costs
and amounts utilized to satisfy mortgage indebtedness which encumbered such
properties. In addition, AREP sold residential lots and condominiums for a total
of $4,135,000 in cash, net of closing costs. Such residential lots and
condominiums were included in development properties. As of December 31, 1999,
AREP owned 12 properties that were being actively marketed for sale. The
aggregate net realizable value of such properties is estimated to be
approximately $6,740,000.

In February 1999, AREP sold two properties located in Augusta, GA and
Richmond, VA, to its tenant, Haverty Furniture Companies, Inc., pursuant to its
exercise of a purchaser option, for a selling price of approximately $2,734,000.
As a result, AREP recognized a gain of approximately $1.6 million in the year
ended December 31, 1999.

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

In September 1999, AREP sold a property located in Ocala, Florida,
formerly tenanted by K-Mart, for a selling price of $3.2 million. As a result,
AREP recognized a gain of approximately $1 million in the year ended December
31, 1999.

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

For each of the years ended December 31, 1999, 1998 and 1997, no single
real estate asset or series of assets leased to the same lessee accounted for
more than 10% of the gross revenues of AREP. However, at December 31, 1999, 1998
and 1997, PGEC occupied a property, which represented more than 10% of AREP's
total real estate assets. PGEC is an electric utility engaged in the generation,
purchase, transmission, distribution and sale of electricity, whose shares are
traded on the NYSE.

The PGEC Property is an office complex consisting of three buildings
containing an aggregate of approximately 803,000 square feet on an approximate
2.7 acre parcel of land located in Portland, Oregon. A Predecessor Partnership
originally purchased the PGEC Property on September 11, 1978 for a price of
approximately $57,143,000.

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17

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

On December 5, 1997 AREP executed a mortgage loan with Principal Mutual
Life Insurance Company in the original principal amount of approximately $46.3
million, secured by, among other things, a first deed of trust, security
agreement and assignment of rents on the PGEC Property. The loan replaced the
existing mortgage loan on the complex with an outstanding principal balance of
approximately $24.2 million, bearing interest at 8.5% and maturing in 2002.

The interest rate is fixed at 7.51%. The entire net annual rent payable
by PGEC of approximately $5,137,000 is required to be applied toward the debt
service on the loan. The refinancing has a maturity date of September 10, 2008,
at which time a remaining principal payment of approximately $20 million will be
due from AREP.

Item 3.       Legal Proceedings.

Unitholder Litigation

On November 18, 1998, Ruth Ellen Miller filed a Class Action Complaint
bearing the caption Ruth Ellen Miller, on behalf of herself and all others
similarly situated v. American Real Estate Partners, L.P., High Coast Limited
Partnership, American Property Investors, Inc., Carl C. Icahn, Alfred Kingsley,
Mark H. Rachesky, William A. Leidesdorf, Jack G. Wasserman and John P.
Saldarelli in the Delaware Chancery Court in New Castle County (Civil Action No.
16788NC) (the "Complaint"). The Complaint purports to state claims on behalf of
a putative class of all holders of Depositary Units sounding in breach of
fiduciary duty, aiding and abetting breaches of fiduciary duty, injunction and
breach of the Partnership Agreement. As of March 23, 2000, the complaint has not
yet been served on any of the defendants.

Plaintiff alleges that all defendants, in breach of their fiduciary
duties to AREP, have caused AREP to engage in self-dealing or self-interested
transactions which inure to the benefit of defendants. Plaintiff's claims are
alleged to arise out of two transactions: the February 1995 Rights Offering
effectuated pursuant to a purportedly false and misleading prospectus; and
Icahn's alleged use of his voting control to change the business purpose of AREP
by amending the Partnership Agreement to permit AREP to make "non-real estate
related investments," including investments in entities owned or controlled by
Icahn.

The Complaint seeks to have Ms. Miller appointed as class representative
and that the putative class be certified. The Complaint also seeks an
unspecified amount in damages and injunctive relief: (i) dissolving the
Partnership; (ii) enjoining API from continuing to act as general partner of the
Partnership; (iii) enjoining the Partnership from engaging in any transaction in
which Icahn has either a direct or indirect interest, absent an affirmative vote
of a majority of the outstanding Depositary Units held by the putative class;
and (iv) ordering API to exercise its fiduciary obligations. Further, the
plaintiff seeks to enjoin AREP from engaging in any transactions in which Icahn
has either a direct or indirect interest absent an affirmative vote by a
majority of the outstanding Depositary Units held by the class, as well as
damages resulting from the alleged breach of the partnership agreement for an
unquantified amount. The Complaint also seeks costs and attorneys' fees.
Management believes plaintiff's claims are without merit and intends to
vigorously defend against them.

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On or about September 9, 1997, two limited partners in AREP brought a
derivative action against AREP, the General Partner, its directors and one of
its officers, alleging breach of fiduciary duties by the defendants in
connection with, inter alia, AREP's investments in Arvida and Stratosphere,
Amanda & Kimberly Kahn v. Carl C. Icahn, et al., C.A. No. 15916 (Del. Ch.).
Plaintiffs claimed that defendant Icahn improperly diverted opportunities to
participate in these investments from AREP to himself. Plaintiffs sought damages
arising from these alleged breaches of fiduciary duty, attorneys' fees and other
relief. On November 12, 1998, the Court of Chancery of the State of Delaware
granted the defendants' motion to dismiss all of plaintiffs' claims against the
defendants. Plaintiffs served a notice of appeal upon defendants on December 11,
1998. On March 11, 1999, AREP received a copy of plaintiffs' opening brief and
on March 24, 1999 all of the defendants filed a Motion to Affirm in the Delaware
Supreme Court. After oral arguments by both sides in December 1999, Justices
Walsh, Harnett, and Berger of the Delaware Supreme Court on January 24, 2000
upheld the Chancery Court's finding and affirmed dismissal of the action.

Environmental Litigation

On December 11, 1995, Panos Sklavenitis commenced an action against the
Subsidiary and others related to a shopping center that he purchased from a
successor-in-interest to AREP. The action was brought in the United States
District Court for the Central District of California, for reimbursement of the
cost of remediating certain environmental contamination that appears to have
been caused by a dry cleaner that was a tenant at the property; the amount of
damages sought have not yet been quantified. Mr. Sklavenitis was suing the
parties who are in the chain of ownership, as well as the dry cleaner and its
predecessor. In February, 2000, this litigation was settled.  AREP paid $10,000
and was released from further liability.

Item 4.       Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of Unitholders during 1999.

I-17

19

PART II

Item 5.       Market for AREP's Common Equity and Related Security Holder
Matters.

Market Information

AREP's Depositary Units are traded on the NYSE under the symbol "ACP."
Trading on the NYSE commenced July 23, 1987, and the range of high and low
market prices for the Depositary Units on the New York Stock Exchange Composite
Tape (as reported by The Wall Street Journal) from January 1, 1998 through
December 31, 1999 is as follows:

Quarter Ended:                           High                    Low
-------------                            ----                    ---

March 31, 1998                        $  11.50                $ 9.8125
June 30, 1998                            10.75                    9.75
September 30, 1998                       10.25                  8.0625
December 31, 1998                        10.50                   7.125

March 31, 1999                        $  10.25                $ 8.0625
June 30, 1999                             8.50                   7.625
September 30, 1999                      8.6875                   7.875
December 31, 1999                       8.6875                   7.375

On March 6, 2000, the last sales price of the Depositary Units, as
reported by the New York Stock Exchange Composite Tape (as reported by The Wall
Street Journal) was $7.6875.

As of March 6, 2000, there were approximately 7,000 record holders of the
Depositary Units.

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

Distributions

On March 30, 2000, the Board of Directors of the General Partner
announced that no distributions are expected to be made in 2000. AREP believes
that it should continue to hold and invest, rather than distribute, cash. In
making its announcement, AREP noted it plans to continue to apply available
Partnership operating cash flow toward its operations, repayment of maturing
indebtedness, tenant requirements and other capital expenditures and creation of
cash reserves for Partnership contingencies, including environmental matters and
scheduled lease expirations. By the end of the year 2002, net leases
representing approximately 22.6% of AREP's net annual rentals from its portfolio
will be due for renewal, and by the end of the year 2004, 35.1% of such rentals
will be due for renewal. Another factor that AREP took into consideration was
that net leases representing approximately 25.4% of AREP's net annual rentals
from its portfolio are with tenants in the retail sector, some of which are
currently experiencing cash flow difficulties and restructurings. AREP further
stated that it continues to believe that excess cash should be used to enhance
long-term Unitholder value through the improvement of its existing assets, the
support of AREP's debt and property obligations, and selected investment in
assets and companies with assets undervalued by the market as appropriate
opportunities arise. AREP believes that, in addition to acquiring development
properties, non-performing mortgage obligations and securities of companies
which may be undergoing restructuring or with real estate assets requiring
significant capital investments, it should diversify its portfolio and seek to
make acquisitions of land development companies and other real estate operating
companies which may have significant assets under 

II-1

20

development. These types of investments may involve debt restructuring, capital
improvements and active asset management, and by their nature may not be readily
financeable and may not generate immediate positive cash flow. As such, they
require AREP to maintain a strong capital base both to react quickly to these
market opportunities as well as to allow AREP to rework the assets to enhance
their turnaround performance. See Item 7 -- "Management's Discussion and
Analysis of the Financial Condition and Results of Operations -- Capital
Resources and Liquidity."

As of March 6, 2000, there were 46,098,284 Depositary Units and 8,060,437
Preferred Units outstanding. Trading in the Preferred Units commenced March 31,
1995 on the NYSE under the symbol "ACP PR." The Preferred Units represent
limited partner interests in AREP and have certain rights and designations,
generally as follows. Each Preferred Unit has a liquidation preference of $10.00
and entitles the holder thereof to receive distributions thereon, payable solely
in additional Preferred Units, at a rate of 5% of the liquidation preference
thereof, payable annually on March 31 of each year (each, a "Payment Date"),
commencing March 31, 1996. On any Payment Date commencing with the Payment Date
on March 31, 2000, AREP, with the approval of the Audit Committee, may opt to
redeem all, but not less than all, of the Preferred Units for a price, payable
either in all cash or by issuance of additional Depositary Units, equal to the
liquidation preference of the Preferred Units, plus any accrued but unpaid
distributions thereon. On March 31, 2010, AREP must redeem all, but not less
than all, of the Preferred Units on the same terms as any optional redemption.
Holders of Preferred Units will have no voting rights except as mentioned in
Item 10 -- "Directors and Executive Officers of AREP," below.

On March 31, 1999, AREP distributed to holders of record of its Preferred
Units as of March 15, 1999, approximately 383,830 additional Preferred Units.
Pursuant to the terms of the Preferred Units, on February 23, 2000, AREP
declared its scheduled annual preferred unit distribution payable in additional
Preferred Units at the rate of 5% of the liquidation preference of $10.00. The
distribution is payable March 31, 2000 to holders of record as of March 15,
2000. AREP announced that it will not elect to redeem the Preferred Units on the
payment date of March 31, 2000

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

Repurchase of Depositary Units

AREP announced in 1987 its intention to purchase up to 1,000,000
Depositary Units. On June 16, 1993, AREP increased the amount of shares
authorized to be repurchased to 1,250,000 Depositary Units. As of March 6, 2000,
AREP had purchased 1,137,200 Depositary Units at an aggregate cost of
approximately $11,921,000. Management recently has not been acquiring Depositary
Units for AREP, although AREP may from time to time acquire additional
Depositary Units.

II-2

21

Item 6.       Selected Financial Data.

(Dollars in Thousands Except Per Unit Amounts)
Year Ended December 31,
----------------------------------------------------------------
1999*            1998*             1997*            1996*          1995*
-----            -----             -----            -----          -----

Total revenues                                    $     98,540    $        93,306    $      70,918    $     71,774    $     69,920
============    ===============    =============    ============    ============
Earnings before property
and securities transactions and
equity interest in affiliate                    $     51,797    $        58,371    $      41,020    $     34,240    $     30,833
Gain on sales and
disposition of real estate                            16,112              9,065           16,051          24,517           5,091
Gain on sale of limited partnership
interests                                                 --              4,382               --              --              --
Gain on sale of marketable
equity securities                                     28,590                 --           29,188              --              --
Provision for loss on mortgages
receivable                                                --                 --          (9,790)              --              --
Provision for loss on real
estate                                               (1,946)            (1,180)          (1,085)           (935)           (768)
Equity in earnings of Stratosphere
Corporation                                            1,263                 --               --              --              --
------------    ---------------    -------------    ------------    ------------
Net earnings                                      $     95,816    $        70,638    $      75,384    $     57,822    $     35,156
============    ===============    =============    ============    ============
Net earnings per limited
partnership unit:
Basic:
Earnings before property and
securities transactions and equity
interest in affiliate                     $       1.01    $          1.16    $        1.19    $       1.27    $       1.30
Net gain from property and
securities transactions and equity in
earnings of affiliate                              .94                .26             1.08             .90             .19
------------    ---------------    -------------    ------------    ------------
Net earnings                                  $       1.95    $          1.42    $        2.27    $       2.17    $       1.49
============    ===============    =============    ============    ============
Weighted average limited partnership
units outstanding                                 46,098,284         46,173,284       31,179,246      25,666,640      22,703,180
============    ===============    =============    ============    ============

Diluted:
Earnings before property and
securities transactions and equity
interest in affiliate                       $        .91    $          1.06    $        1.16    $       1.20    $       1.17
Net gain from property and
securities transactions and
equity in earnings of affiliate                    .76                .22              .97             .82             .16
------------    ---------------    -------------    ------------    ------------
Net earnings                                  $       1.67    $          1.28    $        2.13    $       2.02    $       1.33
============    ===============    =============    ============    ============

II-3

22

Weighted average limited partnership
units and equivalent partnership
units outstanding                                56,078,394     54,215,339     34,655,395       28,020,392     27,538,840
============   ============    ===========     ============   ============
Distributions to partners                        $         --   $         --    $        --     $         --   $         --
At year end:

Real estate leased to others                     $    375,477   $    381,554    $   383,392     $    357,184   $    412,075
Hotel and resort operating properties            $     25,694   $     22,037    $     5,002     $     12,955   $     13,362
Investment in treasury bills                     $    468,529   $    363,884    $   372,165     $         --   $         --
Marketable equity securities                     $         --   $    190,775    $        --     $    106,172   $         --
Mortgages and notes receivable                   $     75,852   $     67,613    $    59,970     $     15,226   $     15,056
Equity interest in Stratosphere Corp.            $     50,224   $     48,969    $        --     $         --   $         --
Development properties                           $     11,942   $     12,830    $     3,860     $         --   $         --
Total assets                                     $  1,160,666   $  1,135,915    $   991,230     $    641,310   $    620,880
Senior indebtedness                              $         --   $         --    $    11,308     $     22,616   $     33,923
Mortgages payable                                $    179,387   $    173,559    $   156,433     $    115,911   $    163,968
Partners' equity                                 $    967,966   $    888,499    $   809,325     $    485,559   $    404,189

*  To the extent financial 
information pertaining to AREP 
is reflected, such information is
consolidated for AREP and its 
Subsidiary.

Item 7.       Management's Discussion and Analysis of the
Financial Condition and Results of Operations.

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

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

General

AREP believes that it will benefit from diversification of its portfolio
of assets. To further its investment objectives, AREP may consider the
acquisition or seek effective control of land development companies and other
real estate operating companies which may have a significant inventory of
quality assets under development, as well as experienced personnel.
Additionally, in selecting future real estate investments, AREP intends to focus
on assets that it believes are undervalued in the real estate market, which
investments may require substantial liquidity to maintain a competitive
advantage. From time to

II-4

23

time AREP has discussed and in the future may discuss and may make such
acquisitions from Icahn, the General Partner or their affiliates, provided the
terms thereof are fair and reasonable to AREP. Despite the substantial capital
pursuing real estate opportunities, AREP believes that there are still
opportunities available to acquire investments that are undervalued. These may
include commercial properties, residential and commercial development projects,
land, assets in the gaming industry, non-performing loans, the securities of
entities which own, manage or develop significant real estate assets, including
limited partnership units and securities issued by real estate investment trusts
and the acquisition of debt or equity securities of companies which may be
undergoing restructuring and sub-performing properties that may require active
asset management and significant capital improvements. AREP notes that while
there are still opportunities available to acquire investments that are
undervalued, acquisition opportunities in the real estate market for value-added
investors have become competitive to source and the increased competition may
have some impact on the spreads and the ability to find quality assets that
provide returns that are sought. These investments may not be readily
financeable and may not generate immediate positive cash flow for AREP. As such,
they require AREP to maintain a strong capital base in order to react quickly to
these market opportunities as well as to allow AREP the financial strength to
develop or reposition these assets. While this may impact cash flow in the near
term and there can be no assurance that any asset acquired by AREP will increase
in value or generate positive cash flow, AREP intends to focus on assets that it
believes may provide opportunities for long-term growth and further its
objective to diversify its portfolio.

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

By the end of the year 2002, net leases representing approximately 22.6%
of AREP's net annual rentals from its portfolio will be due for renewal, and by
the end of the year 2004, net leases representing approximately 35.1% of AREP's
net annual rentals will be due for renewal. Since most of AREP's properties are
net-leased to single, corporate tenants, it may be difficult and time-consuming
to re-lease or sell those properties that existing tenants decline to re-let or
purchase and AREP may be required to incur expenditures to renovate such
properties for new tenants. In addition, AREP may become responsible for the
payment of certain operating expenses, including maintenance, utilities, taxes,
insurance and environmental compliance costs associated with such properties,
which are presently the responsibility of the tenant. As a result, AREP could
experience an adverse impact on net cash flow in the future from such
properties.

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

AREP raised funds through a rights offering in September 1997 (the "1997
Offering") to increase its assets available for investment, take advantage of
investment opportunities, further diversify its portfolio of assets and mitigate
against the impact of potential lease expirations. The 1997 Offering was
successfully completed in September 1997 and net proceeds of approximately $267
million were raised for investment purposes.

Expenses relating to environmental clean-up have not had a material
effect on the earnings, capital expenditures, or competitive position of AREP.
Management believes that substantially all such costs would be the
responsibility of the tenants pursuant to lease terms. While most tenants have
assumed responsibility for the environmental conditions existing on their leased
property, there can be no assurance that AREP will not be deemed to be a
responsible party or that the tenant will bear the costs of remediation. Also,
as AREP acquires more operating properties, its exposure to environmental
clean-up

II-5

24

costs may increase. AREP completed Phase I Environmental Site Assessments on
most of its properties by third-party consultants. Based on the results of these
Phase I Environmental Site Assessments, the environmental consultant has
recommended that certain sites may have environmental conditions that should be
further reviewed.

AREP has notified each of the responsible tenants to attempt to ensure
that they cause any required investigation and/or remediation to be performed
and most tenants continue to take appropriate action. However, if the tenants
fail to perform responsibilities under their leases referred to above, based
solely upon the consultant's estimates resulting from its Phase I Environmental
Site Assessments referred to above, it is presently estimated that AREP's
exposure could amount to $2-3 million, however, as no Phase II Environmental
Site Assessments have been conducted by the consultants, there can be no
accurate estimation of the need for or extent of any required remediation, or
the costs thereof. In addition, AREP notified all tenants of the Resource
Conservation and Recovery Act's ("RCRA") December 22, 1998 requirements for
regulated underground storage tanks. AREP may, at its own cost, have to cause
compliance with RCRA's requirements in connection with vacated properties,
bankrupt tenants and new acquisitions. Phase I Environmental Site Assessments
will also be performed in connection with new acquisitions and with such
property refinancings as AREP may deem necessary and appropriate. AREP is in the
process of updating its Phase I Site Assessments for certain of its
environmentally sensitive properties including properties with open RCRA
requirements. Approximately fifty updates are expected to be completed in 2000
with another forty-three scheduled for the year 2001.

AREP continues to monitor any impact of the year 2000 in the processing
of date-sensitive information by AREP's computerized information systems. Thus
far, the advent of the year 2000 has not had a material adverse impact on AREP's
financial position, results of operations or cash flows.

Results of Operations

Calendar Year 1999 Compared to Calendar Year 1998

Gross revenues increased by $5,234,000, or 5.6%, during the calendar year
1999 as compared to the same period in 1998. This increase reflects increases of
$11,504,000 in hotel and resort operating income and $2,446,000 in rental income
partially offset by decreases of $3,206,000 in interest income on treasury bills
and other investments, $2,021,000 in other income, $1,923,000 in financing lease
income and $1,566,000 in dividend income. The increase in hotel and resort
operating income is primarily attributable to the acquisition of New Seabury
which has been included in operations since August 1, 1998. The increase in
rental income is primarily due to property acquisitions. The decrease in
interest income on treasury bills and other investments is primarily
attributable to a decrease in short term investments during the course of the
year. The decrease in other income is primarily due to a decrease in tenant
bankruptcy claim distributions. The decrease in financing lease income is the
result of property sales and normal financing lease amortization. The decrease
in dividend income is primarily attributable to the 1998 disposition of one of
AREP's limited partnership investments.

Expenses increased by $11,808,000 or 33.8%, during the calendar year 1999
compared to the same period in 1998. This increase reflects increases of
$8,163,000 in hotel and resort operating expenses, $2,393,000 in interest
expense, $653,000 in depreciation and amortization, $325,000 in general and
administrative expenses and $274,000 in property expenses. The increase in hotel
and resort operating expenses is primarily attributable to the acquisition of
New Seabury as mentioned above. The increase in interest expense is primarily
attributable to the interest expense paid to an affiliate of the General Partner
in connection with the Stratosphere repurchase obligation.

Earnings before property and securities transactions and equity interest
in affiliate decreased during the calendar year 1999 by $6,574,000 as compared
to the same period in 1998 as mentioned above.

II-6

25

Gain on property transactions increased by $7,047,000 during the calendar
year 1999 as compared to the same period in 1998, due to differences in the size
and number of transactions.

During the calendar year 1998, AREP recorded a gain on sale of limited
partnership units of $4,382,000. There was no such transaction in 1999.

During the calendar year 1999, AREP recorded a provision for loss on real
estate of $1,946,000 as compared to $1,180,000 in 1998.

In the calendar year 1999, AREP recorded $1,263,000 of income related to
its equity in earnings of Stratosphere Corporation. There was no such income in
1998.

In the calendar year 1999, AREP recorded a non-recurring gain on the sale
of marketable equity securities of $28,590,000 related to the sale of its RJR
common stock. There was no such income in 1998.

Net earnings for the calendar year 1999 increased by $25,178,000 as
compared to the same period in 1998 primarily due to the non-recurring gain on
the sale of AREP's RJR common stock.

Diluted earnings per weighted average limited partnership unit
outstanding before property and securities transactions and equity interest in
affiliate were $.91 in the calendar year 1999 compared to $1.06 in the same
period in 1998, and net gain from property and securities transactions and
equity in earnings of affiliate was $.76 in the calendar year 1999 compared to
$.22 in the same period in 1998. Diluted net earnings per weighted average
limited partnership unit outstanding totalled $1.67 in the calendar year 1999
compared to $1.28 in the same period in 1998.

Calendar Year 1998 Compared to Calendar Year 1997

Gross revenues increased by $22,388,000, or 31.6%, during the calendar
year 1998 as compared to the same period in 1997. This increase reflects
increases of $11,487,000 in interest income on treasury bills and other
investments, $5,804,000 in dividend income, $2,660,000 in hotel and resort
operating income, $1,729,000 in rental income and $1,567,000 in other income
partially offset by a decrease of $859,000 in financing lease income. The
increase in interest income on treasury bills and other investments is primarily
due to an increase in short-term investments as a result of the 1997 Rights
Offering. The increase in dividend income is attributable to AREP's investment
in limited partnership units and RJR common stock. The increase in hotel and
resort operating income is primarily attributable to the acquisition of New
Seabury which began operations on August 1, 1998 partially offset by the
decrease in revenues due to the sale of the Phoenix Holiday Inn in April 1997.

Expenses increased by $5,037,000, or 16.8%, during the calendar year 1998
compared to the same period in 1997. This increase reflects increases of
$2,721,000 in interest expense, $2,693,000 in hotel and resort operating
expenses, and $620,000 in general and administrative expenses partially offset
by decreases of $808,000 in property expenses and $189,000 in depreciation and
amortization. The increase in interest expense is primarily attributable to
financings related to recent acquisitions. The increases in hotel and resort
operating expenses is primarily attributable to the acquisition of New Seabury
resort partially offset by a decrease in expenses due to the sale of the Phoenix
Holiday Inn in April 1997.

Earnings before property and securities transactions increased during the
calendar year 1998 by $17,351,000 as compared to the same period in 1997,
primarily due to increased interest income on treasury bills and other
investments and increased dividend income.

Gain on property transactions decreased by $6,986,000 during the calendar
year 1998 as compared to the same period in 1997, due to differences in the size
and number of transactions.

II-7

26

In 1998, AREP recorded a gain on sale of limited partnership interests of
$4,382,000. There was no such transaction in 1997.

During the calendar year 1998, AREP recorded a provision for loss on real
estate of $1,180,000 as compared to $1,085,000 during the same period in 1997.

During the calendar year 1997, AREP recorded a gain on the sale of
marketable equity securities of $29,188,000 relating to its RJR stock. There was
no such transaction in 1998.

During the calendar year 1997, AREP recorded a provision for loss on
mortgages and note receivable of $9,790,000. No such provision was recorded in
1997.

Net earnings for the calendar year 1998 decreased by $4,746,000 as
compared to the same period in 1997 primarily due to the non-recurring gain on
the sale of the RJR stock in 1997 partially offset by increased earnings before
property and securities transactions as mentioned above and the provision for
loss on mortgages and note receivable recorded in 1997.

Diluted earnings per weighted average limited partnership unit
outstanding before property and securities transactions were $1.06 in the
calendar year 1998 compared to $1.16 in the comparable period of 1997, and net
gain from property and securities transactions was $.22 in the calendar year
1998 compared to $.97 in the comparable period of 1997. Diluted net earnings per
weighted average limited partnership unit outstanding totaled $1.28 in the
calendar year 1998 compared to $2.13 in the comparable period of 1997.

Capital Resources and Liquidity

Generally, the cash needs of AREP for day-to-day operations have been
satisfied from cash flow generated from current operations. In recent years,
AREP has applied a significant portion of its cash flow to the repayment of
maturing debt obligations. Cash flow from day-to-day operations represents net
cash provided by operating activities (excluding working capital changes and
non-recurring other income) plus principal payments received on financing leases
as well as principal receipts on certain mortgages receivable reduced by
periodic principal payments on mortgage debt.

In 1999, 23 leases covering 23 properties and representing approximately
$1,785,000 in annual rentals expired. Seven of these leases originally
representing approximately $958,000 in annual rental income were re-let or
renewed for approximately $963,000 in annual rentals. Such renewals are
generally for a term of five years. One property with an approximate annual
rental income of $20,000 was renewed at fair market value which is approximately
$175,000. Four properties with annual rental income of $255,000 have been
purchased by their tenants pursuant to the exercise of purchase options. Eleven
properties, with an approximate annual rental income of $552,000, are currently
being marketed for sale or lease.

In 1999, AREP sold 15 properties representing approximately $2.3 million
of net operating cash flow for net proceeds of approximately $25.8 million which
are being retained for reinvestment.

In 2000, 39 leases covering 39 properties and representing approximately
$5.7 million in annual rentals are scheduled to expire. 28 of these leases,
originally representing approximately $3.7 million in annual rental income,
have been or will be re-let or renewed for approximately $3.7 million in annual
rentals. Such renewals are generally for a term of five years. Seven
properties, with an approximate annual rental income of $1.8 million will be
marketed for sale or lease when the current lease term expires. The status of
four properties with approximate annual rentals of $200,000 is unknown at this
time.   

Entergy Louisiana Inc., a tenant in 15 of the 39 properties owned by AREP
described above, with leases expiring in the year 2000, has notified AREP that
it will renew leases covering thirteen of the fifteen properties. The thirteen
properties which were leased for a total of approximately $2,400,000 per annum
have been renewed for approximately $2,595,000 per annum. Leases covering two
properties with annual rents aggregating approximately $902,000 will not be
renewed. The properties not being renewed have an estimated fair market value
of $3,150,000 and a carrying value of $4,780,000 resulting in AREP recording a
provision for loss on real estate in the amount of approximately $1,630,000 in
1999.

On March 30, 2000, the Board of Directors of the General Partner
announced that no distributions on its Depositary Units are expected to be made
in 2000. AREP believes that it should continue to hold

II-8

27

and invest, rather than distribute, cash. In making its announcement, AREP noted
it plans to continue to apply available operating cash flow toward its
operations, repayment of maturing indebtedness, tenant requirements and other
capital expenditures and creation of cash reserves for contingencies including
environmental matters and scheduled lease expirations. By the end of the year
2002, net leases representing approximately 22.6% of AREP's net annual rentals
will be due for renewal, and by the end of the year 2004, 35.1% of such rentals
will be due for renewal. Another factor that AREP took into consideration was
that net leases representing approximately 25.4% of AREP's annual rentals from
its portfolio are with tenants in the retail sector, some of which are currently
experiencing cash flow difficulties and restructurings. Further, AREP noted that
the types of investments AREP is pursuing, including assets that may not be
readily financeable or generating positive cash flow, such as development
properties, non-performing mortgage loans or securities of companies which may
be undergoing restructuring or require significant capital investments, require
AREP to maintain a strong capital base in order to own, develop and reposition
those assets.

During the year ended December 31, 1999, AREP generated approximately
$44.8 million in cash flow from day-to-day operations which excludes
approximately $7.9 million in interest earned on the 1997 Offering proceeds
which will be retained for future acquisitions. During 1998, AREP generated
approximately $47 million in such cash flow from day-to-day operations which
excluded approximately $10.9 million in interest earned on the proceeds from
1997 Rights Offering.

Capital expenditures for real estate were approximately $4,048,000 during
1999. During 1998, such expenditures totaled approximately $505,000.

During the year ended December 31, 1999, approximately $5.4 million of
maturing debt obligations were repaid out of AREP's cash flow. During the year
ended December 31, 1998, approximately $16.2 million of maturing debt
obligations, including the final $11.3 million payment under the unsecured note
agreements with The Prudential Insurance Company of America, were repaid out of
AREP's cash flow. Approximately $3,300,000 of additional balloon payments are
due during 2000.

During 1999, net cash flow after payment of maturing debt obligations and
capital expenditures was approximately $35.4 million which was added to AREP's
operating cash reserves. During 1998, net cash flow after payment of maturing
debt obligations and capital expenditures was approximately $30 million which
was added to AREP's operating cash reserves. AREP's operating cash reserves are
approximately $108.7 million at December 31, 1999 (which does not include the
cash from capital transactions or the 1997 Rights Offering which is being
retained for investment), which are being retained to meet maturing debt
obligations, capitalized expenditures for real estate and certain contingencies
facing AREP. AREP from time to time may increase its cash reserves to meet its
maturing debt obligations, tenant requirements and other capital expenditures
and to guard against scheduled lease expirations and other contingencies
including environmental matters.

Sales proceeds from the sale or disposal of portfolio properties totaled
approximately $29.7 million in 1999 which included $3.9 million from lot and
condominium sales. During 1998, such sales proceeds totaled approximately $23
million. AREP received approximately $22.2 million and $19.5 million of net
proceeds from refinancings in 1999 and 1998 respectively. AREP intends to use
asset sales, financing and refinancing proceeds for new investments.

In 1998 and 1999, AREP invested approximately $175.3 million in the
common stock of RJR. In June 1999, AREP sold its entire RJR position for net
proceeds of approximately $203.9 million realizing a non-recurring gain of
approximately $28.6 million. There can be no assurance that AREP will be able to
realize any such investment gains in the future.

II-9

28

During the calendar year 1999, AREP purchased an office and industrial
facility for approximately $22 million. In addition AREP purchased $12.8 million
face amount of Sands Notes for approximately $10.2 million.

AREP, the General Partner and the officers and directors of the General
Partner obtained their Nevada Gaming approvals and subsequently, in October
1999, AREP repurchased its Stratosphere interest for approximately $64.3
million. In March, 2000, AREP acquired approximately an additional 2% interest
in Stratosphere from affiliates of Mr. Icahn for approximately $2 million,
thereby providing AREP with an aggregate interest in Stratosphere of
approximately 51%. Also, AREP understands that Stratosphere may seek
approximately $70 million for expansion of its hotel and casino facility, a
substantial portion of which may be provided by AREP.

AREP anticipates that golf and clubhouse improvements in connection with
New Seabury will require the expenditure by AREP of an aggregate of
approximately $10 million in years 2000 and 2001.

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

To further its investment objectives, AREP acquired the assets of
Bayswater and all of the ownership interests of its affiliated entities for
approximately $84.35 million and may consider the acquisition or seek effective
control of other land development companies and other real estate operating
companies which may have a significant inventory of quality assets under
development. This may enhance its ability to further diversify its portfolio of
properties and gain access to additional operating and development capabilities.

Pursuant to the 1997 Rights Offering, which closed in September 1997, AREP
raised approximately $267 million to increase its available liquidity so that it
will be in a better position to take advantage of investment opportunities and
to further diversify its portfolio. Additionally, AREP may determine to reduce
debt of certain properties where the interest rate is considered to be in excess
of current market rates. See Note 12 of Notes to the Consolidated Financial
Statements.

AREP's cash and cash equivalents and investment in treasury bills
increased by approximately $205.9 million during the calendar year 1999,
primarily due to the sale of RJR stock ($203.9 million), net cash flow from
operations ($35.4 million), mortgage loan net proceeds ($22.2 million), property
sales ($29.7 million), interest earned on the 1997 Rights Offering ($7.9
million) less repurchase of Stratosphere interest ($64.3 million) and property
acquisitions ($24 million).

Quantitative and Qualitative Disclosure About Market Risks

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

Other related risks include liquidity risks, which arise in the course of
AREP's general funding activities and the management of its balance sheet. This
includes both risks relating to the raising of funding with appropriate maturity
and interest rate characteristics and the risk of being unable to liquidate an
asset in a timely manner at an acceptable price. Real estate investments by
their nature are often difficult or time-consuming to liquidate. Also, buyers of
minority interests may be difficult to secure, while transfers of large block
positions may be subject to legal, contractual or market restrictions. Other
operating risks for AREP include lease terminations, whether scheduled
terminations or due to tenant

II-10

29

defaults or bankruptcies, development risks, and environmental and capital
expenditure matters, as described elsewhere herein.

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

Item 7A.      Quantitative and Qualitative Disclosures About Market Risk.

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

II-11

30

Item 8. Financial Statements

INDEPENDENT AUDITORS' REPORT

The Partners
American Real Estate Partners, L.P.:

We have audited the accompanying consolidated balance sheets of American Real
Estate Partners, L.P. and subsidiary as of December 31, 1999 and 1998, 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, 1999. In connection with our audits of the
consolidated financial statements, we also have audited the 1999 financial
statement schedule as listed in the Index at Item 14 (a) 2. These consolidated
financial statements and the financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these consolidated financial statements and the financial
statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosure in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits 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 subsidiary as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.

KPMG LLP

March 20, 2000
New York, New York

II-12

31

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 and 1998 (in $000's)
--------------------------------------------------------------------------------

ASSETS                                                                             1999                 1998
------                                                                       ---------------      ---------------

REAL ESTATE LEASED TO OTHERS:
Accounted for under the financing method (Notes 2, 4 and 11)            $       223,391      $       245,920
Accounted for under the operating method, net of accumulated
depreciation (Notes 2, 5 and 11)                                             152,086              135,634

INVESTMENT IN TREASURY BILLS                                                         468,529              363,884

CASH AND CASH EQUIVALENTS (Note 2)                                                   117,744               16,462

MARKETABLE EQUITY SECURITIES (Notes 2, and 6)                                             --              190,775

MORTGAGES AND NOTES RECEIVABLE (Notes 9 and 22):
Held for investment                                                              42,505               45,173
Available for sale                                                               33,347               22,440

EQUITY INTEREST IN STRATOSPHERE CORPORATION
(Notes 7 and 22)                                                                 50,224               48,969

HOTEL AND RESORT OPERATING PROPERTIES
Net of accumulated depreciation (Notes 10 and 11)                                25,694               22,037

DEVELOPMENT PROPERTIES                                                                11,942               12,830

INVESTMENT IN LIMITED PARTNERSHIPS (Notes 2 and 8 )                                    4,440                5,569

RECEIVABLES AND OTHER ASSETS (Note 22)                                                19,107               18,994

PROPERTY HELD FOR SALE (Notes 2, 11 and 21)                                            6,740                3,893

CONSTRUCTION-IN-PROGRESS                                                               3,295                1,791

DEBT PLACEMENT COSTS - Net of accumulated amortization
(Note 2)                                                                          1,622                1,544
---------------      ---------------

TOTAL                                                $     1,160,666      $     1,135,915
===============      ===============

II-13                           (Continued)

32

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998 (in $000's) (Continued)
--------------------------------------------------------------------------------

LIABILITIES AND PARTNERS' EQUITY                                                   1999                 1998
--------------------------------                                             ---------------      ---------------

MORTGAGES PAYABLE (Notes 4, 5, 12 and 22)                                    $       179,387      $       173,559

DUE TO AFFILIATE (Notes 7 and 22)                                                         --               60,750

ACCOUNTS PAYABLE, ACCRUED EXPENSES AND
OTHER LIABILITIES (Note 22)                                                      10,211               10,004

DEFERRED INCOME (Note 9)                                                               2,785                2,788

DISTRIBUTIONS PAYABLE (Note 23)                                                          317                  315
---------------      ---------------

192,700              247,416
---------------      ---------------

COMMITMENTS AND CONTINGENCIES
(Notes 3 and 20)

LIMITED PARTNERS:
Preferred units, $10 liquidation preference,
5% Cumulative pay-in-kind redeemable; 9,400,000 authorized;
8,060,437 and 7,676,607 issued and outstanding as of
December 31, 1999 and 1998                                                    83,627               79,645

Depositary units;47,850,000 authorized;47,235,484 outstanding                   876,760              802,856

GENERAL PARTNER                                                                       19,500               17,919

TREASURY UNITS AT COST:
1,137,200 depositary units                                                      (11,921)             (11,921)
---------------      ---------------

PARTNERS' EQUITY (Notes 2, 3, 14 and 24)                                             967,966              888,499
---------------      ---------------

TOTAL                                                $     1,160,666      $     1,135,915
===============      ===============

See notes to consolidated financial statements.

II-14

33

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (in $000's except per unit amounts)
--------------------------------------------------------------------------------

REVENUES:                                                  1999            1998              1997
-----------      -----------      -----------

Interest income on financing leases               $    22,364      $    24,287      $    25,146
Interest income on treasury bills and other
investments                                         25,007           28,213           16,726
Rental income                                          20,792           18,346           16,617
Hotel and resort operating income (Note 10)            20,262            8,758            6,098
Dividend income (Notes 6 and 8)                        10,115           11,681            5,877
Other income (Note 7)                                      --            2,021              454
-----------      -----------      -----------

98,540           93,306           70,918
-----------      -----------      -----------

EXPENSES:
Interest expense (Notes 7, 11 and 12)                  18,303           15,910           13,189
Depreciation and amortization                           5,576            4,923            5,112
General and administrative expenses (Note 3)            4,133            3,808            3,188
Property expenses                                       2,923            2,649            3,457
Hotel and resort operating expenses
(Note 10)                                           15,808            7,645            4,952
-----------      -----------      -----------

46,743           34,935           29,898
-----------      -----------      -----------

EARNINGS BEFORE PROPERTY AND
SECURITIES TRANSACTIONS AND
EQUITY INTEREST IN AFFILIATE                           51,797           58,371           41,020

PROVISION FOR LOSS ON MORTGAGES
RECEIVABLE (Note 7)                                        --               --           (9,790)

PROVISION FOR LOSS ON REAL ESTATE
(Notes 11 and 21)                                      (1,946)          (1,180)          (1,085)

GAIN ON SALE OF MARKETABLE
EQUITY SECURITIES (Note 6)                             28,590               --           29,188

GAIN ON SALES AND DISPOSITION OF
REAL ESTATE (Notes 10 and 11)                          16,112            9,065           16,051

GAIN ON SALE OF LIMITED PARTNERSHIP
INTERESTS (Note 8)                                         --            4,382               --

EQUITY IN EARNINGS OF STRATOSPHERE
CORPORATION (Note 7)                                    1,263               --               --
-----------      -----------      -----------

NET EARNINGS                                           $    95,816      $    70,638      $    75,384
===========      ===========      ===========

(Continued)
II-15

34

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
--------------------------------------------------------------------------------

1999             1998             1997
-----------      -----------      -----------

NET EARNINGS ATTRIBUTABLE TO
(Note 3):
Limited partners                               $    93,909      $    69,232      $    73,884
General partner                                      1,907            1,406            1,500
-----------      -----------      -----------

$    95,816      $    70,638      $    75,384
===========      ===========      ===========

NET EARNINGS PER LIMITED
PARTNERSHIP UNIT (Note 2):
Basic earnings                                 $      1.95      $      1.42      $      2.17
===========      ===========      ===========

WEIGHTED AVERAGE LIMITED
PARTNERSHIP UNITS
OUTSTANDING                                        46,098,284       46,173,284       31,179,246
===========      ===========      ===========

Diluted earnings                                  $      1.67      $      1.28      $      2.13
===========      ===========      ===========

WEIGHTED AVERAGE LIMITED
PARTNERSHIP UNITS AND
EQUIVALENT PARTNERSHIP UNITS
OUTSTANDING                                        56,078,394       54,215,339       34,655,395
===========      ===========      ===========

See notes to consolidated financial statements.

II-16

35

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY AND
COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (in $000's)
--------------------------------------------------------------------------------

Limited Partners' Equity
General     ------------------------       Held in Treasury          Total
Partner's    Depositary    Preferred    ------------------------     Partners'
Equity         Units        Units         Amounts       Units        Equity
---------   -----------    ----------   -----------    ---------    -----------

BALANCE, DECEMBER 31, 1996                 $   9,885   $   465,336    $   21,522   $   (11,184)       1,037    $   485,559

Comprehensive income:
Net earnings                              1,500        73,884            --            --           --         75,384

Sale of marketable equity
securities available for
sale (Note 6)                          (468)      (23,080)           --            --           --        (23,548)
---------   -----------    ----------   -----------    ---------    -----------

Comprehensive income                           1,032        50,804            --            --           --         51,836

Rights offering (Note 14)                         --       215,582        51,329            --           --        266,911

Expenses of rights offering
(Note 14)                                    (8)         (392)           --            --           --           (400)

Capital contribution (Note 14)                 5,419            --            --            --           --          5,419

Pay-in-kind distribution (Note 14)                --        (3,001)        3,001            --           --             --
---------   -----------    ----------   -----------    ---------    -----------

BALANCE, DECEMBER 31, 1997                    16,328       728,329        75,852       (11,184)       1,037        809,325

Comprehensive income:
Net earnings                              1,406        69,232            --            --           --         70,638

Net unrealized gains on
securities available for
sale (Notes 6 and 9)                    185         9,088            --            --           --          9,273
---------   -----------    ----------   -----------    ---------    -----------

Comprehensive income                           1,591        78,320            --            --           --         79,911

Repurchase of Depositary
units (Note 24)                              --            --            --          (737)         100           (737)

Pay-in-kind distribution (Note 14)                --        (3,793)        3,793            --           --             --
---------   -----------    ----------   -----------    ---------    -----------

BALANCE, DECEMBER 31, 1998                    17,919       802,856        79,645       (11,921)       1,137        888,499

(Continued)
II-17

36

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY AND
OTHER COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (in $000's)
--------------------------------------------------------------------------------

Limited Partners' Equity
General     ------------------------       Held in Treasury          Total
Partner's    Depositary    Preferred    ------------------------     Partners'
Equity         Units        Units         Amounts       Units        Equity
---------   -----------    ----------   -----------    ---------    -----------

Comprehensive income:
Net earnings                          $   1,907    $   93,909    $     --    $      --            --      $    95,816

Sale of marketable equity
securities available for sale          (320)      (15,738)           --            --           --        (16,058)

Net unrealized losses on
securities available for sale            (6)         (285)           --            --           --           (291)
---------   -----------    ----------   -----------    ---------    -----------

Comprehensive income                      1,581        77,886            --            --           --         79,467

Pay-in-kind distribution
(Note 14)                                --        (3,982)        3,982            --           --             --
---------   -----------    ----------   -----------    ---------    -----------

BALANCE, DECEMBER 31, 1999                 $  19,500   $   876,760    $   83,627   $   (11,921)       1,137    $   967,966
=========   ===========    ==========   ===========    =========    ===========

Accumulated other comprehensive (loss) income at December 31, 1999, 1998 
and 1997 was ($7,075), $9,273, and $0, respectively.

II-18

37

AMERICAN REAL ESTATE PARTNERS, L. P. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (in $000's)
--------------------------------------------------------------------------------

1999              1998              1997
-------------     -------------     -------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings                                                          $      95,816     $      70,638     $      75,384
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization                                          5,576             4,923             5,112
Amortization of deferred income                                           --                --               (26)
Gain on sale of marketable equity securities                         (28,590)               --           (29,188)
Gain on sales and disposition of real estate                         (16,112)           (9,065)          (16,051)
Gain on sale of limited partnership interests                             --            (4,382)               --
Provision for loss on mortgages receivable                                --                --             9,790
Provision for loss on real estate                                      1,946             1,180             1,085
Equity in earnings of Stratosphere Corporation                        (1,263)               --                --
Changes in:
Increase (decrease) in accounts payable,
accrued expenses and other liabilities                          1,585            (1,040)           (1,277)
Decrease in deferred income                                           (4)               (4)               (4)
(Increase) decrease in receivables and other assets               (3,151)          (11,239)            1,188
-------------     -------------     -------------

Net cash provided by operating activities                 55,803            51,011            46,013
-------------     -------------     -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in mortgages and notes receivable                                   (8,562)          (63,809)          (56,345)
Net proceeds from the sales and disposition of real estate                   29,735            23,004            37,643
Principal payments received on leases accounted for
under the financing method                                                 7,938             7,887             7,683
Construction in progress                                                     (1,504)             (542)             (570)
Principal receipts on mortgages receivable                                      340               478               332
Property acquisitions                                                       (23,954)          (41,451)          (63,064)
Capitalized expenditures for real estate                                     (4,048)             (505)           (1,836)
(Increase) decrease in investment in treasury bills                        (104,645)            8,281          (372,165)
Disposition (acquisition) of marketable equity securities                   203,917          (174,717)          111,784
Equity interest in Stratosphere Corporation                                      --           (17,939)               --
Due to affiliate                                                            (60,750)           60,750                --
Net disposition of limited partnership interests                              1,129            21,784             6,977
-------------     -------------     -------------

Net cash provided by (used in) investing
activities                                            39,596          (176,779)         (329,561)
-------------     -------------     -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Partners' equity:
Repurchase of Depositary Units                                                --              (737)               --
Proceeds from rights offering                                                 --                --           272,331
Expenses of the rights offering                                               --                --              (267)
Distribution to partners                                                     (10)             (129)           (1,071)
Debt:
Increase in mortgages payable                                             22,400            39,230            62,623       
Periodic principal payments                                               (9,208)           (8,710)           (7,578)
Balloon payments                                                          (7,006)           (4,892)           (6,854)
Senior debt principal payment                                                 --           (11,308)          (11,308)
Debt placement costs                                                        (293)             (371)             (724)
-------------     -------------     -------------

Net cash provided by financing activities                  5,883            13,083           307,152
-------------     -------------     -------------

(Continued)

II-19

38

AMERICAN REAL ESTATE PARTNERS, L. P. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (in $000's)
--------------------------------------------------------------------------------

1999              1998              1997
-------------     -------------     -------------

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS                                                           $     101,282     $    (112,685)    $      23,604

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                      16,462           129,147           105,543
-------------     -------------     -------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                   $     117,744     $      16,462     $     129,147
=============     =============     =============

SUPPLEMENTAL INFORMATION:
Cash payments for interest                                            $      18,361     $      14,822     $      12,377
=============     =============     =============

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Reclassification of real estate to operating lease                         $       2,461                --             4,001
Reclassification of real estate from operating lease                              (1,116)           (5,140)           (2,497)
Reclassification to development properties                                           763             3,860                --
Reclassification of real estate from development properties                         (138)               --                --
Reclassifications from Hotel and Resort operating properties                        (763)               --                --
Reclassification of real estate from financing lease                              (4,887)               --            (4,001)
Reclassification from mortgages and notes receivable                                  --           (15,810)               --
Reclassification to hotel and resort operating properties                            180            15,810                --
Reclassifications from receivables and other assets                               (2,169)               --                --
Reclassifaction to due to affiliate                                                3,221                --                --
Reclassifications from accounts payable, accrued expenses
and other liabilities                                                        (1,232)               --                --
Reclassification of real estate to property held for sale                          3,879             1,280             2,497
Reclassification of real estate from construction-in-progress                       (199)               --                --
-------------     -------------     -------------

$          --     $          --     $          --
=============     =============     =============

Net unrealized (losses) gains on securities available for sale             $        (291)    $       9,273     $          --
=============     =============     =============

Sale of marketable equity securities available for sale                    $     (16,058)    $          --     $     (23,548)
=============     =============     =============

See notes to consolidated financial statements.

II-20

39

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 and 1997
--------------------------------------------------------------------------------

1.     ORGANIZATION 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 (known and
unknown) 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. 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.

On September 13, 1990, in connection with their previously filed
voluntary petition for reorganization pursuant to Chapter 11 of the
Bankruptcy Code, Integrated Resources, Inc. ("Integrated") entered into
an agreement whereby it agreed to sell all of its stock in the General
Partner to Meadowstar Holding Company, Inc. ("Meadowstar"). Neither the
Company nor the General Partner was a party to such agreement. The sale
of the stock of the General Partner to Meadowstar was approved by the
Bankruptcy Court on October 22, 1990. On November 15, 1990, pursuant to
the terms of the Acquisition Agreement, Meadowstar purchased all of the
outstanding shares of Common Stock of the General Partner. In May 1993,
Carl C. Icahn acquired all of Meadowstar's interest in the General
Partner.

An amendment (the "Amendment") to the Company's Partnership Agreement
became effective on August 16, 1996, which permits the Company to make
non-real estate investments. The Amendment

II-21

40

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

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

2.     SIGNIFICANT ACCOUNTING POLICIES

Financial Statements and Principles of Consolidation - The consolidated
financial statements are prepared on the accrual basis of accounting and
include only those assets, liabilities and results of operations, which
relate to the Company and the Subsidiary. All material intercompany
accounts and transactions have been eliminated in consolidation.

Registration Costs, Expenses of the Exchange and Rights Offering Expenses
- Registration costs of the Predecessor Partnerships were charged against
partners' equity upon the closing of the public offerings in accordance
with prevalent industry practice.

II-22

41

Net Earnings Per Limited Partnership Unit - In February 1997 the
Financial Accounting Standards Board (the "FASB") issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share ("SFAS
128")". SFAS 128 became effective for financial statements for both
interim and annual periods ending after December 15, 1997. It also
required prior period earnings per share data presented to be restated.
Under SFAS 128, 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 weighted
average number of depositary units outstanding for basic earnings per
share purposes for years ended December 31, 1999, 1998 and 1997 were
46,098,284, 46,173,284 and 31,179,246, respectively. The weighted average
number of depositary units and equivalent units assumed outstanding for
diluted earnings per share purposes for the years ended December 31,
1999, 1998 and 1997 were 56,078,394, 54,215,339 and 34,655,395,
respectively. The number of limited partnership units used in the
calculation of diluted income per limited partnership unit increased by
9,980,110, 8,042,055 and 3,476,149, limited partnership units for the
years ended December 31, 1999, 1998 and 1997, respectively to reflect the
effects of the conversion of preferred units.

II-23

42

For the years ended December 31, 1999, 1998 and 1997, basic and diluted
earnings per weighted average limited partnership unit are detailed as
follows:

1999                  1998                 1997
-------------         -------------        -------------

Basic:
Earnings before property
and securities transactions
and equity interest in
affiliate                                   $        1.01         $        1.16        $        1.19
Net gain from property and
securities transactions and
equity in earnings of
Stratosphere Corporation                              .94                   .26                 1.08
-------------         -------------        -------------

Net earnings                                    $        1.95         $        1.42        $        2.27
=============         =============        =============

Diluted:
Earnings before property
and securities transactions
and equity interest
in affiliate                                $         .91         $        1.06        $        1.16
Net gain from property and
securities transactions and
equity in earnings of
Stratosphere Corporation                              .76                   .22                  .97
-------------         -------------        -------------

Net earnings                                    $        1.67         $        1.28        $        2.13
=============         =============        =============

There were no distributions in 1999, 1998 or 1997.

Cash and Cash Equivalents - The Company considers short-term investments,
which are highly liquid with original maturities of three months or less
at date of purchase, to be cash equivalents. Included in cash and cash
equivalents at December 31, 1999 and 1998 are investments in government
backed securities of approximately $92,515,000 and $13,212,000,
respectively.

Marketable Equity Securities - Investments in equity securities
classified as available for sale, for accounting purposes, are required
to be 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.

II-24

43

Investment in Limited Partnership Units - Investment in Limited
Partnership Units are accounted for under the cost method with income
distributions reflected in earnings and return of capital distributions
as a reduction of investment.

Income Taxes - No provision has been made for Federal, state or local
income taxes since the Company is a partnership and, accordingly, such
taxes are the responsibility of the partners.

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, 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.

For each of the years ended December 31, 1999, 1998 and 1997 no
individual or series of real estate assets leased to the same lessee
accounted for more than 10% of the gross revenues of the Company.

II-25

44

At December 31, 1999, 1998 and 1997, Portland General Electric Company
occupied a property, consisting of corporate offices, which represented
more than 10% of the Company's total real estate assets.

Depreciation - Depreciation on properties accounted for under the
operating method is computed using the straight-line method over the
estimated useful life of the particular property or property components,
which range from 5 to 45 years. When properties are sold or otherwise
disposed of, the cost and accumulated depreciation are removed from the
property account and the accumulated depreciation account, and any gain
or loss on such sale or disposal is generally credited or charged to
income.

Debt Placement Costs - Debt placement costs are amortized over the term
of the respective indebtedness.

Use of Estimates - Management of the Partnership 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.

Assets Held for Sale - Assets held for sale are carried at the lower of
cost or net realizable value.

Reclassifications - Certain amounts in prior year financial statements
have been reclassified to conform to the 1999 presentation.

Accounting by Creditors for Impairment of a Loan - The Company follows
SFAS No. 114, Accounting by Creditors for Impairment of a Loan, as
amended by SFAS 118, Accounting by Creditors for Impairment of a Loan -
Income Recognition Disclosures. In accordance with these standards, if it
is

II-26

45

probable that based upon current information a creditor will be unable to
collect all amounts due according to the contractual terms of a loan
agreement, the asset is considered "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 - The Company follows Statement of Financial
Accounting Standards 121, which requires that long-lived assets and
certain identifiable intangibles, and goodwill related to those assets to
be held and used by an entity and long-lived assets and certain
identifiable intangibles to be disposed of, be reviewed for impairment
whenever events or changes in circumstances 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 and identifiable intangibles that
the Company expects to hold and use is based on the fair value of the
asset. Long-lived assets and certain identifiable intangibles to be
disposed of are reported at the lower of carrying amount or fair value
less cost to sell.

The Company follows Statement of Financial Standards No. 133 (SFAS 133),
"Accounting For Derivative Instruments and Hedging Activities," which
requires that all derivative financial instruments, such as foreign
exchange contracts, be recognized in the financial statements and
measured at fair value regardless of the purpose or intent for holding
them. Changes in the fair market value of derivative financial
instruments are either recognized periodically in income or Partners'
equity (as a component of comprehensive income) depending on whether the
derivative is being used to hedge changes in fair value or cash flow.
SFAS 133 will be adopted by the Company effective January 1, 2001. It is
anticipated that the adoption of SFAS 133 will not have a material effect
on the Company's financial position or results of operations.  

3.     CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES

a.     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
Partnership'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

II-27

46

overall profitability of the Partnership 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.

Reinvestment incentive fees as payment for services rendered in
connection with the acquisition of properties from July 1, 1987
through July 1, 1997 were 1% of the purchase price for the first
five years and are 1/2% for the second five years.

Eighteen properties were acquired since the commencement of the
exchange through June 1997 for aggregate purchase prices of
approximately $61,000,000. Reinvestment incentive fees of
approximately $480,000 have been paid to the General Partner.

b.     The Company has a lease, expiring in 2001, for 7,920 square feet
of office space, at an annual rental of approximately $153,000.
The Company has sublet to certain affiliates 3,205 square feet at
an annual rental of approximately $62,000, resulting in a net
annual rental of approximately $91,000.

II-28

47

c.     The Company was reimbursed by an affiliate of the General Partner
for payroll and certain overhead expenses related to certain
employees of the Company who provided services on a part-time
basis in the amount of approximately $34,000 for the year ended
December 31, 1997. There were no such reimbursements in 1999 and
1998. Such reimbursements were approved by the Audit Committee of
the Board of Directors of the General Partner.

d.     In addition, in 1997 the Company entered into a license agreement
for a portion of office space from an affiliate. The license
agreement dated as of February 1, 1997 expires May 22, 2004 unless
sooner terminated in accordance with the agreement. Pursuant to
the license agreement, the Company has the non-exclusive use of
3,547 square feet of office space and common areas (of an
aggregate 21,123 rentable square feet sublet by such affiliate)
for which it pays $17,068 per month, together with 16.79% of
certain "additional rent". In 1999, 1998 and 1997, the Company
paid such affiliate approximately $218,000, $216,000 and $69,000
of rent, respectively, in connection with this licensing
agreement. In connection with the build-out of the space, the
Company reimbursed such affiliate $486,989 in 1997, representing
the Company's allocable share of such costs net of a pro rata
share of the sub-lessor's allowance for such build-out. The terms
of such sublease were reviewed and approved by the Audit
Committee.

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,
-----------------------------------
1999                  1998
-------------         -------------

Minimum lease payments receivable                 $     262,648         $     301,988
Unguaranteed residual value                             130,601               142,919
-------------         -------------
393,249               444,907
Less unearned income                                    169,858               198,987
-------------         -------------
$     223,391         $     245,920
=============         =============

II-29

48

The following is a summary of the anticipated future receipts of the
minimum lease payments receivable at December 31, 1999 in ($000's):

Year ending
December 31,             Amount
----------------         ----------

2000                  $   28,255
2001                      24,771
2002                      22,965
2003                      21,616
2004                      19,266
Thereafter               145,775
----------
$  262,648
==========

At December 31, 1999, approximately $165,369,000 of the net investment in
financing leases was pledged to collateralize the payment of nonrecourse
mortgages payable.

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

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

December 31,
-----------------------------------
1999                  1998
-------------         -------------

Land                                   $      47,453         $      46,822
Commercial buildings                         145,148               127,262
-------------         -------------
192,601               174,084
Less accumulated depreciation                 40,515                38,450
-------------         -------------
$     152,086         $     135,634
=============         =============

As of December 31, 1999 and 1998, accumulated depreciation on the hotel
and resort operating properties (not included above) amounted to
approximately $4,225,000 and $2,993,000, respectively (See Note 10).

II-30

49

The following is a summary of the anticipated future receipts of minimum
lease payments under noncancelable leases at December 31, 1999 (in
$000's):

Year ending
December 31,             Amount
----------------         ----------

2000                   $   13,643
2001                       13,255
2002                       12,071
2003                       10,576
2004                       10,655
Thereafter                 56,259
----------
$  116,459
===========

At December 31, 1999, approximately $105,311,000 of real estate leased to
others was pledged to collateralize the payment of nonrecourse mortgages
payable.

6.     MARKETABLE EQUITY SECURITIES

a.     In 1996, the Company purchased 3,121,700 shares of RJR Nabisco
Holdings Corp. ("RJR") common stock at a cost of approximately
$82,596,000 at an average cost per share of $26.46.

In February 1997, the Company sold its entire interest in RJR for
net proceeds of approximately $111,784,000 realizing a gain of
approximately $29,188,000. The Company's pro rata share of third
party expenses relating to such RJR investment was approximately
$2,154,000 which was paid in the year ended December 31, 1997 and
approved by the Audit Committee.

b.     In 1998 and 1999, the Company purchased 6,448,200 shares of RJR
Nabisco Holdings Corp. ("RJR") common stock at a cost of
approximately $175.3 million and at an average cost per share of
$27.19. Carl C. Icahn, the Chairman of the Board of the General
Partner, had owned (through affiliates) an additional 19,277,500
shares of RJR, as of June 14, 1999, representing

II-31

50

approximately 5.9% of the total outstanding RJR common shares. On
June 14, 1999, the Company sold its entire interest in RJR for net
proceeds of approximately $203.9 million realizing a gain of
approximately $28.6 million.

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

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

7.     EQUITY INTEREST IN STRATOSPHERE CORPORATION

In June, 1997 the Company invested approximately $42.8 million to
purchase approximately $55 million face value of 14 1/4% First Mortgage
Notes, due May 15, 2002, issued by the Stratosphere Corporation
("Stratosphere"), which had approximately $203 million of such notes
outstanding. In July and September 1998, the Company invested
approximately $17.9 million to purchase approximately $43.5 million face
value of additional notes. An affiliate of the General Partner owned
approximately $83.3 million face value of the Stratosphere First Mortgage
Notes. Stratosphere owns and operates the Stratosphere Tower, Casino &
Hotel, a destination resort complex located in Las Vegas, Nevada,
containing a 97,000 square foot casino and 1,444 hotel rooms and suites
and other attractions.

Stratosphere and its wholly owned subsidiary Stratosphere Gaming Corp.
filed voluntary petitions on January 27, 1997, for Chapter 11
Reorganization pursuant to the United States Bankruptcy Code.
Stratosphere filed a Second Amended Plan of Reorganization which provided
for the holders of the First Mortgage Notes to receive 100% of the equity
in the reorganized entity and therefore provided the Company and its
affiliate with a controlling interest. Such plan was approved by the
Bankruptcy Court on June 6, 1998 but was not effective until certain
governmental approvals were obtained including, among other things,
gaming licenses from the Nevada Gaming Authority.

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51

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

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

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

For accounting purposes, the Company reflects its interest in
Stratosphere under the equity method and previously recorded its
corresponding liability to repurchase from the affiliate of the General
Partner in accordance with the Transfer/Repurchase Agreement.

In the year ended December 31, 1997, the Company recorded a provision for
loss on mortgages receivable of $9,790,000.

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52

At December 31, 1999 and 1998, the Company had an equity interest of
approximately $50,224,000 and $48,969,000, respectively. At December 31,
1998, there was a corresponding liability of approximately $60,750,000 to
reflect the Company's obligation to repurchase the Stratosphere First
Mortgage Notes it previously held. In the years ended December 31, 1999
and 1998, approximately $4.3 million and $1.2 million, respectively, of
"interest expense" due to the affiliate has been recorded.

The difference between the Company's carrying value and its share of
Stratosphere's net equity at date of reorganization is being accreted
over a 40 year period. In the year ended December 31, 1999, $318,000 of
accretion and $945,000 of income have been included in "Equity in
earnings of Stratosphere Corporation". A loss of approximately $89,000
offset by approximately $79,000 of accretion is included in "Other
income" in the year ended December 31, 1998.

Condensed financial information for this investment at December 31, 1999
and 1998 is shown below (in $000's).

1999                  1998
Total                 Total
-------------         -------------

Current assets                              $      30,783         $      26,179
Noncurrent assets                                 126,705               129,367
Current liabilities                                22,869                28,557
Noncurrent liabilities                              5,778                    95
Net equity                                        128,841               126,894
The Company's share                                62,534                61,590

Revenues                                    $     123,227         $      30,586
Costs and other deductions                        121,280                30,770
Net income (loss)                                   1,947                  (184)
The Company's share                                   945                   (89)

On March 24, 2000, the Company purchased an additional 50,000 shares of
the common stock of Stratosphere for approximately $2.0 million. With 
this acquisition, the Company now owns approximately 51% of the issued 
and outstanding shares of the common stock of Stratosphere.

8.     INVESTMENT IN LIMITED PARTNERSHIP UNITS

a.     In June 1996, the Company entered into an agreement with
non-affiliated third parties and became a member of a limited
liability company, Beattie Place LLC ("Beattie"). The purpose of
Beattie was to acquire, hold, and ultimately dispose of limited
partnership units in ten Balcor Limited Partnerships (the "Balcor
Units") in connection with previously commenced tender

II-34

53

offers. These Balcor limited partnerships owned and operated
commercial and multi-family real estate properties nationwide. The
Company agreed to purchase a non-voting membership interest in
Beattie of approximately 71.5%. Beattie purchased approximately
119,000 Balcor Units of which approximately 85,000 Balcor Units
represented the Company's pro rata share. As of December 31, 1999,
the Company has received distributions of approximately $3,789,000
in excess of its original investment of $9,834,000. Such
distributions of approximately $883,000, $430,000 and $2,476,000
have been recognized in "Dividend income" in the years ended
December 31, 1999, 1998 and 1997, respectively. In addition,
approximately $622,000 of income distributions were received and
recorded in "Dividend income" in the year ended December 31, 1997.
In January 2000, the Company received approximately $715,000
representing final distributions from the various Balcor Limited
Partnerships which has been accrued and recognized in the year
ended December 31, 1999.

b.     In July 1996, the Company's subsidiary, American Real Estate
Holdings Limited Partnership ("AREH") and an affiliate of the
General Partner, Bayswater Realty and Capital Corp. ("Bayswater")
became partners of Boreas Partners, L.P., ("Boreas"), a Delaware
limited partnership. AREH and Bayswater have a 69.999% and 30%
limited and general partner interest, respectively, and a wholly
owned subsidiary of AREH has a .001% interest as a general partner
of Boreas. AREH's total interests are 70%. Boreas together with
unaffiliated third parties entered into an agreement and became
limited partners of Raleigh Capital Associates, L.P. ("Raleigh")
for the purpose of making a tender offer for up to 46% of the
outstanding limited partnership and assignee interests ("Units")
of Arvida/JMB Partners, L.P. ("Arvida") a real estate partnership.
Boreas and an affiliated general partner had a total interest in
Raleigh of 33 1/3%. In 1996, Boreas made capital contributions of
approximately $17,650,000 to Raleigh representing, as of December
31, 1996, approximately 27,000 of the outstanding Units. In
February 1997, Raleigh returned approximately $3,625,000, together
with interest earned thereon of approximately $29,000, of excess
capital contribution. In April 1997, an additional contribution of
approximately $4,333,000 was made representing 8,000 additional
units.

II-35

54

Boreas received approximately $5,550,000 and $1,333,000 of income
distributions, representing Arvida's cash flow distributions,
which were recorded as "Dividend income" in the years ended
December 31, 1998 and 1997, respectively.

On May 15, 1998 Raleigh redeemed the 66 2/3% partnership interests
of the unaffiliated third parties for approximately $27,703,000.
The redemption was funded by Raleigh utilizing approximately
$253,000 of its cash on hand and incurring the following debt
obligations: (i) $10,000,000 loan from Ing (U.S.) Capital Corp.
bearing interest at prime plus 1 1/2% ("Base Rate"), with a 
maturity date of May 14, 1999, and collateralized by the assets
of Raleigh; (ii) $5,235,263 subordinated loan from Vegas Financial
Corp., an affiliate of Carl C. Icahn bearing interest at the Base
Rate plus 1% and payable semi-annually, with a maturity date of
November 15, 2000 and (iii) $12,215,614 subordinated loan from the
Company under the same terms and conditions as (ii) above.

On December 23, 1998, Raleigh sold all of its limited partnership
interest in Arvida for approximately $47,697,000. All of the above
outstanding loans were paid off along with accrued interest to the
date of sale. The Company received approximately $14,004,000 of
net sale proceeds. A gain of approximately $4,382,000 was recorded
by the Company on the disposition of the units including
distributions received in excess of the Company's investment.

In 1999, Raleigh received approximately $166,000 representing
final settlement on the sale of some previously disputed tendered
units.

As of December 31, 1999 and 1998, Boreas and Raleigh have been
consolidated in the Company's financial statements. Included in
the Consolidated Statements of Earnings for the year ended
December 31, 1998 is approximately $416,000 of "Interest expense".

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55

c.     On March 12, 1998 the Company, through its affiliate Olympia
Investors, L.P. ("Olympia"), initiated tender offers to purchase
up to 160,000 units of limited partnership interest in Integrated
Resources High Equity Partners Series 85 ("HEP 85") at a purchase
price of $95 per unit, up to 235,000 units of High Equity Partners
L.P. - Series 86 ("HEP 86") at a purchase price of $85 per unit
and up to 148,000 units of High Equity Partners L.P. - Series 88
("HEP 88") at a purchase price of $117 per unit (subsequently
increased to $125.50 per unit). The offers expired on July 24,
1998.

On September 17, 1998, the Company paid approximately $7.5 million
to the tender agent for 30,842 units of HEP 85; 32,104 units of
HEP 86; and 14,687 units of HEP 88. In January 1999, the Company
paid an additional $108,240 for 290 units of HEP 85; 646 units of
HEP 86; and 268 units of HEP 88.

Concurrently with the tender offer the Company entered into an
agreement with an affiliate of the general partner of HEP 85, HEP
86 and HEP 88 which gave them a purchase option for 50% of the
tendered units at Olympia's tender price plus expenses. On October
20, 1998, the Company received notice from the affiliate of the
general partner of HEP 85, HEP 86, and HEP 88 that it would
exercise their 50% purchase option pertaining to all of the
tendered units.

In December 1998 and January 1999, the Company received
approximately $4,018,000 and $58,000, respectively, in payment of
a total of 15,566 units of HEP 85; 16,375 units of HEP 86; and
7,478 units of HEP 88.

As of December 31, 1999, the Company's investment in HEP 85, 86
and 88 limited partnership units totalled approximately
$4,079,000.

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56

d.     As of December 31, 1999, the Company has participated in four
other tender offers for limited partnership units. The Company has
invested approximately $361,000 in these partnerships as of
December 31, 1999.

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57
9.     MORTGAGES AND NOTES RECEIVABLE
(in $000's)

Balance at
Collateralized by                                                  Balance          Monthly                   December 31,
Property Tenanted                  Interest        Maturity           at            Payment          ----------------------------
By or Debtor                         Rate            Date          Maturity         Amount              1999              1998
--------------------------      --------------     ---------     ------------      ----------        ------------      ----------

Held for investment:

Hardee's Food
Systems, Inc.   (h)          9.00 % (a)     11/05         $     --            1    (a)        $      119        $      117

Bank of Virginia       (h)          9.00   (b)     01/06              848            1    (b)               371               365

Easco Corp.            (h)         8.875           02/98 (d)        3,587           27    (c)             3,454             3,468

Winchester
Partnership     (h)          9.00           11/01               --           34                      713             1,039

Queens Moat Houses,
P.L.C. (Note
receivable)     (d)      Variable           12/00            4,036 (d)       --    (d)             3,798             4,944

Philip Services Corp.  (g)      Variable           08/02                            --                   34,050            35,240
----------        ----------

$   42,505        $   45,173
==========        ==========
Available for sale:

Sands Hotel and
Casino          (e)        10.875           01/04               -- (e)       --    (e)        $   23,562        $   11,190

Claridge Hotel and
Casino Corp.    (f)        11.750           02/02               -- (f)       --    (f)             9,785            11,250
----------        ----------

$   33,347        $   22,440
==========        ==========

(a)    5.75% is paid currently and 3.25% is deferred. The principal and
deferred interest is payable in monthly installments from march
1999 until November 2005.

(b)    4.5% is paid currently and 4.5% is deferred until maturity.

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58

(c)    As of January 31, 1999, the purchase money mortgage was amended.
The maturity date was extended to February 2000 under similar
terms. Currently, the Company has initiated foreclosure action.

(d)    On August 15, 1995, the Company invested approximately $7.1
million in a note receivable by purchasing a portion
(approximately 1.85%) of an unsecured Senior Term Facility
Agreement ("Facility Agreement"). The borrower is Queens Moat
Houses P.L.C. ("Queens Moat") and certain subsidiaries. Queens
Moat is a United Kingdom based hotel operator with properties in
the U.K., Germany, Netherlands, France and Belgium. The Company
purchased its participation portion from Lazard Freres & Co. LLC
at 71.75% of the face amount of the Company's pro rata portion of
the Facility Agreement's outstanding senior advances on the
acquisition date. The Facility Agreement's advances are
denominated in Pounds Sterling, Deutsche Marks, Dutch Guilders,
Belgian Francs and French Francs. The discount at acquisition
date, based on the then existing spot rate, was approximately $2.8
million. The Facility Agreement matures December 31, 2000 and
bears interest at LIBOR (London Interbank Offered Rate) plus 1.75%
per annum for the relevant currencies. Interest accrued from July
1, 1995 to June 30, 1996, in the approximate amount of $622,000,
has been capitalized into the note receivable in accordance with
the terms of the Facility Agreement. Subsequent to June 30, 1996
interest periods and payments can vary from one month to two,
three or six months at the discretion of the borrower. There are
scheduled payments of the advances over the term of the loan. In
addition, repayments are required when certain underlying assets
are sold. During the years ended December 31, 1999, 1998 and 1997,
these repayments totalled approximately $1,177,000, $1,443,000 and
$2,165,000, respectively.

(e)    In 1998, 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 $18.7 million of
First Mortgage Notes ("Notes") issued by GB Property Funding Corp.
("GB Property"). GB 

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59

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 $15.1
million. In 1999, the Company purchased additional Notes in the
principal amount of $12.8 million with a purchase price of $10.2
million. An affiliate of the General Partner also has an
investment in Notes of GB Property. A total of $185 million of
such Notes were issued, which bear interest at 10.875% per annum
and are due on January 15, 2004.

Greate Bay owns and operates the Sands, a destination resort
complex, containing a 76,000 square foot casino and 532 hotel
rooms and other amenities. 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.

The Company, the General Partner, and the directors and officers
of the General Partner are in the process of pursuing gaming
applications to obtain licenses from the New Jersey Casino Control
Commission. The Company understands that the application process
may take a number of months. The Company has no reason to believe
that it will not obtain its necessary license; however, the
licensing application of the affiliate of the General partner may
be reviewed and approved by the authorities earlier than the
Company's application. In an effort to facilitate the consummation
of the Greate Bay reorganization process, the Company has entered
into an agreement (the "Transfer/Repurchase Agreement") to
transfer its interest in Greate Bay to an affiliate of the General
Partner at a price equal to the Company's cost for such Notes.
However, the affiliate of the General Partner would be obligated
to sell back to the Company, and the Company would be obligated to
repurchase such interest in Greate Bay at the same price (together
with a commercially reasonable interest factor), when the
appropriate licenses are obtained by the Company, as was done in
the case of Stratosphere in Nevada. The Company will also acquire
its proportionate share of all sale proceeds, stock rights,
acquired shares and other benefits, if any, that may have accreted
to or been obtained in connection with such Greate

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60

Bay interests while held by the affiliate of the General Partner
under the Transfer/Repurchase Agreement.

In March 2000, the Company transferred its interest in Greate Bay
to an Icahn affiliate and received $25.3 million, the cost of the
Company's Greate Bay investment.

The Company has classified the GB Property Notes as available for
sale for accounting purposes. This investment is carried at fair
market value on the Balance Sheet. At December 31, 1999 unrealized
holding losses of $1,732,000 are reflected in Partners' Equity.

(f)    In January 1998, 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 $15 million of
First Mortgage Notes of the Claridge Hotel and Casino Corporation
(the "Claridge Corporation"). The purchase price of such notes was
approximately $14.1 million. In 1999, the Company purchased
additional Notes in the principal amount of $1.7 million with a
purchase price of $1.0 million. A total of $85 million of such
notes were issued, which bear interest at 11.75% payable
semi-annually and are due February 1, 2002. An affiliate of the
General Partner also has an investment in the Notes of the
Claridge Corporation. In August 1998, the Company received the
semi-annual interest payment. The February 1, 1999 payment was
postponed until March 2, 1999 when it was paid. In August 1999,
the Claridge Corporation announced that it would not pay the
interest due August 1, 1999 and that it had filed a voluntary
petition under Chapter 11 of the U.S. Bankruptcy Code to
facilitate a financial restructuring.

The Claridge Corporation through its wholly-owned subsidiary, the
Claridge at Park Place, Incorporated, operates the Claridge Hotel,
a destination resort complex, containing a 59,000 square foot
casino on three levels and 502 hotel rooms and other attractions.

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61

As mentioned above regarding the Company's interest in the Sands,
the Company is pursuing gaming licenses in New Jersey. As in the
case of the Sands, the Company and an affiliate of the General
Partner has entered into a Transfer/Repurchase Agreement to
facilitate the approval process with respect to the Claridge
Hotel.

In March 2000, the Company transferred its interest in the
Claridge Hotel to an Icahn affiliate and received $15.2 million,
the cost of the Company's Claridge Hotel investment.

The Company has classified the Claridge Corporation Note as
available for sale for accounting purposes. This investment is
carried at fair market value on the Balance Sheet. At December 31,
1999 unrealized holding losses of $5,343,000 are reflected in
Partners' Equity.

(g)    In 1998, the Company purchased approximately $78.2 million of
senior debt of Philip Services Corp. and Philip Services
(Delaware), Inc. ("Philips") for approximately $35.2 million. In
1999, the Company purchased an additional $10.2 million of Philips
debt for approximately $4.4 million. The Company also received a
repayment from asset sales of approximately $5.6 million. In
addition, an affiliate of Icahn purchased $200.0 million of senior
debt of Philips. Philips is a Canadian-based company in the waste
recovery business and its shares are listed on the New York Stock
Exchange.

In June 1999, Philips filed a voluntary application to reorganize
under the Companies' Creditors Arrangement Act with the Ontario
Superior Court of Justice in Toronto, Canada and voluntary
petitions under Chapter 11 of the U.S. Bankruptcy Code in the
District of Delaware. Philips is operating as a
debtor-in-possession and expects to complete the reorganization
process by mid-year 2000. In connection with the reorganization,
the Company currently intends to act as a subparticipant and
provide approximately $8.5 million of the $33.5 million
debtor-in-possession financing obtained by Philips.

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62

The Company has classified the Philips debt as held for
investment.

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63

(h)    The Company has generally not recognized any profit in connection
with the property sales in which the above 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 since profit recognition was
not allowed under generally accepted accounting principles at the
time of sale.

10.    HOTEL AND RESORT OPERATING PROPERTIES

a.     On August 18, 1997, a wholly-owned subsidiary of the Company
acquired five notes and mortgages for approximately $10,745,000
with an aggregate face amount of approximately $14,340,000,
excluding accrued and unpaid interest and penalties owed by the
borrower and estimated to total approximately an additional
$8,200,000. The notes were secured by certain real property
belonging to the borrower, New Seabury Company Limited Partnership
("New Seabury"). The loans were non-performing and the debtor had
filed a Chapter 11 petition for relief in the United States
Bankruptcy Court, District of Massachusetts. The properties are
part of a master planned community situated in the town of Mashpee
located on Cape Cod in Massachusetts. Subsequent to the closing,
the Company received approximately $115,000 in cash flow from
property operations from a portion of the underlying collateral
which was applied to the Company's investment.

On September 26, 1997, a wholly-owned subsidiary of the Company
acquired four additional notes and mortgages for a purchase price
of approximately $5,000,000 with an outstanding principal balance
of approximately $8,320,000, excluding accrued and unpaid interest
and penalties owed by the borrower and estimated to total
approximately an additional $3,000,000 to $4,000,000. The notes
were secured by certain real property belonging to the borrower,
New Seabury. The loans also were non-performing and subject to the
debtor's Chapter 11 proceeding.

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64

The properties are part of a master planned community situated in
the Town of Mashpee located in Cape Cod in Massachusetts.

In June 1998, a Chapter 11 plan of reorganization proposed by the
Company was approved by the Bankruptcy Court. In late July 1998,
the Company acquired substantially all of the debtor's assets
including two golf courses, other recreational facilities, a villa
rental program, condominium and time share units and land for
future development. The Company assumed mortgage debt of
approximately $8.5 million (subsequently repaid) and made other
payments to creditors of approximately $3.5 million.

Total initial costs of approximately $28 million have been
classified as follows: approximately $17.4 million as "Hotel and
resort properties", $8.9 million as "Development property" and
$1.7 million as "Other assets" on the Consolidated Balance Sheet.
Resort operations for the period beginning August 1, 1998 have
been included in the "Hotel and resort operating income and
expenses" in the Consolidated Statements of Earnings. Net hotel
and resort operations ("hotel and resort operating income" less
"hotel and resort operating expenses") resulted in income of
approximately $3,654,000 and $841,000 for the years ended December
31, 1999 and 1998, respectively. Hotel and resort operating
expenses include all expenses except for approximately $704,000
and $216,000 of depreciation and amortization and $0 and $273,000
of interest expense for the years ended December 31, 1999 and
1998, respectively. These amounts are included in their respective
captions in the Consolidated Statements of Earnings. In addition,
approximately $97,000 and $35,000 of interest income was recorded
in the years ended December 31, 1999 and 1998, respectively.

During the year ended December 31, 1999, five condominiums and
four undeveloped lots were sold resulting in a gain of
approximately $1,971,000. This amount is included in the "Gain on
sales and disposition of real estate." 

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65

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

b.     On July 14, 1992, Integra, a Hotel and Restaurant Company, which
leased two hotel properties located in Miami, Florida and Phoenix,
Arizona filed a voluntary petition for reorganization pursuant to
the provisions of Chapter 11 of the Bankruptcy Code. The tenant's
petition, previously filed with the Bankruptcy Court, to reject
the aforementioned leases, was approved on August 7, 1992, and the
Company assumed operation of the properties on that date.

At December 31, 1999, the property located in Miami Florida has a
carrying value of approximately $6,213,000 and is unencumbered by
any mortgages. This property was subject to a ground lease. In
April 1999, the Company acquired the underlying land for
approximately $1.9 million.

In April 1997, the Company sold the hotel property located in
Phoenix, Arizona. The selling price was $15,750,000 and a gain of
approximately $7,863,000 was recognized in the year ended December
31, 1997. This property was encumbered by a nonrecourse mortgage
with a principal balance outstanding of approximately $3,211,000
which was repaid at closing. A prepayment penalty of approximately
$250,000 was also incurred.

The Company entered into a management agreement for the operation
of the hotels with a national management organization. Since
August 7, 1992, the hotels have been included in Hotel and Resort
Operating Properties and their revenues and expenses separately
disclosed in the Consolidated Statements of Earnings. Net hotel
and resort operations ("hotel and resort operating revenues" less
"hotel and resort operating expenses") totaled approximately
$800,000, $271,000 and $1,110,000 for the years ended December 31,
1999, 1998 and 1997, respectively. Hotel and resort operating
expenses include all expenses except for approximately $628,000,

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$577,000 and $527,000 of depreciation for the years ended
December 31, 1999, 1998 and 1997, respectively, and $-0-, $-0- and
$83,000 of interest expense for the years ended December 31, 1999,
1998, and 1997, respectively. These amounts are included in their
respective captions in the Consolidated Statements of Earnings.

11.    SIGNIFICANT PROPERTY TRANSACTIONS

Information on significant property transactions during the three-year
period ended December 31, 1999 is as follows:

a.     On May 18, 1995, the Company purchased approximately 248 acres of
partially improved land located in Armonk, New York. The purchase
price was approximately $3,044,000. The Company intends to
construct approximately 45 to 50 single-family detached luxury
homes subject to subdivision and other required approvals. No
material development costs have yet been incurred.

b.     In January 1997, the Company sold a property tenanted by Forte
Hotels, Inc. ("Forte") a/k/a Travelodge. The selling price was
approximately $2,165,000, net of closing costs. A gain of
approximately $1,403,000 was recorded in the year ended December
31, 1997.

c.     On January 7, 1997, the Company sold three properties tenanted by
Federal Realty Investment Trust ("FRIT") for a total selling price
of approximately $9,363,000. Two first mortgages with principal
balances outstanding of approximately $878,000 were repaid at
closing. In addition, closing costs of approximately $40,000 were
incurred. As a result, the Company recognized a gain of
approximately $1,778,000.

In addition, on January 7, 1997, FRIT made a loan to the Company
in the approximate amount of $8,759,000 secured by a fourth
property tenanted by FRIT located in Broomal, Pennsylvania.

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Concurrently with this loan, the Company granted and FRIT
exercised an option to purchase the Broomal property with a
closing to occur on or about June 30, 1998. The purchase price was
the unpaid balance of the mortgage loan of approximately
$8,500,000 at the closing date. The nonrecourse mortgage loan had
an interest rate of 8% per annum and required monthly debt service
payments of approximately $72,000. This property was sold in July
1998 and a gain of approximately $2.7 million was recorded in the
year ended December 31, 1998.

d.     On June 30, 1997, the Company acquired two adjacent medical office
buildings located in Nashville, Tennessee, both of which are net
leased to Baptist Hospitals, Inc. ("Baptist"). The total purchase
price was approximately $34,616,000, which included the assumption
of existing mortgages on each building totaling approximately
$31,666,000.

The lease term, which commenced June 28, 1996, is for 22.5 years
with seven 10-year renewal periods at approximately $3,032,000 per
annum paid semi-annually. The mortgages bear interest at the rate
of 7.84% per annum, self liquidate December 31, 2018, and have
total debt service of approximately $3,070,000 payable
semi-annually. Cash flow from these properties is approximately
break-even.

e.     On September 26, 1997, the Company purchased a retail property
located in Schaumburg, Illinois for approximately $9,138,000 cash.
The completed building, which is approximately 100,000 square
feet, is tenanted by Bed Bath & Beyond, Inc., and Golfsmith
International, Inc.

Bed Bath & Beyond's lease is for an initial term of fifteen years
starting at $565,896 per year for their approximately 71,000
square foot store with four five year renewal options at increased
rentals. Golfsmith International's lease is for an initial term of
fifteen years starting at $375,450 per year with three five year
renewal options at increased rentals. The rent commencement date
for both tenants occurred in November 1997. See Note 12c for
mortgage details.

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68

f.     On December 12, 1997, the Company sold the property tenanted by
Hancock Bank located in Baton Rouge, Louisiana. The selling price
was $5,075,000. As a result, the Company recognized a gain of
approximately $1,345,000.

g.     In December 1997, the Company purchased for approximately $19
million, two multi-tenant industrial buildings, located in Hebron,
Kentucky. Net rental income is approximately $1.75 million per
annum. The Company obtained a mortgage of approximately $12.4
million in 1998. See Note 12b.

h.     On February 19, 1998, the Company sold a property located in Palo
Alto, California to its tenant, Lockheed Missile and Space
Company, Inc. for a selling price of approximately $9,400,000. As
a result, the Company recognized a gain of approximately
$4,130,000 in the year ended December 31, 1998.

i.     On May 21, 1998, the Company sold a property in Atlanta, Georgia
that was tenanted by AT&T Corp. for a selling price of $8,600,000.
As a result, the Company recognized a gain of approximately
$1,260,000 in the year ended December 31, 1998.

j.     In August 1998, the Company purchased an industrial building
located in Hebron, Kentucky. The property is net leased to United
Parcel Service ("UPS"). The purchase price was $21,080,000 which
included the simultaneous funding of a mortgage for $19,480,000.
See Note 12d. for details on the mortgage.

The lease term, which commenced on June 1, 1998, is for an initial
term of ten years at $1,861,240 per year for the first five years
and $2,138,304 per year in years six to ten. There are three five
year renewal periods at increased rentals.

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k.     In August 1998, the Company purchased a manufacturing facility
located in Germantown, Wisconsin. The property is net leased to
Stone Container Corporation. The purchase price was $9,025,000
cash. The lease term, which commenced May 1, 1998, is for eleven
years at approximately $807,150 per year increasing 2% annually.
There is one five year renewal period at approximately $1,013,429
per year increasing 3% annually. See note 12e. for mortgage
details.

l.     In February 1999, the Company sold two properties located in
Augusta, Georgia and Richmond, Virginia, to its tenant, Haverty
Furniture Companies, Inc., pursuant to its exercise of a purchase
option, for a selling price of approximately $2,734,000. As a
result, the Company recognized a gain of approximately $1.6
million on the sale of this property in the year ended December
31, 1999.

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

n.     In July 1999, the Company purchased an office and industrial
facility located in Madison, Wisconsin. The property is net leased
to Rayovac Corporation. The purchase price was $22,000,000 (see
Note 12f. for mortgage details). The lease term, which commenced
December 15, 1985, is for twenty-eight years with rent currently
at approximately $1,641,000 per year until December 31, 1999 when
a scheduled cumulative consumer price index ("CPI") rent
adjustment will occur with the new rent anticipated to be
approximately $2 million per year. There are several additional
CPI adjustments over the initial term of the lease which are based
on the increase in the CPI since base year 1987. There is one ten
year renewal period with rent based on additional CPI adjustments.

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o.     In September 1999, the Company sold a property located in Ocala,
Florida, formerly tenanted by K-Mart, for a selling price of $3.2
million. As a result, the Company recognized a gain of
approximately $1 million in the year ended December 31, 1999.

p.     Entergy Louisiana, Inc., a tenant in fifteen properties owned by
the Company, with leases expiring in the year 2000, has notified
the Company that it will renew leases covering thirteen of the
fifteen properties.

The thirteen properties, which were leased for a total of
approximately $2,400,000 per annum, have been renewed for
approximately $2,595,000 per annum. Leases covering two properties
with annual rents of approximately $902,000 will not be renewed.

One of the properties not being renewed, with an annual rent of
approximately $857,000, has an estimated fair market value of
$3,000,000 and a carrying value of $4,548,000 resulting in the
Company recording a provision for loss on real estate in the
amount of approximately $1,548,000 in the year ended December 31,
1999.

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

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12.    MORTGAGES PAYABLE

At December 31, 1999 mortgages payable, all of which are nonrecourse to
the Company, are summarized as follows (in $000's):

Annual
Principal             Balance at
and                December 31
Range of                     Range of               Interest              -----------
Interest Rates                 Maturities               Payment           1999          1998
------------------------    ---------------------------     ----------      ----------    ----------

7.080%   -    8.790%     10/31/00     -  12/31/18        $   17,802      $  151,496    $  135,131
9.000    -   10.750       9/30/00     -  12/31/13             5,965          27,891        38,428
----------      ----------    ----------

$   23,767      $  179,387    $  173,559
==========      ==========    ==========

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

Year ending
December 31,                 Amount
----------------------       -------------

2000                         $      20,256
2001                                 8,691
2002                                 7,075
2003                                 7,359
2004                                 7,256
2005-2009                           94,490
2010-2014                           22,805
2015-2019                           11,455
-------------

$     179,387
=============

a.     In December 1997, the Company executed a new mortgage loan and
obtained funding in the principal amount of $46.3 million, which
is secured by a mortgage on a three building
office/retail/conference center complex net leased by the Company
to a subsidiary of Portland General Electric Corporation ("PGE")
in Portland, Oregon, the complex contains approximately 800,000
square feet on approximately 2.7 acres. The loan replaces an
existing mortgage loan on the complex with an outstanding
principal balance of approximately $24.2 million, bearing interest
at 8.5% and maturing in 2002.

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The interest rate on the new mortgage loan is 7.51%. The entire
net annual rent payable by PGE of approximately $5,137,000 will be
applied by the Company towards the debt service on the loan. The
new loan has a maturity date of September 2008, at which time the
remaining principal payment of approximately $20 million will be
due from the Company. Debt placement costs of approximately
$808,000 were incurred.

b.     On March 31, 1998, the Company executed a mortgage loan and
obtained funding in the principal amount of approximately $12.4
million, which is secured by a mortgage on two multi-tenant
industrial buildings located in Hebron, Kentucky acquired in
December of 1997. The loan bears interest at 7.21% per annum and
matures July 15, 2008, at which time the remaining principal
balance of approximately $10.8 million will be due. Annual debt
service is approximately $1,027,000.

c.     In April 1998, the Company executed a new mortgage loan and
obtained funding in the principal amount of $7,150,000 which is
secured by a mortgage on one retail building located in
Schaumburg, Illinois. The loan bears interest of 7.25% per annum
and matures May 10, 2008, at which time the remaining principal
balance of approximately $6,183,000 will be due. Annual debt
service is approximately $585,000.

d.     On August 5, 1998, the Company executed a mortgage loan and
obtained funding in the principal amount of approximately $19.5
million, which is secured by a mortgage on one industrial building
tenanted by United Parcel Service, located in Hebron, Kentucky.
The loan bears interest at 7.08% per annum and matures July 15,
2008, at which time the remaining principal balance of
approximately $15.4 million will be due. Annual debt service is
approximately $1,664,000.

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

f.     On September 15, 1999, the Company executed a mortgage loan and
obtained funding in the principal amount of $16.1 million, which
is secured by a mortgage on an office and industrial facility
tenanted by Rayovac Corporation, located in Madison, Wisconsin.
The loan bears interest at 7.99% per annum and matures September
2014, at which time the remaining principal balance of
approximately $6.3 million will be due. Annual debt service is
approximately $1,416,000 through December 2003 and approximately
$1,772,000 thereafter.

13.    SENIOR INDEBTEDNESS

On May 27, 1988, the Company closed a $50,000,000, 10-year senior
unsecured debt financing. The notes had an interest rate of 9.6%, payable
semiannually, 2% of which was deferred and added to the principal at the
Company's option during the first five years. In May 1997, the Company
repaid approximately $11,308,000 of the outstanding principal balance of
the notes. The Company made its final principal repayment of
approximately $11,308,000 on the final payment date of May 27, 1998.

14.    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

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74

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. The first Payment Date was April 1, 1996 on
which 98,782 additional Preferred Units were issued. On March 31,
1997, the distribution of 103,721 additional Preferred Units were
issued to holders of record as of March 14, 1997.

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 API. 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".

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75

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 Offering was approximately
$267 million, which is expected to be used primarily for
additional investment opportunities.

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 API. Expenses incurred in connection with the
1997 Offering were approximately $400,000. The Company issued an
additional 5,132,911 Preferred Units and 20,531,644 Depositary
Units. The Preferred and Depositary Units trade on the New York
Stock Exchange under the symbols "ACP PR" and "ACP", respectively.

On March 31, 1998, the Company distributed 365,553 Preferred Units
to holders of record as of March 13, 1998. On March 31, 1999, the
Company distributed 383,830 Preferred Units to holders of record
as of March 15, 1999. As of December 31, 1999 and 1998, 8,060,437
and 7,676,607 Preferred Units, respectively, are issued and
outstanding.

As of December 31, 1999, High Coast owns 6,974,167 Preferred Units
and 32,398,771 Depositary Units.

15.    TENDER OFFER

On November 20, 1998, affiliates of Icahn made an offer to purchase up to
10,000,000 of the outstanding Depositary Units at a purchase price of
$10.50 per Depositary Unit, net to the seller in cash, without interest
(the "1998 Tender Offer"). As a result, Leyton LLC, an affiliate of
Icahn, purchased 6,568,165 Depositary Units.

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76

As of December 31, 1999, Icahn affiliates own 38,966,936 Depositary
Units.

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16.    RECONCILIATION OF NET EARNINGS PER FINANCIAL STATEMENTS TO TAX REPORTING
(in $000's)

1999                1998                1997
---------------     ---------------      --------------

Net earnings per financial statements                   $       95,816      $      70,638        $      75,384

Minimum lease payments received, net of
income earned on leases accounted for
under the financing method                                   7,938              7,887                7,683

Gain on real estate transactions and sale of
limited partnership interests for tax purposes
(lesser than) greater than that for financial
statement purposes                                         (11,859)            (3,527)              (5,594)

Provision for loss for financial statement
purposes                                                     1,946              1,180               10,875

Difference attributed to joint ventures and
minority interest                                             (107)              (209)                 (46)

Equity in earnings of Stratosphere
Corporation                                                 (1,263)                --                   --

Difference between expense accruals, net of
income accruals, at beginning of year and
end of year                                                  3,006             (4,872)              (2,094)

Depreciation and amortization for tax
purposes in excess of that for financial
statement purposes due to leases
accounted for under the financing method                    (3,323)            (4,852)              (4,464)

Other                                                               --                (26)                 (26)
---------------     ---------------      --------------

Taxable income                                          $       92,154      $      66,219        $      81,718
===============     ===============      ==============

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17.    QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN $ THOUSANDS, EXCEPT PER UNIT DATA)

Three Months Ended
-------------------------------------------------------------------------
March 31,                               June 30,
---------------------------------      ----------------------------------
1999                1998                1999                1998
--------------      -------------      ---------------      -------------

Revenues                                $  22,112           $   21,356         $    24,431          $    21,319
==============      =============      ===============      =============

Earnings before property and
securities transactions and
equity interest in affiliate        $  11,227           $   13,902         $    12,724          $    14,100
Gains on property transactions              2,703                4,550                 959                2,527
Gain on sale of marketable
equity securities                          --                   --              28,590                   --
Provision for loss on real estate            (227)                (452)                 --                 (150)
Equity in earnings of
Stratosphere Corporation                1,107                   --                 139                   --
--------------      -------------      ---------------      -------------

Net earnings                            $  14,810           $   18,000         $    42,412          $    16,477
==============      =============      ===============      =============

Net earnings per limited
partnership unit:
Basic earnings                   $     .29           $      .36        $        .88          $       .33
==============      =============      ===============      =============

Diluted earnings                 $     .26           $      .33        $        .74          $       .30
==============      =============      ===============      =============

Three Months Ended
-------------------------------------------------------------------------
September 30,                           December 31,
---------------------------------      ----------------------------------
1999                1998                1999                1998
--------------      -------------      ---------------      -------------

Revenues                                $  27,806           $  27,044          $    24,191          $    23,587
==============      =============      ===============      =============

Earnings before property and
securities transactions and
equity interest in affiliate        $  14,658           $  18,251          $    13,188          $    12,118
Gain (loss) on property
transactions                            5,286               2,683                7,164                 (695)
Gain on sale of limited
partnership interests                      --                  --                   --                4,382
Provision for loss on real estate          (1,137)                 --                 (582)                (578)
Equity in earnings of
Stratosphere Corporation                  129                  --                 (112)                  --
--------------      -------------      ---------------      -------------

Net earnings                            $  18,936           $  20,934          $    19,658          $    15,227
==============      =============      ===============      =============

Net earnings per limited
Partnership unit:
Basic earnings                   $     .38           $     .42          $       .40          $       .30
==============      =============      ===============      =============

Diluted earnings                 $     .33           $     .38          $       .34          $       .27
==============      =============      ===============      =============

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

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79

18.    COMPREHENSIVE INCOME

The Company adopted SFAS No. 130 "Reporting Comprehensive Income"
effective January 1, 1998. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components. The
components of comprehensive income include net income and certain amounts
previously reported directly in equity.

Comprehensive income for the years ended December 31, 1999, 1998 and 1997
is as follows ($ in thousands):

1999                  1998                 1997
--------------       ---------------      ----------------

Net income                                             $     95,816         $      70,638        $       75,384
Net unrealized (loss) gain on securities
available for sale                                         (291)                9,273                    --
Realized gains previously reported in
Partner's equity                                        (16,058)                   --               (23,548)
--------------       ---------------       ---------------

$     79,467         $      79,911         $      51,836
==============       ===============       ===============

19.    SEGMENTED REPORTING

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

Nonsegment revenue to reconcile to total revenue consists primarily of
interest income on treasury bills and other investments. Nonsegment
assets to reconcile to total assets includes investment in treasury
bills, cash and cash equivalents, investment in Stratosphere Corporation
for 1999 and 1998, receivables and other assets, and debt placement
costs.

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80

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

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

The revenues, net earnings, assets and real estate investment capital
expenditures for each of the reportable segments are summarized as
follows for the years ended and as of December 31, 1999, 1998 and 1997 ($
in thousands):

1999                  1998                  1997
---------------       ---------------       ---------------

Revenues:
Rental real estate                          $   43,156            $    42,633           $   41,763
Hotel & resort operating properties             20,262                  8,758                6,098
Other investments                               11,527                 14,714                7,405
---------------       ---------------       ---------------
Subtotal                          74,945                 66,105               55,266

Reconciling items                                   23,595      (1)        27,201     (1)       15,652      (1)
---------------       ---------------       ---------------

Total revenues                $   98,540            $    93,306           $   70,918
===============       ===============       ===============

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

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81

1999                   1998                   1997
----------------       ---------------        ---------------

Net earnings:
Segment earnings:
Rental real estate                                    $    40,233            $    39,984            $     38,306
Hotel and resort operating properties                       4,454                  1,113                   1,146
Other investments                                          11,527                 14,714                   7,405
----------------       ---------------        ---------------
Total segment earnings                                  56,214                 55,811                  46,857

Interest income                                                23,595                 25,180                  15,198
Interest expense                                              (18,303)               (15,910)                (13,189)
Other income                                                       --                  2,021                     454
General and administrative expenses                            (4,133)                (3,808)                 (3,188)
Depreciation and amortization                                  (5,576)                (4,923)                 (5,112)
----------------       ---------------        ---------------
Earnings before property
and securities transactions
and equity interest in affiliate                     51,797                 58,371                  41,020

Gain on sales and disposition of real estate                   16,112                  9,065                  16,051
Gain on sale of limited partnership
Interests                                                      --                  4,382                      --
Provision for loss on real estate                              (1,946)                (1,180)                 (1,085)
Provision for loss on mortgages receivable                         --                     --                  (9,790)
Gain on sale of marketable equity securities                   28,590                     --                  29,188
Equity in earnings of Stratosphere Corporation                  1,263                     --                      --
General partner's share                                        (1,907)                (1,406)                 (1,500)
----------------       ---------------        ---------------

Net earnings-limited partners unitholders                 $    93,909            $    69,232            $     73,884
================       ===============        ===============

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82

1999                   1998                   1997
----------------       ----------------       ----------------

Assets:
Rental real estate                                 $   375,477            $    381,554           $    383,392
Development properties                                  11,942                  12,830                  3,860
Hotel and resort operating properties                   25,694                  22,037                  5,002
Other investments                                       80,275                 263,957                 82,940
----------------       ----------------       ----------------
493,388                 680,378                475,194

Reconciling items                                      667,278                 455,537                516,036
----------------       ----------------       ----------------

Total                                $ 1,160,666            $  1,135,915           $    991,230
================       ================       ================

Real estate investment capital expenditures:
Acquisitions:
Rental real estate                                 $    23,594            $     30,218           $     63,064
Development properties                                      --                   8,970                     --
Hotel and resort operating properties                       --                  17,444                     --
----------------       ----------------       ----------------

$    23,594            $     56,632           $     63,064
================       ================       ================

Developments:
Rental real estate                                 $       177            $        112           $      1,480
Development properties                                   1,504                     542                    568
Hotel and resort operating properties                    3,872                     384                    357
----------------       ----------------       ----------------

$     5,553            $      1,038           $      2,405
================       ================       ================

20.    COMMITMENTS AND CONTINGENCIES

a.     On September 18, 1995, Caldor Corp., a tenant in a property owned
by the Company, filed a voluntary petition for reorganization
pursuant to the provisions of Chapter 11 of the Federal Bankruptcy
Code. The annual rental for this property is approximately
$248,000. In January 1999, Caldor announced it would liquidate its
holding and close its stores. The tenant has exercised its right
to reject the lease effective July 31, 1999. At December 31, 1999,
the property has a carrying value of approximately $1,751,000 and
is unencumbered by any mortgage.

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83

b.     On November 18, 1998, Ruth Ellen Miller filed a Class Action
Complaint bearing the caption Ruth Ellen, on behalf of herself and
all others similarly situated v. American Real Estate Partners,
L.P., High Coast Limited Partnership, American Property Investors,
Inc., Carl C. Icahn, Alfred Kinglsey, Mark H. Rachesky, William A.
Leidesdorf, Jack G. Wasserman and John P. Saldarelli in the
Delaware Chancery Court in New Castle County (Civil Action No.
16788NC) (the "Complaint"). The Complaint purports to state claims
on behalf of a putative class of all holders of Depositary Units
sounding in breach of fiduciary duty, aiding and abetting breaches
of fiduciary duty, injunction and breach of the Partnership
Agreement. As of March 23, 1999, the complaint has not yet been
served on any of the defendants.

Plaintiff alleges that all defendants, in breach of their
fiduciary duties to the Company, have caused the Company to engage
in self-dealing or self-interested transactions which inure to the
benefit of defendants. Plaintiff's claims are alleged to arise out
of two transactions: the February 1995 Rights Offering effectuated
pursuant to a purportedly false and misleading prospectus; and
Icahn's alleged use of his voting control to change the business
purpose of the Company by amending the Partnership Agreement to
permit the Company to make "non-real estate related investment,"
including investments in entities owned or controlled by Icahn.

The Complaint seeks to have Ms. Miller appointed as class
representative and that the putative class be certified. The
Complaint also seeks an unspecified amount in damages and
injunctive relief: (i) dissolving the Partnership; (ii) enjoining
API from continuing to act as general partner of the Partnership;
(iii) enjoining the Partnership from engaging in any transaction
in which Icahn has either a direct or indirect interest, absent an
affirmative vote of a majority of the outstanding Depositary Units
held by the putative class; and (iv) ordering API to exercise its
fiduciary obligations. Further, the plaintiff seeks to enjoin the
Company from engaging in any transactions

II-65

84

in which Icahn has either a direct or indirect interest absent an
affirmative vote by a majority of the outstanding Depositary Units
held by the class, as well as damages resulting from the alleged
breach of the partnership agreement for an unquantified amount.
The Complaint also seeks costs and attorneys' fees. Management
believes plaintiff's claims are without merit and intends to
vigorously defend against them.

c.    On or about September 9, 1997, two limited partners in the Company
brought a derivative action against the Company, the General
Partner, its directors and one of its officers, alleging breach of
fiduciary duties by the defendants in connection with, inter alia,
the Company's investments in Arvida and Stratosphere, Amanda &
Kimberly Kahn v. Carl C. Icahn, et al., C.A. No. 15916 (Del. Ch.).
Plaintiffs claimed that defendant Icahn improperly diverted
opportunities to participate in these investments from the Company
to himself. Plaintiffs sought damages arising from these alleged
breaches of fiduciary duty, attorney's fees and other relief. On
November 12, 1998, the Court of Chancery of the State of Delaware
granted the defendants' motion to dismiss all of plaintiffs'
claims against the defendants. Plaintiffs served a notice of
appeal upon defendants on December 11, 1998. On March 11, 1999,
the Company received a copy of plaintiffs' opening brief and on
March 24, 1999 all of the defendants filed a Motion to Affirm in
the Delaware Supreme Court. After oral arguments by both sides in
December 1999, Justices Walsh, Harnett, and Berger of the Delaware
Supreme Court on January 24, 2000 upheld the Chancery Court's
finding and affirmed dismissal of the action.  

21.    PROPERTY HELD FOR SALE

At December 31, 1999, the Company owned twelve properties that were being
actively marketed for sale. The aggregate value of the properties is
estimated to be approximately $6,740,000 after incurring a provision for
loss on real estate in the amount of $90,000 in the year ended December
31, 1999.

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85

At December 31, 1998, the Company owned seven properties that were being
actively marketed for sale. The aggregate value of the properties was
estimated to be approximately $3,893,000 after incurring a provision for
loss on real estate in the amount of $657,000 in the year ended December
31, 1998. At December 31, 1997, the aggregate value of seven properties
was estimated to be approximately $4,164,000 after incurring a provision
for loss on real estate in the amount of $240,000 in 1997.

22.    FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash and Cash Equivalents, Investment in Treasury Bills, Receivables,
Mortgages Payable and Accounts Payable, Accrued Expenses and Other
Liabilities

The carrying amount of cash and cash equivalents, investment in treasury
bills, receivables, mortgages payable and accounts payable, accrued
expenses and other liabilities are carried at cost, which approximates
their fair value.

Mortgages and Notes Receivable

The fair values of the mortgages and notes receivable past due, in
process of foreclosure, or for which foreclosure proceedings are pending,
are based on the discounted cash flows of the underlying lease except for
the Sands Hotel and Casino notes which are valued at quoted market
prices. 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, except for the Claridge Corporation notes which are valued at
quoted market prices.

II-67

86

The approximate estimated fair values of the mortgages receivable held as of
December 31, 1999 are summarized as follows (in 000's):

At December 31, 1999
-------------------------------------------
Collateralized by                                Net                   Estimated
Property Tenanted by or debtor                Investment              Fair Value
------------------------------------      -------------------      ------------------

Hardee's Food Systems, Inc.               $           16                      215
Bank of Virginia                                     371                      540
Easco Corp.                                          890                    3,580
Winchester Partnership                               713                      706
Philip Services Corp.                             34,050                   34,050
Sands Hotel and Casino                            23,562                   23,562
Claridge Hotel and Casino
Corp.                                          9,768                    9,768

At December 31, 1998
-------------------------------------------
Collateralized by                                Net                   Estimated
Property Tenanted by or debtor                Investment              Fair Value
------------------------------------      -------------------      ------------------

Hardee's Food Systems, Inc.               $           15                      197
Bank of Virginia                                     366                      505
Easco Corp.                                          903                    3,450
Winchester Partnership                             1,039                    1,049
Philip Services Corp.                             35,240                   35,240
Sands Hotel and Casino                            11,190                   11,190
Claridge Hotel and Casino
Corp.                                         11,250                   11,250

The net investment at December 31, 1999 and 1998 is equal to the carrying
amount of the mortgage receivable less any deferred income recorded.

Marketable Equity Securities

Marketable equity securities available for sale are carried at fair
market value.

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87

Equity Interest in Stratosphere Corporation

The equity interest in Stratosphere Corporation whose fair value and
carrying value at December 31, 1999 is $50,224,000 is valued using the
equity method.

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.

23.    DISTRIBUTIONS PAYABLE

Distributions payable represent amounts accrued and unpaid due to
non-consenting investors ("Non-consents"). Non-consents are those
investors who have not yet exchanged their limited partnership interest
in the various Predecessor Partnerships for limited partnership units of
American Real Estate Partners, L.P. In the year ended December 31, 1997,
approximately $1,020,000 of distributions due to non-consents was paid to
certain states pursuant to local escheatment laws.

24.    REPURCHASE OF DEPOSITARY UNITS

In October 1998, the Company repurchased 100,000 Depositary Units at a
cost of $737,500. The Company had previously been authorized to
repurchase up to 1,250,000 Depositary Units. As of December 31, 1999, the
Company had purchased 1,137,200 Depositary Units at an aggregate cost of
approximately $11,921,000.

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88

25.     SUBSEQUENT EVENTS

a.     Pursuant to the terms of the Preferred Units, on February 23,
2000, 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 March 31, 2000 to holders of record as of March 15, 2000.

b.     In March 2000, the Company acquired from Icahn the assets of
Bayswater Realty & Capital Corp., a land development company, and
all of the ownership interests of its affiliated entities
(collectively, "Bayswater"). The purchase price for the
acquisition of Bayswater is approximately $84.35 million.

Bayswater, a real estate investment, management and development
company, focuses primarily on the construction and sale of
single-family homes, multi-family homes and residential lots in
subdivisions and in planned communities. Bayswater presently is
developing ten residential subdivisions in New York and Florida.

ITEM 9 CHANGES AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

NONE

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89

PART III

Item 10.          Directors and Executive Officers of AREP.

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

Name                                            Age                             Office
----                                            ---                             ------

Carl C. Icahn                                    64                             Chairman of the Board

William A. Leidesdorf                            54                             Director

Jack G. Wasserman                                63                             Director

Albo J. Antenucci, Jr.                           43                             Executive Vice President and Chief 
Operating Officer

Martin L. Hirsch                                 45                             Executive Vice President and
Director of Acquisitions and
Development

John P. Saldarelli                               58                             Vice President, Secretary and
Treasurer

Carl C. Icahn has been Chairman of the Board of the General Partner
since November 15, 1990. He is also President and a Director of Starfire Holding
Corporation (formerly Icahn Holding Corporation), a Delaware corporation ("SHC")
and Chairman of the Board and a Director of various of SHC's subsidiaries,
including ACF Industries, Inc., a New Jersey corporation ("ACF"). SHC is
primarily engaged in the business of holding, either directly or through
subsidiaries, a majority of the common stock of ACF and its address is 100 South
Bedford Road, Mount Kisco, New York 10549. Mr. Icahn has also been Chairman of
the Board of Directors of ACF since October 29, 1984 and a Director of ACF since
June 29, 1984. ACF is a railroad freight and tank car leasing, sales and
manufacturing company. He has also been Chairman of the Board of Directors and
President of Icahn & Co., Inc. since 1968. Icahn & Co., Inc. is a registered
broker-dealer and a member of the National Association of Securities Dealers.
ACF and Icahn & Co., Inc. are deemed to be directly or indirectly owned and
controlled by Carl C. Icahn. Mr. Icahn was Chief Executive Officer and Member of
the Office of the Chairman of Trans World Airlines, Inc. ("TWA") from November
8, 1988 to January 8, 1993; Chairman of the Board of Directors of TWA from
January 3, 1986 to January 8, 1993 and Director of TWA from September 27, 1985
to January 8, 1993. Mr. Icahn also serves as a director of Cadus Pharmaceutical
Corporation, a public biotechnology company. Mr. Icahn also has substantial
equity interests in and controls various partnerships and corporations that
invest in publicly traded securities. In October 1998, Mr. Icahn was appointed
Chairman of the Board of Stratosphere. In March, 2000, Mr. Icahn nominated
eight people for the board of directors of Nabisco Group Holdings including
himself. There can be no assurance that Mr. Icahn's slate of directors will be
elected to the board of Nabisco Group Holdings.

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

III-1

90

of business and financing areas. During the interim period from January 30, 1990
through May 1, 1990, Mr. Leidesdorf was an independent contractor for Eastdil
Realty, Inc. on real estate matters.

Jack G. Wasserman has served as a Director of the General Partner since
December 3, 1993. Mr. Wasserman is an attorney and a member of the New York
State Bar and has been with the New York based law firm of Wasserman, Schneider
& Babb since 1966, where he is currently a senior partner. Mr. Wasserman also
serves as a director of Cadus Pharmaceutical Corporation, a public biotechnology
company. In addition, in 1998 Mr. Wasserman was appointed to the Board of
Directors of National Energy Group, Inc., an independent public energy company
primarily engaged in the acquisition, exploitation, development, exploration and
production of oil and natural gas. In addition, at the direction of the Nevada
State Gaming Control Board, Mr. Wasserman sits as a member of the Compliance
Committee of the Stratosphere Hotel and Casino, Inc. Mr. Wasserman is not a
member of the Board of Directors of Stratosphere Hotel and Casino, Inc. In the
fourth quarter of 1999, Mr. Wasserman acquired approximately 18.5 million common
shares of Philip Services Corp. from an affiliate of Mr. Icahn for approximately
$1.5 million consisting of cash and a non-recourse promissory note secured by
the acquired shares, which shares, after the proposed reorganization of Philip
Services Corp., would represent less than 0.5% of the outstanding common shares
of the reorganized company. In March, 2000, Mr. Wasserman was nominated by Mr.
Icahn as one of the eight directors proposed by Mr. Icahn for the board of
Nabisco Group Holdings as described above. There can be no assurance that Mr.
Icahn's slate of directors will be elected to the board of Nabisco Group
Holdings.        

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

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

John P. Saldarelli has served as Vice President, Secretary and
Treasurer of the General Partner since March 18, 1991. Mr. Saldarelli was also
President of Bayswater Realty Brokerage Corp. from June 1987 until November 19,
1993 and Vice President of Bayswater Realty & Capital Corp. from September 1979
until April 15, 1993. In October 1998, Mr. Saldarelli was appointed to the Board
of Directors of Stratosphere.

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

Mr. Icahn served on the Board of Directors of TWA. On January 31, 1992,
TWA filed a petition for bankruptcy in the U.S. Bankruptcy Court in Delaware,
seeking reorganization under Chapter 11 of the Bankruptcy Code. In connection
therewith, the Pension Benefit Guaranty Corporation asserted that there existed
in the TWA defined benefit plans an underfunding deficiency, and that if the
Plans were terminated, TWA and all members of the controlled group of which TWA
was a member, including the General Partner, would be liable, jointly and
severally, for approximately $1.2 billion. On January 8, 1993, TWA, the Pension
Benefit Guaranty Corporation, Mr. Icahn and the members of the controlled group,
among others, settled all claims and potential claims which they had against
each other. See Item 12. "Security Ownership of Certain Beneficial Owners and
Management."

Each executive officer and director will hold office until the next
annual meeting of the General Partner and until his or her successor is elected
and qualified. Directors who are not employed by AREP or certain affiliates,
receive fees of $3,000 for attendance at each meeting of the Board of Directors.
Mr. Leidesdorf and Mr. Wasserman each received $15,000 for attendance at such
meetings in 1999. In addition, directors who are not employed by AREP or certain
affiliates may receive additional fees for special meetings of or services
rendered on behalf of the Audit Committee. Mr. Leidesdorf and Mr. Wasserman each
received $35,000 of such fees in 1999.

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

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

If distributions (which are payable in kind) are not made to the
holders of Preferred Units on any two Payment Dates (which need not be
consecutive), the holders of more than 50% of all outstanding Preferred Units,
including the General Partner and its affiliates, voting as a class, will be
entitled to appoint two nominees for the Board of Directors of the General
Partner. Holders of Preferred Units owning at least 10% of all outstanding
Preferred Units, including the General Partner and its affiliates to the extent
that they are holders of Preferred Units, may call a meeting of the holders of
Preferred Units to elect such nominees. Once elected, the nominees will be
appointed to the Board of Directors of the General Partner by Icahn. As
directors, the nominees will, in addition to their other duties as directors, be

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91

specifically charged with reviewing all future distributions to the holders of
the Preferred Units. Such additional directors shall serve until the full
distributions accumulated on all outstanding Preferred Units have been declared
and paid or set apart for payment. If and when all accumulated distributions on
the Preferred Units have been declared and paid or set aside for payment in
full, the holders of Preferred Units shall be divested of the special voting
rights provided by the failure to pay such distributions, subject to revesting
in the event of each and every subsequent default. Upon termination of such
special voting rights attributable to all holders of Preferred Units with
respect to payment of distributions, the term of office of each director
nominated by the holders of Preferred Units (the "Preferred Unit Directors")
pursuant to such special voting rights shall terminate and the number of
directors constituting the entire Board of Directors shall be reduced by the
number of Preferred Unit Directors. The holders of the Preferred Units have no
other rights to participate in the management of AREP and are not entitled to
vote on any matters submitted to a vote of the holders of Depositary Units.

Filing of Reports

To the best of AREP's knowledge, no director, executive officer or
beneficial owner of more than 10% of AREP's Depositary Units failed to file on a
timely basis reports required by Section 16(a) of the Securities Exchange Act of
1934, as amended, during the year ended December 31, 1999.

Item 11.          Executive Compensation.(1)

The following table sets forth information in respect of the
compensation of the Chief Executive Officer and each of the other four most
highly compensated executive officers of AREP for services in all capacities to
AREP for the fiscal years ended December 31, 1999, 1998 and 1997.(2)

SUMMARY COMPENSATION TABLE
--------------------------

Annual Compensation
-----------------------------------------------------------------------------------------------------------
(a)                                                           (b)                           (c)

Name and Principal Position                                           Year                       Salary ($)
---------------------------                                           ----                       ----------

John P. Saldarelli(3)                                                 1999                         164,092
Vice President, Secretary and Treasurer                               1998                         148,000
1997                         136,000

Martin L. Hirsch (3)                                                  1999                         237,692
Executive Vice President and                                          1998                         209,600
Director of Acquisitions and Development                              1997                         202,750

In February 1993, AREP adopted a 401K plan pursuant to which AREP will
make a matching contribution to an employee's individual plan account in the
amount of one-third (1/3) of the first six (6%) percent of gross salary
contributed by the employee.

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

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

(2)      Carl C. Icahn, the Chief Executive Officer, received no compensation as
such for the periods indicated. In addition, other than Martin L. Hirsch and 
John P. Saldarelli, no other executive officer received compensation in excess 
of $100,000 from AREP for the applicable period.

(3)      On March 18, 1991, Mr. Saldarelli was elected Vice President, Secretary
and Treasurer of the General Partner. On March 23, 2000, Martin L. Hirsch was
elected Executive Vice President and Director of Acquisitions and Development of
the General Partner and Albo J. Antenucci, Jr. was elected Executive Vice
President and Chief Operating Officer of the General Partner. Messrs.
Saldarelli, Hirsch and Antenucci devote substantially all of their time to the
performance of services for AREP and its investments and the General Partner.
The other executive officers and directors of the General Partner devote only a
portion of their time to performance of services for AREP. 

III-3

92

Item 12.          Security Ownership of Certain
Beneficial Owners and Management.

As of March 3, 2000, affiliates of Icahn, including High Coast Limited
Partnership, a Delaware limited partnership, owned 39,356,236 Depositary Units,
or approximately 85.4% of the outstanding Depositary Units, and 6,974,167
Preferred Units, or approximately 86.5% of the outstanding Preferred Units.

The affirmative vote of Unitholders holding more than 75% of the total
number of all Depositary Units then outstanding, including Depositary Units held
by the General Partner and its affiliates, is required to remove the General
Partner. Thus, since Icahn, through affiliates, holds approximately 85.4% of the
Depositary Units outstanding, the General Partner will not be able to be removed
pursuant to the terms of the Partnership Agreement without Icahn's consent.
Moreover, under the Partnership Agreement, the affirmative vote of the General
Partner and Unitholders owning more than 50% of the total number of all
outstanding Depositary Units then held by Unitholders, including affiliates of
Icahn, is required to approve, among other things, selling or otherwise
disposing of all or substantially all of AREP's assets in a single sale or in a
related series of multiple sales, dissolving AREP or electing to continue AREP
in certain instances, electing a successor general partner, making certain
amendments to the Partnership Agreement or causing AREP, in its capacity as sole
limited partner of the Subsidiary, to consent to certain proposals submitted for
the approval of the limited partners of the Subsidiary. Accordingly, as
affiliates of Icahn hold in excess of 50% of the Depositary Units outstanding,
Icahn, through affiliates, will have effective control over such approval
rights.

The following table provides information, as of March 3, 2000, as to
the beneficial ownership of the Depositary Units and Preferred Units of AREP for
each director of the General Partner, and all directors and executive officers
of the General Partner as a group.

Beneficial                           Beneficial
Name of                                Ownership of         Percent         Ownership of         Percent
Beneficial Owner                     Depositary Units       of Class       Preferred Units       of Class
----------------                     ----------------       --------       ---------------       --------

Carl C. Icahn(1)                         39,356,236             85.4%         6,974,167              86.5%
All directors and
executive officers
as a group (4 persons)                   39,356,236             85.4%         6,974,167              86.5%

As described above, affiliates of Icahn hold 85.4% of the Depositary
Units and 86.5% of the outstanding Preferred Units. Entities directly or
indirectly owned by Icahn that are members of a controlled group for purposes of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and
Section 414 of the Internal Revenue Code of 1986, as amended (the "Code"), which
in 

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

(1)      Carl C. Icahn, through affiliates, is the beneficial owner of the
39,356,236 Depositary Units set forth above and may also be deemed to be the
beneficial owner of the 28,642 Depositary Units owned of record by API Nominee
Corp., which in accordance with state law are in the process of being turned
over to the relevant state authorities as unclaimed property; however, Mr. Icahn
disclaims such beneficial ownership. The foregoing is exclusive of a 1.99%
ownership interest in AREP which the General Partner holds by virtue of its 1%
General Partner interest in each of AREP and the Subsidiary. Furthermore,
pursuant to a registration rights agreement entered into by affiliates of Icahn
in connection with the 1997 Offering, AREP has agreed to pay any expenses
incurred in connection with two demand and unlimited piggy-back registrations
requested by affiliates of Icahn.

III-4

93

general terms includes entities in which there is at least 80% common ownership,
may have joint and several responsibility for various benefits-related
liabilities arising under ERISA and the Code. As a result of the more than 80%
ownership interest in AREP of Icahn and his affiliates, AREP will be deemed to
be included in the same controlled group that includes ACF and Pichin Corp.
("Pichin"), an affiliate of ACF (the "Controlled Group").

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

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

Pursuant to a settlement entered into in 1993 by the PBGC and TWA (the
"Settlement"), among others, in connection with the Chapter 11 bankruptcy case
of TWA, as amended and revised to date, Pichin became the sponsor directly
liable for minimum funding obligations of the pension plans for TWA employees
(the "TWA Plans"), which TWA Plans had theretofore been frozen. As a member of
the Controlled Group (which includes Pichin), AREP would be jointly and
severally liable, together with all the other entities in the Controlled Group,
for minimum funding obligations applicable with respect to the TWA Plans.
However, under the Settlement, Pichin has the right to terminate the minimum
funding obligations with respect to the TWA Plans by causing a termination of
those plans. In the event of a termination of the TWA Plans, termination
payments are limited under the Settlement to $30 million per year for eight
years and the PBGC's recourse for those termination payments is limited to
collateral pledged to secure those payments. Control over making minimum funding
payments and the decision whether to seek termination of the TWA Plans is
ultimately in the control of Icahn.

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

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

III-5

94

Item 13.          Certain Relationships and Related Transactions.

Related Transactions with the General Partner and its Affiliates

Icahn, in his capacity as majority Unitholder, will not receive any
additional benefit with respect to distributions and allocations of profits and
losses not shared on a pro rata basis by all other Unitholders. In addition,
Icahn has confirmed to AREP that neither he nor any of his affiliates will
receive any fees from AREP in consideration for services rendered in connection
with non-real estate related investments by AREP such as advice to purchase and
sell RJR shares which generated approximately $29 million of profits for AREP in
each of 1997 and 1999. AREP may determine to make investments in which Icahn or
his affiliates have independent investments in such assets; in addition, AREP
may enter into other transactions with the General Partner and its affiliates,
including, without limitation, buying and selling assets from or to the General
Partner or its affiliates and participating in joint venture investments in
assets with the General Partner or its affiliates, whether real estate or
non-real estate related, provided the terms of all such transactions are fair
and reasonable to AREP. Furthermore, it should be noted that the Partnership
Agreement provides that the General Partner and its affiliates are permitted to
have other business interests and may engage in other business ventures of any
nature whatsoever, and may compete directly or indirectly with the business of
AREP. Icahn and his affiliates currently invest in and perform investment
management services with respect to assets that may be similar to those AREP may
invest in and intend to continue to do so; pursuant to the Partnership
Agreement, however, AREP shall not have any right to participate therein or
receive or share in any income or profits derived therefrom. See Item 1.
"Business -- Investment in RJR" and "Investment in Limited Partnership Units."
In connection with the acquisition of Bayswater in March, 2000, however, subject
to certain exceptions, Mr. Icahn agreed that for a period  of one year he will
not engage in the United States, directly or indirectly, in the business of
constructing and selling single-family homes, multi-family homes and residential
lots in subdivisions and in planned communities, except through AREP.

For the years ended December 31, 1999 and 1998, AREP made no payments
with respect to the Depositary Units owned by the General Partner. However, in
1998 and 1999 the General Partner was allocated approximately $1,406,000 and
approximately $1,907,000 respectively, of the net earnings of AREP as a result
of its 1.99% general partner interest in AREP.

On March 31, 1999, Icahn received 332,100 Preferred Units as part of
AREP's scheduled annual preferred unit distribution and is expected to receive
an additional 348,708 Preferred Units in March 2000 as part of such scheduled
annual preferred unit distribution.

In March 2000, AREP acquired from Icahn the assets of Bayswater
Realty & Capital Corp., a land development company, and all of the ownership
interests of its affiliated entities (collectively, "Bayswater"). The purchase
price for the acquisition of Bayswater was approximately $84.35 million. The
terms of the transaction have been reviewed and approved by the Audit Committee,
which was advised by CIBC World Markets Corp., PricewaterhouseCoopers LLP and
independent legal counsel. Bayswater, a real estate investment, management and 
development company, focuses primarily on the construction and sale of
single-family homes, multi-family homes and residential lots in subdivisions
and in planned communities. Bayswater presently has ten residential
subdivisions under development in New York and Florida. See Item 1. "Business
-- Investment Opportunities and Strategies -- Real Estate Investments."

In March, 2000, AREP acquired approximately an additional 2% interest
in the Stratosphere Tower, Casino and Hotel from affiliates of Mr. Icahn for
approximately $2 million, giving it an aggregate interest in Stratosphere of
approximately 51%. The terms of the acquisition were reviewed and approved by 
the Audit Committee. 

Further in March, 2000, AREP transferred its interests in the Sands
Hotel and Casino and the Claridge Hotel and Casino to an affiliate of the
General Partner and received approximately $40.5 million therefor, however, as
noted above, the transfer is subject to AREP's right and obligation to
repurchase such interests in the event that it obtains the proper gaming
license in New Jersey.

In May 1995, AREP and an affiliate of the General Partner ("Affiliate")
entered into an agreement with the third-party landlord of its leased executive
office space. The agreement provided for AREP and the Affiliate to relocate
their offices to an adjacent building also owned by the landlord which
relocation occurred in September 1995. In accordance with the agreement, AREP
entered into a lease, expiring in 2001, for 7,920 square feet of office space,
at an annual rental of approximately $153,000. AREP has sublet to certain
affiliates of the General Partner 3,205 square feet at an annual rental of
approximately $62,000, resulting in a net annual rental of approximately
$91,000. Affiliates of the 

III-6

95

General Partner reimbursed AREP for approximately $62,000 in rent paid by AREP
on its behalf during 1999 in connection with the new lease. The prior lease,
which was terminated, provided for approximately 6,900 square feet at an annual
rental of $155,000 to AREP. In addition, AREP and the Affiliate received a lease
termination fee of $350,000 allocated $175,000 to AREP and $175,000 to the
Affiliate. Such allocations and the terms of the sublease were reviewed and
approved by the Audit Committee. As part of the Bayswater acquisition, the
lease was assigned to AREP, and AREP will be responsible for all costs under the
lease. In addition, in 1997 AREP entered into a license agreement for a portion
of office space from an affiliate of the General Partner. The license agreement
dated as of February 1, 1997 expires May 22, 2004 unless sooner terminated in
accordance with the agreement. Pursuant to the license agreement, AREP has the
non-exclusive use of approximately 3,547 square feet of office space and common
areas (of an aggregate 21,123 rentable square feet sublet by such affiliate) for
which it pays $17,436.20 per month, together with 16.79% of certain "additional
rent." In 1999, AREP paid an affiliate of the General Partner $218,032 of rent
in connection with this licensing agreement. In connection with the build-out of
the space, AREP reimbursed such affiliate $486,989, representing AREP's
allocable share of such costs net of a pro rata share of the sub-lessor's
allowance for such build-out. The terms of such sublease were reviewed and
approved by the Audit Committee.

See Item 12. "Security Ownership of Certain Beneficial Owners and
Management" for a discussion of the 1998 Tender Offer made by affiliates of
Icahn and the Icahn Controlled Group pension liability considerations.

Property Management and Other Related Transactions

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

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

III-7

96

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

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

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

During 1999, and prior to the acquisition of Bayswater, AREP engaged
Bayswater to perform development, construction management, marketing and sales
services with respect to three residential development sites located in New
Seabury, Massachusetts, Armonk, New York and East Hampton, New York
respectively. Bayswater has been reimbursed a pro rata portion of the salaries,
benefits and related expenses for the personnel performing such services, plus
all reasonable and customary out of pocket expenses incurred in connection with
performing such services. Such reimbursements have been subject to review and
approval by the Audit Committee. During 1999, AREP reimbursed Bayswater
approximately $877,000 for such services rendered and expenses in connection
therewith.

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

In addition, employees of AREP may, from time to time, provide services
to affiliates of the General Partner, with AREP being reimbursed therefor.
Reimbursement to AREP by such affiliates in respect of such services is subject
to review and approval by the Audit Committee. In 1999 there were no such
amounts. Finally, an affiliate of the General Partner provided certain
administrative services to AREP in the amount of approximately $4,000 in 1999.

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

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

The Audit Committee, comprised of Messrs. Leidesdorf and Wasserman,
have confirmed that: (i) the Audit Committee reviewed and discussed AREP's 1999
audited financial statements with management, (ii) the Audit Committee has
discussed with AREP's independent auditors the matters required to be discussed
by SAS 61 (Codification of Statements on Auditing Standards, AU Section 380),
(iii) the Audit Committee has received the written disclosures and the letter
from the independent 

III-8

97

accountants required by Independence Standards Board Standard No. 1, and (iv)
based on the review and discussions referred to in clauses (i), (ii) and (iii)
above, the Audit Committee recommended to the Board of Directors that AREP's
1999 audited financial statements be included in this Annual Report on Form
10-K.

III-9

98

PART IV

Item 14.          Exhibits, Financial Statement Schedules
and Reports on Form 8-K.

(a)(1)            Financial Statements:

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

Page
Number
------

Independent Auditors' Report                                      II-12

Consolidated Balance Sheets -                                     II-13-14
December 31, 1999 and 1998                                  

Consolidated Statements of Earnings -                             II-15-16
Years ended December 31, 1999, 1998 and 1997                

Consolidated Statements of Changes in Partners' Equity            II-17-18
and Comprehensive Income - Years ended                      
December 31, 1999, 1998 and 1997                           

Consolidated Statements of Cash Flows -                           II-19-20
Years ended December 31, 1999, 1998 and 1997                

Notes to Consolidated Financial Statements                        II-21-70

(a)(2)            Financial Statement Schedules:            
-----------------------------             

Schedule III -    Real Estate Owned and Revenues                  IV-5-15
Earned (by tenant or guarantor,
as applicable)

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

(a)(3)         Exhibits:
--------

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

3.2      Amended and Restated Agreement of Limited Partnership of AREP,
dated as of May 12, 1987 (filed as Exhibit No. 3.2 to AREP's
Annual Report on Form 10-K for the year ended December 31,
1987 and incorporated herein by reference).

3.3      Amendment No. 1 to the Amended and Restated Agreement of
Limited Partnership of AREP (filed as Exhibit 3.3 to AREP's
Annual Report on Form 10-K for the year ended December 31,
1994 and incorporated herein by reference).

3.4      Certificate of Limited Partnership of American Real Estate
Holdings Limited Partnership (the "Subsidiary"), dated
February 17, 1987, and amendment thereto, dated March 12, 1987
(filed as Exhibit No. 3.3 to AREP's Annual Report on Form 10-K
for the year ended December 31, 1987 and incorporated herein
by reference).

IV-1

99

3.5      Amended and Restated Agreement of Limited Partnership of the
Subsidiary, dated as of July 1, 1987 (filed as Exhibit No. 3.4
to AREP's Annual Report on Form 10-K for the year ended
December 31, 1987 and incorporated herein by reference).

4.1      Depositary Agreement among AREP, the General Partner and
Registrar and Transfer Company, dated as of July 1, 1987
(filed as Exhibit No. 4.1 to AREP's Annual Report on Form 10-K
for the year ended December 31, 1987 and incorporated herein
by reference).

4.2      Amendment No. 1 to the Depositary Agreement (filed as Exhibit
4.2 to AREP's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference).

4.3      Specimen Depositary Receipt (filed as Exhibit No. 4.2 to
AREP's Annual Report on Form 10-K for the year ended December
31, 1987 and incorporated herein by reference).

4.4      Form of Transfer Application (filed as Exhibit No. 4.3 to
AREP's Annual Report on Form 10-K for the year ended December
31, 1987 and incorporated herein by reference).

4.5      Specimen Certificate representing Preferred Units (filed as
Exhibit No. 4.9 to AREP's Registration Statement on Form S-3
(Registration No. 33-54767) and incorporated herein by
reference).

10.1     Nonqualified Unit Option Plan (filed as Exhibit No. 10.1 to
AREP's Annual Report on Form 10-K for the year ended December
31, 1987 and incorporated herein by reference).

10.2     Distribution Reinvestment Plan (filed as Exhibit No. 10.3 to
AREP's Annual Report on Form 10-K for the year ended December
31, 1987 and incorporated herein by reference).

10.10    Subscription Guaranty Agreement between AREP and High Coast
Limited Partnership (the "Guarantor") (filed as Exhibit 4.10
to AREP's Registration Statement on Form S-3 (Registration No.
33-54767) and incorporated herein by reference).

10.11    Registration Rights Agreement between AREP and the Guarantor
(filed as Exhibit 4.11 to AREP's Registration Statement on
Form S-3 (Registration No. 33-54767) and incorporated herein
by reference).

10.12    Amended and Restated Agency Agreement (filed as Exhibit 10.12
to AREP's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference).

10.13    Subscription Agent Agreement (filed as Exhibit 10.13 to AREP's
Annual Report on Form 10-K for the year ended December 31,
1994 and incorporated herein by reference).

10.14    Subscription Guaranty Agreement between AREP and the Guarantor
(filed as Exhibit 4.10 to Amendment No. 1 to AREP's
Registration Statement on Form S-3 (Registration No.
333-31561) and incorporated herein by reference).

IV-2

100

10.15    Registration Rights Agreement between AREP and the Guarantor
(filed as Exhibit 4.11 to Amendment No. 1 to AREP's
Registration Statement on Form S-3 (Registration No.
333-31561) and incorporated herein by reference).

10.16    Subscription Agent Agreement filed as Exhibit 99.1 to AREP's
Registration Statement on Form S-3 (Registration No.
333-31561) and incorporated herein by reference).

16       Letter dated September 27, 1991 of Deloitte & Touche regarding
change in accountants (filed as Exhibit No. A to AREP's
Current Report on Form 8-K dated October 3, 1991 and
incorporated herein by reference).

22       List of Subsidiaries (filed as Exhibit No. 22 to AREP's Annual
Report on Form 10-K for the year ended December 31, 1987 and
incorporated herein by reference).

(b)      Reports on Form 8-K:
-------------------

(1) A Form 8-K was filed on April 8, 1999 regarding a March 29, 1999
announcement of 1998 fourth quarter and full year financial results and
that no distributions were expected during 1999.

(2) A Form 8-K was filed on December 22, 1999 regarding the
announcement of the acquisition from Icahn of Bayswater Realty &
Capital Corp. and its affiliated entities.

IV-3

101

SIGNATURES

Pursuant to the requirements of Section 13 or 15(a) of the Securities
Exchange Act of 1934, AREP has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 30th day of March,
2000.

AMERICAN REAL ESTATE PARTNERS, L.P.

By:   AMERICAN PROPERTY INVESTORS, INC.
General Partner

By:   /s/ Carl C. Icahn
------------------------------------
Carl C. Icahn
Chairman of the Board

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

Signature                                               Title                                   Date
---------                                               -----                                   ----

/s/Carl C. Icahn                                   Chairman of the Board                        March 30, 2000              
-----------------------                              (Principal Executive
Carl C. Icahn                                     Officer)

/s/William A. Leidesdorf                           Director                                     March 30, 2000              
--------------------------
William A. Leidesdorf

/s/Jack G. Wasserman                               Director                                     March 30, 2000              
----------------------
Jack G. Wasserman

/s/John P. Saldarelli                              Treasurer                                    March 30, 2000              
--------------------------                           (Principal Financial
John P. Saldarelli                                Officer and Principal
Accounting Officer

IV-4

102
AMERICAN REAL ESTATE PARTNERS, LP
a limited partnership                 Schedule III
------------

Page 1

REAL ESTATE OWNED AND REVENUES EARNED
-------------------------------------

Part 1 - Real estate owned at
December 31, 1999 - Accounted for under the:
-----------------------------------------------
Operating Method
-----------------------------------------------

Amount
Carried
No. of      Amount of     Initial Cost     Cost of        at close
State    Locations   Encumbrances    to Company   Improvements     of period
------------------------------------------------------------------------------------------------------------------------------------

COMMERCIAL PROPERTY LAND AND BUILDING
-------------------------------------
Acme Markets, Inc. and FPBT of Penn.          PA          1                       $2,004,393                     $2,004,393
Alabama Power Company                         AL          5        $3,401,890
Amer Stores and The Fidelity Bank             PA          1
Amer Stores, Grace, & Shottenstein Stores     NJ          1                        2,043,567                      2,043,567
American Recreation Group, Inc.               NC          1                                0                              0
Best Products Co., Inc.                       VA          1                        3,303,553                      3,303,553
Caldor, Inc.                                  MA          1                                0                              0
Chesebrough-Pond's Inc.                       CN          1                        1,549,805                      1,549,805
Chomerics, Inc.                               MA          1
Collins Foods International, Inc.             OR          3                          169,048                        169,048
Collins Foods International, Inc.             CA          1                           87,810                         87,810
David Miller of California                    CA          1
Dillon Companies, Inc.                        MO          1                          546,681                        546,681
Dillon Companies, Inc.                        LA          6                        1,553,812                      1,553,812
Druid Point Bldg.                             GA          1
Duke Power Co.                                NC          1         2,220,385
East Syracuse                                 NY          1                          138,108        71,468          209,576
European American Bank and Trust Co.          NY          1                        1,355,210                      1,355,210
Farwell Bldg.                                 MN          1           433,154      5,081,105                      5,081,105
Federated Department Stores, Inc.             CA          1
First National Supermarkets, Inc.             CT          1        12,543,744
First Union National Bank                     NC          1                                0                              0
Fisher Scientific Company                     IL          1                          597,806                        597,806
Forte Hotels International, Inc.              NJ          1
Fox Grocery Company                           WV          1           852,712
Gino's, Inc.                                  MO          1                                0                              0
Gino's, Inc.                                  CA          1                                0                              0
Gino's, Inc.                                  OH          1                          201,938                        201,938
Gino's, Inc.                                  IL          1                                0                              0
Golf Road                                     IL          1         7,031,805      9,278,164        10,099        9,288,263
Grand Union Co.                               NJ          1                          430,664                        430,664
Grand Union Co.                               MD          1                          372,383                        372,383
Grand Union Co.                               NY          3                        1,084,020                      1,084,020
Grand Union Co.                               NY          1                                0                              0
Grand Union Co.                               VA          1                          266,468                        266,468
Grand Union Co.                               NY          1         4,229,695
Gunite                                        IN          1            44,217      1,134,565                      1,134,565
G.D. Searle & Co.                             MD          1                                0                              0
G.D. Searle & Co.                             MN          1
G.D. Searle & Co.                             AL          1                                0                              0
G.D. Searle & Co.                             IL          1                          256,295                        256,295
G.D. Searle & Co.                             MN          1                          339,358                        339,358
G.D. Searle & Co.                             IL          1                          323,559                        323,559
G.D. Searle & Co.                             TN          1                                0                              0
G.D. Searle & Co.                             MD          1                                0                              0
Haverty Furniture Companies, Inc.             GA          1
Haverty Furniture Companies, Inc.             FL          1
Haverty Furniture Companies, Inc.             VA          1
Integra A Hotel and Restaurant Co.            AL          2                          245,625                        245,625
Integra A Hotel and Restaurant Co.            IL          1                          198,392                        198,392
Integra A Hotel and Restaurant Co.            IN          1                          231,513                        231,513
Integra A Hotel and Restaurant Co.            OH          1
Integra A Hotel and Restaurant Co.            MO          1                          224,837                        224,837
Integra A Hotel and Restaurant Co.            TX          1                          228,793                        228,793
Integra A Hotel and Restaurant Co.            MI          1                          234,464                        234,464
Intermountain Color                           KY          1                          559,644           800          560,444
J.C. Penney Company, Inc.                     MA          1                        2,484,262                      2,484,262
Kelley Springfield Tire Company               TN          1                          120,946                        120,946
K-Mart Corporation                            LA          1
K-Mart Corporation                            WI          1
K-Mart Corporation                            FL          1
K-Mart Corporation                            MN          1           430,000
K-Mart Corporation                            FL          1                        2,743,109                      2,743,109
K-Mart Corporation                            IA          1
K-Mart Corporation                            FL          1                        2,636,000                      2,636,000
K-Mart Corporation                            IL          1           175,525
Kobacker Stores, Inc.                         MI          3                          163,687                        163,687

---------------------------------------------------------------
Operating Method (con't)               Financing Method
--------------------------------    --------------------------

Rent due                   Minimum lease
and accrued                   payments due
or received                   and accrued
Reserve for      in advance at       Net          at end
Depreciation      end of period    Investment     of period
----------------------------------------------------------------------------------------------------------------

COMMERCIAL PROPERTY LAND AND BUILDING
-------------------------------------
Acme Markets, Inc. and FPBT of Penn.           $1,464,530         ($21,292)
Alabama Power Company                                                           $6,789,647
Amer Stores and The Fidelity Bank                                                  505,766       $1,042
Amer Stores, Grace, & Shottenstein Stores       1,560,971          (10,228)
American Recreation Group, Inc.
Best Products Co., Inc.
Caldor, Inc.
Chesebrough-Pond's Inc.                         1,149,185          (11,770)
Chomerics, Inc.                                                                  5,729,645      (82,348)
Collins Foods International, Inc.                                   (2,707)         81,764
Collins Foods International, Inc.                                   (1,470)         46,444
David Miller of California
Dillon Companies, Inc.                            335,710          (19,630)
Dillon Companies, Inc.                            878,258          (36,013)
Druid Point Bldg.
Duke Power Co.                                                                   3,991,270
East Syracuse
European American Bank and Trust Co.            1,284,888
Farwell Bldg.                                   1,589,877
Federated Department Stores, Inc.
First National Supermarkets, Inc.                                               22,623,308     (221,459)
First Union National Bank
Fisher Scientific Company                         187,577
Forte Hotels International, Inc.                                                 6,120,807      (59,447)
Fox Grocery Company                                                              2,945,367
Gino's, Inc.
Gino's, Inc.
Gino's, Inc.                                                                       112,075
Gino's, Inc.
Golf Road                                         501,814
Grand Union Co.                                                                    370,106
Grand Union Co.                                   259,728
Grand Union Co.                                                                    953,967
Grand Union Co.                                         0
Grand Union Co.                                   186,157
Grand Union Co.                                                                  6,800,694
Gunite                                          1,065,034          (19,811)
G.D. Searle & Co.                                       0
G.D. Searle & Co.
G.D. Searle & Co.                                       0
G.D. Searle & Co.                                 173,209           (3,835)
G.D. Searle & Co.                                 158,367           (2,551)
G.D. Searle & Co.                                 232,516           (3,776)
G.D. Searle & Co.                                                   (1,562)
G.D. Searle & Co.                                       0
Haverty Furniture Companies, Inc.
Haverty Furniture Companies, Inc.                                                                (1,045)
Haverty Furniture Companies, Inc.
Integra A Hotel and Restaurant Co.                                  (4,334)      1,166,278      (24,510)
Integra A Hotel and Restaurant Co.                                  (3,776)        341,025       (9,805)
Integra A Hotel and Restaurant Co.                                  (3,857)        501,215      (10,579)
Integra A Hotel and Restaurant Co.                                                 470,970      (12,989)
Integra A Hotel and Restaurant Co.                                  (4,230)        348,901       (9,793)
Integra A Hotel and Restaurant Co.                                  (4,404)        448,518      (12,156)
Integra A Hotel and Restaurant Co.                                  (4,377)        471,990      (11,322)
Intermountain Color                               476,541            7,225
J.C. Penney Company, Inc.                       1,747,319          (41,707)
Kelley Springfield Tire Company                    75,200
K-Mart Corporation                                                               1,363,360
K-Mart Corporation                                                               1,805,494
K-Mart Corporation
K-Mart Corporation                                                               1,676,503
K-Mart Corporation                              1,753,997          135,000
K-Mart Corporation                                                               1,279,790
K-Mart Corporation                              1,839,003                        1,648,608
K-Mart Corporation                                                                 894,272
Kobacker Stores, Inc.                                                              289,403

Part 2 - Revenues earned for the
Year ended December 31, 1999
---------------------------------------------

Expended
Total        for interest,
revenue          taxes,       Net income
applicable       repairs and    applicable
to period        expenses       to period
--------------------------------------------------------------     ---------------------------

COMMERCIAL PROPERTY LAND AND BUILDING
-------------------------------------
Acme Markets, Inc. and FPBT of Penn.             $251,501         $37,458       $214,043
Alabama Power Company                             732,173         340,037        392,136
Amer Stores and The Fidelity Bank                  84,139             463         83,676
Amer Stores, Grace, & Shottenstein Stores         252,291          84,166        168,125
American Recreation Group, Inc.                         0          37,817        (37,817)
Best Products Co., Inc.                                 0         172,863       (172,863)
Caldor, Inc.                                       97,257         113,544        (16,287)
Chesebrough-Pond's Inc.                           141,236          19,580        121,656
Chomerics, Inc.                                   736,917               0        736,917
Collins Foods International, Inc.                  32,489           8,987         23,502
Collins Foods International, Inc.                  17,646           2,601         15,045
David Miller of California                         10,580               0         10,580
Dillon Companies, Inc.                             56,218          12,756         43,462
Dillon Companies, Inc.                            196,148          12,333        183,815
Druid Point Bldg.                                       0           1,373         (1,373)
Duke Power Co.                                    417,735         232,767        184,968
East Syracuse                                           0               0              0
European American Bank and Trust Co.              175,000               0        175,000
Farwell Bldg.                                   1,082,009         400,658        681,351
Federated Department Stores, Inc.                       0             802           (802)
First National Supermarkets, Inc.               2,101,898       1,229,651        872,247
First Union National Bank                          46,430               0         46,430
Fisher Scientific Company                         163,000          22,815        140,185
Forte Hotels International, Inc.                  560,708              66        560,642
Fox Grocery Company                               267,913          85,555        182,358
Gino's, Inc.                                       20,261           7,728         12,533
Gino's, Inc.                                       26,510          10,930         15,580
Gino's, Inc.                                       41,556               0         41,556
Gino's, Inc.                                       28,616          40,957        (12,341)
Golf Road                                         947,108         923,635         23,473
Grand Union Co.                                    80,418           3,556         76,862
Grand Union Co.                                    33,750         115,923        (82,173)
Grand Union Co.                                   207,283               0        207,283
Grand Union Co.                                    86,700          52,023         34,677
Grand Union Co.                                    24,150           3,579         20,571
Grand Union Co.                                   632,935         435,797        197,138
Gunite                                            233,070           7,584        225,486
G.D. Searle & Co.                                  20,250           7,069         13,181
G.D. Searle & Co.                                       0            (846)           846
G.D. Searle & Co.                                       0           1,318         (1,318)
G.D. Searle & Co.                                  23,013          12,154         10,859
G.D. Searle & Co.                                  30,614           5,551         25,063
G.D. Searle & Co.                                  45,310           4,516         40,794
G.D. Searle & Co.                                  18,740           1,219         17,521
G.D. Searle & Co.                                  26,215           5,177         21,038
Haverty Furniture Companies, Inc.                   3,933              80          3,853
Haverty Furniture Companies, Inc.                  12,419           1,314         11,105
Haverty Furniture Companies, Inc.                   4,246               0          4,246
Integra A Hotel and Restaurant Co.                215,714               0        215,714
Integra A Hotel and Restaurant Co.                 92,091               0         92,091
Integra A Hotel and Restaurant Co.                112,591               0        112,591
Integra A Hotel and Restaurant Co.                 71,486               0         71,486
Integra A Hotel and Restaurant Co.                 97,082               0         97,082
Integra A Hotel and Restaurant Co.                125,574               0        125,574
Integra A Hotel and Restaurant Co.                127,944               0        127,944
Intermountain Color                                86,491          26,803         59,688
J.C. Penney Company, Inc.                         250,244          88,582        161,662
Kelley Springfield Tire Company                    11,449               0         11,449
K-Mart Corporation                                134,271               0        134,271
K-Mart Corporation                                163,453               0        163,453
K-Mart Corporation                                146,314             616        145,698
K-Mart Corporation                                137,916          38,569         99,347
K-Mart Corporation                                227,378         182,013         45,365
K-Mart Corporation                                121,032           3,154        117,878
K-Mart Corporation                                398,634          36,567        362,067
K-Mart Corporation                                 71,927          17,483         54,444
Kobacker Stores, Inc.                              40,545               0         40,545

IV-5

103
AMERICAN REAL ESTATE PARTNERS, LP
a limited partnership                 Schedule III
------------

Page 2

REAL ESTATE OWNED AND REVENUES EARNED
-------------------------------------

Part 1 - Real estate owned at
December 31, 1999 - Accounted for under the:
-----------------------------------------------
Operating Method
-----------------------------------------------

Amount
Carried
No. of      Amount of     Initial Cost     Cost of        at close
State    Locations   Encumbrances    to Company   Improvements     of period
------------------------------------------------------------------------------------------------------------------------------------

COMMERCIAL PROPERTY LAND AND BUILDING
-------------------------------------
Kobacker Stores, Inc.                       KY            1                           88,364                       88,364
Kobacker Stores, Inc.                       OH            4                          298,496                      298,496
Kraft, Inc.                                 NC            1
Landmark Bancshares Corporation             MO            1
Levitz Furniture Corporation                NY            1                          988,463                      988,463
Lockheed Corporation                        CA            1                                0                            0
Louisiana Power and Light Company           LA            8         1,187,423
Louisiana Power and Light Company           LA            7           710,329      3,491,431                    3,491,431
Marsh Supermarkets, Inc.                    IN            1                        5,001,933                    5,001,933
Montgomery Ward, Inc.                       PA            1                        3,289,166                    3,289,166
Montgomery Ward, Inc.                       NJ            1
Morrison, Inc.                              AL            1                          324,288                      324,288
Morrison, Inc.                              GA            1                          347,404                      347,404
Morrison, Inc.                              FL            1                          375,392                      375,392
Morrison, Inc.                              VA            2                          363,059                      363,059
North Carolina National Bank                SC            2                        1,450,047                    1,450,047
Occidental Petroleum Corp.                  CA            1                                0                            0
Ohio Power Co. Inc.                         OH            1
Old National Bank of Washington             WA            1
Park West                                   KY            1        12,367,714     19,099,418                   19,099,418
Park West UPS                               KY            1        19,054,932     21,106,313         3,054     21,109,367
Penske Corp.                                OH            1
Pneumo Corp.                                OH            1           522,262
Portland General Electric Company           OR            1        42,597,355
Rayovac                                     WI            1        16,067,309     22,065,852                   22,065,852
Rouse Company                               MD            1         2,477,921
Safeway Stores, Inc.                        LA            1                        1,782,885                    1,782,885
Sams                                        MI            1                        8,844,225                    8,844,225
Smith's Management Corp.                    NV            1           302,665
Southland Corporation                       FL            5                        1,162,971                    1,162,971
Staples                                     NY            1                        2,484,152         2,592      2,486,744
Stone Container                             WI            1         6,246,722      9,028,034                    9,028,574
Stop 'N Shop Co., Inc.                      NY            1                        5,013,507                    5,013,507
Stop 'N Shop Co., Inc.                      VA            1           542,121
Super Foods Services, Inc.                  MI            1         5,988,650
SuperValu Stores, Inc.                      MN            1                        1,370,965                    1,370,965
SuperValu Stores, Inc.                      OH            1                        3,000,671                    3,000,671
SuperValu Stores, Inc.                      GA            1                        2,344,836                    2,344,836
SuperValu Stores, Inc.                      IN            1                        2,267,573                    2,267,573
Telecom Properties, Inc.                    OK            1
Telecom Properties, Inc.                    KY            1                          281,253                      281,253
The A&P Company                             MI            1
The TJX Companies, Inc.                     IL            1
Toys "R" Us, Inc.                           TX            1           768,604        501,836                      501,836
USA Petroleum Corporation                   SC            2                                0                            0
USA Petroleum Corporation                   OH            1                                0                            0
USA Petroleum Corporation                   GA            2                                0                            0
Waban                                       NY            1                        8,378,095                    8,378,095
Watkins                                     MO            1                          973,439                      973,439
Webcraft Technologies                       MD            1           359,590        780,774                      780,774
Wetterau, Inc.                              PA            1
Wetterau, Inc.                              NJ            2
Wickes Companies, Inc.                      CA            2           393,842        657,331                      657,331

RESIDENTIAL PROPERTY LAND AND BUILDING
-------------------------------------
Crown Cliffs                                AL            1         8,022,121     11,079,759       109,146     11,188,905(2)

COMMERCIAL PROPERTY - LAND
--------------------------
Easco Corp.                                 NC            1                          157,560                      157,560
Foodarama supermarkets, Inc.                NY            1                          140,619                      140,619
Foodarama supermarkets, Inc.                PA            1                          112,554                      112,554
Gino's, Inc.                                MD            1
Gino's, Inc.                                PA            1                           36,271                       36,271
Gino's, Inc.                                MI            1
Gino's, Inc.                                MA            2                          102,048                      102,048

--------------------------------------------------------------
Operating Method (con't)               Financing Method
--------------------------------    --------------------------

Rent due                   Minimum lease
and accrued                   payments due
or received                   and accrued
Reserve for      in advance at       Net          at end
Depreciation      end of period    Investment     of period
--------------------------------------------------------------------------------------------------------------

COMMERCIAL PROPERTY LAND AND BUILDING
-------------------------------------
Kobacker Stores, Inc.                                                              92,173
Kobacker Stores, Inc.                                                             455,494
Kraft, Inc.
Landmark Bancshares Corporation                                                 4,359,986
Levitz Furniture Corporation                                                    1,843,478
Lockheed Corporation
Louisiana Power and Light Company                                               9,234,759
Louisiana Power and Light Company                                               3,767,124
Marsh Supermarkets, Inc.                       2,571,642
Montgomery Ward, Inc.                          2,219,873          (26,190)
Montgomery Ward, Inc.                                                           1,451,099      (19,990)
Morrison, Inc.                                                                    643,170
Morrison, Inc.                                                                    612,971
Morrison, Inc.                                                                    651,893
Morrison, Inc.                                                                  1,630,595
North Carolina National Bank                     547,184
Occidental Petroleum Corp.                             0
Ohio Power Co. Inc.                                                             3,758,958
Old National Bank of Washington
Park West                                        929,167
Park West UPS                                    644,428
Penske Corp.                                                                      524,956
Pneumo Corp.                                                                    2,014,676
Portland General Electric Company                                              50,626,196
Rayovac                                          211,617
Rouse Company                                                                   5,944,465      (62,280)
Safeway Stores, Inc.                           1,086,998           (7,096)
Sams                                           1,694,542
Smith's Management Corp.                                                          783,910        8,273
Southland Corporation                            688,320
Staples                                          113,835
Stone Container                                  328,346          (68,608)
Stop 'N Shop Co., Inc.                         3,724,841
Stop 'N Shop Co., Inc.                                                          2,549,122       41,240
Super Foods Services, Inc.                                                      9,803,732
SuperValu Stores, Inc.                           265,307
SuperValu Stores, Inc.                           591,277
SuperValu Stores, Inc.                           458,715
SuperValu Stores, Inc.                           443,221
Telecom Properties, Inc.                                                          104,304
Telecom Properties, Inc.                                                           88,005
The A&P Company                                                                 1,554,554
The TJX Companies, Inc.                                                         2,453,734      (47,185)
Toys "R" Us, Inc.                                                               1,056,405
USA Petroleum Corporation
USA Petroleum Corporation
USA Petroleum Corporation
Waban                                            719,518
Watkins                                          123,332           (9,650)
Webcraft Technologies                            179,969
Wetterau, Inc.                                                                    697,871       (1,750)
Wetterau, Inc.                                                                  1,519,248
Wickes Companies, Inc.                           110,235            9,346

RESIDENTIAL PROPERTY LAND AND BUILDING
-------------------------------------
Crown Cliffs                                   1,995,358

COMMERCIAL PROPERTY - LAND
--------------------------
Easco Corp.
Foodarama supermarkets, Inc.
Foodarama supermarkets, Inc.
Gino's, Inc.
Gino's, Inc.
Gino's, Inc.
Gino's, Inc.

Part 2 - Revenues earned for the
Year ended December 31, 1999
----------------------------------------------

Expended
Total        for interest,
revenue          taxes,       Net income
applicable       repairs and    applicable
to period        expenses       to period
--------------------------------------------------------------     ---------------------------

Kobacker Stores, Inc.                              18,458               0         18,458
Kobacker Stores, Inc.                              71,226               0         71,226
Kraft, Inc.                                             0         (15,233)        15,233
Landmark Bancshares Corporation                   615,334               0        615,334
Levitz Furniture Corporation                      328,405               0        328,405
Lockheed Corporation                              489,713               0        489,713
Louisiana Power and Light Company               1,427,312         181,108      1,246,204
Louisiana Power and Light Company                 944,040         111,050        832,990
Marsh Supermarkets, Inc.                          506,300         206,479        299,821
Montgomery Ward, Inc.                             314,280          49,750        264,530
Montgomery Ward, Inc.                             177,563               0        177,563
Morrison, Inc.                                    125,402               0        125,402
Morrison, Inc.                                    125,648               0        125,648
Morrison, Inc.                                    133,107               0        133,107
Morrison, Inc.                                    257,952               0        257,952
North Carolina National Bank                      104,451          54,678         49,773
Occidental Petroleum Corp.                              0         232,980       (232,980)
Ohio Power Co. Inc.                               352,288               0        352,288
Old National Bank of Washington                         0             614           (614)
Park West                                       1,770,372       1,432,726        337,646
Park West UPS                                   1,861,248       1,825,928         35,320
Penske Corp.                                       86,091             156         85,935
Pneumo Corp.                                      199,972          58,237        141,735
Portland General Electric Company               4,395,955       3,338,437      1,057,518
Rayovac                                           762,969         598,262        164,707
Rouse Company                                     529,121         271,310        257,811
Safeway Stores, Inc.                               85,150          12,529         72,621
Sams                                            1,117,827         173,294        944,533
Smith's Management Corp.                           56,235          30,339         25,896
Southland Corporation                             127,573          15,585        111,988
Staples                                           312,660         106,624        206,036
Stone Container                                   817,912         476,923        340,989
Stop 'N Shop Co., Inc.                            454,145          69,679        384,466
Stop 'N Shop Co., Inc.                            232,176          48,001        184,175
Super Foods Services, Inc.                      1,046,138         527,828        518,310
SuperValu Stores, Inc.                            114,885          26,679         88,206
SuperValu Stores, Inc.                            319,834          58,394        261,440
SuperValu Stores, Inc.                            224,215          45,631        178,584
SuperValu Stores, Inc.                            198,814          44,128        154,686
Telecom Properties, Inc.                            9,938           2,100          7,838
Telecom Properties, Inc.                           35,896           6,760         29,136
The A&P Company                                   164,595           1,286        163,309
The TJX Companies, Inc.                           221,352             791        220,561
Toys "R" Us, Inc.                                 138,717          58,360         80,357
USA Petroleum Corporation                          12,034               0         12,034
USA Petroleum Corporation                           5,786               0          5,786
USA Petroleum Corporation                          14,184           4,191          9,993
Waban                                             717,079         554,386        162,693
Watkins                                           115,800          24,889         90,911
Webcraft Technologies                             171,353          69,157        102,196
Wetterau, Inc.                                     76,789           8,880         67,909
Wetterau, Inc.                                    162,114          19,850        142,264
Wickes Companies, Inc.                            549,801         235,697        314,104

RESIDENTIAL PROPERTY LAND AND BUILDING
-------------------------------------
Crown Cliffs                                    1,850,194       1,850,374           (180)

COMMERCIAL PROPERTY - LAND
--------------------------
Easco Corp.                                        12,400           9,615          2,785
Foodarama supermarkets, Inc.                       14,000               0         14,000
Foodarama supermarkets, Inc.                       12,000           3,746          8,254
Gino's, Inc.                                            0          (4,450)         4,450
Gino's, Inc.                                        8,571               0          8,571
Gino's, Inc.                                            0           1,147         (1,147)
Gino's, Inc.                                       17,143               0         17,143

104
AMERICAN REAL ESTATE PARTNERS, LP
a limited partnership                 Schedule III
------------

Page 3

REAL ESTATE OWNED AND REVENUES EARNED
-------------------------------------

Part 1 - Real estate owned at
December 31, 1999 - Accounted for under the:
-----------------------------------------------
Operating Method
-----------------------------------------------

Amount
Carried
No. of      Amount of     Initial Cost     Cost of        at close
State    Locations   Encumbrances    to Company   Improvements     of period
------------------------------------------------------------------------------------------------------------------------------------

COMMERCIAL PROPERTY LAND AND BUILDING
-------------------------------------
Gino's, Inc.                                  NJ          1                           61,050                       61,050
J.C. Penney Company, Inc.                     NY          1                           51,009                       51,009
Levitz Furniture Corporation                  CA          2                        1,134,836                    1,134,836
Levitz Furniture Corporation                  KS          1                          460,490                      460,490

COMMERCIAL PROPERTY - BUILDING
------------------------------
AT&T                                          CA          1                        2,268,134                    2,268,134
Bank South                                    GA          1
Harwood Square                                IL          1                        6,854,652        33,496      6,888,148
Lockheed Corporation                          CA          1
Safeway Stores, Inc.                          CA          1                          558,652                      558,652
Toys "R" Us, Inc.                             RI          1
United Life & Accident Ins. Co.               NH          1
Wickes Companies, Inc.                        PA          1
Baptist Hospital 1                            TN          1        22,181,238
Baptist Hospital 2                            TN          1         8,232,663

HOTEL AND RESORT OPERATING PROPERTIES
-------------------------------------
Holiday Inn                                   FL          1                        7,587,609     2,031,338      9,618,947
New Seabury                                   MA          1                       17,443,596     2,856,404     20,300,000

DEVELOPMENT PROPERTIES
----------------------
Dellwood                                      NY          1                        3,120,317                    3,120,317
Grassy Hollow                                 NY          1                          601,135       (75,044)       526,091
New Seabury                                   MA          1                        8,970,039      (674,039)     8,296,000

------------   ------------    ----------   --------------
$179,386,588   $230,092,087    $4,369,314   $234,461,941(1)
============   ============    ==========   ==============

--------------------------------------------------------------
Operating Method (con't)               Financing Method
--------------------------------    --------------------------

Rent due                   Minimum lease
and accrued                   payments due
or received                   and accrued
Reserve for      in advance at       Net          at end
Depreciation      end of period    Investment     of period
---------------------------------------------------------------------------------------------------------------

COMMERCIAL PROPERTY LAND AND BUILDING
-------------------------------------
Gino's, Inc.
J.C. Penney Company, Inc.
Levitz Furniture Corporation                                       (12,158)
Levitz Furniture Corporation

COMMERCIAL PROPERTY - BUILDING
------------------------------
AT&T
Bank South                                                                       3,499,334      (41,073)
Harwood Square                                  3,391,688
Lockheed Corporation
Safeway Stores, Inc.                              555,306
Toys "R" Us, Inc.                                                                  965,223
United Life & Accident Ins. Co.                                                  4,052,544      (43,667)
Wickes Companies, Inc.                                                           3,006,172
Baptist Hospital 1                                                              24,680,479      921,265
Baptist Hospital 2                                                               9,187,385      341,931

HOTEL AND RESORT OPERATING PROPERTIES
-------------------------------------
Holiday Inn                                     3,405,510          (19,167)
New Seabury                                       819,898

DEVELOPMENT PROPERTIES
----------------------
Dellwood
Grassy Hollow
New Seabury

-------------      ---------    ------------     --------
$44,740,008(1)     $(192,628)   $223,391,202     $642,353
=============      =========    ============     ========

Part 2 - Revenues earned for the
Year ended December 31, 1999
----------------------------------------------

Expended
Total        for interest,
revenue          taxes,       Net income
applicable       repairs and    applicable
to period        expenses       to period
---------------------------------------------------------------     ---------------------------

Gino's, Inc.                                         8,571               0          8,571
J.C. Penney Company, Inc.                            5,500               0          5,500
Levitz Furniture Corporation                       115,750           1,437        114,313
Levitz Furniture Corporation                        47,009           7,051         39,958

COMMERCIAL PROPERTY - BUILDING
------------------------------
AT&T                                               551,359         178,024        373,335
Bank South                                         358,403          37,217        321,186
Harwood Square                                     803,580         335,231        468,349
Lockheed Corporation                                     0             460           (460)
Safeway Stores, Inc.                                26,900          20,691          6,209
Toys "R" Us, Inc.                                   92,337             591         91,746
United Life & Accident Ins. Co.                    344,672               0        344,672
Wickes Companies, Inc.                             502,473               0        502,473
Baptist Hospital 1                               1,956,652       1,750,957        205,695
Baptist Hospital 2                                 726,331         649,690         76,641

HOTEL AND RESORT OPERATING PROPERTIES
-------------------------------------
Holiday Inn                                      4,606,888       4,454,297        152,591
New Seabury                                     15,655,000      12,847,872      2,807,128

DEVELOPMENT PROPERTIES
----------------------
Dellwood                                                 0               0              0
Grassy Hollow                                            0               0              0
New Seabury                                              0               0              0

-----------     -----------    -----------
$63,418,463     $37,961,756    $25,456,707
===========     ===========    ===========

(1) Amount shown includes hotel operating properties.
(2) The Company owns a 70% interest in the joint venture which owns this
property.

105
Schedule III
Page 4

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

REAL ESTATE OWNED AND REVENUES EARNED
YEAR ENDED DECEMBER 31, 1999 (in $000's)
--------------------------------------------------------------------------------

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

Balance - January 1, 1999                                                                       $ 211,945
Additions during period                                                                            27,803
Reclassifications during period from financing leases                                               4,884
Reclassifications during period to construction in progress                                          (500)
Reclassifications during period to assets held for sale                                            (3,017)
Disposals during period                                                                            (6,653)
---------
Balance - December 31, 1999                                                                     $ 234,462
=========

b.     A reconciliation of the total amount of accumulated depreciation at the beginning of
the period, with the total at the close of the period, is shown below:

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

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

2.     A reconciliation of the total amount at which real estate owned, accounted for under
the financing method, was carried at the beginning of the period, with the total
close of the period, is shown below:

Balance - January 1, 1999                                                                       $ 245,920
Reclassifications during period                                                                    (4,884)
Write downs                                                                                        (1,856)
Disposals during period                                                                            (7,762)
Amortization of unearned income                                                                    22,364
Minimum lease rentals received                                                                    (30,301)
Other                                                                                                 (90)
---------
Balance - December 31, 1999                                                                     $ 223,391
=========

3. The aggregate cost of real estate owned for Federal income tax purposes is $364,162.

IV-8

106
Schedule III
Page 5

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

REAL ESTATE OWNED AND REVENUES EARNED
YEAR ENDED DECEMBER 31, 1999 (in $000's)
--------------------------------------------------------------------------------

4.   Net income applicable to the period in Schedule III is reconciled with net
earnings as follows:

Net income applicable to the period in Schedule III is reconciled with
net earnings as follows:

Net income applicable to financing and operating leases                                   $ 25,457
Add:                                                                                      
Interest income on treasury bills and other investments                                   25,007
Dividend and unallocated other income                                                     10,115
--------
60,579
--------

Deduct expenses not allocated:

General and administrative expenses                                                                 4,133
Nonmortgage interest expense                                                                        4,296
Other                                                                                                 353
--------
8,782
--------

Earnings before gain on property and securities transactions
and equity interest in affiliate                                                               51,797

Provision for loss on real estate                                                                  (1,946)
Gain on sale of real estate                                                                        16,112
Gain on sale of marketable equity securities                                                       28,590
Equity in earnings of Stratosphere Corporation                                                      1,263
--------
Net earnings                                                                                     $ 95,816
========

IV-9

107
Schedule III
Page 6

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

REAL ESTATE OWNED AND REVENUES EARNED
YEAR ENDED DECEMBER 31, 1998 (in $000's)
--------------------------------------------------------------------------------

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

Balance - January 1, 1998                                                                       $ 168,968
Additions during period                                                                            57,081
Write downs                                                                                          (271)
Reclassifications during period to assets held for sale                                            (1,280)
Disposals during period                                                                           (12,553)
---------

Balance - December 31, 1998                                                                     $ 211,945
=========

b.     A reconciliation of the total amount of accumulated depreciation at the beginning of
the period, with the total at the close of the period, is shown below:

Balance - January 1, 1998                                                                       $  42,370
Depreciation during period                                                                          4,247
Disposals during period                                                                            (4,808)
Reclassifications during period to assets held for sale                                              (365)
---------

Balance - December 31, 1998                                                                     $  41,444
=========

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

2.     A reconciliation of the total amount at which real estate owned, accounted for under
the financing method, was carried at the beginning of the period, with the total at
the close of the period, is shown below:                          

Balance - January 1, 1998                                                                       $ 265,657
Additions during period                                                                                28
Write downs                                                                                          (523)
Disposals during period                                                                           (11,355)
Amortization of unearned income                                                                    24,287
Minimum lease rentals received                                                                    (32,174)
---------
Balance - December 31, 1998                                                                     $ 245,920
=========

3. The aggregate cost of real estate owned for Federal income tax purposes is $362,116.

IV-10

108
Schedule III
Page 7

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

REAL ESTATE OWNED AND REVENUES EARNED
YEAR ENDED DECEMBER 31, 1998 (in $000's)
--------------------------------------------------------------------------------

4. Net income applicable to the period in Schedule III is reconciled with net
earnings as follows:

Net income applicable to financing and operating leases                                          $ 24,533
Add:                                                                                             
Interest income on treasury bills and other investments                                        28,213
Dividend and unallocated other income                                                          11,923
--------

64,669
--------

Deduct expenses not allocated:                                                                   

General and administrative expenses                                                                 3,808
Nonmortgage interest expense                                                                        2,106
Other                                                                                                 384
--------

6,298
--------

Earnings before gain on property and securities transactions                                       58,371

Provision for loss on real estate                                                                  (1,180)
Gain on sale of limited partnership interests                                                       4,382
Gain on sale of real estate                                                                         9,065
--------

Net earnings                                                                                     $ 70,638
========

IV-11

109
Schedule III
Page 8

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

REAL ESTATE OWNED AND REVENUES EARNED
YEAR ENDED DECEMBER 31, 1997 (in $000's)
--------------------------------------------------------------------------------

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

Balance - January 1, 1997                                                                       $ 160,113
Additions during period                                                                            28,946
Write downs                                                                                          (705)
Reclassifications during period from financing leases                                               4,001
Reclassifications during period to assets held for sale                                            (3,763)
Disposals during period                                                                           (19,624)
---------

Balance - December 31, 1997                                                                     $ 168,968
=========

b.     A reconciliation of the total amount of accumulated depreciation at the beginning of            
the period, with the total at the close of the period, is shown below:                          

Balance - January 1, 1997                                                                       $  43,755
Depreciation during period                                                                          3,850
Disposals during period                                                                            (3,753)
Reclassifications during period to assets held for sale                                            (1,482)
---------

Balance - December 31, 1997                                                                     $  42,370
=========

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

2.     A reconciliation of the total amount at which real estate owned, accounted for under            
the financing method, was carried at the beginning of the period, with the total at             
the close of the period, is shown below:                                                        

Balance - January 1, 1997                                                                       $ 253,782
Additions during period                                                                            34,751
Write downs                                                                                          (380)
Reclassifications during period                                                                    (4,001)
Disposals during period                                                                           (10,812)
Amortization of unearned income                                                                    25,146
Minimum lease rentals received                                                                    (32,829)
---------

Balance - December 31, 1997                                                                     $ 265,657
=========

3. The aggregate cost of real estate owned for Federal income tax purposes is $361,475.

IV-12

110
Schedule III
Page 9

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

REAL ESTATE OWNED AND REVENUES EARNED
YEAR ENDED DECEMBER 31, 1997 (in $000's)
--------------------------------------------------------------------------------

4. Net income applicable to the period in Schedule III is reconciled with net
earnings as follows:

Net income applicable to financing and operating leases                                          $ 23,816
Add:                                                                                             
Interest income on treasury bills and other investments                                        16,727
Dividend and unallocated other income                                                           6,334
--------

46,877
--------

Deduct expenses not allocated:                                                                   

General and administrative expenses                                                                 3,188
Nonmortgage interest expense                                                                        1,526
Other                                                                                               1,143
--------

5,857
--------

Earnings before gain on property and securities transactions                                       41,020

Provision for loss on mortgages receivable                                                         (9,790)
Provision for loss on real estate                                                                  (1,085)
Gain on sales of real estate                                                                       16,051
Gain on sale of marketable equity securities                                                       29,188
--------
Net earnings                                                                                     $ 75,384
========

IV-13

111
Schedule III
Page 10

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

REAL ESTATE OWNED BY STATE (ACCOUNTED FOR UNDER THE FINANCING METHOD)
DECEMBER 31, 1999 (in $000's)
------------------------------------------------------------------------------

Net
State                                                           Investment
-------------------                                                 ----------------

Alabama                                                                 $  8,599
California                                                                    46
Connecticut                                                               22,623
Florida                                                                    2,301
Georgia                                                                    4,112
Illinois                                                                   3,689
Indiana                                                                      501
Iowa                                                                       1,280
Kentucky                                                                     180
Louisiana                                                                 14,365
Maryland                                                                   5,945
Massachusetts                                                              5,730
Michigan                                                                  12,120
Minnesota                                                                  1,677
Missouri                                                                   4,709
Nevada                                                                       784
New Hampshire                                                              4,053
New Jersey                                                                 9,461
New York                                                                   9,598
North Carolina                                                             3,991
Ohio                                                                       7,337
Oklahoma                                                                     104
Oregon                                                                    50,708
Pennsylvania                                                               4,210
Rhode Island                                                                 965
South Carolina                                                                --
Tennessee                                                                 33,868
Texas                                                                      1,505
Virginia                                                                   4,180
West Virginia                                                              2,945
Wisconsin                                                                  1,805
--------
$223,391
========

IV-14

112
Schedule III
Page 11

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

REAL ESTATE OWNED AND RESERVED FOR DEPRECIATION BY STATE
(ACCOUNTED FOR UNDER THE OPERATING METHOD)
DECEMBER 31, 1999 (in $000's)
-------------------------------------------------------------------------------

Amount at which
Carried at                 Reserve for
Close of Year               Depreciation
-------------               ------------

Alabama                                     $ 11,759                    $  1,995
California                                     4,708                         666
Connecticut                                    1,550                       1,149
Florida                                       16,536                       7,687
Georgia                                        2,692                         459
Illinois                                      17,552                       4,487
Indiana                                        8,636                       4,080
Kansas                                           461                          --
Kentucky                                      41,139                       2,050
Louisiana                                      6,828                       1,965
Maryland                                       1,153                         440
Massachusetts                                 31,182                       2,567
Michigan                                       9,242                       1,695
Minnesota                                      6,791                       2,014
Missouri                                       1,745                         459
New Jersey                                     2,535                       1,561
New York                                      23,354                       5,843
North Carolina                                   158                          --
Ohio                                           3,501                         591
Oregon                                           169                          --
Pennsylvania                                   5,442                       3,684
South Carolina                                 1,450                         547
Tennessee                                        121                          75
Texas                                            731                          --
Virginia                                       3,933                         186
Wisconsin                                     31,094                         540
--------                    --------
$234,462                      44,740
========                    ========

IV-15

<ARTICLE> 5
<MULTIPLIER> 1,000

<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          DEC-31-1999
<PERIOD-END>                               DEC-31-1999
<CASH>                                         117,744
<SECURITIES>                                   468,529
<RECEIVABLES>                                        0
<ALLOWANCES>                                         0
<INVENTORY>                                          0
<CURRENT-ASSETS>                                     0
<PP                                         457,853
<DEPRECIATION>                                  44,740
<TOTAL-ASSETS>                               1,160,666
<CURRENT-LIABILITIES>                                0
<BONDS>                                        179,387
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                             0
<OTHER-SE>                                     967,966
<TOTAL-LIABILITY-AND-EQUITY>                 1,160,666
<SALES>                                              0
<TOTAL-REVENUES>                                98,540
<CGS>                                                0
<TOTAL-COSTS>                                   24,307
<OTHER-EXPENSES>                                 4,133
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                              18,303
<INCOME-PRETAX>                                 95,816
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                             95,816
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    95,816
<EPS-BASIC>                                       1.95
<EPS-DILUTED>                                     1.67