1

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
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, 2000
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
--------------
(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 5, 2001, 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 $64,078,599.

Based upon the closing price of Preferred Units on March 2, 2001, 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 $8,497,366.

Number of Depositary Units outstanding as of March 5, 2001: 46,098,284
Number of Preferred Units outstanding as of March 5, 2001:  8,463,459

2

PART I

Item 1.     Business.

Introduction

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

AREP's general partner is American Property Investors, Inc. (the "General
Partner"), a Delaware corporation, which is 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 5, 2001, affiliates of Icahn owned 39,409,836 units representing limited
partner interests (the "Depositary Units"), representing approximately 85.5% of
the outstanding Depositary Units, and 7,322,873 cumulative pay in kind
redeemable preferred units representing limited partner interests (the
"Preferred Units"), representing approximately 86.5% of the outstanding
Preferred Units. See Item 12 - "Security Ownership of Certain Beneficial Owners
and Management."

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

General Description of Business

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

AREP is primarily engaged in the business of acquiring and managing real
estate and activities related thereto. Such acquisitions may be accomplished by
purchasing assets outright or by acquiring securities of entities which hold
significant real estate related assets. Historically, the properties owned by
AREP have been primarily office, retail, industrial, residential and hotel
properties. 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 March 5, 2001, AREP owned 158 separate real
estate assets primarily consisting of fee and leasehold interests in 31 states.
For additional information, see Item 2 - "Properties."

For each of the years ended December 31, 2000, 1999, and 1998, 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, 2000, 1999
and 1998, Portland General Electric Company ("PGEC") occupied a property (the
"PGEC Property") which represented more than 10% of the carrying value of AREP's
total real estate assets. See Item 2 -- "Properties."

I-1

3

AREP believes that it will benefit from the diversification of its
portfolio of assets. By the end of the year 2003, net leases representing
approximately 14% of AREP's net annual rentals from its real estate portfolio
will be due for renewal, and by the end of the year 2005, net leases
representing approximately 32% 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 from such properties in the future.

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

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. In March, 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
in New York and Florida (two of which have subsequently been sold).

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

As described below, AREP intends to purchase all of the remaining
interests in the Stratosphere Tower, Casino and Hotel in Las Vegas, Nevada
("Stratosphere") that it does not currently own, including the interests owned
by affiliates of Icahn, for approximately $44.3 million. In that regard,
Stratosphere's Board of Directors approved the transaction and AREP expects to
complete the transaction in the third quarter of 2001. AREP is currently
providing construction and related financing to Stratosphere, which is in the
process of expanding and improving its hotel and casino and related amenities,
under a short-term financing arrangement that provides for up to $100 million in
advances. Such advances are currently evidenced by demand notes which, as
described below, are to be converted to short-term secured loans under two
secured credit facilities.

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 

I-2

4

sale. Certain of AREP's investments may be owned by special purpose subsidiaries
formed by AREP or by joint ventures (including joint ventures with affiliates of
the General Partner).

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

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

Partnership Distributions

On April 2, 2001, AREP announced that no distributions on its Depositary
Units are expected to be made in 2001. No distributions were made in 2000, 1999
or 1998. 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 the
creation of cash reserves for contingencies facing AREP, including environmental
matters and scheduled lease expirations. By the end of the year 2003, net leases
representing approximately 14% of AREP's net annual rentals from its portfolio
will be due for renewal, and by the end of the year 2005, 32% 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 30% of AREP's net
annual rentals from its portfolio), some of which are experiencing cash flow
difficulties and restructuring. Further, AREP noted that the types of
investments AREP is pursuing, including assets that may not be readily
financeable and may not generate immediate 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, 2000, AREP distributed to holders of record of its Preferred
Units as of March 15, 2000 403,022 additional Preferred Units. Pursuant to the
terms of the Preferred Units, on February 23, 2001, AREP declared its scheduled
annual preferred unit distribution payable in additional Preferred Units at the
rate of 5% of the liquidation preference of $10.00. The distribution is payable
April 2, 2001 to holders of record as of March 15, 2001.

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

I-3

5

Real Estate Investments

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

As mentioned previously, in March 2000, AREP acquired Bayswater from Icahn
for approximately $84.35 million. Bayswater, a real estate investment,
management and development company, focuses primarily on the construction and
sale of single-family homes, multi-family homes and residential lots in
subdivisions and in planned communities. Bayswater is being operated as a
subsidiary of AREP. Bayswater is currently developing ten residential
subdivisions in New York and Florida. In New York, Bayswater has four
residential subdivisions under development with approximately 80 units remaining
to be constructed and sold. Bayswater also has two subdivisions in New York that
are in the approval process, one for 50 townhouse units and the other for 35
single family homes. In Naples, Florida, Bayswater owns three properties
comprising land zoned for 417 residential condominium units. Bayswater also owns
a golf course community in San Antonio, Florida which includes a 27-hole golf
course, approximately seven acres of commercially zoned land and land that is
zoned for 999 residential lots. These lots are subject to a purchase agreement
with a local builder who also has an interest in the golf course. AREP's land,
home and condominium sales accounted for more than 10% of AREP's gross revenues
in 2000.

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

I-4

6
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, with Bayswater personnel, the
approval and development of its residential site in New Seabury, Massachusetts.
The New Seabury site is comprised of two golf courses, other recreational
facilities, condominium and time share units and land for future residential
development. In 2000, AREP paid approximately $5.7 million for golf course and
clubhouse improvements at the New Seabury site and anticipates that it will
require the expenditure by AREP of approximately an additional $10 million
during 2001. 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.

In addition, AREP has made investments in assets related to the gaming
industry and will consider additional investment opportunities in the gaming
industry and investments in the entertainment industry. See Item 1 - Recent
Acquisitions - Investment in Mortgages and Notes Receivable for a discussion of
AREP's investments in the Sands Hotel and Casino (the "Sands") and the Claridge
Hotel and Casino (the "Claridge"). As described previously, AREP, the General
Partner, and the directors and officers of the General Partner 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. Investments in the gaming and entertainment industries 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 completed, supply has
grown more quickly than demand in some areas, and competition has increased.
Likewise, an increase in supply often leads to increases in complimentary and
promotional expenses in the industry. AREP believes that these market conditions
will lead some gaming and entertainment properties to become available for
restructuring or purchase and will create potential investments for
opportunistic buyers such as AREP, and AREP intends to pursue such additional
investments in the gaming and entertainment industries.

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

In March 2000 AREP acquired approximately an additional 2% interest in
Stratosphere from affiliates of the General Partner for approximately $2 million
(giving AREP an aggregate interest in Stratosphere of approximately 51%).
Stratosphere operates, among other things, a hotel with 1,444 rooms and suites,
a 97,000 square foot casino featuring approximately 1,559 slot machines, 45
table games, a race and sports book, a keno lounge, a 160,000 square foot second
level containing a retail 

I-5

7
center of approximately 46 shops and a 650-seat Broadway Showroom, a 120 seat
entertainment lounge and parking for approximately 4,000 cars. Stratosphere
opened for business in April 1996 and restructured under the United States
Bankruptcy Code in 1998. The ownership and operation of Stratosphere are subject
to the Nevada Gaming Control Act and regulations promulgated thereunder, various
local ordinances and regulations, and are subject to the licensing and
regulatory control of the Nevada Gaming Commission, the Nevada State Gaming
Control Board, and various other county and city regulatory agencies, including
the City of Las Vegas. Stratosphere's revenues and expenses primarily consist of
casino, hotel, food and beverage, tower and retail revenues and expenses. 
Stratosphere accounted for more than 10% of AREP's consolidated gross revenues
in 2000.

In September 2000, Stratosphere's Board of Directors approved a going
private transaction proposed by AREP and affiliates of Icahn. Pursuant to the
proposal, AREP would purchase all of the remaining interests in Stratosphere
that it does not currently own from affiliates of Icahn and Stratosphere's
public shareholders for approximately $44.3 million. Under the terms of the
proposal, subject to certain conditions, AREP will pay $44.33 per share to
affiliates of Icahn, and $45.32 per share to shareholders unaffiliated with
Icahn. This transaction is expected to be completed in the third quarter of
2001. In addition, AREP has provided, and expects to continue to provide in the
future, short-term financing to Stratosphere for, among other things, the
construction of approximately an additional 1,000 rooms to the hotel, related
amenities and improvements, and its purchase of the retail operations at
Stratosphere ("Strato-Retail") from affiliates of Simon Properties, which
purchase was completed in the fourth quarter of 2000. Under the terms of such
short-term financing arrangement, AREP has agreed to advance up to $100 million
to Stratosphere. As of March 5, 2001, the aggregate principal amount outstanding
under such financing arrangement was approximately $50 million. Advances under
the arrangement are currently evidenced by unsecured demand notes which bear
interest at a rate of 9.5% per annum. In consideration for, among other things,
a 1% commitment fee, AREP has agreed to convert such notes and its commitment to
make future advances to Stratosphere into two secured credit facilities. Under
one facility, approximately $12.5 million principal amount of such notes, the
amount advanced to fund Stratosphere's purchase of Strato-Retail, will be
converted to a twelve month secured loan bearing interest at 3.5% per annum over
the London Interbank Offered Rate ("LIBOR") with an extension option. Under the
other facility (the "Construction Facility"), the balance of such notes will be
converted to a secured loan bearing interest at 3% per annum over LIBOR and
maturing on March 31, 2002. AREP's commitment to make future advances will be a
part of the Construction Facility. Stratosphere expects the construction to be 
completed later this year.

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 

I-6

8

real estate related investments, with regard to non-real estate related
investments, AREP may determine to establish an ownership position through the
purchase of debt or equity securities of such entities and then negotiate for
the ownership or effective control of some or all of the underlying equity in
such assets.

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

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

Recent Acquisitions

Investment in Mortgages and Notes Receivable

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 made an investment in Notes of GB Property. A total of
$185 million of such Notes were issued. 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.

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
("Claridge 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. An affiliate of the General Partner also made an investment in the Notes
of the Claridge Corporation. In August 1999, the Claridge Corporation announced
that it had filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy
code to facilitate a financial restructuring.

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. 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 interest in Greate Bay or
the Claridge Hotel (subject to the disclosures below), as the case may be, at
the same price (together with a commercially reasonable interest factor), when
the appropriate licenses 

I-7

9

are obtained by AREP, as was done in the case of the 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. Subsequent to the transfer
of interests in connection with AREP's licensing, pursuant to the prior
agreement, the affiliate of the General Partner purchased approximately
$1,709,000 face value of additional Claridge Notes for approximately $942,000 on
AREP's behalf.

Regarding the Sands, subsequent to such transfer of interests, in July
2000, the U.S. Bankruptcy Court ruled in favor of the reorganization plan
proposed by affiliates of Icahn which provides for an additional investment of
$65 million by the Icahn affiliates in exchange for a 46% equity interest, with
bondholders (which also include Icahn affiliates) to receive $110 million in new
notes and a 54% ownership position. The plan, which became effective September
29, 2000, provides the Icahn affiliates with a controlling interest. Regarding
the Claridge, in February 2001, GB Holdings, Inc. ("GB Holdings"), the parent
company of the Sands, announced that it would not pursue the purchase of the
Claridge. Also in February 2001, the Icahn affiliates sold their entire Claridge
portfolio (including AREP's interests therein), $37.1 million face amount of
Claridge Notes, for the following additional interests in the Sands: (i) 779,861
common shares of GB Holdings and (ii) $15.96 million face amount of GB Property
First Mortgage Notes, plus $21.56 million in cash. As a result, affiliates of
the General Partner are, in effect, holding on behalf of AREP (x) approximately
3.6 million common shares of GB Holdings (representing approximately 36% of the
common shares outstanding) and (y) $26.9 million face amount of GB Property
First Mortgage Notes, to which AREP will become entitled and obligated to
purchase for approximately $70 million when it is fully licensed. AREP no longer
has any interests in the Claridge.

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 addition, an
affiliate of Icahn purchased approximately $275 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. On April 7, 2000, Phillips Services
Corporation ("PSC"), the newly restructured company incorporated in Delaware,
emerged from Chapter 11 of the U.S. Bankruptcy Code and the Companies Creditors'
Arrangement Act in Canada. As a result of the reorganization, AREP received
approximately 1.8 million common shares of PSC, approximately $15.9 million in
secured term debt, $8.3 million in secured convertible payment-in-kind debt and
approximately $5.1 million in cash.

On November 30, 2000, AREP entered into a mezzanine loan agreement to fund
$23 million in two tranches to Beekman Mezzanine LLC. The funds are to be used
for certain initial development costs associated with a 65 unit condominium
property located in New York City. The first tranche of $10 million was funded
on November 30, 2000 and provides for interest accruing at a rate of 25% per
annum, with principal and interest due at maturity, May 29, 2003. On November
30, 2000, approximately $3.7 million of the second tranche of the loan was
funded. The balance of approximately $9.3 million is expected to be funded in
installments during 2001. The second tranche provides for interest accruing at a
rate of 21.5% per annum with principal and interest due at maturity, November
29, 2002. The loans may be prepaid at any time from the proceeds of unit sales 
after the satisfaction of approximately $45 million of senior debt.

Real Estate Acquisitions

I-8

10

As described above, in March, 2000, AREP acquired Bayswater and its ten
residential subdivisions under development in New York and Florida (two of which
have subsequently been sold), and in September, 2000, the Board of Directors of
Stratosphere accepted an offer from AREP and affiliates of the General Partner
pursuant to which AREP will acquire all of the remaining interests in
Stratosphere that it does not currently own.

In March, 2000, AREP acquired The Atrium Building, a five-story office
building in Alexandria, Virginia, for approximately $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.

In March, 2000, AREP entered into a lease cancellation and termination
agreement with the Grand Union Company, a tenant in a Mt. Kisco, New York
distribution center owned by AREP. In accordance with the agreement, AREP paid
$1.5 million to the tenant to cancel the lease, which had an annual rental of
approximately $900,000, and obtained control of the property.

Financing Activities

During 2000, AREP had approximately $3.2 million in maturing balloon
mortgage due, which was repaid, and AREP paid off a higher interest rate
mortgage of approximately $4.1 million. Approximately $1,770,000 and $940,000 of
additional balloon payments are due during 2001 and 2002, respectively. 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.

In August, 2000, AREP obtained financing of its Atrium Building in
Alexandria, Virginia for $19.6 million at an interest rate of 8.43% per annum.
Monthly payments of approximately $157,000 are required based on a 25-year
amortization schedule with the loan balance due on September 1, 2012.

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 2000, thirty-nine leases covering thirty-nine properties and
representing approximately $5.7 million in annual rentals expired. Twenty-nine
of these leases originally representing approximately $3.7 million in annual
rental income were re-let or renewed for approximately $3.7 million in annual
rentals. Such renewals are generally for a term of five years. Ten properties
with annual rental income of approximately $2 million were not renewed, five of
which have been sold, and five of which are currently being marketed for sale or
lease.

In 2001, ten leases covering ten properties and representing approximately
$1.0 million in annual rentals are scheduled to expire. Two of these leases,
originally representing approximately $512,000 in annual rental income, have
been renewed for approximately $280,000 in annual rentals. Such renewals are
generally for a term of five years. The status of eight properties, with an
approximate annual rental income of $498,000 is unknown at this time.

By the end of the year 2003, net leases representing approximately 14% of
AREP's net annual rentals from its portfolio will be due for renewal, and by the
end of the year 2005, net leases representing approximately 32% 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 

I-9

11

interests will renew those leases which are at below market rents, and permit
leases for properties that are less marketable (either as a result of the
condition of the property or its location) or are at above-market rents to
expire. AREP expects that it may be difficult and time consuming to re-lease or
sell those properties that existing tenants decline to re-let or purchase and
that AREP may be required to incur expenditures to renovate such properties for
new tenants. AREP also may become responsible for the payment of certain
operating expenses, including maintenance, utilities, taxes, insurance and
environmental compliance costs associated with such properties which are
presently the responsibility of the tenant. In addition, net leases representing
approximately 30% 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 16 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 16
present and former tenants involved in bankruptcy proceedings or reorganization,
12 have rejected their leases, affecting 31 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).

On April 7, 2000, Skyway Freight Systems ("Skyway"), a tenant in a
multi-tenanted industrial complex located in Hebron, Kentucky owned by AREP,
filed a voluntary petition for reorganization under Chapter 11 of the Federal
Bankruptcy Code. Skyway's annual rental is approximately $774,000. On August 12,
2000, the tenant rejected the lease pursuant to an order of the Bankruptcy
Court. AREP has re-let the space, effective December 15, 2000, for approximately
$650,000 per annum.

In October, 2000, Grand Union Company, a tenant leasing four properties
owned by AREP, filed for Chapter 11 Bankruptcy protection. The annual rental for
these four properties is approximately $395,000. The tenant is current in its
rental obligations and has not yet exercised its right to affirm or reject the
leases. At December 31, 2000, the carrying value of these four properties was
approximately $2,773,000.

In December 2000, Bradlees, a tenant leasing two 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 two properties
is approximately $550,000. The tenant is current in its rental obligations. The
tenant has not yet exercised its right to affirm or reject the leases. At
December 31, 2000, the carrying value of these two properties was approximately
$2,425,000.

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

I-10

12

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

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

I-11

13

open RCRA requirements. Approximately 42 updates are expected to be completed in
2001 with another 37 scheduled for the year 2002.

In addition to conducting such Phase I Environmental Site Assessments,
AREP has developed a site inspection program. This program is being conducted by
two AREP employees (both of 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

AREP and its consolidated subsidiaries have approximately 2,600 full and 
part-time employees, which number of employees fluctuates due to the seasonal
nature of certain of its businesses. Most of these employees are employed by
AREP's consolidated subsidiaries including Stratosphere. Approximately 1,000
employees of Stratosphere are covered by a collective bargaining agreement.

Nineteen people, including two who are officers of the General Partner,
presently perform services for AREP on a full-time basis. These people perform
administrative services for AREP, including accounting, legal, financial,
investor services and secretarial, as well as real estate and management and
other services. Management believes it currently has sufficient staffing to
operate effectively the day-to-day business of AREP. Twenty-five people are
employed by Bayswater who perform real estate development, construction, sales
and supervisory and administrative functions. Also, a third officer of the
General Partner devotes a substantial portion of his time to the AREP and
Bayswater businesses.

Competition

Competition in leasing and buying and selling remains strong. As
previously discussed, many of AREP's tenants have rights to renew at prior
rental rates. AREP's experience is that tenants will renew below market leases
and permit leases that are less marketable or at above market rents to expire,
making it difficult for AREP to re-let or sell on favorable terms properties
vacated by tenants. The real estate 

I-12

14

market continues to be weak in certain areas of the country, particularly in the
retail category. The impact on the retail markets and ongoing corporate
consolidations have contributed to increasing vacancy rates and oversupply for
retail tenants. AREP believes it is one of the largest real estate entities of
its kind and that it will continue to compete effectively with other similar
real estate companies, although there are real estate entities with greater
financial resources than AREP.

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

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

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

Item 2.     Properties

As of March 5, 2001, AREP owned 158 separate real estate assets (excluding
Stratosphere and Bayswater which are described above). These primarily consist
of fee and leasehold interests and, to a limited extent, interests in real
estate mortgages in 31 states. Most of these properties are net-leased to single
corporate tenants. Approximately 85% of these properties are currently
net-leased, 7% are operating properties and 8% are vacant and being marketed for
sale or lease.

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

Number         Average Net Effective 
Type of Property                   of Properties    Rent Per Square Foot(1)
----------------                   -------------    -----------------------

Retail                                64                 $6.51
Industrial                            18                 $1.97
Office                                30                 $7.39
Supermarkets                          17                 $2.87
Banks                                 6                  $3.12
Other:
Properties that
Collateralize Purchase
Money Mortgages                    9                   N/A
Land                                 6                   N/A
Truck Terminals                      4                  $3.76
Hotels                               3                   N/A
Apartment Complexes                  1                   N/A

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

I-13

15

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

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

United States:
Southeast                  70
Northeast                  33
South Central              8
Southwest                  6
North Central              37
Northwest                  4

From January 1, 2000 through March 5, 2001, AREP sold or otherwise
disposed of 20 properties. In connection with such sales and dispositions, AREP
received an aggregate of approximately $18,000,000 in cash, net of closing costs
and amounts utilized to satisfy mortgage indebtedness which encumbered such
properties. As of December 31, 2000, AREP owned 12 properties that were being
actively marketed for sale. The aggregate net realizable value of such
properties is estimated to be approximately $7,054,000.

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

On March 31, 2000, the Company entered into a lease cancellation and
termination agreement with the Grand Union Company, a tenant in the Mt. Kisco,
N.Y. distribution center owned by the Company. In accordance with the agreement,
the Company paid $1.15 million to the tenant to cancel the lease (which had an
annual rental of approximately $900,000) to obtain control of the property.

For each of the years ended December 31, 2000, 1999, and 1998, 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, 2000,
1999, and 1998, PGEC occupied a property, which represented more than 10% of the
carrying value of AREP's total real estate assets. PGEC is an electric utility
engaged in the generation, purchase, transmission, distribution and sale of
electricity.

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.

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.

I-14

16

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). On September 21, 2000, Ruth Ellen Miller, Charles and Lydia Hoffman,
and Joy Lazarus, claiming as plaintiffs on behalf of themselves and all others
similarly situated, filed an amended complaint (the "Complaint") and a motion
for class certification and have sought to make service of the Complaint on the
defendants.

Plaintiffs allege 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 plaintiffs 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; (iv) ordering API to
exercise its fiduciary obligations; and (v) compelling the Partnership to make
periodic distributions on the Depositary Units. Further, plaintiffs seek damages
resulting from the alleged breach of the Partnership Agreement for an
unquantified amount. The Complaint also seeks costs and attorneys' fees.
Management believes plaintiffs' claims are without merit and intends to
vigorously defend against them.

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

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

No matters were submitted to a vote of Unitholders during 2000.

I-15

17

PART II

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

Market Information

AREP's Depositary Units are traded on the New York Stock Exchange ("NYSE")
under the symbol "ACP." Trading on the NYSE commenced July 23, 1987, and the
range of high and low market prices for the Depositary Units on the New York
Stock Exchange Composite Tape (as reported by The Wall Street Journal) from
January 1, 1999 through December 31, 2000 is as follows:

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

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

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

On March 5, 2001, 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 $9.73.

As of March 5, 2001, 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 April 2, 2001, the Board of Directors of the General Partner announced
that no distributions are expected to be made in 2001. 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 2003, net leases representing
approximately 14% of AREP's net annual rentals from its portfolio will be due
for renewal, and by the end of the year 2005, 32% of such rentals will be due
for renewal. Another factor that AREP took into consideration was that net
leases representing approximately 30% 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 development. These types of

II-2

18

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 5, 2001, there were 46,098,284 Depositary Units and 8,463,459
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, or the next succeeding business day
thereafter, of each year (each, a "Payment Date"), commencing March 31, 1996. On
any Payment Date commencing with the Payment Date on March 31, 2000, AREP, with
the approval of the Audit Committee, may opt to redeem all, but not less than
all, of the Preferred Units for a price, payable either in all cash or by
issuance of additional Depositary Units, equal to the liquidation preference of
the Preferred Units, plus any accrued but unpaid distributions thereon. On or
before March 31, 2010, AREP must redeem all, but not less than all, of the
Preferred Units on the same terms as any optional redemption. Holders of
Preferred Units will have no voting rights except as mentioned in Item 10 --
"Directors and Executive Officers of AREP," below.

On March 31, 2000, AREP distributed to holders of record of its Preferred
Units as of March 15, 2000 403,022 additional Preferred Units. Pursuant to the
terms of the Preferred Units, on February 23, 2001, AREP declared its scheduled
annual preferred unit distribution payable in additional Preferred Units at the
rate of 5% of the liquidation preference of $10.00. The distribution is payable
April 2, 2001 to holders of record as of March 15, 2001.

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 5, 2001,
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-3

19
Item 6.     Selected Financial Data.

2000              1999              1998              1997              1996
------------      ------------      ------------      ------------      ------------
(Restated)        (Restated)        (Restated)        (Restated)
------------      ------------      ------------      ------------

Total revenues                                 $    314,980      $    295,004      $    173,241      $    104,667      $    109,221
============      ============      ============      ============      ============
Earnings before property
and securities transactions and
minority interest                            $     69,024      $     68,116      $     68,707      $     45,607      $     39,377
Gain on sales and
disposition of real estate                          6,763            13,971             9,065            16,051            24,517
Gain on sale of limited partnership
interests                                           3,461              --               5,562              --                --
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                                             (1,351)           (1,946)           (1,180)           (1,085)             (935)
Minority interest in net (earnings) loss of
Stratosphere Corporation                           (2,747)           (1,002)               95              --                --
------------      ------------      ------------      ------------      ------------
Net earnings                                   $     75,150      $    107,729      $     82,249      $     79,971      $     62,959
============      ============      ============      ============      ============
Net earnings per limited
partnership unit:
Basic:
Earnings before property and
securities transactions                $       1.30      $       1.09      $       1.16      $       1.19      $       1.27
Net gain from property and
securities transactions                         .18               .86               .26              1.08               .90
------------      ------------      ------------      ------------      ------------
Net earnings                               $       1.48      $       1.95      $       1.42      $       2.27      $       2.17
============      ============      ============      ============      ============
Weighted average limited partnership
units outstanding                              46,098,284        46,098,284        46,173,284        31,179,246        25,666,640
============      ============      ============      ============      ============

Diluted:
Earnings before property and
securities transactions                $       1.14      $        .96      $       1.06      $       1.16      $       1.20
Net gain from property and
securities transactions                         .15               .71               .22               .97               .82
------------      ------------      ------------      ------------      ------------
Net earnings                               $       1.29      $       1.67      $       1.28      $       2.13      $       2.02
============      ============      ============      ============      ============

Weighted average limited partnership
units and equivalent partnership
units outstanding                              56,157,079        56,078,394        54,215,339        34,655,395        28,020,392
============      ============      ============      ============      ============
Distributions to partners                      $       --        $       --        $       --        $       --        $       --
At year end:
Real estate leased to others                   $    379,396      $    375,268      $    381,554      $    383,392      $    353,324
Hotel Casino and resort operating properties   $    185,253      $    141,829      $    137,706      $      5,002      $     12,955
Investment in treasury bills                   $    475,267      $    468,529      $    363,884      $    372,165      $       --
Marketable equity and debt securities          $     54,736      $     67,397      $    248,455      $       --        $    106,172
Mortgages and notes receivable                 $     19,946      $     10,955      $      9,933      $     59,970      $     15,226
Equity interest in GB Holdings, Inc.           $     38,359      $       --        $       --        $       --        $       --
Land and Construction-in-progress              $     75.952      $     99,252      $     91,836      $     68,644      $     66,343
Total assets                                   $  1,422,987      $  1,364,861      $  1,317,318      $  1,064,448      $    712,105
Senior indebtedness                            $       --        $       --        $       --        $     11,308      $     22,616
Mortgages payable                              $    182,049      $    179,387      $    173,559      $    165,048      $    127,861
Partners' equity                               $  1,042,725      $  1,029,308      $    943,528      $    858,893      $    523,136

See Note 1 to consolidated financial statements pertaining to the
restatement of prior period financial statements.

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

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

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

General

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

AREP notes that while there are still opportunities available to acquire
investments that are undervalued, acquisition opportunities in the real estate
market for value-added investors have become competitive to source and the
increased competition may have some impact on the spreads and the ability to
find quality assets that provide returns that are sought. These investments may
not be readily financeable and may not generate immediate positive cash flow for
AREP. As such, they require AREP to maintain a strong capital base in order to
react quickly to these market opportunities as well as to allow AREP the
financial strength to develop or reposition these assets. While this may impact
cash flow in the 

II-4

20

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 2003, net leases representing approximately 14% of
AREP's net annual rentals from its portfolio will be due for renewal, and by the
end of the year 2005, net leases representing approximately 32% 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 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 

II-5

21

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 42 updates are
expected to be completed in 2001 with another 37 scheduled for the year 2002.

Results of Operations

Calendar Year 2000 Compared to Calendar Year 1999 (As Restated)

Gross revenues increased by $19,976,000, or 6.8%, during the year ended
December 31, 2000 as compared to the same period in 1999. This increase reflects
increases of $10,694,000 in interest income on treasury bills and other
investments, $9,535,000 in Stratosphere Corporation hotel and casino operating
income, $4,956,000 in land, house and condominium sales, $2,824,000 in rental
income and $525,000 in hotel and resort operating income partially offset by
decreases of $5,846,000 in dividend and other income and $2,712,000 in financing
lease income. The increase in interest income on treasury bills and other
investments is primarily attributable to an increase in short-term investments
as well as an increase in interest rates. The increase in Stratosphere
Corporation hotel and casino operating income is primarily attributable to
construction that was in progress in 1999, and increased hotel occupancy in 2000
resulting in increased casino revenues and food and beverage income. The
increase in land, house and condominium sales is primarily due to differences in
the size and number of transactions. The increase in rental income is primarily
attributable to newly acquired properties. The decrease in dividend and other
income is primarily due to the disposition of the RJR common stock in June of
1999. The decrease in financing lease income is the result of property sales and
normal financing lease amortization.

Expenses increased by $19,068,000, or 8.4%, during the year ended December
31, 2000 as compared to the same period in 1999. This increase reflects
increases of $6,054,000 in Stratosphere Corporation hotel and casino operating
expenses, $5,149,000 in the cost of land, house and condominium sales,
$3,122,000 in hotel and resort operating expenses, $2,103,000 in equity in
losses of GB Holdings, Inc., $1,750,000 in Bayswater acquisition costs,
$1,077,000 in rental property expenses and $1,054,000 in depreciation and
amortization partially offset by decreases of $1,190,000 in interest expense and
$51,000 in general and administrative expenses. The increase in Stratosphere
Corporation hotel and casino operating expenses is primarily attributable to
increased costs associated with increased revenue. The increase in the cost of
land, house and condominium sales is due to the differences in size and number
of transactions. The increase in hotel and resort operating expenses is
primarily attributable to the Bayswater and New Seabury resort operations. The
increase in equity in losses of GB Holdings, Inc. is the result of accounting
for AREP's interest under the equity method. The increase in rental property
expenses is primarily attributable to newly acquired and off-lease properties.
The decrease in interest expense is primarily due to decreased interest due
affiliates in connection with repurchase obligations.

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

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

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

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

II-6

22

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

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

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

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

Calendar Year 1999 Compared to Calendar Year 1998 (As Restated)

Gross revenues increased by $121,763,000 during the year ended December
31, 1999 as compared to the same period in 1998. This increase reflects
increases of $92,641,000 in Stratosphere Corporation hotel and casino operating
income, $25,573,000 in land, house and condominium sales, $12,246,000 in hotel
and resort operating income and $2,446,000 in rental income partially offset by
decreases of $6,272,000 in dividend and other income, $2,948,000 in interest
income on treasury bills and other investments and $1,923,000 in financing lease
income. The increase in Stratosphere Corporation hotel and casino operating
income is due to the inclusion of Stratosphere's operations effective September
27, 1998. The increase in land, house and condominium sales is primarily due to
differences in the size and number of transactions. 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 attributable to newly acquired properties. The
decrease in dividend and other income is primarily attributable to the 1998
disposition of a limited partnership investment and a decrease in tenant
bankruptcy claim distributions. The decrease in interest income on treasury
bills and other investments is primarily attributable to a decrease in
short-term investments. The decrease in financing lease income is the result of
property sales and normal financing lease amortization.

Expenses increased by $122,354,000 during the year ended December 31, 1999
as compared to the same period in 1998. This increase reflects increases of
$84,289,000 in Stratosphere Corporation hotel and casino operating expenses,
$16,962,000 in the cost of land, house and condominium sales, $9,445,000 in
hotel and resort operating expenses, $6,971,000 in depreciation and
amortization, $2,5l2,000 in interest expense, $1,901,000 in general and
administrative expenses and $274,000 in rental property. The increase in
Stratosphere Corporation hotel and casino operating expenses is due to the
inclusion of Stratosphere's operations as mentioned above. The increase in the
cost of land, house and condominium sales is due to the differences in size and
number of transactions. The increase in hotel and resort operating expenses is
primarily attributable to the acquisition of New Seabury as mentioned above. The
increase in interest expense is primarily attributable to interest expense due
an affiliate in connection with the Stratosphere repurchase obligation.

II-7

23
Earnings before property and securities transactions and minority interest
decreased during the year ended December 31, 1999 by $591,000 as compared to the
same period in 1998.

Gain on property transactions increased by $4,906,000 during the year
ended December 31, 1999 as compared to the same period in 1998 due to
differences in the size and number of transactions.

During the year ended December 31, 1999, AREP recorded a provision for
loss on real estate of $1,946,000 as compared to $1,180,000 in the same period
in 1998.

In the year ended December 31, 1999, AREP recorded a non-recurring gain on
sale of marketable equity securities of $28,590,000 related to the sale of its
RJR common stock. There was no such income in 1998.

During the year ended December 31, 1998, AREP recorded a non-recurring
gain on sale of limited partnership units of $5,562,000. There was no such
income in 1999.

Minority interest in the net earnings of Stratosphere Corporation
increased by $1,097,000 during the year ended December 31, 1999 as compared to
the same period in 1998.

Net earnings for the year ended December 31, 1999 increased by $25,480,000
as compared to the year ended December 31, 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 were $.96 in the year ended December
31, 1999 compared to $1.06 in the comparable period of 1998, and net gain from
property and securities transactions was $.71 in the year ended December 31,
1999 compared to $.22 in the comparable period of 1998. Diluted net earnings per
weighted average limited partnership unit outstanding totalled $1.67 in the year
ended December 31, 1999 compared to $1.28 in the comparable period of 1998.

Capital Resources and Liquidity

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

In 2000, thirty-nine leases covering thirty-nine properties and
representing approximately $5.7 million in annual rentals expired. Twenty-nine
of these leases originally representing approximately $3.7 million in annual
rental income were re-let or renewed for approximately $3.7 million in annual
rentals. Such renewals are generally for a term of five years. Ten properties
with annual rental income of approximately $2 million were not renewed, five of
which were sold, and five of which are currently being marketed for sale or
lease.

In 2001, ten leases covering ten properties and representing approximately
$1.0 million in annual rentals are scheduled to expire. Two of these leases,
originally representing approximately $512,000 in annual rental income, have
been renewed for approximately $280,000 in annual rentals. Such renewals 

II-8

24

are generally for a term of five years. The status of eight properties, with an
approximate annual rental income of approximately $498,000 is currently unknown.

On April 2, 2001, the Board of Directors of the General Partner announced
that no distributions on its Depositary Units are expected to be made in 2001.
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 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 2003, net leases representing
approximately 14% of AREP's net annual rentals will be due for renewal, and by
the end of the year 2005, 32% of such rentals will be due for renewal. Another
factor that AREP took into consideration was that net leases representing
approximately 30% 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, 2000, AREP generated approximately
$47.8 million in cash flow from day-to-day operations which excludes
approximately $8.7 million in interest earned on the 1997 Offering proceeds
which will be retained for future acquisitions. During 1999, AREP generated
approximately $44.8 million in such cash flow from day-to-day operations which
excluded approximately $7.9 million in interest earned on the proceeds from 1997
Rights Offering.

Capital expenditures for real estate were approximately $8.5 million
during 2000. During 1999, such expenditures totaled approximately $4.4 million.

During the year ended December 31, 2000, approximately $7.6 million of
maturing debt obligations were repaid out of AREP's cash flow. During the year
ended December 31, 1999, approximately $5.4 million of maturing debt obligations
were repaid out of AREP's cash flow.

During 2000, net cash flow after payment of maturing debt obligations and
capital expenditures was approximately $31.7 million which was added to AREP's
operating cash reserves. During 1999, net cash flow after payment of maturing
debt obligations and capital expenditures was approximately $35 million which
was added to AREP's operating cash reserves. AREP's operating cash reserves are
approximately $141 million at December 31, 2000 (which does not include the cash
from capital transactions or the 1997 Rights Offering which is being retained
for investment), which are being retained to meet maturing debt obligations,
capital expenditures and certain contingencies facing AREP. AREP from time to
time may increase its cash reserves to meet its maturing debt obligations,
tenant requirements and other capital expenditures and to guard against
scheduled lease expirations and other contingencies including environmental
matters.

Sales proceeds from the sale or disposal of portfolio properties totaled
approximately $18 million in 2000. During 1999, such sales proceeds totaled
approximately $26 million. AREP received approximately $19.6 million and $22.2
million of net proceeds from refinancings in 2000 and 1999 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 was no such gain on the sale of securities in 

II-9

25

2000 and there can be no assurance that AREP will be able to realize any such
investment gains in the future.

As described above, in March, 2000, AREP transferred its interests in the
Sands and the Claridge Hotel to an affiliate of the General Partner and received
approximately $40.5 million therefor, however, as noted above, the transfer is
subject to AREP's right and obligation to repurchase such interests at the same
price (plus a commercially reasonable interest factor), upon obtaining the
proper gaming license in New Jersey. In September, 2000, affiliates of the
General Partner paid $65 million for a 46% equity interest in the Sands. AREP's
pro rata share of this advance is $32.5 million, representing an equity interest
of approximately 23% in the Sands, which AREP will be required to pay when it
receives its gaming license and reacquires its interest in the Sands. At
December 31, 2000, AREP's obligation to affiliates of the General Partner for
interests held in the Sands and the Claridge on AREP's behalf was $77.5 million.

As mentioned above, in February 2001, affiliates of the General Partner
sold their entire portfolio of interests in the Claridge (including AREP's
interests therein), $37.1 million face amount of Claridge Notes, for the
following additional interests in the Sands: (i) 779,861 common shares of GB
Holdings and (ii) $15.96 million face amount of GB Property First Mortgage
Notes, plus $21.56 million in cash. As a result, affiliates of the General
Partner are, in effect, holding on behalf of AREP (x) approximately 3.6 million
common shares of GB Holdings and (y) $26.9 million face amount of GB Property
First Mortgage Notes, to which AREP will become entitled and obligated to
purchase for approximately $70 million when it is fully licensed. AREP no longer
has any interests in the Claridge.

In March, 2000, AREP acquired approximately an additional 2% interest in
Stratosphere from affiliates of Mr. Icahn for approximately $2 million, thereby
providing AREP with an aggregate interest in Stratosphere of approximately 51%.
In September, 2000, Stratosphere's Board of Directors approved a proposal for a
going private transaction pursuant to which AREP would purchase all of the
remaining interests in Stratosphere that it does not currently own from
affiliates of Icahn and public shareholders for approximately $44.3 million.
Under the terms of the proposal, subject to certain conditions, AREP will pay
$44.33 per share to affiliates of Icahn, and $45.32 per share to shareholders
unaffiliated with Icahn. As discussed above, this transaction is expected to be
completed in the second half of 2001. Also, as described above, AREP has
provided, and expects to continue to provide in the future, short-term financing
to Stratosphere for, among other things, the construction of an additional 1000
rooms at the hotel. Under the terms of such short-term financing arrangement,
AREP has agreed to advance up to $100 million to Stratosphere. As of March 5,
2001, the aggregate principal amount outstanding under such financing
arrangement was approximately $50 million. Such advances are currently evidenced
by secured demand notes which bear interest at a rate of 9.5% per annum. As
discussed above, such notes are to be converted into short-term secured loans
under two secured credit facilities. Stratosphere expects the opening of its new
hotel tower and additional 1,000 rooms to be completed later this year.

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 during 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, on March 23, 2000, 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.

II-10

26

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 Consolidated Financial
Statements.

AREP's cash and cash equivalents and investment in treasury bills
increased by approximately $11.7 million during the calendar year 2000 primarily
attributable to the transfer of interests in the Sands and the Claridge ($40.5
million), net cash flow from Bayswater and Stratosphere ($32.3 million), net
cash flow from operations ($31.7 million), mortgage loan net proceeds ($19.6
million), property sales ($18 million), limited partnership sales proceeds and
distributions ($11.8 million), collection on notes receivable ($9.2 million),
interest earned on the 1997 Rights Offering ($8.7 million) and miscellaneous
other ($5.1 million) partially offset by the acquisition of Bayswater ($84.4
million), property acquisitions ($27.3 million), advances to Stratosphere ($39.8
million) and mezzanine loan advances ($13.7 million).

Quantitative and Qualitative Disclosure About Market Risks

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

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

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

27

Item 8. Financial Statements

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheets of American Real
Estate Partners, L.P. and subsidiaries as of December 31, 2000 and 1999, 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, 2000. In connection with our audits of the
consolidated financial statements, we also have audited the 2000 financial
statement schedule as listed in the Index at Item 14 (a) 2. These consolidated
financial statements and the financial statement schedule are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these consolidated financial statements and the financial statement schedule
based on our audits. We did not audit the consolidated financial statements of
Stratosphere Corporation and its subsidiaries, a majority owned subsidiary, as
of and for the year ended December 31, 1999 and the three months ended December
31, 1998 which statements reflect total assets constituting 7 percent in 1999
and total revenues constituting 42 percent and 18 percent in 1999 and 1998,
respectively, of the related consolidated totals. Those statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for Stratosphere Corporation, is
based solely on the report of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosure in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of American Real Estate Partners, L.P.
and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

/s/ KPMG LLP

March 22, 2001
New York, New York

II-12

28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders
of Stratosphere Corporation

We have audited the consolidated balance sheet of Stratosphere Corporation
(a Delaware corporation) and subsidiaries as of December 26, 1999
("Stratosphere") and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for the year ended December 26,
1999 and the three months ended December 27, 1998. These financial statements
(not presented herein) are the responsibility of the Stratosphere's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Stratosphere
as of December 26, 1999 and the results of their operations and their cash flows
for the year ended December 26, 1999 and the three months ended December 27,
1998, in conformity with accounting principles generally accepted in the United
States.

/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP

Las Vegas, Nevada
February 11, 2000

II-13

29

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 and 1999 (in $000's except per unit amounts)
--------------------------------------------------------------------------------

ASSETS                                                               2000          1999
------                                                            ----------    ----------
(Restated)

REAL ESTATE LEASED TO OTHERS:
Accounted for under the financing method (Notes 4 and 12)       $  193,428    $  223,391
Accounted for under the operating method, net of accumulated
depreciation (Notes 5 and 12)                                   185,968       151,877

INVESTMENT IN TREASURY BILLS                                         475,267       468,529

CASH AND CASH EQUIVALENTS (Note 2)                                   147,705       142,697

MARKETABLE EQUITY AND DEBT SECURITIES (Note 6)                        54,736        67,397

MORTGAGES AND NOTES RECEIVABLE (Notes 10 and 20)                      19,946        10,955

EQUITY INTEREST IN GB HOLDINGS, INC. (Notes 7 and 20)                 38,359          --   

HOTEL, CASINO AND RESORT OPERATING PROPERTIES
net of accumulated depreciation:
Stratosphere Corporation hotel and casino (Note 8)                152,335       111,151
Hotel and resort (Notes 5 and 11)                                  32,918        30,678

LAND AND CONSTRUCTION-IN-PROGRESS                                     75,952        99,252

RECEIVABLES AND OTHER ASSETS (Notes 9 and 20)                         46,373        58,934
----------    ----------

TOTAL                                               $1,422,987    $1,364,861
==========    ==========

(Continued)

II-14

30

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999 (in $000's except per unit amounts) (Continued)
--------------------------------------------------------------------------------

2000            1999
------------     -----------
(Restated)

LIABILITIES AND PARTNERS' EQUITY
--------------------------------

MORTGAGES PAYABLE (Notes 4, 5, 13 and 20)                                           $   182,049     $   179,387

DUE TO AFFILIATE (Notes 6 and 20)                                                        77,521          32,876

ACCOUNTS PAYABLE, ACCRUED EXPENSES AND
OTHER LIABILITIES (Note 20)                                                      55,785          56,983
------------     -----------
315,355         269,246
------------     -----------
MINORITY INTEREST IN STRATOSPHERE CORPORATION
HOTEL AND CASINO                                                                 64,907          66,307
------------     -----------
COMMITMENTS AND CONTINGENCIES
(Notes 3 and 19)

LIMITED PARTNERS:
Preferred units, $10 liquidation  preference,  5% cumulative pay-in-kind
redeemable;  9,400,000 authorized; 8,463,459 and 8,060,437 issued and
outstanding as of December 31, 2000 and 1999                                  87,808          83,627

Depositary units;47,850,000 authorized;47,235,484 outstanding                   944,340         876,760

GENERAL PARTNER                                                                          22,498          80,842

TREASURY UNITS AT COST:
1,137,200 depositary units (Note 21)                                            (11,921)        (11,921)
------------     -----------
PARTNERS' EQUITY (Notes 2, 3, 14 and 22)                                              1,042,725       1,029,308
------------     -----------
TOTAL                                                               $ 1,422,987     $ 1,364,861
============     ===========

See notes to consolidated financial statements.

II-15

31

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (in $000's except per unit amounts)
--------------------------------------------------------------------------------

2000          1999          1998
--------     ---------     ----------   
(Restated)    (Restated)

REVENUES:
Hotel and casino operating income (Note 8)    $ 132,762     $ 123,227     $  30,586
Land, house and condominium sales                76,180        71,224        45,651
Interest income on financing leases              19,652        22,364        24,287
Interest income on treasury bills and other
Investments                                  36,208        25,514        28,462
Rental income                                    23,616        20,792        18,346
Hotel and resort operating income (Note 11)      21,617        21,092         8,846
Dividend and other income (Notes 6 and 9)         4,945        10,791        17,063
--------     ---------     ----------   
314,980       295,004       173,241
--------     ---------     ----------   
EXPENSES:
Hotel and casino operating expenses (Note 8)    118,997       112,943        28,654
Cost of land, house and condominium sales        58,493        53,344        36,382
Hotel and resort operating expenses (Note 11)    20,220        17,098         7,653
Interest expense (Notes 12 and 13)               17,820        19,010        16,498
Depreciation and amortization                    15,098        14,044         7,073
General and administrative expenses (Note 3)      7,475         7,526         5,625
Property expenses                                 4,000         2,923         2,649
Bayswater acquisition costs (Note 1)              1,750          --            --   
Equity in losses of GB Holdings, Inc. 
(Note 7)                                      2,103          --            --   
--------     ---------     ----------   
245,956       226,888       104,534
--------     ---------     ----------   
EARNINGS BEFORE PROPERTY AND
SECURITIES TRANSACTIONS AND MINORITY
INTEREST                                               69,024        68,116        68,707

PROVISION FOR LOSS ON REAL ESTATE
(Note 12)                                              (1,351)       (1,946)       (1,180)

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

GAIN ON SALES AND DISPOSITION OF
REAL ESTATE (Note 12)                                   6,763        13,971         9,065

GAIN ON SALE OF LIMITED PARTNERSHIP
INTERESTS (Note 9)                                      3,461          --           5,562

MINORITY INTEREST IN NET (EARNINGS)
LOSS OF STRATOSPHERE CORPORATION
(Note 8 )                                              (2,747)       (1,002)           95
--------     ---------     ----------   
NET EARNINGS                                          $  75,150     $ 107,729     $  82,249
========     =========     ==========   

(Continued)

II-16

32

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(in $000's except per unit amounts) (Continued)
-------------------------------------------------------------------------------

2000           1999           1998
-----------    -----------    -----------
(Restated)     (Restated)

NET EARNINGS ATTRIBUTABLE TO
(Note 3):
Limited partners            $    72,225    $    93,909    $    69,232
General partner                   2,925         13,820         13,017
-----------    -----------    -----------
$    75,150    $   107,729    $    82,249
===========    ===========    ===========
NET EARNINGS PER LIMITED
PARTNERSHIP UNIT (Note 2):
Basic earnings              $      1.48           1.95    $      1.42
===========    ===========    ===========
WEIGHTED AVERAGE LIMITED
PARTNERSHIP UNITS
OUTSTANDING                      46,098,284     46,098,284     46,173,284
===========    ===========    ===========
Diluted earnings                $      1.29    $      1.67    $      1.28
===========    ===========    ===========
WEIGHTED AVERAGE LIMITED
PARTNERSHIP UNITS AND
EQUIVALENT PARTNERSHIP UNITS
OUTSTANDING                      56,157,079     56,078,394     54,215,339
===========    ===========    ===========

See notes to consolidated financial statements.

II-17

33

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY AND
COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (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, 1997
(as previously reported)           $    16,328    $   728,329    $    75,852   $   (11,184)         1,037   $   809,325
Bayswater acquisition (Note 1)              49,568            --             --            --             --         49,568
-----------   ------------    -----------   -----------      ---------   -----------
BALANCE, DECEMBER 31, 1997                  65,896        728,329         75,852       (11,184)         1,037       858,893
(Restated)

Comprehensive income:
Net earnings                            13,017         69,232           --            --             --          82,249

Net unrealized gains on
securities available for
sale (Note 6)                           185          9,088           --            --             --           9,273
-----------   ------------    -----------   -----------      --------    -----------
Comprehensive income                        13,202         78,320           --            --             --          91,522

Repurchase of Depositary
Units (Note 21)                           --             --             --            (737)           100          (737)

Net capital distributions                   (6,150)          --             --            --             --          (6,150)

Pay-in-kind distribution (Note 14)            --           (3,793)         3,793          --             --            --   
-----------   ------------    -----------   -----------      ---------   -----------
BALANCE, DECEMBER 31, 1998                  72,948        802,856         79,645       (11,921)         1,137       943,528
(Restated)

Comprehensive income:
Net earnings                            13,820         93,909           --            --             --         107,729

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

Net unrealized losses on
securities available for sale            (6)          (285)          --            --             --            (291)
-----------   ------------    -----------   -----------      --------    -----------
Comprehensive income                        13,494         77,886           --            --             --          91,380

Net capital distributions                   (5,600)          --             --            --             --          (5,600)

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

BALANCE, DECEMBER 31, 1999                  80,842        876,760         83,627       (11,921)         1,137     1,029,308
(Restated)

(Continued)

II-18

34

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY AND
COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (in $000's) (Continued)
--------------------------------------------------------------------------------

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

Comprehensive income:
Net earnings                     $    2,925     $    72,225    $    --      $    --             --        $   75,150  

Net unrealized losses on
securities available for sale         (9)           (464)                                                    (473)
----------     -----------    ---------    ----------        -----       ----------
Comprehensive income                  2,916          71,761         --           --             --            74,677  

Net adjustment for Bayswater
acquisition  (Note 1)               (62,801)            --          --           --             --           (62,801)

Capital contribution (Note 1)             1,541             --          --           --             --             1,541  

Pay-in-kind distribution (Note 14)        --             (4,181)       4,181         --             --               --    
----------     -----------    ---------    ----------        -----       ----------
BALANCE, DECEMBER 31, 2000           $   22,498     $   944,340    $  87,808    $  (11,921)       1,137       $1,042,725  
==========     ===========    =========    ==========        =====       ==========

Accumulated  other  comprehensive  income (loss) at December 31, 2000, 1999
and 1998 was ($7,548), ($7,075), and $9,273, respectively.

See notes to consolidated financial statements.

II-19

35

AMERICAN REAL ESTATE PARTNERS, L. P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (in $000's)
--------------------------------------------------------------------------------

2000          1999        1998
----------    ----------  ----------
(Restated)  (Restated)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings                                                 $  75,150    $ 107,729    $  82,249
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization                             15,098       14,044        7,083
Gain on sale of marketable equity securities                          (28,590)        --   
Gain on sales and disposition of real estate              (6,759)     (16,041)      (9,035)
Gain on sale of limited partnership interests             (3,461)        --         (4,382)
Minority interest in net earnings (loss) of
Stratosphere Corporation                                 2,747        1,002          (95)
Provision for loss on real estate                          1,351        1,946        1,180
Equity in losses of GB Holdings, Inc.                      2,103         --           --   
Changes in operating assets and liabilities:
Increase in land and construction-in-progress           (7,863)      (7,734)     (22,807)
(Decrease) increase in accounts payable,
accrued expenses and other liabilities               (6,478)       8,176       (9,588)
Decrease (increase) in receivables and other             
assets                                                   4,550      (13,559)      (7,902)
----------    ---------   ----------
Net cash provided by operating activities        76,438       66,973       36,703
----------    ---------   ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in mortgages and notes receivable                      (9,502)      (8,222)     (63,331)
Net proceeds from the sales and disposition of real estate      20,060       29,735       23,004
Principal payments received on leases accounted for
under the financing method                                    7,560        7,938        7,887
Increase in equity interest in GB Holdings, Inc.               (32,500)        --           --   
Acquisition of Bayswater's net assets                          (84,352)        --           --   
Additions to hotel, casino and resort operating property       (22,703)     (14,287)      (6,367)
Acquisitions of rental real estate                             (27,326)     (23,954)     (30,230)
Additions to rental real estate                                 (2,760)        (564)        (505)
(Increase) decrease in investment in treasury bills             (6,738)    (104,645)       8,281
Disposition (acquisition) of marketable equity securities        4,297      203,917     (174,717)
Investment in Stratosphere Corporation                            --           --        (17,939)
Decrease in minority interest in Stratosphere Corp.             (1,970)        --           --   
Increase (decrease) in due to affiliate                         77,530      (50,000)      76,090
Net disposition of limited partnership interests                 7,805        1,206       25,697
----------    ---------   ----------
Net cash (used in) provided by investing        
activities                                      (70,599)      41,124     (152,130)
----------    ---------   ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partners' equity:
Repurchase of Depositary Units                                              --           (737)
Net capital distributions                                    (4,100)      (5,600)      (6,150)
Debt:
Increase in mortgages payable                                19,600       22,400       30,615
Periodic principal payments                                  (8,699)      (9,208)      (8,710)
Balloon payments                                             (7,632)      (7,006)      (4,892)
Senior debt principal payment                                  --           --        (11,308)
----------    ---------   ----------
Net cash (used in) provided by financing           
activities                                         (831)         586       (1,182)
----------    ---------   ----------

(Continued)

II-20

36

AMERICAN REAL ESTATE PARTNERS, L. P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (in $000's) (Continued)
--------------------------------------------------------------------------------

2000         1999         1998
----------  -----------   ----------

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS                                                 $    5,008  $   108,683   $ (116,609)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                       142,697       34,014      150,623
----------  -----------   ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR                        $  147,705  $   142,697   $   34,014
==========  ===========   ==========

SUPPLEMENTAL INFORMATION:
Cash payments for interest, net of amounts capitalized      $   14,980  $    19,818   $   15,650
==========  ===========   ==========
Cash payments for income taxes                              $    1,200  $       400   $     --   
==========  ===========   ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Reclassification of real estate to operating lease              $   17,274  $     2,461   $     --   
Reclassification of real estate from operating lease                (6,781)      (1,116)      (5,140)
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               (18,560)      (4,887)        --   
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)        --   
Reclassification 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            8,067        3,879        1,280
Reclassification of real estate from construction-in-progress         --           (199)        --   
----------  -----------   ----------
$     --    $      --     $     --
==========  ===========   ==========

Net unrealized (losses) gains on securities available for sale  $     (473) $     (291)   $    9,273
==========  ===========   ==========
Sale of marketable equity securities available for sale         $     --    $   (16,058)  $     --   
==========  ===========   ==========

See notes to consolidated financial statements.

II-21

37

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 and 1998
--------------------------------------------------------------------------------

1.     DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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

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

An amendment (the "Amendment") to the Company's Partnership Agreement
became effective on August 16, 1996, which permits the Company to make
non-real estate investments. The Amendment permits the Company to invest
in securities issued by companies that are not necessarily engaged as one
of their primary activities in the ownership, development or management
of real estate to further diversify its investments while remaining in
the real estate business and continuing to pursue suitable investments in
the real estate markets. Under the Amendment, investments may include
equity and debt securities of domestic and foreign issuers. The
proportion of the Company's assets invested in any 

II-22

38

one type of security or any single issuer will not be limited. The
investment objective of the Company with respect to such investments will
be to purchase undervalued securities so as to maximize total returns
consisting of current income and/or capital appreciation.

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

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

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

In accordance with generally accepted accounting principles, assets and
liabilities transferred between entities under common control are
accounted for at historical costs similar to a pooling of interests, and
the financial statements of previously separate companies for periods
prior to the acquisition are restated on a combined basis. Therefore, the
accounts of Bayswater are included in these consolidated financial
statements for the year ended December 31, 2000 and prior period
financial statements have been restated to include Bayswater.

II-23

39
The Bayswater assets acquired and the liabilities assumed have been
accounted for at historical cost. The excess of the historical cost of
the net assets over the amount of cash disbursed, which amounted to
$1,541,000, has been accounted for as a capital contribution by the
General Partner. The Company's costs of $1.75 million related to the
Bayswater transaction have been included as "Bayswater acquisition costs"
in the Consolidated Statements of Earnings in the year ended December 31,
2000. An increase of $49,568,000 has been made to the General Partner's
equity at December 31, 1997 as a result of the Bayswater acquisition. A
reduction of $62,801,000 has been made to the General Partner's equity as
an adjustment for the restatement at December 31, 1999. See Consolidated
Statements of Changes in Partners' Equity and Comprehensive Income.

In March 2000, the Company purchased an additional 50,000 shares of the
Stratosphere Corporation ("Stratosphere") from an affiliate of the
General Partner. The Company now owns approximately 51% of Stratosphere
and has included its accounts on a consolidated basis for the year ended
December 31, 2000. Prior years' financial statements have been restated
to include Stratosphere on a consolidated basis.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

Diluted earnings per share uses net earnings attributable to limited
partner interests as the numerator with the denominator based on the
weighted average number of units and equivalent units outstanding. The
Preferred units are considered to be unit equivalents. The number of
limited partnership units used in the calculation of diluted income per
limited partnership unit increased as follows: 10,058,795; 9,980,110;
and 8,042,055, limited partnership units for the years ended December 31,
2000, 1999 and 1998, respectively, to reflect the effects of the
conversion of preferred units.

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

II-24

40

For the years ended December 31, 2000, 1999 and 1998, basic and diluted
earnings per weighted average limited partnership unit are detailed as
follows:

2000                   1999                   1998
-----------------      -----------------      -----------------
(Restated)             (Restated)

Basic:
Earnings before property
and securities transactions           $        1.30           $     1.09             $      1.16

Net gain from property and
securities transactions                         .18                  .86                     .26
-----------------      -----------------      -----------------
Net earnings                              $       1.48           $     1.95             $      1.42
=================      =================      =================

Diluted:
Earnings before property
and securities transactions           $        1.14           $      .96             $      1.06

Net gain from property and
securities transactions                         .15                  .71                     .22
-----------------      -----------------      -----------------
Net earnings                              $       1.29           $     1.67             $      1.28
=================      =================      =================

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, 2000 and 1999 are investments
in government backed securities of approximately $ 29,057,000 and
$92,515,000, respectively.

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

A decline in the market value of any held-to-maturity security below cost
that is deemed to be other than temporary results in a reduction in
carrying amount to fair value. The impairment is charged to earnings and
a new cost basis for the security is established. Dividend and interest
income are recognized when earned.

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

II-25

41

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

II-26

42
Depreciation -- Depreciation on properties accounted for under the
operating method as well as those used in the ordinary course of business
is computed using the straight-line method over the estimated useful life
of the particular property or property components, which range from 3 to
45 years.

Use of Estimates -- Management 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.

Revenue Recognition 

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

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

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

Land and Construction-in-Progress -- These costs are stated at the lower
of cost or net realizable value.

II-27

43
\
Interest is capitalized on expenditures for long-term projects until a
salable condition is reached. The capitalization rate is based on the
interest rate on specific borrowings to fund the projects.

Accounting by Creditors for Impairment of a Loan -- If it is 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 Company considers the asset to be "impaired". Reserves are
established against impaired loans in amounts equal to the difference
between the recorded investment in the asset and either the present value
of the cash flows expected to be received, or the fair value of the
underlying collateral if foreclosure is deemed probable or if the loan is
considered collateral dependent.

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

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

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

II-28

44

Predecessor Partnerships in the Exchange. Some of such amounts may
be paid regardless of the 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.

b.     The Company had a lease, expiring in 2001, for 7,920 square feet
of office space, at an annual rental of approximately $153,000.
The Company had sublet to certain affiliates 3,205 square feet at
an annual rental of approximately $62,000, resulting in a net
annual rental of approximately $91,000. In March 2000, in
connection with the Bayswater acquisition, the subleases were
cancelled.

c.     In addition, in 1997 the Company entered into a license agreement
for a portion of office space from an affiliate. The license
agreement dated as of February 1, 1997 expires May 22, 2004 unless
sooner terminated in accordance with the agreement. Pursuant to
the license agreement, the Company has the non-exclusive use of
3,547 square feet of office space and common areas (of an
aggregate 21,123 rentable square feet sublet by such affiliate)
for which it pays $17,068 per month, together with 16.79% of
certain "additional rent". In November 2000, the Company reduced
its office size to approximately 2,275 square feet, which
decreased its monthly rental to $11,185 plus 10.77% of certain
additional rent. In 2000, 1999 and 1998, the Company paid such

II-29

45

affiliate approximately $206,000, $218,000 and $216,000 of rent,
respectively, in connection with this licensing agreement. The
terms of such sublease were reviewed and approved by the Audit
Committee.

d.     Stratosphere billed affiliates of the General Partner
approximately $240,000 in each of the years ended December 31,
2000 and 1999 for administrative services performed by
Stratosphere personnel.

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

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

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

December 31,
---------------------------------
2000              1999
---------------    --------------

Minimum lease payments receivable     $     231,621      $    262,648
Unguaranteed residual value                 109,642           130,601
---------------    --------------
341,263           393,249

Less unearned income                        147,835           169,858
---------------    --------------

$     193,428      $    223,391
===============    ==============

The following is a summary of the anticipated future receipts of the
minimum lease payments receivable at December 31, 2000 in ($000's):

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

2001                        $       23,872
2002                                22,066
2003                                20,717
2004                                19,191
2005                                16,861
Thereafter                         128,914
-----------------
$     231,621
=================

At December 31, 2000, approximately $ 135,441,000 of the net investment
in financing leases was pledged to collateralize the payment of
nonrecourse mortgages payable.

II-30

46

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,
---------------------------------
2000               1999
---------------    --------------

Land                               $      53,807      $     47,244
Commercial buildings                     169,675           145,148
---------------    --------------
223,482           192,392

Less accumulated depreciation             37,514            40,515
---------------    --------------

$     185,968      $    151,877
===============    ==============

As of December 31, 2000 and 1999, accumulated depreciation on the hotel
and resort operating properties (not included above) amounted to
approximately $5,957,000 and $4,225,000, respectively (See Note 11).

The following is a summary of the anticipated future receipts of minimum
lease payments under noncancelable leases at December 31, 2000 (in
$000's):

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

2001                        $       15,099
2002                                14,355
2003                                13,120
2004                                13,244
2005                                11,378
Thereafter                          47,361
-----------------

$      114,557
=================

At December 31, 2000, approximately $124,690,000 of real estate leased to
others was pledged to collateralize the payment of nonrecourse mortgages
payable.

6.     MARKETABLE EQUITY AND DEBT SECURITIES

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

II-31

47

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

The Company recorded "Dividend income" of approximately $6.6 million and
$2.2 million for the years ended December 31, 1999 and 1998,
respectively, from its holding of RJR common stock.

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

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

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

Furthermore, in 1998 and 1999, the Company acquired an interest in the
Claridge Hotel and Casino (the "Claridge Hotel") located in Atlantic
City, New Jersey by purchasing the principal amount of $16.7 million of
First Mortgage Notes of the Claridge Hotel and Casino Corporation (the
"Claridge Corporation"). The purchase price of such notes was
approximately $15.1 million. A total of $85 million of such notes were
issued. An affiliate of the General Partner also made an investment in
the 

II-32

48

Notes of the Claridge Corporation. In August 1999, the Claridge
Corporation announced that it had filed a voluntary petition under
Chapter 11 of the U.S. Bankruptcy Code to facilitate a financial
restructuring.

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

In July 2000, the U.S. Bankruptcy Court ruled in favor of the
reorganization plan proposed by affiliates of the General Partner which
provided for an additional investment of $65 million by the Icahn
affiliates in exchange for a 46% equity interest, with bondholders (which
also includes the Icahn affiliates) to receive $110 million in new notes
and a 54% ownership position. The plan which became effective September
29, 2000, provides the Icahn affiliates with a controlling interest. For
accounting purposes, the Company reflects its interest in the new GB
Property notes as held to maturity. At December 31, 2000, this investment
is carried at a cost of $17.3 million in the Consolidated Balance Sheets.

II-33

49

The Company continues to reflect its interests in the Claridge
Corporation notes as available for sale. This investment is carried at
fair market value in the Consolidated Balance Sheets. At December 31,
2000, unrealized holding losses of $3,896,000 have been recorded in
Partners' Equity and the carrying value of the investment was
approximately $12,245,000.

Interest expense due to the affiliate for the year ended December 31,
2000 of $3,595,000 for the previously transferred GB Property and
Claridge Corporation interests has been included in "Interest expense" in
the Consolidated Statements of Earnings.

The Company reflects it pro rata equity interest in Greate Bay as "Equity
interest in GB Holdings, Inc." in the Consolidated Balance Sheets (see
Note 7).

The Company's corresponding obligations to repurchase its interests in
the GB Property and Claridge Corporation, including interest, is included
in "Due to Affiliates" in the Consolidated Balance Sheets and totals
$77.5 million.

In February 2001, the Icahn affiliates sold their entire Claridge
Corporation portfolio ($37.1 million face amount of Claridge Notes) for
the following additional interest in GB Holdings, Inc. ("GB Holdings"):
(i) 779,861 common shares of GB Holdings and (ii) $15.96 million face
amount of GB Property First Mortgage Notes ("GB Notes"), plus $21.56
million in cash. As a result, affiliates of the General Partner are, in
effect, holding on behalf of the Company (i) approximately 3.6 million
common shares of GB Holdings and (ii) $26.9 million face amount of GB
Notes, to which the Company will become entitled and obligated to
purchase for approximately $70 million when it is fully licensed. The
Company no longer has any interests in the Claridge.

c.     In 1998 and 1999, the Company purchased approximately $88.4 million of
senior debt of Philip Services Corp. and Philip Services (Delaware), Inc.
("Philips") for approximately $39.6 million. The 

II-34

50

Company also received a repayment from asset sales of approximately $5.6
million. In addition, an affiliate of Icahn purchased approximately $275
million of senior debt of Philips and also owned common shares of
Philips. Philips is a Canadian-based company in the waste recovery
business.

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.

On April 7, 2000, Philip Services Corporation ("New Philips"), the newly
restructured company incorporated in Delaware, emerged from Chapter 11 of
the U.S. Bankruptcy Code and the Companies Creditors' Arrangement Act in
Canada.

As a result of the reorganization, the Company received approximately 1.8
million common shares of New Philips, approximately $15.9 million in
secured term debt, $8.3 million in secured convertible payment-in-kind
debt and approximately $5.1 million in cash. The Company presently has an
approximate 8% interest in New Philips and an Icahn affiliate has an
approximate interest of 26%.

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

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

For accounting purposes, the Company classifies its interest in New
Philips stock and debt securities as available for sale. These
investments are carried at fair market value in the Consolidated Balance
Sheets. At December 31, 2000, unrealized holding losses of $3,652,000
have been recorded in 

II-35

51

Partners' Equity and the carrying value of the investments was
approximately $25,159,000.

7.  EQUITY INTEREST IN GB HOLDINGS, INC.

The Company reflects its pro rata equity interest in GB Holdings, Inc.
under this caption in the Consolidated Balance Sheets. In October 2000,
the Company recorded an obligation to an Icahn affiliate of $32.5 million
for its pro rate share of its equity interest. The Company accounts for
its investment under the equity method of accounting. "Equity in the
losses of GB Holdings, Inc." of $2.1 million have been recorded in the
Consolidated Statements of Earnings ( see Note 6) .

8.  HOTEL AND CASINO OPERATING PROPERTY

In 1997 and 1998, the Company invested approximately $60.7 million to
purchase approximately $98.5 million face value of 14 1/4% First Mortgage
Notes, due May 15, 2002, issued by the Stratosphere Corporation
("Stratosphere"), which had approximately $203 million of such notes
outstanding. An affiliate of the General Partner owned approximately
$83.3 million face value of such Notes. Stratosphere 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 9, 1998 but was not effective until certain
governmental approvals were obtained including, among other things,
gaming licenses from the Nevada Gaming Authority.

II-36

52

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

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

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

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

In September 2000, Stratosphere's Board of Directors approved a going
private transaction proposed by the Company and an affiliate of Icahn.
The Company subject to certain conditions, will pay

II-37

53

approximately $44.3 million for the outstanding shares of Stratosphere
not currently owned by it. Stratosphere stockholders not affiliated with
Icahn will receive a cash price of $45.32 per share and Icahn related
stockholders will receive a cash price of $44.33 per share. Stratosphere
will invest up to $100 million for the construction of an additional
1,000 hotel rooms and related amenities and to purchase the leasehold
interest in the shopping center located on its premises. The Company
advanced approximately $39.75 million to Stratosphere in the year ended
December 31, 2000. The advances and related interest expense have been
eliminated in consolidation.

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

In the years ended December 31, 1999 and 1998, approximately $4.3 million
and $1.2 million, respectively, of "Interest expense" due to an affiliate
has been recorded in the Consolidated Statements of Earnings.

Stratosphere's property and equipment consist of the following as of
December 31, 2000 and December 26, 1999 (in thousands):

December 31,    December 26,
2000            1999
------------    ------------

Land and improvements, including land
held for development                         $ 18,672         $ 18,580
Building and improvements                        71,966           59,657
Furniture, fixtures and equipment                27,757           25,699
Construction in progress                         52,520           17,442
--------         --------
170,915          121,378
Less accumulated depreciation and
amortization                                  (18,580)         (10,227)
--------         -------- 
$152,335         $111,151
========         ========

Included in property and equipment at December 31, 2000 and December 26,
1999, are assets recorded under capital leases of $17.2 million.

Stratosphere's operations for the years ended December 31, 2000, 1999 and
1998 have been included in "Hotel and casino operating income and
expenses" in the consolidated Statements of Earnings. Hotel and casino
operating expenses include all expenses except for approximately
$8,582,000, $8,337,000 and $2,116,000 of depreciation and amortization
for the years ended December 31, 2000, 1999 and 1998, respectively. Such
amounts have been included in "Depreciation and amortization expense" in
the Consolidated Statements of Earnings.

9.     RECEIVABLES AND OTHER ASSETS

a.     In July 1996, the Company had a 70% and 30% limited and general partner
interest, respectively, in Boreas Partners, L.P., ("Boreas"), a Delaware
limited partnership. Boreas became a limited partner of Raleigh Capital
Associates, L.P. ("Raleigh") for the purpose of investing in ARVIDA/JMB
Partners,

II-38

54

L.P. ("Arvida") a real estate partnership.

On December 23, 1998, Raleigh sold all of its limited partnership
interest in Arvida for approximately $47,697,000. The Company received
approximately $20,000,000 of net sale proceeds. A gain of approximately
$5,562,000 was recorded by the Company on the disposition of the units.

b.     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, pursuant to the tender offers, the Company paid
approximately $7.5 million 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 1998 and 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.

II-39

55

In October 2000, the Company sold its entire interest in HEP 85, 86, and
88 for $7,500,000 to an unaffiliated third party. A gain of approximately
$3,360,000 was recognized in the year ended December 31, 2000.

II-40

56

10.    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          2000         1999
--------------------          --------   --------        --------       -------      -----------   -----------
(Restated)

Held for investment

Easco Corp.             (d)      8.875%    02/98 (d)      $3,587          $27 (a)    $    3,453     $   3,454

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

931 First Ave           (c)    Various   Various              --           -- (c)        13,657            --

Other                                                                                     2,836         3,703
-------------  -----------
$   19,946     $  10,955
=============  ===========

II-41

57

(a)    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.

(b)    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 was Queens Moat Houses P.L.C. ("Queens Moat") and certain
subsidiaries. Queens Moat was a United Kingdom based hotel operator with
properties in the U.K., Germany, Netherlands, France and Belgium.

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

(d)    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 

II-42

58

and will be recognized when the principal balances on the purchase money
mortgages are received.

11.    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.

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.

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, 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.

II-43

59

Total initial costs of approximately $28 million were classified as
follows: approximately $17.4 million as "Hotel and resort properties",
$8.9 million as "Land and construction-in-progress" and $1.7 million as
"Other assets" on the Consolidated Balance Sheet. Resort operations 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 $907,000, $3,654,000 and $841,000 for the years ended
December 31, 2000, 1999 and 1998, respectively. Hotel and resort
operating expenses include all expenses except for approximately
$931,000, $704,000 and $216,000 of depreciation and amortization and $0,
$0 and $273,000 of interest expense for the years ended December 31,
2000, 1999 and 1998, respectively. These amounts are included in their
respective captions in the Consolidated Statements of Earnings.

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.

The Company previously sold the hotel located in Phoenix. In April 1999,
the Company acquired the underlying land of the Miami Hotel for
approximately $1.9 million. At December 31, 2000, the property located in
Miami Florida has a carrying value of approximately $5,574,000 and is
unencumbered by any mortgages.

The Company entered into a management agreement for the operation of the
hotels with a national

II-44

60

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
$614,000, $800,000 and $271,000 for the years ended December 31, 2000,
1999 and 1998, respectively. Hotel and resort operating expenses include
all expenses except for approximately $602,000, $628,000 and $577,000 of
depreciation for the years ended December 31, 2000, 1999 and 1998,
respectively. These amounts are included in their respective caption in
the Consolidated Statements of Earnings.

12.    SIGNIFICANT PROPERTY TRANSACTIONS

Information on significant property transactions during the three-year
period ended December 31, 2000 is as follows:

a.     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.

b.     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 13c. 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.

II-45

61

c.     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 13d. for mortgage
details.

d.     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.

e.     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 13e. 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. In
2000, a scheduled cumulative consumer price index ("CPI") rent
adjustment occurred with a new rent of approximately $2 million
per year. There are several additional CPI adjustments over the
initial term of the lease which are based on the increase in the
CPI since base year 1987. There is one ten year renewal period
with rent based on additional CPI adjustments.

f.     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.

II-46

62

g.     On March 30, 2000, the Company acquired a five story multi-tenant
office building located in Alexandria, VA for approximately $27.5
million cash. The building, which was recently renovated, has
approximately 140,000 square feet of rentable space and is 96%
occupied. Lease terms range from 5-12 years with lease expirations
ranging from December 2004 to March 2011. Annual net operating
income is anticipated to be approximately $2.7 million. See Note
13f. for mortgage details.

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

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

13.    MORTGAGES PAYABLE

At December 31, 2000 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          2000            1999
----------------------      -------------------------     ----------      ----------    -----------

7.080%  -   8.790%         7/31/01  -  12/31/18        $ 17,516        $ 164,635      $ 151,496
9.000   -  10.125          2/28/01  -  12/31/13           4,963           17,414         27,891
----------      ----------    -----------

$ 22,479        $ 182,049      $ 179,387
==========      ==========    ===========

II-47

63

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

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

2001                           $       8,902
2002                                   7,300
2003                                   7,598
2004                                   7,510
2005                                   7,824
2006-2010                             97,812
2011-2015                             35,862
2016-2020                              9,241
----------------

$     182,049
================

a.     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.

b.     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.

c.     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.

II-48

64

d.     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.

e.     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.

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

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

II-49

65

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

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

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

b.     In September 1997, the Company completed its 1997 Rights Offering
(the "1997 Offering") to

II-50

66

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. The Preferred and Depositary Units issued under
the 1997 Rights Offering carry the same rights and designations
as those issued in 1995.

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

On March 31, 1999, the Company distributed 383,380 Preferred Units
to holders of record as of March 15, 1999. On March 31, 2000, the
Company distributed 403,022 Preferred Units to holders of record
as of March 15, 2000. As of December 31, 2000 and 1999, 8,463,459
and 8,060,437 Preferred Units, respectively, are issued and
outstanding.

At December 31, 2000, affiliates of the General Partner owned
7,322,873 Preferred 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.

As of December 31, 2000, Icahn affiliates own 39,409,836 Depositary
Units.

II-51

67

16.    INCOME TAXES (IN $000'S)

December 31,
-----------------------------------
2000                1999
---------------     ---------------
(Restated)

The difference between the book basis and
tax basis of the net assets of the Company,
not directly subject to income taxes, is 
as follows:

a.    Book basis of American Real 
Estate Partner's net assets 
excluding Stratosphere Corp.        $1,042,945          $1,029,308

Excess of book over
tax basis                              (44,319)           (111,872)
-----------         -----------
Tax basis of net assets             $  998,626          $  917,436
===========         ===========

b.   Stratosphere Corporation --

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

The tax effect of significant differences representing deferred
tax assets and liabilities (the difference between financial
statement carrying values and the tax basis of assets and
liabilities) for the Company is as follows at December 31, 2000
and 1999 (in thousands):

2000             1999  
------------     ------------

Excess of tax over book basis of
assets due primarily to write-down
of assets                                 $ 74,918          $ 77,088

Other                                          6,996             7,431
---------        ----------

Total temporary differences and
carryforwards                            81,914            84,519

Valuation  allowance                         (81,914)          (84,519)
---------        ----------

Total deferred tax assets (liabilities)     $     --          $     -- 
=========        ==========

Stratosphere recorded a valuation allowance at December 31, 2000
and December 26, 1999, relating to recorded tax benefits because
of the significant uncertainty as to whether such benefits will
ever be realized.

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

II-52

68

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

Three Months Ended
-------------------------------------------------------------------------
March 31,                               June 30,
---------------------------------      ----------------------------------
2000                1999                2000                1999
--------------      -------------      ---------------      -------------
(Restated)                              (Restated)

Revenues                                  $   75,367          $   69,524         $    82,315          $    75,312
==============      =============      ===============      =============

Earnings before property
and securities transactions
and minority interest                 $   14,674          $   15,615         $    20,296          $   16,285
Gains on property transactions                   997               1,889               1,109                 966
Gain on sale of marketable
equity securities                            --                   --                  --              28,590
Provision for loss on real estate                --                 (227)               (232)                 --
Minority interest in net earnings
of Stratosphere Corp.                       (973)             (1,091)               (566)                (62)
--------------      -------------      ---------------      -------------

Net earnings                              $   14,698          $   16,186         $    20,607          $   45,779
==============      =============      ===============      =============
Net earnings per limited
partnership unit:
Basic earnings                     $     .26      $          .29          $       .42          $      .88
==============      =============      ===============      =============
Diluted earnings                   $     .23      $          .26          $       .36          $      .74
==============      =============      ===============      =============

Three Months Ended
-------------------------------------------------------------------------
September 30,                           December 31,
---------------------------------      ----------------------------------
2000                1999                2000                1999
--------------      -------------      ---------------      -------------
(Restated)                              (Restated)

Revenues                                  $   78,604          $   81,010         $    78,694          $    69,158
==============      =============      ===============      =============

Earnings before property and
securities transactions
and minority interest                 $   18,935          $   19,839         $    15,119          $    16,377
Gains on property transactions                   357               4,902               4,300                6,214
Gain on sale of limited
partnership interests                         --                  --               3,461                   --
Provision for loss on real estate               (259)             (1,137)               (860)                (582)
Minority interest in net earnings
of Stratosphere Corp.                       (564)                (51)               (644)                 202
--------------      -------------      ---------------      -------------

Net earnings                              $   18,469          $   23,553         $    21,376          $    22,211
==============      =============      ===============      =============
Net earnings per limited
partnership unit:
Basic earnings                     $      .37          $      .38         $       .44          $       .40
==============      =============      ===============      =============
Diluted earnings                   $      .33          $      .33         $       .38          $       .34
==============      =============      ===============      =============

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.

II-53

69

18.    SEGMENT  REPORTING

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

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, receivables and other assets.

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

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

II-54

70

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, 2000, 1999 and 1998 ($
in thousands):

2000              1999              1998
-------------     -------------     --------------
(Restated)          (Restated)

Revenues:
Hotel & casino operating property           $   132,762       $   123,227       $     30,586
Land, house and condominium sales                76,180            71,224             45,651
Rental real estate                               43,268            43,156             42,633
Hotel & resort operating properties              21,617            21,092              8,846
Other investments                                 5,740            12,203             20,096
-------------     -------------     --------------
Subtotal                        279,567           270,902            147,812

Reconciling items                                  35,413  (1)       24,102  (1)        25,429  (1)
-------------     -------------     --------------

Total revenues              $   314,980       $   295,004       $    173,241
=============     =============     ==============

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

2000                  1999                  1998
--------------       ---------------       ---------------
(Restated)            (Restated)

Net earnings:
Segment earnings:
Land, house and condominium sales                   $     17,687         $     17,880          $      9,269
Hotel & casino operating property                         13,765               10,284                 1,932
Rental real estate                                        39,268               40,233                39,984
Hotel and resort operating properties                      1,397                3,994                 1,193
Other investments                                          5,740               12,203                20,096
--------------       ---------------       ---------------
Total segment earnings                                 77,857               84,594                72,474

Interest income                                               35,413               24,102                25,429
Interest expense                                             (17,820)             (19,010)              (16,498)
General and administrative expenses                           (7,475)              (7,526)               (5,625)
Depreciation and amortization                                (15,098)             (14,044)               (7,073)
Bayswater acquisition costs                                   (1,750)                  --                    --
Equity in losses of GB Holdings, Inc.                         (2,103)                  --                    --
--------------       ---------------       ---------------
Earnings before property and securities
transactions and minority
interest                                               69,024               68,116                68,707
Gain on sales and disposition of real estate                   6,763               13,971                 9,065
Gain on sale of limited partnership
interests                                                  3,461                   --                 5,562
Provision for loss on real estate                             (1,351)              (1,946)               (1,180)
Gain on sale of marketable equity securities                     --                28,590                    --
Minority interest in net (earnings) loss of
Stratosphere Corp.                                        (2,747)              (1,002)                   95

General partner's share                                       (2,925)             (13,820)              (13,017)
--------------       ---------------       ---------------

Net earnings - limited partners' unitholders            $     72,225         $     93,909          $     69,232
==============       ===============       ===============

II-55

71

2000                   1999                   1998
----------------       ----------------       ----------------
(Restated)             (Restated)

Assets:
Rental real estate                                   $   379,396            $   375,268            $    381,554
Hotel and casino operating property                      152,335                111,151                 114,555
Land and construction-in-progress                         75,952                 99,252                  91,836
Hotel and resort operating properties                     32,918                 30,678                  23,151
Other investments                                        113,041                 78,352                 264,039
----------------       ----------------       ----------------
753,642                694,701                 875,135

Reconciling items                                        669,345                670,160                 442,183
----------------       ----------------       ----------------
Total                                  $ 1,422,987            $ 1,364,861            $  1,317,318
================       ================       ================

Real estate investment capital expenditures:
Acquisitions:
Rental real estate                                   $    27,326            $    23,954            $     30,218
Land and construction-in-progress                             --                     --                  25,680
Hotel and casino operating property                       16,666                  6,045                   2,618
Hotel and resort operating properties                         --                  3,870                  18,558
----------------       ----------------       ----------------
$    43,992            $    33,869            $     77,074
================       ================       ================

Developments:
Rental real estate                                   $     2,760            $       177            $        112
Land and construction-in-progress                            847                  1,504                     542
Hotel and casino operating property                       28,135                     --                      --
Hotel and resort operating properties                      6,091                  3,872                     384
----------------       ----------------       ----------------
$    37,833            $     5,553            $      1,038
================       ================       ================

19.    COMMITMENTS AND CONTINGENCIES

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

b.     On November 18, 1998, Ruth Ellen Miller filed a Class Action
Complaint bearing the caption Ruth Ellen Miller, on behalf of
herself and all others similarly situated v. American Real Estate
Partners, L.P., High Coast Limited Partnership, American Property
Investors, Inc., Carl C. Icahn, Alfred 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). 

II-56

72

On September 21, 2000, Ruth Ellen Miller, Charles and Lydia
Hoffman, and Joy Lazarus, claiming as plaintiffs on behalf of
themselves and all others similarly situated, filed an amended
complaint (the "Complaint") and a motion for class certification
and have sought to make service of the Complaint on the
defendants.

Plaintiffs allege 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. Plaintiffs' 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 investments,"
including investments in entities owned or controlled by Icahn.

The Complaint seeks to have Plaintiffs 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; (iv) ordering API to exercise its
fiduciary obligations and (v) compelling the Partnership to make
periodic distributions on the Depositary Units. Furthermore,
Plaintiffs seek damages resulting from the alleged breach of the
Partnership Agreement for an unquantified amount. The Complaint
also seeks costs and attorneys' fees. Management believes
plaintiffs' claims are without merit and intends to vigorously
defend against them.

c.     In addition, in the ordinary course of business, the Company is
party to various legal actions. In management's opinion, the
ultimate outcome of such legal actions will not have a material
effect

II-57

73

on the Company's financial statements taken as a whole.

20.    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. The fair
values of the mortgages and notes receivable satisfied after year end are
based on the amount of the net proceeds received.

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

The approximate estimated fair values of the mortgages and notes
receivable held as of December 31, 2000 and 1999 are summarized as
follows (in 000's):

At December 31, 2000
-------------------------------------------
Net                   Estimated
Investment              Fair Value
-------------------      ------------------

Total                  $15,279                  $17,757

II-58

74

At December 31, 1999 (Restated)
-------------------------------------------
Net                   Estimated
Investment              Fair Value
-------------------      ------------------

Total                   $5,788                   $8,839

The net investment at December 31, 2000 and 1999 is equal to the carrying
amount of the mortgage receivable less any deferred income recorded.

Limitations

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

21.    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, 2000, the
Company had purchased 1,137,200 Depositary Units at an aggregate cost of
approximately $11,921,000.

22.    SUBSEQUENT EVENTS

Pursuant to the terms of the Preferred Units, on February 22, 2001, the
Company declared its scheduled annual preferred unit distribution payable
in additional Preferred Units at the rate of 5% of the liquidation
preference of $10. The distribution is payable April 2, 2001 to holders
of record as of March 15, 2001.

II-59

75

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

NONE

II-60

76

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                     65                   Chairman of the Board
William A. Leidesdorf             55                   Director
Jack G. Wasserman                 64                   Director
Albo J. Antenucci, Jr.            44                   Executive Vice President
and Chief Operating
Officer
Martin L. Hirsch                  46                   Executive Vice President
and Director of
Acquisitions and
Development
John P. Saldarelli                59                   Vice President, Chief
Financial Officer,
Secretary and Treasurer

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

William A. Leidesdorf has served as Director of the General Partner since 
March 26, 1991. Since June 1997, Mr. Leidesdorf has been an owner and a managing
director of Renaissance 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, 

III-1

77

Mr. Leidesdorf was Senior Vice President of Lowe Associates, Inc., a real estate
development company, where he was involved in the acquisition of real estate and
the asset management workout and disposition of business areas. He also acted as
the Northeast Regional Director for Lowe Associates, Inc. From June 1985 to
January 30, 1990, Mr. Leidesdorf was Senior Vice President and stockholder of
Eastdil Realty, Inc., a real estate company, where he was involved in the asset
management workout, disposition of business and financing areas. During the
interim period from January 30, 1990 through May 1, 1990, Mr. Leidesdorf was an
independent contractor for Eastdil Realty, Inc. on real estate matters.

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

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

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

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

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. Under the rules of the New York Stock
Exchange, on or before June 14, 2001, AREP intends to add a third independent
director of the General Partner to the Audit Committee.

III-2

78

Each executive officer and director will hold office until the next annual
meeting of the General Partner and until his or her successor is elected and
qualified. Directors who are also Audit Committee members receive quarterly fees
of $6,250. Mr. Leidesdorf and Mr. Wasserman each received $18,750 of such fees
in 2000. Prior to April 1, 2000, Directors received $3,000 for each meeting of
the Board of Directors of the General Partner. In 2000, Mr. Leidesdorf and Mr.
Wasserman each received $3,000 for attendance at a meeting of the Board of
Directors of the General Partner.

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

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

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

Filing of Reports

To the best of AREP's knowledge, no director, executive officer or
beneficial owner of more than 10% of AREP's Depositary Units failed to file on a
timely basis reports required by Section 16(a) of the Securities Exchange Act of
1934, as amended, during the year ended December 31, 2000.

III-3

79

Item 11.    Executive Compensation.(1)

The following table sets forth information in respect of the compensation
of the Chief Executive Officer and each of the other most highly compensated
executive officers of AREP for services in all capacities to AREP for the fiscal
years ended December 31, 2000, 1999 and 1998.(2)

SUMMARY COMPENSATION TABLE

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

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

Albo J. Antenucci, Jr.
Executive Vice President and Chief
Operating Officer                              2000               274,808

John P. Saldarelli(3)
Vice President, Secretary and Treasurer        2000               170,000
1999               164,092
1998               148,000
Martin L. Hirsch(3)
Executive Vice President and Director
of Acquisitions and Development                2000               290,000
1999               237,692
1998               209,600

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 Albo J.
Antenucci, Jr., 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, and in June, 2000, Mr. Saldarelli was
given the additional title of Chief Financial Officer. On March 23, 2000, Martin
L. Hirsch was elected Executive Vice President and Director of Acquisitions and
Development of the General Partner and Albo J. Antenucci, Jr. was elected
Executive Vice President and Chief Operating Officer of the General Partner.
Messrs. Saldarelli and Hirsch devote substantially all of their time to the
performance of services for AREP and its investments and the General Partner.
Mr. Antenucci devotes a substantial portion of his time to the performance of
services for AREP and Bayswater and received a portion of his compensation in
2000 from Stratosphere. The other executive officer and directors of the General
Partner devote only a portion of their time to performance of services for AREP.

III-4

80

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

As of March 15, 2001, affiliates of Icahn, including High Coast Limited
Partnership, a Delaware limited partnership, owned 39,409,836 Depositary Units,
or approximately 85.5% of the outstanding Depositary Units, and 7,322,873
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 85.5% 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 5, 2001, 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)          39,409,836         85.5%     7,322,873         86.5%
All directors and
executive officers
as a group (6 persons)    39,409,836         85.5%     7,322,873         86.5%

As described above, affiliates of Icahn hold 85.5% 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 

---------------------
(1)    Carl C. Icahn, through affiliates, is the beneficial owner of the 
39,409,836 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-5

81

("ERISA") and Section 414 of the Internal Revenue Code of 1986, as amended 
(the "Code"), which in general terms includes entities in which there is at
least 80% common ownership, may have joint and several responsibility for
various benefits-related liabilities arising under ERISA and the Code. As a
result of the more than 80% ownership interest in AREP of Icahn and his
affiliates, AREP will be deemed to be included in the same controlled group that
includes ACF and Pichin Corp. ("Pichin"), an affiliate of ACF (the "Controlled
Group").

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

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

Pursuant to a settlement (the "Settlement") entered into in 1993 by the
PBGC and Trans World Airlines, Inc. ("TWA"), among others, in connection with
the Chapter 11 bankruptcy case of TWA, as amended and revised to date, Pichin
became the sponsor directly liable for minimum funding obligations of the
pension plans for TWA employees (the "TWA Plans"), which TWA Plans had
theretofore been frozen. As a member of the Controlled Group (which includes
Pichin), AREP would be jointly and severally liable, together with all the other
entities in the Controlled Group, for minimum funding obligations applicable
with respect to the TWA Plans. Effective as of January 1, 2001, pursuant to the
Settlement, Pichin terminated 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, the Settlement provides that termination payments
are limited 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.

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-6

82

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."

For the years ended December 31, 2000 and 1999, AREP made no payments with
respect to the Depositary Units owned by the General Partner. However, in 1999
and 2000 the General Partner was allocated approximately $1,907,000 and
approximately $1,466,000 respectively, of the net earnings of AREP as a result
of its 1.9% general partner interest in AREP.

On March 31, 2000, Icahn received 348,706 Preferred Units as part of
AREP's scheduled annual preferred unit distribution and is expected to receive
an additional 366,143 Preferred Units in March 2001 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 were reviewed and approved by the Audit Committee. 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."

Also in March, 2000, AREP acquired approximately an additional 2% interest
in the Stratosphere Tower, Casino and Hotel ("Stratosphere") from affiliates of
Mr. Icahn for approximately $2 million, giving it an aggregate interest in
Stratosphere of approximately 51%. Stratosphere's Board of Directors has
approved a proposal pursuant to which AREP would purchase all of the remaining
interests in Stratosphere that it does not currently own from affiliates of
Icahn and public shareholders for approximately $44.3 million. In addition, AREP
has provided, and expects to continue to provide in the future, short-term
financing to Stratosphere. Under the terms of such short-term financing
arrangement, AREP has agreed to advance up to $100 million to Stratosphere. The
terms of each of the Stratosphere purchases and the Stratosphere financing were
reviewed and approved by the Audit Committee. See Item 1. "Real Estate
Investments" for a discussion of AREP's investments in Stratosphere.

III-7

83

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.
See Item 1 - "Recent Acquisitions - Investment in Mortgages and Notes
Receivable" for a discussion of AREP's investments in the Sands Hotel and Casino
and its previous investment in the Claridge Hotel and Casino.

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 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 terms of the sublease were reviewed and approved by the Audit
Committee. As part of the Bayswater acquisition, the sublease was terminated 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
November, 2000, AREP reduced its office size to approximately 2,275 square feet,
which decreased its monthly rental to $11,185 plus 10.77% of certain "additional
rent." In 2000, AREP paid an affiliate of the General Partner $206,119 of rent
in connection with this licensing agreement. The terms of such license agreement
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.

Stratosphere billed affiliates of the General Partner approximately
$240,000 in each of the years ended December 31, 2000 and 1999 for
administrative services performed by Stratosphere personnel. Stratosphere also
received hotel revenue of approximately $.5 million in each of the years ended
December 31, 2000 and 1999 in connection with a tour and travel agreement
entered into with an affiliate of the General Partner.

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 

III-8

84

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.

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

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

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

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

In addition, employees of AREP may, from time to time, provide services to
affiliates of the General Partner, with AREP being reimbursed therefor.
Reimbursement to AREP by such affiliates in respect of such services is subject
to review and approval by the Audit Committee. In 2000, there were no such
amounts. Finally, an affiliate of the General Partner provided certain
administrative services to AREP in the amount of approximately $5,400 in 2000.

III-9

85

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

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

Pursuant to the Rules of the New York Stock Exchange ("NYSE"), on June 14,
2000, AREP approved and adopted its Audit Committee Charter. AREP intends to
arrange for the appointment a third independent director to the Board of
Directors of the General Partner who, along with Messrs. Leidesdorf and
Wasserman, would comprise the Audit Committee as of the date of such
appointment.

The Audit Committee, comprised of Messrs. Leidesdorf and Wasserman, have
confirmed that: (i) the Audit Committee reviewed and discussed AREP's 2000
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 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 2000 audited financial statements be included in this
Annual Report on Form 10-K.

III-10

86

PART IV

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

(a)(1)      Financial Statements:

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

Page
Number
------    
Independent Auditors' Reports                               II-12-13 

Consolidated Balance Sheets -                               II-14-15
December 31, 2000 and 1999

Consolidated Statements of Earnings -                       II-16-17
Years ended December 31, 2000, 1999, and 1998

Consolidated Statements of Changes in Partners' Equity      II-18-19
and Comprehensive Income-Years ended
December 31, 2000, 1999, and 1998

Consolidated Statements of Cash Flows -                     II-20-21
Years ended December 31, 2000, 1999 and
1998

Notes to Consolidated Financial Statements

(a)(2)      Financial Statement Schedules:                  II-22-60

S

chedule 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

87

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

88

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).

99.1     Audit Committee Charter (filed with the NYSE on June 14, 2000 and
attached hereto).

(b)   Reports on Form 8-K:

(1) A Form 8-K was filed on March 31, 2000 regarding a March 30, 2000
announcement of 1999 fourth quarter and full year financial results and
that no distributions on Depositary Units were expected during 2000.

IV-3

89

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,
2001.

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, 2001
Carl C. Icahn                       (Principal Executive
Officer)

/s/ William A. Leidesdorf
-----------------------------         Director                    March 30, 2001
William A. Leidesdorf

/s/ Jack G. Wasserman
-----------------------------         Director                    March 30, 2001
Jack G. Wasserman

/s/ John P. Saldarelli                                      
-----------------------------         Treasurer                   March 30, 2001
John P. Saldarelli                  (Principal Financial
Officer and Principal
Accounting Officer)

IV-4

90

AMERICAN REAL ESTATE PARTNERS, LP
a limited partnership                Schedule III

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

Part 1 - Real estate owned at
December 31, 2000 - Accounted for under the:
----------------------------------------------------
Operating Method
----------------------------------------------------
Amount
Carried
No. of       Amount of      Initial Cost       Cost of        at close
State  Locations   Encumberances      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
Amer Stores and The Fidelity Bank         PA          1
Amer Stores, Eckerd & Marburn             NJ          1                         2,043,567         $2,074      2,045,641
American Recreation Group, Inc.           NC          1
Atrium                                    VA          1      $19,522,342       27,326,971                    27,326,971
Best Products Co., Inc.                   VA          1                         3,303,553                     3,303,553
Caldor, Inc.                              MA          1
Chesebrough-Pond's Inc.                   CN          1                         1,549,805                     1,549,805
Chomerics, Inc.                           MA          1
Collins Foods International, Inc.         OR          3                           250,812                       250,812
Collins Foods International, Inc.         CA          1                           134,253                       134,253
Dillon Companies, Inc.                    MO          1                           546,681                       546,681
Dillon Companies, Inc.                    LA          6
Duke Power Co.                            NC          1        1,825,863
European American Bank and Trust Co.      NY          1                         1,355,210                     1,355,210
Farwell Bldg.                             MN          1          145,257        5,081,105                     5,081,105
Federated Department Stores, Inc.         CA          1
First National Supermarkets, Inc.         CT          1       11,743,657
First Union National Bank                 NC          1
Fisher Scientific Company                 IL          1                           597,806                       597,806
Forte Hotels International, Inc.          NJ          1
Fox Grocery Company                       WV          1          657,698
Gino's, Inc.                              MO          1
Gino's, Inc.                              CA          1
Gino's, Inc.                              OH          1                           314,012                       314,012
Gino's, Inc.                              IL          1
Golf Road                                 IL          1        6,953,744        9,288,263                     9,288,263
Grand Union Co.                           NJ          1                           800,770                       800,770
Grand Union Co.                           MD          1                           372,383                       372,383
Grand Union Co.                           NY          3                         2,037,987                     2,037,987
Grand Union Co.                           NY          1
Grand Union Co.                           VA          1                           266,468                       266,468
Whalen                                    NY          1                         6,784,020      1,150,000      7,934,020
Gunite                                    IN          1                         1,134,565                     1,134,565
G.D. Searle & Co.                         AL          1
G.D. Searle & Co.                         IL          1
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
G.D. Searle & Co.                         MD          1
Haverty Furniture Companies, Inc.         FL          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                           560,444                       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                        MN          1          405,000
K-Mart Corporation                        FL          1
K-Mart Corporation                        IA          1
K-Mart Corporation                        FL          1                         2,636,000                     2,636,000
K-Mart Corporation                        IL          1          125,235
Kobacker Stores, Inc.                     MI          3                           163,687                       163,687
Kobacker Stores, Inc.                     KY          1                            88,364                        88,364
Kobacker Stores, Inc.                     OH          4                           298,496                       298,496
Landmark Bancshares Corporation           MO          1
Levitz Furniture Corporation              NY          1                           988,463                       988,463
Louisiana Power and Light Company         LA          8                         5,485,848                     5,485,848
Louisiana Power and Light Company         LA          7                         6,984,806                     6,984,806
Marsh Supermarkets, Inc.                  IN          1                         5,001,933                     5,001,933

Part 1 - Real estate owned at
December 31, 2000 -
Accounted for under the:
----------------------------------------
Operating Method                          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.              $1,501,988             ($21,292)
Alabama Power Company                                                                  $6,370,933
Amer Stores and The Fidelity Bank
Amer Stores, Eckerd & Marburn                      1,578,829              (36,789)
American Recreation Group, Inc.
Atrium                                               454,328
Best Products Co., Inc.
Caldor, Inc.
Chesebrough-Pond's Inc.                            1,164,101              (47,075)
Chomerics, Inc.                                                                         5,444,955          (1,843)
Collins Foods International, Inc.                      4,088
Collins Foods International, Inc.                      2,322
Dillon Companies, Inc.                               348,466              (11,217)
Dillon Companies, Inc.
Duke Power Co.                                                                          3,574,621
European American Bank and Trust Co.               1,284,888
Farwell Bldg.                                      1,841,243
Federated Department Stores, Inc.
First National Supermarkets, Inc.                                                      22,014,490
First Union National Bank
Fisher Scientific Company                            209,863
Forte Hotels International, Inc.                                                        5,953,762         (59,447)
Fox Grocery Company                                                                     2,767,099
Gino's, Inc.
Gino's, Inc.
Gino's, Inc.                                           5,604
Gino's, Inc.
Golf Road                                            725,116
Grand Union Co.                                       18,505
Grand Union Co.                                      264,721
Grand Union Co.                                       47,698
Grand Union Co.
Grand Union Co.                                      189,736
Whalen
Gunite                                             1,065,034              (20,207)
G.D. Searle & Co.
G.D. Searle & Co.
G.D. Searle & Co.                                    162,252
G.D. Searle & Co.                                    237,032
G.D. Searle & Co.
G.D. Searle & Co.
Haverty Furniture Companies, Inc.
Integra A Hotel and Restaurant Co.                                                      1,009,071
Integra A Hotel and Restaurant Co.                                                        261,033
Integra A Hotel and Restaurant Co.                                                        431,164
Integra A Hotel and Restaurant Co.                                                        370,433
Integra A Hotel and Restaurant Co.                                                        268,730
Integra A Hotel and Restaurant Co.                                                        359,923
Integra A Hotel and Restaurant Co.                                                        398,507
Intermountain Color                                  497,490
J.C. Penney Company, Inc.                          1,826,815              (20,854)
Kelley Springfield Tire Company                       75,200
K-Mart Corporation                                                                      1,310,163
K-Mart Corporation                                                                      1,740,404
K-Mart Corporation                                                                      1,617,834
K-Mart Corporation
K-Mart Corporation                                                                      1,229,311
K-Mart Corporation                                 1,860,390                            1,544,836
K-Mart Corporation                                                                        847,706
Kobacker Stores, Inc.                                                       5,071         267,506
Kobacker Stores, Inc.                                                                      87,596
Kobacker Stores, Inc.                                                                     423,765
Landmark Bancshares Corporation                                                         4,220,630
Levitz Furniture Corporation                                              (13,017)      1,668,911         (27,661)
Louisiana Power and Light Company                     25,357             (174,049)
Louisiana Power and Light Company                     29,111             (103,258)
Marsh Supermarkets, Inc.                           2,703,122

Part 2 - Revenues earned for the
Year ended December 31, 2000
-----------------------------------

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.     $255,510            $37,458          $218,052
Alabama Power Company                     694,538            140,121           554,417
Amer Stores and The Fidelity Bank         127,509                164           127,345
Amer Stores, Eckerd & Marburn             491,381             56,305           435,076
American Recreation Group, Inc.                               34,676           (34,676)
Atrium                                  2,674,171          1,685,553           988,618
Best Products Co., Inc.                                      235,529          (235,529)
Caldor, Inc.                                                 206,721          (206,721)
Chesebrough-Pond's Inc.                   141,236             14,916           126,320
Chomerics, Inc.                           703,484                              703,484
Collins Foods International, Inc.          32,489              4,088            28,401
Collins Foods International, Inc.          17,646              2,322            15,324
Dillon Companies, Inc.                     41,201             12,756            28,445
Dillon Companies, Inc.                    194,919             13,029           181,890
Duke Power Co.                            380,528            195,961           184,567
European American Bank and Trust Co.      175,000                              175,000
Farwell Bldg.                           1,115,488            376,120           739,368
Federated Department Stores, Inc.                              9,970            (9,970)
First National Supermarkets, Inc.       2,048,692          1,157,414           891,278
First Union National Bank                   6,180             49,404           (43,224)
Fisher Scientific Company                 163,000             22,286           140,714
Forte Hotels International, Inc.          546,323                              546,323
Fox Grocery Company                       253,012             68,835           184,177
Gino's, Inc.                                                  16,390           (16,390)
Gino's, Inc.                                                   1,360            (1,360)
Gino's, Inc.                               51,733              5,738            45,995
Gino's, Inc.                                                  (3,982)            3,982
Golf Road                                 946,861            744,061           202,800
Grand Union Co.                            99,880             18,731            81,149
Grand Union Co.                            33,750            124,352           (90,602)
Grand Union Co.                           264,204             48,581           215,623
Grand Union Co.                            18,063             (1,780)           19,843
Grand Union Co.                            24,150              4,002            20,148
Whalen                                    168,487            903,555          (735,068)
Gunite                                    237,731              2,269           235,462
G.D. Searle & Co.                                                 60               (60)
G.D. Searle & Co.                          45,310              4,516            40,794
G.D. Searle & Co.                          34,339              3,885            30,454
G.D. Searle & Co.                           1,917             13,169           (11,252)
G.D. Searle & Co.                          10,932                405            10,527
G.D. Searle & Co.                                                538              (538)
Haverty Furniture Companies, Inc.                               (719)              719
Integra A Hotel and Restaurant Co.        198,542                              198,542
Integra A Hotel and Restaurant Co.         83,914                               83,914
Integra A Hotel and Restaurant Co.        105,705                              105,705
Integra A Hotel and Restaurant Co.         58,963                               58,963
Integra A Hotel and Restaurant Co.         89,088                               89,088
Integra A Hotel and Restaurant Co.        115,336                869           114,467
Integra A Hotel and Restaurant Co.        119,848                              119,848
Intermountain Color                        89,085             31,741            57,344
J.C. Penney Company, Inc.                 250,244             79,614           170,630
Kelley Springfield Tire Company            11,601              1,580            10,021
K-Mart Corporation                        130,003              1,128           128,875
K-Mart Corporation                        157,910                              157,910
K-Mart Corporation                        133,331             34,444            98,887
K-Mart Corporation                         16,381            111,714           (95,333)
K-Mart Corporation                        116,571              1,387           115,184
K-Mart Corporation                        390,048             21,937           368,111
K-Mart Corporation                         68,404             13,254            55,150
Kobacker Stores, Inc.                      38,459                               38,459
Kobacker Stores, Inc.                      18,033                               18,033
Kobacker Stores, Inc.                      62,726              7,402            55,324
Landmark Bancshares Corporation           597,269                              597,269
Levitz Furniture Corporation              313,565                739           312,826
Louisiana Power and Light Company       1,163,603            101,252         1,062,351
Louisiana Power and Light Company         974,350             70,226           904,124
Marsh Supermarkets, Inc.                  506,300            131,479           374,821

IV-5

91

AMERICAN REAL ESTATE PARTNERS, LP
a limited partnership                 Schedule III

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

Part 1 - Real estate owned at
December 31, 2000 - Accounted for under the:
----------------------------------------------------
Operating Method
----------------------------------------------------

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

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
Ohio Power Co. Inc.                    OH                1
Park West                              KY                1         12,227,502         19,099,418                       19,099,418
Park West UPS                          KY                1         18,731,398         21,109,367                       21,109,367
Penske Corp.                           OH                1
Pneumo Corp.                           OH                1            318,064
Portland General Electric Company      OR                1         40,589,729
Rayovac                                WI                1         15,929,837         22,065,852                       22,065,852
Rouse Company                          MD                1          1,992,731
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            263,303
Southland Corporation                  FL                5                             1,162,971                        1,162,971
Staples                                NY                1                             2,486,744                        2,486,744
Stone Container                        WI                1          6,158,372          9,028,574                        9,028,574
Stop 'N Shop Co., Inc.                 NY                1
Stop 'N Shop Co., Inc.                 VA                1            326,514
Super Foods Services, Inc.             MI                1          5,623,047
SuperValu Stores, Inc.                 MN                1                             1,370,965                        1,370,965
SuperValu Stores, Inc.                 OH                1
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            719,415            501,836                          501,836
USA Petroleum Corporation              OH                1
USA Petroleum Corporation              GA                2
Waban                                  NY                1                             8,478,012                        8,478,012
Watkins                                MO                1                               973,439           20,250         993,689
Webcraft Technologies                  MD                1            285,747
Wetterau, Inc.                         PA                1
Wetterau, Inc.                         NJ                2
Wickes Companies, Inc.                 CA                2                               657,331           43,002         700,333

Part 1 - Real estate owned at
December 31, 2000 -
Accounted for under the:
----------------------------------------
Operating Method                          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
------------------------------------------------------------------------------------------------------------------------------

Montgomery Ward, Inc.                               2,247,286
Montgomery Ward, Inc.                                                                           1,383,175             (4,105)
Morrison, Inc.                                                                                    596,377
Morrison, Inc.                                                                                    566,456
Morrison, Inc.                                                                                    605,961
Morrison, Inc.                                                                                  1,537,183
North Carolina National Bank                          572,022
Occidental Petroleum Corp.
Ohio Power Co. Inc.                                                                             3,642,429
Park West                                           1,393,750
Park West UPS                                       1,103,181
Penske Corp.                                                                                      524,956
Pneumo Corp.                                                                                    1,866,057
Portland General Electric Company                                                              49,814,633
Rayovac                                               719,499
Rouse Company                                                                                   5,706,393            (62,280)
Safeway Stores, Inc.                                1,098,972
Sams                                                1,855,927
Smith's Management Corp.                                                                          753,461
Southland Corporation                                 703,460                     303
Staples                                               152,375
Stone Container                                       568,043                 (69,980)
Stop 'N Shop Co., Inc.
Stop 'N Shop Co., Inc.                                                                          2,397,345
Super Foods Services, Inc.                                                                      9,563,307
SuperValu Stores, Inc.                                291,986                (204,872)
SuperValu Stores, Inc.                                                        222,360
SuperValu Stores, Inc.                                504,346                  32,611
SuperValu Stores, Inc.                                487,348                 123,919
Telecom Properties, Inc.                                                                           97,603
Telecom Properties, Inc.                                                                           80,444
The A&P Company                                                                                 1,482,070
The TJX Companies, Inc.                                                                         2,335,831            (54,094)
Toys "R" Us, Inc.                                                                               1,027,412
USA Petroleum Corporation
USA Petroleum Corporation
Waban                                                 836,515
Watkins                                               144,783                 (10,150)
Webcraft Technologies
Wetterau, Inc.                                                                                                        (2,520)
Wetterau, Inc.                                                                                    747,116
Wickes Companies, Inc.                                131,610

Part 2 - Revenues earned for the
Year ended December 31, 2000
-----------------------------------

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

Montgomery Ward, Inc.                            314,280                 27,459              286,821
Montgomery Ward, Inc.                            171,952                                     171,952
Morrison, Inc.                                   119,886                                     119,886
Morrison, Inc.                                   120,165                    244              119,921
Morrison, Inc.                                   127,693                    225              127,468
Morrison, Inc.                                   246,893                    244              246,649
North Carolina National Bank                     106,126                 33,651               72,475
Occidental Petroleum Corp.                                               34,232              (34,232)
Ohio Power Co. Inc.                              342,107                    269              341,838
Park West                                      1,458,675              1,476,897              (18,222)
Park West UPS                                  1,861,248              1,805,943               55,305
Penske Corp.                                     105,000                                     105,000
Pneumo Corp.                                     186,456                 40,132              146,324
Portland General Electric Company              4,310,867              3,192,744            1,118,123
Rayovac                                        1,993,330              1,808,591              184,739
Rouse Company                                    509,288                227,504              281,784
Safeway Stores, Inc.                              85,150                 11,974               73,176
Sams                                           1,150,715                161,385              989,330
Smith's Management Corp.                          68,283                 26,757               41,526
Southland Corporation                            128,633                 15,139              113,494
Staples                                          323,063                 98,371              224,692
Stone Container                                  834,270                701,879              132,391
Stop 'N Shop Co., Inc.                           118,582                 33,264               85,318
Stop 'N Shop Co., Inc.                           272,911                 83,770              189,141
Super Foods Services, Inc.                     1,021,971                498,971              523,000
SuperValu Stores, Inc.                           114,885                 26,679               88,206
SuperValu Stores, Inc.                           319,834                 29,197              290,637
SuperValu Stores, Inc.                           224,215                 45,631              178,584
SuperValu Stores, Inc.                           198,814                 44,128              154,686
Telecom Properties, Inc.                          (8,338)                 9,320              (17,658)
Telecom Properties, Inc.                          (1,175)                14,491              (15,666)
The A&P Company                                  157,516                  1,500              156,016
The TJX Companies, Inc.                          206,659                  1,007              205,652
Toys "R" Us, Inc.                                136,334                 55,873               80,461
USA Petroleum Corporation                                                 4,231               (4,231)
USA Petroleum Corporation                          5,500                  4,650                  850
Waban                                            717,079                122,956              594,123
Watkins                                          120,800                 21,563               99,237
Webcraft Technologies                             85,676                102,871              (17,195)
Wetterau, Inc.                                    64,567                     46               64,521
Wetterau, Inc.                                   283,921                 11,101              272,820
Wickes Companies, Inc.                           145,451                 78,595               66,856

RESIDENTIAL PROPERTY LAND AND BUILDING
-------------------------------------

Part 1 - Real estate owned at
December 31, 2000 - Accounted for under the:
----------------------------------------------------
Operating Method
----------------------------------------------------
Amount
Carried
No. of          Amount of         Initial Cost          Cost of       at close
State    Locations       Encumberances        to Company        Improvements    of period
-----------------------------------------------------------------------------------------------------------------------------------

Crown Cliffs                   AL                1        7,788,745          11,188,905                      11,188,905  (1)

Part 1 - Real estate owned at
December 31, 2000 -
Accounted for under the:
----------------------------------------
Operating Method                          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
------------------------------------------------------------------------------------------------------------------------------

Crown Cliffs                                  2,432,500

Part 2 - Revenues earned for the
Year ended December 31, 2000
-----------------------------------

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

Crown Cliffs                            1,786,373          1,810,349           (23,976)

COMMERCIAL PROPERTY - LAND
--------------------------

Part 1 - Real estate owned at
December 31, 2000 - Accounted for under the:
----------------------------------------------------
Operating Method
----------------------------------------------------

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

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.                    PA              1                                36,271                             36,271
Gino's, Inc.                    MA              2                                50,904                             50,904
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
Levitz Furniture Corporation    KS              1

Part 1 - Real estate owned at
December 31, 2000 -
Accounted for under the:
----------------------------------------
Operating Method                          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
------------------------------------------------------------------------------------------------------------------------------

Easco Corp.
Foodarama supermarkets, Inc.
Foodarama supermarkets, Inc.
Gino's, Inc.
Gino's, Inc.
Gino's, Inc.
J.C. Penney Company, Inc.
Levitz Furniture Corporation
Levitz Furniture Corporation

Part 2 - Revenues earned for the
Year ended December 31, 2000
-----------------------------------

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

Easco Corp.                            (22,994)              2,374           (25,368)
Foodarama supermarkets, Inc.             16,800                               16,800
Foodarama supermarkets, Inc.             14,400                               14,400
Gino's, Inc.                              8,571                                8,571
Gino's, Inc.                              9,655                                9,655
Gino's, Inc.                              8,571                                8,571
J.C. Penney Company, Inc.                 5,500                                5,500
Levitz Furniture Corporation             23,943                               23,943
Levitz Furniture Corporation             23,374                647            22,727

IV-6

92

AMERICAN REAL ESTATE PARTNERS, LP
a limited partnership                 Schedule III

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

Part 1 - Real estate owned at
December 31, 2000 - Accounted for under the:
-------------------------------------------------------
Operating Method
--------------------------------------------------------

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

COMMERCIAL PROPERTY - BUILDING
------------------------------
AT&T                             CA              1                           2,268,134            94,694     2,362,828
Bank South                       GA              1
Baptist Hospital 1               TN              1       21,671,755
Baptist Hospital 2               TN              1        8,043,566
Harwood Square                   IL              1                           6,888,148            21,673     6,909,821
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

-----------------------------------------------------------------------
182,048,521        222,150,857         1,331,693   223,482,550
-----------------------------------------------------------------------

Part 1 - Real estate owned at
December 31, 2000 -
Accounted for under the:
----------------------------------------
Operating Method                          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 - BUILDING
------------------------------
AT&T
Bank South                                                                               3,370,407
Baptist Hospital 1                                                                      24,405,593         921,265
Baptist Hospital 2                                                                       9,085,360         341,931
Harwood Square                               3,589,780
Safeway Stores, Inc.                           558,652
Toys "R" Us, Inc.                                                                          929,131         (10,430)
United Life & Accident Ins. Co.                                                          3,857,688         (43,667)
Wickes Companies, Inc.                                                                   2,867,991         (55,068)

--------------------------------------------------------------------------
37,515,334               (348,496)         193,427,762         942,081
--------------------------------------------------------------------------

Part 2 - Revenues earned for the
Year ended December 31, 2000
-----------------------------------

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

COMMERCIAL PROPERTY - BUILDING
------------------------------
AT&T                                        99,209             66,024            33,185
Bank South                                 344,260            131,485           212,775
Baptist Hospital 1                       1,936,149          1,709,243           226,906
Baptist Hospital 2                         718,610            634,393            84,217
Harwood Square                             770,079            193,603           576,476
Safeway Stores, Inc.                        26,900              3,346            23,554
Toys "R" Us, Inc.                           89,068                               89,068
United Life & Accident Ins. Co.            329,144                              329,144
Wickes Companies, Inc.                     522,640                336           522,304

------------------------------------------------
43,268,477         22,222,809        21,045,668
------------------------------------------------

HOTEL AND RESORT OPERATING PROPERTIES
-------------------------------------

Part 1 - Real estate owned at
December 31, 2000 - Accounted for under the:
-------------------------------------------------------
Operating Method
--------------------------------------------------------

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

New Seabury                      MA                                         20,300,000         3,404,000    23,704,000
Holiday Inn                      FL                                          9,581,736                       9,581,736
Bayswater                        FL                                          5,587,885                       5,587,885

-----------------------------------------------------------------------
0         35,469,621         3,404,000    38,873,621   0
-----------------------------------------------------------------------

-----------------------------------------------------------------------
$182,048,521       $257,620,478        $4,735,693  $262,356,171
=======================================================================

Part 1 - Real estate owned at
December 31, 2000 -
Accounted for under the:
----------------------------------------
Operating Method                          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
------------------------------------------------------------------------------------------------------------------------------

New Seabury                                  1,650,898
Holiday Inn                                  4,008,128
Bayswater                                      296,795

--------------------------------------------------------------------------
5,955,821   0                  0                    0               0
--------------------------------------------------------------------------

--------------------------------------------------------------------------
$43,471,155              ($348,496)        $193,427,762        $942,081
==========================================================================

Part 2 - Revenues earned for the
Year ended December 31, 2000
-----------------------------------

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

New Seabury                             15,386,000         15,410,000           (24,000)
Holiday Inn                              4,275,541          4,265,484            10,057
Bayswater                                1,955,000          2,078,000          (123,000)

------------------------------------------------
21,616,541         21,753,484          (136,943)
------------------------------------------------

------------------------------------------------
$64,885,018        $43,976,293       $20,908,725
================================================

(1) The Company owns a 70% interest in the joint venture which owns this
property.

IV-7

93

Schedule III
Page 4

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

REAL ESTATE OWNED AND REVENUES EARNED
YEAR ENDED DECEMBER 31, 2000 (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, 2000                                                                   $      239,237
Additions during period                                                                             32,782
Reclassifications during period from financing leases                                               17,274
Less development properties                                                                        (11,942)
Reclassifications during period to assets held for sale                                             (6,781)
Disposals during period                                                                             (8,214)
----------------

Balance - December 31, 2000                                                                 $       262,356
================

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

Balance - January 1, 2000                                                                   $        44,740
Depreciation during period                                                                            6,137
Disposals during period                                                                              (4,636)
Reclassifications during period to assets held for sale                                              (2,770)
----------------

Balance - December 31, 2000                                                                 $        43,471
================

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

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

Balance - January 1, 2000                                                                   $       223,391
Reclassifications during period to operating properties                                             (17,274)
Write downs                                                                                            (232)
Disposals during period                                                                              (3,647)
Amortization of unearned income                                                                      19,652
Minimum lease rentals received                                                                      (27,212)
Reclassifications during period to assets held for sale                                              (1,286)
Additions during period                                                                                  36
----------------

Balance - December 31, 2000                                                                 $       193,428
================

3.     The aggregate cost of real estate owned for Federal income tax purposes
is $371,227 before accumulated depreciation.

IV-8

94

Schedule III
Page 5

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

REAL ESTATE OWNED AND REVENUES EARNED
YEAR ENDED DECEMBER 31, 2000 (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
and hotel and resort operating properties                                          $        20,909
Net income applicable to Stratosphere hotel and casino                                         5,501(1)
Net income applicable to land, house and condominium sales                                    17,687
Add:
Interest income on treasury bills and other investments                                     36,208
Dividend and unallocated other income                                                        4,627
----------------

84,932
----------------

Deduct expenses not allocated:

General and administrative expenses                                                                   7,475
Nonmortgage interest expense                                                                          3,792
Bayswater acquisition costs                                                                           1,750
Equity in losses of GB Holdings, Inc.                                                                 2,103
Other                                                                                                   788
----------------

15,908
----------------

Earnings before property and securities transactions
and minority interest                                                                            69,024

Provision for loss on real estate                                                                    (1,351)
Gain on sale of real estate                                                                           6,763
Gain on sale of limited partnership interests                                                         3,461
Minority interest in net earnings of Stratosphere Corporation                                        (2,747)
----------------

Net earnings                                                                                $        75,150
================

(1) Includes depreciation expense

IV-9

95

Schedule III
Page 6

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

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

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                                                                   $   212,921
Additions during period                                                                          31,602
Reclassifications during period from financing leases                                             4,884
Reclassifications during period to construction in progress                                        (500)
Reclassifications during period to assets held for sale                                          (3,017)
Disposals during period                                                                          (6,653)
------------

Balance - December 31, 1999                                                                 $   239,237
============

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

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

Balance - December 31, 1999                                                                 $    44,740
============

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 before accumulated depreciation.

IV-10

96

Schedule III
Page 7

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

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

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
Net income applicable to Stratosphere hotel and casino                                     1,947 (1)

Net income applicable to land, house and condominium sales                                17,880
Net loss applicable to Bayswater's hotel and resort operations                              (591)(1)

Add:
Interest income on treasury bills and other investments                                 25,514
Dividend and unallocated other income                                                   10,791
------------

80,998
------------

Deduct expenses not allocated:

General and administrative expenses                                                               7,526
Nonmortgage interest expense                                                                      5,003
Other                                                                                               353
------------

12,882
------------

Earnings before property and securities transactions
and minority interest                                                                        68,116

Provision for loss on real estate                                                                (1,946)
Gain on sale of real estate                                                                      13,971
Gain on sale of marketable equity securities                                                     28,590
Minority interest in net earnings of Stratosphere Corporation                                    (1,002)
------------

Net earnings                                                                                $   107,729
============

(1) Includes depreciation expense

IV-11

97

Schedule III
Page 8

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

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

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                                                                   $   168,830
Additions during period                                                                          58,195
Write downs                                                                                        (271)
Reclassifications during period to assets held for sale                                          (1,280)
Disposals during period                                                                         (12,553)
------------

Balance - December 31, 1998                                                                 $   212,921
============

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 before accumulated depreciation.

IV-12

98

Schedule III
Page   9

AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY

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

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
Net loss applicable to Stratosphere hotel and casino                                               (184)(1)
Net income applicable to land, house and condominium sales                                        9,269
Net income applicable to Bayswater's hotel and resort operations                                     46 (1)
Add:
Interest income on treasury bills and other investments                                      28,462
Dividend and unallocated other income                                                        15,284
------------

77,410
------------

Deduct expenses not allocated:

General and administrative expenses                                                               5,625
Nonmortgage interest expense                                                                      2,694
Other                                                                                               384
------------

8,703
------------
Earnings before gain on property and securities transactions
and minority interest                                                                            68,707

Provision for loss on real estate                                                                (1,180)
Gain on sale of limited partnership interests                                                     5,562
Gain on sale of real estate                                                                       9,065
Minority interest in net loss of Stratosphere Corporation                                            95
------------

Net earnings                                                                                $    82,249
============

(1) Includes depreciation expense.

IV-13

99

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, 2000 (in $000's)
--------------------------------------------------------------------------------

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

Alabama                                                                                                 $       7,976  
Connecticut                                                                                                    22,014  
Florida                                                                                                         2,151  
Georgia                                                                                                         3,937  
Illinois                                                                                                        3,445  
Indiana                                                                                                           431  
Iowa                                                                                                            1,229  
Kentucky                                                                                                          168  
Louisiana                                                                                                       1,310  
Maryland                                                                                                        5,706  
Massachusetts                                                                                                   5,445  
Michigan                                                                                                       11,711  
Minnesota                                                                                                       1,618  
Missouri                                                                                                        4,489  
Nevada                                                                                                            753  
New Hampshire                                                                                                   3,858  
New Jersey                                                                                                      8,084  
New York                                                                                                        1,669  
North Carolina                                                                                                  3,575  
Ohio                                                                                                            6,828  
Oklahoma                                                                                                           98  
Oregon                                                                                                         49,815  
Pennsylvania                                                                                                    2,868  
Rhode Island                                                                                                      929  
Tennessee                                                                                                      33,491  
Texas                                                                                                           1,387  
Virginia                                                                                                        3,935  
West Virginia                                                                                                   2,767  
Wisconsin                                                                                                       1,741  
----------------

$     193,428  
================

IV-14

100

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, 2000 (in $000's)
--------------------------------------------------------------------------------

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

Alabama                                                                   $          11,759        $          2,433  
California                                                                            3,756                     693  
Connecticut                                                                           1,550                   1,164  
Florida                                                                              19,343                   6,869  
Georgia                                                                               2,692                     504  
Illinois                                                                             17,318                   4,762  
Indiana                                                                               8,636                   4,256  
Kentucky                                                                             41,139                   2,994  
Louisiana                                                                            14,254                   1,153  
Maryland                                                                                372                     265  
Massachusetts                                                                        26,239                   3,478  
Michigan                                                                              9,242                   1,856  
Minnesota                                                                             6,792                   2,295  
Missouri                                                                              1,765                     493  
New Jersey                                                                            2,907                   1,597  
New York                                                                             23,472                   2,321  
North Carolina                                                                          158                    --    
Ohio                                                                                    612                       6  
Oregon                                                                                  251                       4  
Pennsylvania                                                                          5,442                   3,749  
South Carolina                                                                        1,450                     572  
Tennessee                                                                               121                      75  
Texas                                                                                   731                    --    
Virginia                                                                             31,260                     644  
Wisconsin                                                                            31,095                   1,288  
--------------------    --------------------

$         262,356       $          43,471  
====================    ====================

IV-15

1
EXHIBIT 99.1

AMERICAN REAL ESTATE PARTNERS, L.P.

CHARTER OF THE AUDIT COMMITTEE OF THE GENERAL PARTNER

A.    General Statement

The Audit Committee of the Board of Directors (the "Board") of American
Property Investors, Inc., the general partner (the "General Partner") of
American Real Estate Partners, L.P. (the "Partnership"), will be governed
by, and act in compliance with, the provisions of the Amended and Restated
Agreement of Limited Partnership, as amended from time to time, of the
Partnership (the "Partnership Agreement"), and the provisions of the rules
of the New York Stock Exchange (the "NYSE") and the Securities and
Exchange Commission (the "SEC") applicable to the Audit Committee of the
Board of the Partnership, and its oversight responsibilities include those
set forth herein.

B.    Composition, Qualification and Organization of the Audit 
Committee

The Audit Committee shall be comprised of such number of members (the
"Members") as determined periodically by the Board (which number shall be
three (3) or more as of and following June 14, 2001), who are directors of
the General Partner and who (i) in accordance with the Partnership
Agreement are not affiliated with the General Partner or its affiliates so
as to not interfere with the Member's ability to maintain and exercise
independent judgment, and (ii) have no relationship to the Partnership
that may interfere with the exercise of their independence from management
and the Partnership. The Members shall be financially literate, as such
qualification is interpreted by the Board in its business judgment, or
must become so within a reasonable period of time, and following June 14,
2001, at least one Member shall have accounting or related financial
management experience, as the Board interprets such qualification in its
business judgment. The Members shall be elected and serve annually or
until their successors shall be duly elected and qualified. Each member of
Audit Committee shall obtain and maintain any license and other approval
required by any state or local government authority in respect of the
Partnership. The Audit Committee may retain, at the Partnership's expense,
special legal, accounting or other consultants or experts as it deems
necessary in the performance of its duties as provided for under the
Partnership Agreement.

C.    Meetings

The Audit Committee shall meet quarterly and additionally as is deemed
necessary by its members or the Board to address any circumstances or
concerns that may arise. The Audit Committee shall meet at least annually
with the independent auditors and the financial management of the
Partnership in independent, executive sessions and shall, at least
annually, report the substance of such meetings to the Board.

D.    Coordination with Independent Auditors

The independent auditors for the Partnership are ultimately accountable to
the Board and the Audit Committee. The Audit Committee and the Board have
the ultimate authority and responsibility to select, evaluate and, where
appropriate, replace the independent auditors for the Partnership.

2

The Audit Committee shall ensure that the independent auditors submit on a
periodic basis to the Audit Committee a formal written statement
delineating all relationships between such auditors and the Partnership.
The Audit Committee is responsible for actively engaging in a dialogue
with the independent auditors with respect to any services rendered,
directly or indirectly, to the Partnership, its officers and majority
unitholder that may impact on the objectivity and independence of the
independent auditors and for recommending that the Board take appropriate
action in response to the independent auditors' report to satisfy itself
of such auditors' independence.

E.   Responsibilities and Duties

The oversight functions of the Audit Committee shall include:

Audit Controls and Financial Reports.

1.   in consultation with management and the independent auditors,
consider the integrity of the Partnership's financial reporting
processes and controls; discuss significant financial risk
exposures and the steps management has taken to monitor, 
control and report such exposures; and review of significant 
findings prepared by the independent auditors together with 
management's response;

2.   the review with financial management and the independent 
auditors of the Partnership's annual financial statements and
any financial reports or other financial information submitted
to any governmental body or the public by either the 
Partnership or its independent auditors and the review of the 
Forms 10-Q and 10-K prepared by the financial management and 
the independent auditors of the Partnership prior to their
filing and release; discuss any significant changes to the
Partnership's accounting principles and any items required to 
be communicated by the independent auditors in accordance with
SAS 6; one member of the Audit Committee may represent the 
Audit Committee with respect to the review of quarterly data 
and at least two members of the Audit Committee shall review 
the Partnership's Form 10-K prior to submission;

3.   the review of any significant disagreement among management of
the General Partner and the independent auditors in connection
with the preparation of the financial reports of the 
Partnership and prior to releasing the year-end earnings,
discuss with the independent auditors matters required to be
communicated to audit committees in accordance with AICPA SAS
61;

4.   on at least an annual basis, the review of the engagement and 
performance of the independent auditors; review of the
independent auditor's audit plan, discussing the scope of
engagement, staffing, personnel succession, locations, reliance
upon management, and internal audit and general audit approach;
the recommendation to the Board of the selection, continued use
of, or the discharge of the independent auditors; and the 
review of the fees and other compensation to be paid by the
Partnership to the independent auditors;

Partnership Agreement Functions.

5.   the review of the allocation of overhead expenses in connection
with the reimbursement of the expenses of the General Partner
pursuant to Section 7.01 of the Partnership Agreement;

3
6.   the review of any resolutions of conflicts of interest made by 
the General Partner pursuant to Section 6.13(b) of the
Partnership Agreement;

7.   the review of certain other determinations of the General 
Partner made pursuant to the Partnership Agreement as 
described therein;

Legal and Other Matters.

On at least an annual basis, the review of, in conjunction with the
Partnership's counsel, any legal matter that would have a
significant effect on the Partnership's financial statements,
the Partnership's compliance with applicable laws and
regulations, and inquiries received from regulators or
governmental agencies;

when appropriate or when requested by any member of the Board, the
submission of minutes of its meetings and its recommendations 
to the Board at the Board's meetings for review, approval and
action, where and when necessary, and the submission, as and
when required by the NYSE or the SEC, of reports of the Audit
Committee's functions;

the confirmation that the annual written affirmation contemplated in
Rule 303.02 of the NYSE Listed Company Manual is properly
submitted;

8.   at least annually, the review and reassessment of the adequacy 
of the Charter; and the submission of the Charter to the Board
for approval and the publication of the Charter if and as
required in accordance with NYSE and SEC regulations;

9.   the preparation of an annual report to unitholders if and as 
required by NYSE or SEC regulations, for inclusion in the
Partnership's Form 10-K; and

10.   the review of such other matters as the Audit Committee, in its
discretion and with the advice of its advisers, believes are
within the scope of the responsibilities imposed on the 
Committee by the SEC, the NYSE, the Partnership Agreement or 
any statute, regulation or judicial decision.