SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)

|X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.

For the quarterly period ended   June 30, 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             (I.R.S. Employer
incorporation or organization)              Identification No.)

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

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X|  No |_| 

American Real Estate Partners, L.P.-Form 10-Q-June 30, 1999

INDEX

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements                                  Page No.

Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 .............................   1-2

Consolidated Statements of Earnings -
Three Months Ended June 30, 1999 and 1998 .......................    3

Consolidated Statements of Earnings
Six Months Ended June 30, 1999 and 1998 .........................    4

Consolidated Statement of Changes In
Partners' Equity and Other Comprehensive Income
Six Months Ended June 30, 1999 ..................................    5

Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1999 and 1998 .........................   6-7

Notes to Consolidated Financial Statements ......................    8

Item 2.  Management's Discussion and Analysis
of Financial Condition and Results of
Operations .............................................   17

Item 3.  Quantitative and Qualitative Disclosure About
Market Risks ...........................................   26

PART II.  OTHER INFORMATION ..............................................   26

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

The financial information contained herein is unaudited; however, in the opinion
of management, all adjustments necessary for a fair presentation of such
financial information have been included. All such adjustments are of a normal
recurring nature.

CONSOLIDATED BALANCE SHEETS
(In $000's)

June 30,     December 31,
1999           1998
----------     ----------
(unaudited)
ASSETS

Real estate leased to others:
Accounted for under the financing
method                                        $  239,952     $  245,920
Accounted for under the operating
method, net of accumulated
depreciation                                      133,338        135,634
Investment in treasury bills                           417,727        363,884
Marketable equity securities                                --        190,775
Mortgages and notes receivable:
Held for investment                                  43,125         45,173
Available for sale                                   20,407         22,440
Cash and cash equivalents                              211,486         16,462
Equity interest in Stratosphere Corporation             50,208         48,969
Development properties                                  12,289         12,830
Investment in limited partnerships                       4,456          5,569
Hotel and resort operating properties,
net of accumulated depreciation                      24,304         22,037
Receivables and other assets                            13,783         18,994
Property held for sale                                   4,221          3,893
Debt placement costs,
net of accumulated amortization                       1,719          1,544
Construction in progress                                 2,290          1,791
----------     ----------

Total                                            $1,179,305     $1,135,915
==========     ==========

Continued..........

1

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

CONSOLIDATED BALANCE SHEETS - Continued
(In $000's)

June 30,     December 31,
1999           1998
----------     ----------
(unaudited)
LIABILITIES

Mortgages payable                                  $   175,325      $   173,559
Due to affiliate                                        62,779           60,750
Accounts payable, accrued
expenses and other liabilities                       11,970           10,004
Deferred income                                          2,786            2,788
Distributions payable                                      315              315
-----------      -----------
Total liabilities                                   253,175          247,416
-----------      -----------

Commitments and Contingencies
(Notes 2 and 3)

PARTNERS' EQUITY

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
June 30, 1999 and Dec. 31, 1998                    81,612           79,645

Depositary units; 47,850,000
authorized; 47,235,484
outstanding                                       839,241          802,856

General partner                                         18,698           17,919

Treasury units at cost:
1,137,200 depositary units                          (11,921)         (11,921)
-----------      -----------
Total partners' equity                            927,630          888,499
-----------      -----------
Total                                       $ 1,180,805      $ 1,135,915
===========      ===========

See notes to consolidated financial statements

2

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
(In $000's except per unit amounts)

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

Revenues:
Interest income on financing leases                 $      5,713   $      6,148
Interest income on treasury bills
and other investments                                    4,800          7,920
Rental income                                              5,010          4,238
Hotel and resort operating income                          5,332            928
Dividend income                                            3,576          1,804
Other income                                                  --            281
------------   ------------
24,431         21,319
------------   ------------
Expenses:
Interest expense                                           4,795          3,848
Depreciation and amortization                              1,357          1,086
General and administrative expenses                        1,162            762
Property expenses                                            794            649
Hotel and resort operating expenses                        3,599            874
------------   ------------
11,707          7,219
------------   ------------
Earnings before property and securities
transactions and equity interest in affiliate             12,724         14,100
Provision for loss on real estate                                --           (150)
Gain on sales and disposition of real estate                    959          2,527
Gain on sale of marketable equity securities                 28,590
Equity in earnings of Stratosphere Corporation                  139             --
------------   ------------

NET EARNINGS                                           $     42,412   $     16,477
============   ============

Net earnings attributable to:
Limited partners                                    $     41,568         16,149
General partner                                              844            328
------------   ------------
$     42,412   $     16,477
============   ============
Net earnings per limited
partnership unit (Note 11):
Basic earnings                                      $        .88   $        .33
============   ============

Weighted average limited partnership
units outstanding                                     46,098,284     46,198,284
============   ============

Diluted earnings                                    $        .74   $        .30
============   ============

Weighted average limited partnership
units and equivalent partnership
units outstanding                                     56,249,021     53,862,527
============   ============

See notes to consolidated financial statements

3

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
(In $000's except per unit amounts)

Six Months Ended June 30,
----------------------------
1999            1998
----            ----
Revenues:
Interest income on
financing leases                              $     11,506    $     12,411
Interest income on treasury bills
and other investments                                9,808          14,376
Rental income                                         10,004           9,014
Hotel and resort operating income                      7,798           2,170
Dividend income                                        7,427           4,325
Other income                                              --             379
------------    ------------
46,543          42,675
------------    ------------
Expenses:
Interest expense                                       9,804           7,184
Depreciation and amortization                          2,837           2,408
General and administrative
expenses                                             2,115           1,650
Property expenses                                      1,522           1,565
Hotel and resort operating expenses                    6,314           1,866
------------    ------------

22,592          14,673
------------    ------------
Earnings before property and securities
transactions and equity interest in affiliate         23,951          28,002
Provision for loss on real estate                          (227)           (602)
Gain on sales and disposition
of real estate                                         3,662           7,077
Gain on sale of marketable equity securities             28,590
Equity in earnings of Stratosphere Corp.                  1,246              --
------------    ------------

NET EARNINGS                                       $     57,222    $     34,477
============    ============

Net earnings attributable to:
Limited partners                                $     56,083    $     33,791
General partner                                        1,139             686
------------    ------------
$     57,222    $     34,477
============    ============
Net earnings per limited
partnership unit (Note 11):
Basic earnings                                  $       1.17    $        .69
============    ============

Weighted average limited partnership
units outstanding                                 46,098,284      46,198,284
============    ============

Diluted earnings                                $       1.01    $        .63
============    ============

Weighted average limited partnership
units and equivalent partnership
units outstanding                                 55,567,794      53,590,808
============    ============

See notes to consolidated financial statements

4

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' EQUITY
AND OTHER COMPREHENSIVE INCOME
Six Months Ended June 30, 1999
(unaudited)
(In $000's)

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

Balance
Dec. 31, 1998                        $  17,919        $ 802,856        $  79,645       $ (11,921)       $ 888,499

Comprehensive income:
Net earnings                          1,139           56,083               --              --           57,222

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

Unrealized losses on
securities available
for sale                                (40)          (1,993)              --              --           (2,033)
---------        ---------        ---------       ---------        ---------
Comprehensive income                       779           38,352               --              --           39,131

Pay-in-kind
distribution                                --           (1,967)           1,967              --               --
---------        ---------        ---------       ---------        ---------

Balance
June 30, 1999                        $  18,698        $ 839,241        $  81,612       $ (11,921)       $ 927,630
=========        =========        =========       =========        =========

Accumulated other comprehensive loss at June 30, 1999 was $8,818.

See notes to consolidated financial statements

5

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In $000's)

Six Months Ended June 30,
-------------------------
1999         1998
----         ----

CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings                                                $  57,222    $  34,477
Adjustments to reconcile earnings to net
cash provided by operating activities:
Depreciation and amortization                               2,837        2,408
Gain on sales and disposition of real estate               (3,622)      (7,077)
Gain on sale of marketable equity securities              (28,590)          --
Equity in earnings of Stratosphere Corporation             (1,246)          --
Provision for loss on real estate                             227          602
Changes in:
Decrease in deferred income                                  (2)          (2)
Decrease (increase) in receivables
and other assets                                       3,042       (1,868)
Increase (decrease) in accounts payable,
accrued expenses and other liabilities                 2,045       (1,294)
---------    ---------
Net cash provided by operating activities             31,913       27,246
---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in mortgages and notes receivable           1,477      (28,960)
Net proceeds from the sale and disposition
of real estate                                                6,841       22,164
Principal payments received on leases
accounted for under the financing method                      3,976        3,938
Construction in progress                                         (499)        (302)
Principal receipts on mortgages receivable                        166          324
Capitalized expenditures for real estate                       (1,733)        (458)
Investment in treasury bills                                  (53,843)     (50,847)
Decrease (increase) in investment in limited partnerships       1,113      (21,015)
Disposition of marketable equity securities                   203,917           --
Increase in due to affiliate                                    2,029           --
Property acquisitions                                          (1,923)         (57)
---------    ---------
Net cash provided by (used in) investing
activities                                          161,521      (75,213)
---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Partners' equity:
Distributions to partners                                        --          (94)
Debt:
Increase in mortgages payable                                 6,300       19,750
Increase in notes payable                                        --       15,235
Periodic principal payments                                  (4,535)      (4,486)
Balloon payments                                                 --       (1,369)
Debt placement costs                                           (175)        (609)
Senior Debt principal payment                                    --      (11,308)
---------    ---------
Net cash provided by financing activities              1,590       17,119
---------    ---------

NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS                                        195,024      (30,848)

CASH AND CASH EQUIVALENTS, beginning of period                       16,462       29,147
---------    ---------
CASH AND CASH EQUIVALENTS, end of period                          $ 211,486    $  98,299
=========    =========

Continued................

6

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In $000's)

Six Months Ended June 30,
-------------------------
1999         1998
----         ----
SUPPLEMENTAL INFORMATION:
Cash payments for interest                            $ 9,828      $ 6,127
=======      =======

SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:

Reclassifications:
To property held for sale                          $   352      $   971
From financing lease                                  (136)          --
From operating lease                                  (216)        (971)
From receivables and other assets                   (2,169)          --
To hotel and resort operating properties               180           --
To due to affiliate                                  3,221           --
From accounts payable, accrued expenses
and other liabilities                             (1,232)          --
From hotel and resort operating property              (763)          --
To development property                                763           --
-------      -------

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

See notes to consolidated financial statements

7

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. General

The accompanying consolidated financial statements and related footnotes should
be read in conjunction with the consolidated financial statements and related
footnotes contained in the Company's annual report on Form 10-K for the year
ended December 31, 1998.

The results of operations for the three and six months ended June 30, 1999 are
not necessarily indicative of the results to be expected for the full year.

2. Conflicts of Interest and Transactions with Related Parties

a. The Company entered into a license agreement with an affiliate of the General
Partner for a portion of office space at an annual rental of approximately
$205,000, plus its share of certain additional rent. Such agreement was approved
by the Audit Committee of the Board of Directors of the General Partner ("the
Audit Committee"). For the three and six months ended June 30, 1999, the Company
paid rent of approximately $52,000 and $104,000, respectively, in accordance
with the agreement.

b. The Company entered into 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. During the three and six months ended June 30, 1999, the affiliates
paid the Company approximately $15,000 and $30,000, respectively, for rent of
the sublet space. Such payments have been approved by the Audit Committee.

c. As of June 30, 1999, affiliates of Carl C. Icahn, the Chairman of the Board
of the General Partner, own 6,974,167 Preferred Units and 38,083,209 Depositary
Units.

d. In the three and six months ended June 30, 1999, the Company reimbursed
Bayswater Realty & Capital Corp., an affiliate of the General Partner,
approximately $209,000 and $312,000 respectively, for development and
construction management services and related expenses. Such reimbursements have
been approved by the Audit Committee.

3. Commitments and Contingencies

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

8

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

annual rental for this property is 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
June 30, 1999, the property has a carrying value of approximately $1,756,000 and
is unencumbered by any mortgage.

4. Hotel and Resort Operating Properties

Since August 1992, the Company has operated a Holiday Inn located in Miami,
Florida, subject to a ground lease. In April 1999, the Company acquired the
underlying land for approximately $1.9 million.

On August 1, 1998, the Company acquired the New Seabury resort located in Cape
Cod, Massachusetts.

Hotel and resort operations for the three and six months ended June 30, 1999
have been included in "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 $1,733,000 and $1,484,000 for the three and six
months ended June 30, 1999, respectively. Hotel and resort operating expenses
include all expenses except for approximately $333,000 and $666,000 of
depreciation and amortization for the three and six months ended June 30, 1999,
respectively.

Hotel and resort operations are highly seasonal in nature and are not
necessarily indicative of subsequent quarterly results.

5. Mortgages and Notes Receivable

a. 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 $18.7 million of First Mortgage Notes ("Notes") issued by GB Property Funding
Corp. ("GB Property"). GB Property was organized as a special purpose entity for
the borrowing of funds by Greate Bay Hotel and Casino, Inc. ("Greate Bay"). The
purchase price for such notes was approximately $15.1 million. An affiliate of
the General Partner also has an investment in Notes of GB Property. $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.

9

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

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 June 30, 1999 unrealized holding losses of $2,443,000 have
been recorded in Partners' Equity. At June 30, the carrying value was
$12,682,000.

b. In 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. $85 million of such notes were issued,
which bear interest at 11.75% payable semi-annually and are due February 1,
2002. In March 1999, the Company received the previously postponed semi-annual
interest payment due February 1, 1999. In July 1999, the Claridge Corporation
announced that it does not expect to pay the interest due August 1, 1999 and
that it expects to file 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 located in Atlantic City, New Jersey.

The Company has classified the Claridge Corporation Notes as available for sale
for accounting purposes. This investment is carried at fair market value on the
Balance Sheet. At June 30, 1999 unrealized holding losses of $6,375,000 have
been recorded in Partners' Equity. At June 30, 1999, the carrying value was
$7,725,000.

c. In 1998, the Company purchased approximately $76.1 million of senior debt of
Philip Services Corp. and Philip Services (Delaware), Inc. (collectively,
"Philips") for approximately $35.2 million. In 1999, the Company purchased an
additional $9.4 million of Philips debt for approximately $4.4 million. In
addition, the Company received a repayment from asset sales of approximately
$5.6 million.

In addition, an affiliate of Mr. Icahn purchased approximately $200 million of
senior debt of Philips and also owns common shares 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 process by year
end.

The Company has classified the Philips debt as held for investment. At June 30,
1999, the carrying value totalled approximately $34.1 million.

10

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

6. Equity Interest in Stratosphere Corporation

The Stratosphere Corporation ("Stratosphere") owns and operates the Stratosphere
Tower Casino & Hotel, a destination resort complex located in Las Vegas, Nevada.

In October 1998, an affiliate of the General Partner obtained its licenses from
the Nevada Gaming Authority and in accordance with a prior agreement paid the
Company approximately $60.7 million for its Stratosphere interest. However, the
affiliate of the General Partner is obligated to sell back to the Company and
the Company is 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.

For accounting purposes the Company reflects its interest in Stratosphere under
the equity method and has recorded its corresponding liability to repurchase
from the affiliate of the General Partner when the appropriate licenses are
obtained by the Company.

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. For the three and six months ended June 30, 1999, approximately
$79,000 and $158,000 of accretion and $60,000 and $1,088,000 of income have been
included in "Equity in earnings of Stratosphere Corporation", respectively.

At June 30, 1999, the Company has an equity interest of approximately
$50,208,000 and a corresponding liability of approximately $62,779,000 to
reflect the Company's obligation to repurchase its Stratosphere interest. This
liability includes approximately $2,787,000 of interest expense due to the
affiliate of the General Partner for the six months ended June 30, 1999.

Condensed financial information for this investment at June 30, 1999 and for the
three and six months then ended is shown below (in $000's).

Total    
-----    
Current assets                      $ 31,096   
Noncurrent assets                    127,560   
Current liabilities                   22,405   
Noncurrent liabilities                 7,116   
Net equity                           129,135   
The Company's share                   62,677

Three months ended 6/30/99:
Revenues                            $ 29,771   
Costs and other deductions            29,649   
Net income                               122   
The Company's share                       60

11

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

Six months ended 6/30/99:
Revenues                            $ 63,686    
Costs and other deductions            61,445    
Net income                             2,241    
The Company's share                    1,088

7. Marketable Equity Securities

The Company owned 6,448,200 common shares of RJR Nabisco Holdings Corp. ("RJR")
purchased for approximately $175.3 million. 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 had classified RJR as available for sale for accounting purposes.
This investment was carried at fair market value on the Balance Sheet with
unrealized holding gains and losses reflected in Partners' Equity. Unrealized
holding gains and losses were not included in the Consolidated Statements of
Earnings. Unrealized holding gains of $16,058,000 had previously been recorded
in Partners' Equity.

The Company recorded dividend income of approximately $3.3 and $6.6 million in
the three and six months ended June 30, 1999, respectively.

8. Property Held For Sale

At June 30, 1999, the Company owned eleven properties that were being actively
marketed for sale. At June 30, 1999, these properties have been stated at the
lower of their carrying value or net realizable value. The aggregate value of
these properties at June 30, 1999 is estimated to be approximately $4,221,000.

9. Significant Property Transactions

In February 1999, the Company sold two properties located in Augusta, GA and
Richmond, VA, 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 $1,609,000 in the
six months ended June 30, 1999.

10. Mortgages Payable

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

12

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

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.

11. 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 interests in the various Predecessor
Partnerships for limited partnership units of American Real Estate Partners,
L.P.

12. Preferred Units

Pursuant to the terms of the Preferred Units, on February 23, 1999, the Company
declared its scheduled annual preferred unit distribution payable in additional
Preferred Units at the rate of 5% of the liquidation preference of $10. The
distribution was payable March 31, 1999 to holders of record as of March 15,
1999. A total of 383,830 additional Preferred Units were issued. As of June 30,
1999, 8,060,437 Preferred Units are issued and outstanding.

13. Earnings Per Share

For the three and six months ended June 30, 1999 and 1998, basic and diluted
earnings per weighted average limited partnership unit are detailed as follows:

Three Months Ended       Six Months Ended
------------------       ----------------
6/30/99   6/30/98       6/30/99    6/30/98
-------   -------       -------    -------

Basic:
Earnings before property
and securities transactions
and equity interest in affiliate          $  .25      $  .28      $  .47      $  .55
Net gain from property
and securities transactions
and equity in earnings of
Stratosphere Corporation                     .63         .05         .70         .14
------      ------      ------      ------
Net earnings                                  $  .88      $  .33      $ 1.17      $  .69
======      ======      ======      ======
Diluted:
Earnings before property and securities
transactions and equity interest
in affiliate                              $  .22      $  .26      $  .42      $  .51
Net gain from property

13

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

and securities transactions
and equity in earnings
of Stratosphere Corporation                  .52         .04         .59         .12
------      ------      ------      ------
Net earnings                                .$74      $  .30      $ 1.01      $  .63
======      ======      ======      ======

14. 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 three months ended June 30, 1999 and 1998 is as
follows (in $000's):

1999           1998
--------       --------

Net income                                   $ 42,412       $ 16,477
Realized gains previously
reported in partner's equity                (16,058)            --
Unrealized gains on securities
available for sale                            (383)            --
--------       --------

Comprehensive income                         $ 25,971       $ 16,477
========       ========

Comprehensive income for the six months ended June 30, 1999 and 1998 are
as follows (in $000's):
1999          1998
--------      --------

Net income                                    $ 57,222      $ 34,477
Realized gains previously
reported in partner's equity                 (16,058)           --
Unrealized losses on securities
available for sale                             2,033            --
--------      --------
Comprehensive income                          $ 39,131      $ 34,477
========      ========

15. Segment 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

14

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

securities. The Company's reportable segments offer different services and
require different operating strategies and management expertise.

Non-segment revenue to reconcile to total revenue consists primarily of interest
income on treasury bills and other investments. There have been no material
changes in segment and non-segment assets since December 31, 1998.

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 and net earnings for each of the reportable segments are summarized
as follows for the three and six months ended June 30, 1999 and 1998 (in
$000's).

Three Months Ended
------------------
6/30/99         6/30/98
-------         -------

Revenues:
Rental real estate                               $ 10,723       $ 10,386
Hotel & resort operating properties                 5,332            928
Other investments                                   3,742          2,161
--------       --------

Sub-total                                  19,797         13,475

Reconciling items                                       4,634(1)       7,844(1)
--------       --------

Total revenues                           $ 24,431       $ 21,319
========       ========

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

Three Months Ended
------------------
Net earnings:                                        6/30/99         6/30/98
-------         -------

Segment earnings:
Rental real estate                               $  9,929       $  9,737
Hotel and resort operating properties               1,733             54
Other investments                                   3,742          2,161
--------       --------

Total segment earnings                    15,404         11,952

15

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

Interest income                                         4,634          7,563
Interest expense                                       (4,795)        (3,848)
Other income                                               --            281
General and administrative expenses                    (1,162)          (762)
Depreciation and amortization                          (1,357)        (1,086)
--------       --------
Earnings before property and securities
transactions and equity interest  in affiliate     12,724         14,100
Gain on sale of marketable
equity securities                                  28,590             --
Gain on property transactions
and equity in earnings of
Stratosphere Corporation                            1,098          2,377
General partner's share                                  (844)          (328)
--------       --------

Net earnings-limited partner unitholders             $ 41,568       $ 16,149
========       ========

Six Months Ended
----------------
6/30/99         6/30/98
-------         -------

Revenues:
Rental real estate                                   $ 21,510       $ 21,425
Hotel & resort operating properties                     7,798          2,170
Other investments                                       8,279          4,938
--------       --------

Sub-total                                 37,587         28,533

Reconciling items                                       8,956(1)      14,142(1)
--------       --------

Total revenues                          $ 46,543       $ 42,675
========       ========

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

Six Months Ended
----------------
Net earnings:                                        6/30/99         6/30/98
-------         -------

Segment earnings:
Rental real estate                               $ 19,988       $ 19,860
Hotel and resort operating properties               1,484            304
Other investments                                   8,279          4,938
--------       --------

16

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

Total segment earnings                         29,751         25,102
Interest income                                         8,956         13,763
Interest expense                                       (9,804)        (7,184)
Other income                                               --            379
General and administrative expenses                    (2,115)        (1,650)
Depreciation and amortization                          (2,837)        (2.408)
--------       --------
Earnings before property and securities
transactions and equity interest  in affiliate   23,951         28,002
Gain on sale of marketable
equity securities                                28,590             --
Gain on property transactions
and equity in earnings of
Stratosphere Corporation                            4,681          6,475
General partner's share                                (1,139)          (686)
--------       --------
Net earnings-limited partner unitholders             $ 56,083       $ 33,791
========       ========

16. Subsequent Events

a. On July 1, 1999, the Company sold a property located in Burbank, California
to its tenant, Lockheed Missile and Space Company, Inc. for a selling price of
approximately $9,800,000. A gain of approximately $3.4 million will be recorded
in the third quarter of 1999.

b. In July 1999, the Company purchased an office and industrial facility located
in Madison, Wisconsin. The property is net leased to Rayovac Corporation. The
purchase price was $22,000,000 cash. 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.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

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

17

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

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

The Company believes that it will benefit from the acquisition of assets
undervalued in the market and diversification of its portfolio
of assets. To further its investment objectives, the Company 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. From time to
time the Company has discussed and in the future may discuss and may make such
acquisitions from Mr. Icahn, the General Partner or their affiliates, provided
the terms thereof are fair and reasonable to the Company. Additionally, in
selecting future real estate investments, the Company 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, the Company believes
that there are still opportunities available to acquire investments that are
undervalued. These may include commercial properties, residential and commercial
development projects, land, 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. The Company 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 more 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 the Company.
As such, they require the Company to maintain a strong capital base in order to
react quickly to these market opportunities as well as to allow the Company 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 the Company will increase in value or generate positive cash flow, the
Company intends to focus on assets that it believes may provide opportunities
for long-term growth and further its objective to diversify its portfolio.
Furthermore, it should be noted that recent financial market conditions have
resulted in reductions in available credit on satisfactory terms to finance real
estate related investments.

18

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

Historically, substantially all of the Company'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 the Company 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 25.5% of the
Company's net annual rentals from its portfolio will be due for renewal, and by
the end of the year 2004, net leases representing approximately 36.5% of the
Company's net annual rentals will be due for renewal. Since most of the
Company'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 the Company may be required to incur
expenditures to renovate such properties for new tenants. In addition, the
Company 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, the Company could experience an adverse impact on net
cash flow in the future from such properties.

An amendment to the Partnership Agreement (the "Amendment" ) became effective in
August, 1996 which 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 while remaining in the
real estate business and continuing to pursue suitable investments for the
Company in the real estate market.  An example of these investments is the
Company's recent investment in RJR referred to elsewhere herein.  As with real
estate related investments, among these types of investments that the Company
will consider are opportunistic investments undervalued in the market, in 
companies that, for example, may be undergoing restructuring and may require
significant capital expenditures.

In September 1997, the Company completed its Rights Offering (the "1997
Offering") to holders of its Depositary Units 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. 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 the Company.
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 the Company will not be deemed to be a
responsible party or that the tenant will bear the costs of remediation. Also,
as the Company acquires more operating properties, its exposure to environmental
clean-up costs may increase. The Company 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.

19

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

The Company has notified each of the responsible tenants to attempt to ensure
that they cause any required investigation and/or remediation to be performed.
If such tenants do not arrange for further investigations, or remediations, if
required, the Company may determine to undertake the same at its own cost. 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
the Company'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, the Company has notified all tenants of the
Resource Conservation and Recovery Act's ("RCRA") December 22, 1998 requirements
for regulated underground storage tanks. The Company 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 the Company may deem necessary and appropriate.
The Company 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 sixty-five updates are expected to be
completed in 1999 with another forty-five scheduled for the year 2000.

The Company is investigating the potential impact of the year 2000 in the
processing of date-sensitive information by the Company's computerized
information systems. The year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the applicable year.
Any of the Company's programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, which could result
in miscalculations or system failures. The Company believes it has identified
and is addressing the year 2000 operating issues under its control. Based on
current information, costs of addressing and solving potential problems have not
had and are not expected to have a material adverse impact on the Company's
financial position, results of operations or cash flows in future periods. It
should be noted that most of the Company's real estate assets have been net
leased to single corporate tenants who, with certain exceptions, are required to
pay all expenses and building maintenance related to the leased property,
including any property related expenses from year 2000 problems. However, the
likelihood and effects of year 2000 failures on tenants, infrastructure systems
and suppliers and vendors of the Company cannot be estimated. Failures of third
parties such as banks and significant tenants to comply with year 2000 problems
could have an adverse impact on the Company's business, including the inability
to receive or process payments from tenants for significant periods of time. If
the Company, its tenants or vendors are unable to resolve such processing issues
in a timely manner, it could result in material financial risk. Accordingly, the
Company will devote the necessary resources to resolve all

20

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

significant year 2000 issues in a timely manner, but believes that these issues
will not be material to the Company's business aside from a catastrophic
third-party failure that would affect most businesses.

Results of Operations

Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998

Gross revenues increased by $3,112,000, or 14.6%, during the three months ended
June 30, 1999 as compared to the same period in 1998. This increase reflects
increases of $4,404,000 in hotel and resort operating income, $1,772,000 in
dividend income and $772,000 in rental income partially offset by decreases of
$3,120,000 in interest income on treasury bills and other investments, $435,000
in financing lease income and $281,000 in other income. The increase in hotel
and resort operating income is primarily attributable to the acquisition of New
Seabury which began operations August 1, 1998. The increase in dividend income
is primarily attributable to the Company's investment in RJR common stock. The
increase in rental income is primarily due to property acquisitions. The
decrease in interest income on treasury bills and other investments is primarily
due to a decrease in short-term investments.

Expenses increased by $4,488,000, or 62.2%, during the three months ended June
30, 1999 compared to the same period in 1998. This increase reflects increases
of $2,725,000 in hotel and resort operating expenses, $947,000 in interest
expense, $400,000 in general and administrative expenses, $271,000 in
depreciation and amortization and $145,000 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 due 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 three months ended June 30, 1999 by $1,376,000 as
compared to the same period in 1998, primarily due to decreased interest income
on treasury bills and other investments and financing lease income and increased
interest expense partially offset by increases in net hotel and resort
operations and dividend income.

Gain on property transactions decreased by $1,568,000 during the three months
ended June 30, 1999 as compared to the same period in 1998, due to differences
in the size and number of transactions.

During the three months ended June 30, 1999, the Company did not record a
provision for loss on real estate as compared to $150,000 in the same period in
1998.

In the three months ended June 30, 1999, the Company recorded $139,000 of income
related to its equity in earnings of Stratosphere Corporation. There was no such
income in 1998.

21

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

In the three months ended June 30, 1999, the Company recorded a non-recurring
gain on sale of marketable equity securities of $28,590,000 related to the sale
of its RJR common stock. There was no such income in 1998.

Net earnings for the three months ended June 30, 1999 increased by $25,935,000
as compared to the three months ended June 30, 1998 primarily due to the
non-recurring gain on sale of the Company's RJR common stock partially offset by
decreased earnings before property and securities transactions and equity
interest in affiliate as mentioned above and decreased gain on property
transactions.

Diluted earnings per weighted average limited partnership unit outstanding
before property and securities transactions and equity interest in affiliate
were $.22 in the three months ended June 30, 1999 compared to $.26 in the
comparable period of 1998, and net gain from property and securities
transactions and equity in earnings of affiliate was $.52 in the three months
ended June 30, 1999 compared to $.04 in the comparable period of 1998. Diluted
net earnings per weighted average limited partnership unit outstanding totalled
$.74 in the three months ended June 30, 1999 compared to $.30 in the comparable
period of 1998.

Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998 

Gross revenues increased by $3,868,000, or 9.1%, during the six months ended
June 30, 1999 as compared to the same period in 1998. This increase reflects
increases of $5,628,000 in hotel and resort operating income, $3,102,000 in
dividend income and $990,000 in rental income partially offset by decreases of
$4,568,000 in interest income on treasury bills and other investments, $905,000
in financing lease income and $379,000 in other income. The increase in hotel
and resort operating income is primarily attributable to the acquisition of New
Seabury which began operations August 1, 1998. The increase in dividend income
is primarily attributable to the Company's investment in RJR common stock. The
increase in rental income is primarily due to property acquisitions. The
decrease in interest income on treasury bills and other investments is primarily
due to a decrease in short-term investments.

Expenses increased by $7,919,000, or 54.0%, during the six months ended June 30,
1999 compared to the same period in 1998. This increase reflects increases of
$4,448,000 in hotel and resort operating expenses, $2,620,000 in interest
expense, $429,000 in depreciation and amortization and $465,000 in general and
administrative expenses partially offset by a decrease of $43,000 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 due 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 six months ended June 30, 1999 by $4,051,000 as
compared to the same period in 1998, primarily due to

22

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

decreased interest income on treasury bills and other investments and financing
lease income and increased interest expense partially offset by increases in net
hotel and resort operations and dividend income.

Gain on property transactions decreased by $3,415,000 during the six months
ended June 30, 1999 as compared to the same period in 1998, due to differences
in the size and number of transactions.

During the six months ended June 30, 1999, the Company recorded a provision for
loss on real estate of $227,000 as compared to $602,000 in the same period in
1998.

In the six months ended June 30, 1999, the Company recorded $1,246,000 of income
related to its equity in earnings of Stratosphere Corporation. There was no such
income in 1998.

In the six months ended June 30, 1999, the Company recorded a non-recurring gain
on sale of marketable equity securities of $28,590,000 related to the sale of
its RJR common stock. There was no such income in 1998.

Net earnings for the six months ended June 30, 1999 increased by $22,745,000 as
compared to the six months ended June 30, 1998 primarily due to the
non-recurring gain on the sale of the Company's RJR common stock partially
offset by decreased earnings before property and securities transactions and
decreased gain on property transactions.

Diluted earnings per weighted average limited partnership unit outstanding
before property and securities transactions and equity interest in affiliate
were $.42 in the six months ended June 30, 1999 compared to $.51 in the
comparable period of 1998, and net gain from property and securities
transactions and equity in earnings of affiliate was $.59 in the six months
ended June 30, 1999 compared to $.12 in the comparable period of 1998. Diluted
net earnings per weighted average limited partnership unit outstanding totalled
$.1.01 in the six months ended June 30, 1999 compared to $.63 in the comparable
period of 1998.

Capital Resources and Liquidity

Generally, the cash needs of the Company for day-to-day operations have been
satisfied from cash flow generated from current operations. In recent years, the
Company has applied a significant portion of its operating 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.

23

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

In 1999, 23 leases covering 23 properties and representing approximately
$1,785,000 in annual rentals are scheduled to expire. Seven of these leases
originally representing approximately $958,000 in annual rental income have been
or will be re-let or renewed for approximately $963,000 in annual rentals. Such
renewals are generally for a term of five years. Eleven properties, with an
approximate annual rental income of $552,000, will be marketed for sale or lease
when the current lease term expires. Four properties with annual rental income
of $255,000 have been purchased by their tenants pursuant to the exercise of
purchase options. The status of one property with an approximate annual rental
income of $20,000 is uncertain at this time.

The Board of Directors of the General Partner announced that no distributions on
its Depositary Units are expected to be made in 1999. The Company believes that
it should continue to hold and invest rather than distribute cash. In making its
announcement, the Company 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.

During the six months ended June 30, 1999, the Company generated approximately
$20.8 million in cash flow from day-to-day operations which excludes
approximately $4.1 million in interest earned on the 1997 Offering proceeds
which is being retained for future acquisitions.

Capital expenditures for real estate were approximately $1.7 million during the
six months ended June 30, 1999.

In 1999, the Company has approximately $5.4 million of maturing debt
obligations. The Company may seek to refinance a portion of these maturing
mortgages, although it does not expect to refinance all of them, and may repay
them from cash flow and increase reserves from time to time, thereby reducing
cash flow otherwise available for other uses.

During the six months ended June 30, 1999, net cash flow after payment of
maturing debt obligations and capital expenditures was approximately $19.1
million which was added to the Company's operating cash reserves. The Company's
operating cash reserves are approximately $92.4 million at June 30, 1999 (not
including the cash from capital transactions or from the 1997 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 the Company. The Company from time to time may increase its cash reserves
to meet its maturing debt obligations, tenant requirements and other capital
expenditures and to provide for scheduled lease expirations and other
contingencies including environmental matters.

24

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

Sales proceeds from the sale or disposal of portfolio properties totalled
approximately $6.8 million in the six months ended June 30, 1999. The Company
intends to use asset sales, financing and refinancing proceeds for new
investments.

In 1998 and 1999, the Company invested approximately $175.3 million in the
common stock of RJR. In June 1999, the Company 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 the Company will be
able to realize any such investment gains in the future.

The Company's investment in Stratosphere was transferred to an affiliate of
Icahn in order to facilitate Stratosphere's reorganization. Pursuant to a prior
agreement, the Company received $60.7 million for its interest from an affiliate
of Icahn. The Company expects that it will obtain the appropriate licenses and
repurchase such Stratosphere interest upon such approval, together with 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 Stratosphere interests while held by the affiliate of Icahn. Also, the
Company understands that Stratosphere may seek approximately $80 million for
expansion of its hotel and casino facility, a substantial portion of which may
be provided by the Company.

The Company is investigating possible tender offers for real estate operating
companies and real estate limited partnership units.

The Company's cash and cash equivalents and investment in treasury bills
increased by approximately $248.9 million during the first six months of 1999,
primarily due to the sale of RJR stock ($203.9 million), property sales ($6.8
million), net cash flow from operations ($19.1 million ), mortgage loan proceeds
($6.3 million), interest earned on the 1997 Rights Offering ($4.1 million) and
other miscellaneous items ($8.7 million).

To further its investment objectives, the Company 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. 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 Offering, which closed in September 1997, the Company
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 diversity its portfolio.

25

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

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, the Company is
exposed to market, credit and related risks, including those described elsewhere
herein. As the Company 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 the
Company'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 the Company include lease terminations,
whether scheduled terminations or due to tenant defaults or bankruptcies,
development risks, and environmental and capital expenditure matters, as
described elsewhere herein.

Whenever practical, the Company employs internal strategies to mitigate exposure
to these and other risks. The Company, on a case by case basis with respect to
new investments, performs internal analyses of risk identification, assessment
and control. The Company reviews credit exposures, and seeks to mitigate counter
party 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. The Company seeks to achieve
adequate returns commensurate with the risk it assumes. The Company utilizes
qualitative as well as quantitative information in managing risk.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

Response to this item is included in Item 2. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" above.

Part II. Other information

Item 6. Exhibits and Reports on Form 8-K

(a)   Financial Data Schedule is attached hereto as Exhibit EX-27

26

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

EXHIBIT INDEX

Exhibit               Description
-------               -----------
EX-27                 Financial Data Schedule

27

American Real Estate Partners, L.P.-Form 10-Q - June 30, 1999

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

American Real Estate Partners, L.P.

By: American Property Investors, Inc.
General Partner

/s/ John P. Saldarelli
--------------------------------------
John P. Saldarelli
Treasurer
(Principal Financial Officer
and Principal Accounting Officer)

Date:   August 13, 1999

28

<ARTICLE> 5
<CIK> 0000813762
<NAME> AMERICAN REAL SSTATE PARTNERS, L.P.
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