1

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

(Mark One)

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

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

100 SOUTH BEDFORD ROAD, MT. KISCO, NY                       10549
-------------------------------------                       -----
(Address of principal executive offices)                  (Zip Code)

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

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

2

INDEX

PART I.  FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS                                                                    PAGE NO.

Consolidated Balance Sheets -
June 30, 2000 and December 31, 1999 ...................................................................1-2

Consolidated Statements of Earnings -
Three Months Ended June 30, 2000 and 1999..............................................................3-4

Consolidated Statements of Earnings
Six Months Ended June 30, 2000 and 1999............................................................... 5-6

Consolidated Statement of Changes In
Partners' Equity and Comprehensive Income
Six Months Ended June 30,2000............................................................................7

Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2000 and 1999................................................................8-9

Notes to Consolidated Financial Statements..............................................................10

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..................................................................................21

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISKS................................................................................30

PART II.  OTHER INFORMATION...................................................................................30

3

AMERICAN REAL ESTATE PARTNERS, L.P.-FORM 10-Q - JUNE 30, 2000

PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

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

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN $000'S)

JUNE 30,       DECEMBER 31,
2000              1999
-------------    ------------
(RESTATED)
ASSETS

Real estate leased to others:
Accounted for under the financing
method                                          $  209,466       $  223,391
Accounted for under the operating
method, net of accumulated
depreciation                                       183,088          152,086
Investment in treasury bills                             449,864          468,529
Marketable equity and debt securities                     61,881           67,397
Mortgages and notes receivable                             8,603           10,955
Cash and cash equivalents                                139,821          142,697
Land and construction-in-progress                         86,596           99,043
Hotel, casino and resort operating properties,
net of accumulated depreciation:
Stratosphere Corporation hotel and casino          109,051          111,151
Hotel and resort                                    29,378           30,678
Receivables and other assets                              52,155           58,934
----------       ----------

Total                                              $1,329,903       $1,364,861
==========       ==========

Continued.......

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CONSOLIDATED BALANCE SHEETS - CONTINUED
(UNAUDITED)
(IN $000'S)

JUNE 30,         DECEMBER 31,
2000               1999
-------------       ------------
(RESTATED)
LIABILITIES

Mortgages payable                                   $    170,206        $   179,387
Due to affiliates                                         42,794             32,876
Accounts payable, accrued
expenses and other liabilities                         50,831             56,983
-----------        -----------

Total liabilities                                     263,831            269,246
-----------        -----------

Minority interest in Stratosphere
Corporation hotel and casino                           64,018             66,307
-----------        -----------

Commitments and Contingencies
(Notes 3 and 4)

PARTNERS' EQUITY

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
June 30, 2000 and Dec. 31, 1999                     85,692             83,627

Depositary units; 47,850,000
authorized; 47,235,484
outstanding                                        906,595            876,760

General partner                                           21,688             80,842

Treasury units at cost:
1,137,200 depositary units                            (11,921)           (11,921)
-----------        -----------

Total partners' equity                           1,002,054          1,029,308
-----------        -----------

Total                                       $ 1,329,903        $ 1,364,861
===========        ===========

See notes to consolidated financial statements

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CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN $000'S EXCEPT PER UNIT DATA)

THREE MONTHS ENDED JUNE 30, 
----------------------------------------
2000                          1999
----                          ----
(RESTATED)

Revenues:                                                                              
Stratosphere Corporation hotel                                                      
and casino operating income                                      $ 32,088                       S 29,771
Land, house and condominium sales                                     22,227                         20,640
Hotel and resort operating income                                      5,763                          5,553
Interest income on financing leases                                    4,999                          5,713
Interest income on treasury                                                         
bills and other investments                                         8,962                          4,859
Rental income                                                          6,224                          5,010
Dividend and other income                                              2,052                          3,766
--------                       --------
82,315                         75,312
--------                       --------
Expenses:                                                                              
Stratosphere Corporation hotel                                                      
and casino operating expenses                                      28,798                         27,592
Cost of land, house and condominium sales                             16,539                         16,346
Hotel and resort operating expenses                                    4,801                          4,046
Interest expense                                                       4,524                          4,989
Depreciation and amortization                                          3,961                          3,436
General and administrative expenses                                    2,123                          1,824
Rental property expenses                                               1,273                            794
--------                       --------
62,019                         59,027
--------                       --------
Earnings before property and securities                                                
transactions and minority interest in subsidiary                      20,296                         16,285
Provision for loss on real estate                                          (232)                          -
Gain on sales and disposition of real estate                              1,109                            966
Gain on sale of marketable equity securities                               -                            28,590
Minority interest in net earnings of                                                   
Stratosphere Corporation hotel and casino                               (566)                           (62)
--------                       ---------

NET EARNINGS                                                           $ 20,607                       $ 45,779
========                       =========

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

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Continued........

CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN $000'S EXCEPT PER UNIT DATA)

THREE MONTHS ENDED JUNE 30, 
--------------------------------
2000                  1999
----                 -----
(RESTATED)
Net earnings attributable to: (Note 7)

Limited partners                                   $    20,197       $       41,568
General partner                                            410                4,211
-----------       --------------
$    20,607       $       45,779
===========       ==============
Net earnings per limited partnership unit:
Basic earnings                                     $       .42       $          .88
===========       ==============
Weighted average limited partnership
units outstanding                                   46,098,284           46,098,284
===========       ==============

Diluted earnings                                   $       .36       $          .74
===========       ==============
Weighted average limited partnership units
and equivalent partnership units outstanding        56,055,005           56,249,021
===========       ==============

See notes to consolidated financial statements

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CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN $000'S EXCEPT PER UNIT DATA)

SIX MONTHS ENDED JUNE 30,
--------------------------
2000             1999
----             ----
(RESTATED)

Revenues:
Stratosphere Corporation hotel
and casino operating income                         $  66,092        $  63,686
Land, house and condominium sales                         41,036           33,781
Hotel and resort operating income                          9,527            8,111
Interest income on financing leases                       10,271           11,506
Interest income on treasury
bills and other investments                            16,869            9,898
Rental income                                             11,481           10,004
Dividend and other income                                  2,406            7,850
---------        ---------
157,682          144,836
---------        ---------
Expenses:
Stratosphere Corporation hotel
and casino operating expenses                          58,822           57,163
Cost of land, house and condominium sales                 30,700           26,361
Hotel and resort operating expenses                        9,261            6,784
Interest expense                                           8,457           10,100
Depreciation and amortization                              7,598            7,164
General and administrative expenses                        4,147            3,842
Rental property expenses                                   2,077            1,522
Bayswater acquisition costs                                1,650                - 
---------        ---------
122,712          112,936
---------        ---------
Earnings before property and securities
transactions and minority interest in subsidiary          34,970           31,900
Provision for loss on real estate                              (232)            (227)
Gain on sales and disposition of real estate                  2,106            2,855
Gain on sale of marketable equity securities                      -           28,590
Minority interest in net earnings of
Stratosphere Corporation hotel and casino                 (1,539)          (1,153)
---------        ---------

NET EARNINGS                                              $  35,305        $  61,965
=========        =========
Continued.......

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Continued........

CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN $000'S EXCEPT PER UNIT DATA)

SIX MONTHS ENDED JUNE 30,
--------------------------------
2000                  1999
----                  -----
(RESTATED)

Net earnings attributable to: (Note 7)
Limited partners                                   $    33,173       $       56,084
General partner                                          2,132                5,881
-----------       --------------
$    35,305       $       61,965
===========       ==============
Net earnings per limited partnership unit:
Basic earnings                                     $       .67       $         1.17
===========       ==============
Weighted average limited partnership
units outstanding                                   46,098,284           46,098,284
===========       ==============

Diluted earnings                                   $       .59       $         1.01
===========       ==============
Weighted average limited partnership units
and equivalent partnership units outstanding        56,559,509           55,567,794
===========       ==============

See notes to consolidated financial statements

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CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' EQUITY
AND COMPREHENSIVE INCOME               
SIX MONTHS ENDED JUNE 30, 2000            
(UNAUDITED)                     
(IN $000'S )                     

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

Balance Dec. 31, 1999
as previously reported               $    19,500        $   876,760        $    83,627       $   (11,921)       $   967,966

Bayswater acquisition
(Note 7)                                  61,342                  -                  -                 -             61,342
-----------        -----------        -----------       -----------        -----------

Balance Dec. 31, 1999
as restated                               80,842            876,760             83,627           (11,921)         1,029,308

Comprehensive income:
Net earnings                               2,132             33,173                  -                 -             35,305

Unrealized losses on
securities available
for sale                                  (26)            (1,273)                 -                 -             (1,299)
-----------        -----------        -----------       -----------        -----------
Comprehensive income                          2,106             31,900                  -                 -             34,006

Net adjustment for
Bayswater acquisition
(Note 7)                                 (62,801)                 -                  -                 -            (62,801)

Capital contribution
(Note 7)                                   1,541                  -                  -                 -              1,541

Pay-in-kind
distribution                                      -             (2,065)             2,065                 -                  - 
-----------        -----------        -----------       -----------        -----------

Balance
June 30, 2000                           $    21,688        $   906,595        $    85,692       $   (11,921)       $ 1,002,054
===========        ===========        ===========       ===========        ===========

Accumulated other comprehensive loss at June 30, 2000 was $8,374.

See notes to consolidated financial statements

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CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)             
(IN $000'S)             

SIX MONTHS ENDED JUNE 30,
--------------------------
2000               1999
----               ----
(RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES:

Net earnings                                                                $  35,305        $  61,965
Adjustments to reconcile earnings to net
cash provided by operating activities:
Depreciation and amortization                                                 7,598            7,164
Gain on sales and disposition of real estate                                 (2,106)          (2,748)
Gain on sale of marketable equity securities                                      -          (28,590)
Minority interest in net earnings of Stratosphere
Corporation hotel and casino                                                 1,539            1,153
Provision for loss on real estate                                               232              227
Changes in:
Decrease (increase) in land and
construction-in-progress                                                     9,816           (8,689)
(Increase) decrease in receivables
and other assets                                                              (179)           4,361
(Decrease) increase in accounts payable,
accrued expenses and other liabilities                                       (1,957)           6,692
---------        ---------
Net cash provided by operating activities                                50,248           41,535
---------        ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in mortgages and notes receivable                                      5,974            1,643
Net proceeds from the sale and disposition
of real estate                                                               10,337            5,005
Principal payments received on leases
accounted for under the financing method                                      3,848            3,976
Acquisition of Bayswater's net assets                                         (84,350)               -
Acquisition of rental real estate                                             (27,308)          (1,923)
Additions to rental real estate                                                (2,028)          (1,733)
Additions to hotel casino and resort operating
properties                                                                   (5,325)          (3,441)
Decrease (increase) in investment in treasury bills                            18,655          (53,843)
Investment in Stratosphere Corp. hotel and casino                              (1,970)               -
Disposition of marketable equity securities                                         -          203,917
Increase in due to affiliate                                                   41,266           10,480
Net disposition of limited partnership interests                                  455            1,113
---------        ---------

Net cash (used in) provided by investing activities                     (40,446)         165,194
---------        ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Partners' equity:
Distributions to partners                                                       (10)               -
Distributions to General Partner (Note 7)                                    (4,100)          (1,850)
Debt:
(Decrease) increase in mortgages payable                                       (632)           6,300
Periodic principal payments                                                  (4,715)          (4,535)
Balloon payments                                                             (3,221)               -
---------        ---------

Net cash used in financing activities                                   (12,678)             (85)
---------        ---------

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

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CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN $000'S              

SIX MONTHS ENDED JUNE 30,
--------------------------
2000              1999
---------        ---------
(RESTATED)

NET (DECREASE) INCREASE
IN CASH AND CASH EQUIVALENTS                                                              (2,876)         206,644

CASH AND CASH EQUIVALENTS,
beginning of period                                                                    142,697           34,014
---------        ---------

CASH AND CASH EQUIVALENTS,
end of period                                                                        $ 139,821        $ 240,658
=========        =========

SUPPLEMENTAL INFORMATION:
Cash payments for interest-net of amount
capitalized                                                                       $   7,023        $  10,289
=========        =========

SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:

Reclassifications:
From mortgages and notes receivable                                               $ (62,338)       $       -
To marketable equity and debt securities                                             62,338                -
To property held for sale                                                                 -              352
From financing lease                                                                 (6,730)            (136)
To operating lease                                                                    6,730                -
From operating lease                                                                      -             (216)
From receivables and other assets                                                         -           (2,169)
To hotel and resort operating properties                                                  -              180
To due to affiliate                                                                       -            3,221
From accounts payable, accrued expenses                                                      
and other liabilities                                                                  -           (1,232)
From hotel and resort operating property                                                  -             (763)
To development property                                                                   -              763
---------        ---------

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

See notes to consolidated financial statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.   GENERAL

The accompanying consolidated financial statements and related footnotes should
be read in conjunction with the consolidated financial statements and related
footnotes contained in the Company's annual report on Form 10-K for the year
ended December 31, 1999. The Company's prior period consolidated financial
statements have been restated as described in Notes 2 b. and 2 c. below.

The results of operations for the three and six months ended June 30, 2000 are
not necessarily indicative of the results to be expected for the full year.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. The consolidated financial statements include the accounts of the Company and
its wholly-owned and majority owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.

b. 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"). 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 three and six months ended June 30, 2000 and prior period
financial statements have been restated to include Bayswater.

c. Also 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 three and six months ended June 30,
2000. Prior period financial statements have been restated to include
Stratosphere on a consolidated basis.

d. Revenue recognition - Revenue from real estate sales and related costs are
recognized at the time of closing, when title passes to the buyer. 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."

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

f.  Stratosphere Hotel and Casino:

1.     The second quarter ended on June 25, 2000. There were no
intercompany transactions during the period June 25 to June 30,
2000.

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.

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

3.  CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES

a. The Company entered into a license agreement with an affiliate of the General
Partner for a portion of office space at an annual rental of approximately
$205,000, plus its share of certain additional rent. Such agreement was approved
by the Audit Committee of the Board of Directors of the General Partner (the
"Audit Committee"). For the three and six months ended June 30, 2000, the
Company paid rent of approximately $52,000 and $104,000, respectively, in
accordance with the agreement.

b. Stratosphere billed affiliates of the General Partner approximately $60,000
and $120,000 for administrative services performed by Stratosphere personnel
during the three and six months ended June 30, 2000 respectively.

Stratosphere also received hotel revenue of approximately $200,000 and $400,000
during the three and six months ended June 30, 2000, respectively, in connection
with a tour and travel agreement entered into with an affiliate of the General
Partner.

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c. As of August 11, 2000, affiliates of Carl C. Icahn ("Icahn"), the Chairman of
the Board of the General Partner, own 7,322,873 Preferred Units and 39,359,836
Depositary Units.

4.  COMMITMENTS AND CONTINGENCIES

a. On April 7, 2000, Skyway Freight Systems ("Skyway"), a tenant in a
multi-tenanted industrial complex located in Hebron, Kentucky owned by the
Company, filed a voluntary petition for reorganization under Chapter 11 of the
Federal Bankruptcy Code. Skyways annual rental is approximately $774,000. The
tenant is current under the terms of the lease and has not yet exercised its
right to affirm or reject the lease.

b. Stratosphere Corp. is involved in litigation regarding rental of its retail
space which is presently leased at approximately $1 million per annum. The
plaintiff is seeking to offset post-petition damages against future rent.

5.  HOTEL, CASINO AND RESORT OPERATING PROPERTIES

a. Stratosphere Hotel and Casino

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

On March 24, 2000, the Company purchased from an affiliate of the General
Partner an additional 50,000 shares of the common stock of Stratosphere for
approximately $2 million. The Company now owns approximately 51% of the issued
and outstanding shares of the common stock of Stratosphere. The Company and an
affiliate of the General Partner, which own in the aggregate approximately 90%
of Stratosphere, submitted an offer to the Board of Directors of Stratosphere to
acquire the minority interests. The offer has not been accepted; however,
further discussions are ongoing.

For accounting purposes, the Company has consolidated Stratosphere in the
accompanying financial statements and prior period financial statements have
been restated to include Stratosphere on a consolidated basis.

Stratosphere's operations for the three and six months ended June 30, 2000 and
1999 have been included in "Stratosphere Hotel and Casino operating income and
expenses" in the Consolidated Statements of Earnings. Stratosphere Hotel and
Casino operating expenses include all expenses except for approximately
$2,124,000 and $4,214,000 of depreciation and amortization for the three and six
months ended June 30, 2000, respectively, and 

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$2,057,000 and $4,282,000 for the three and six months ended June 30, 1999,
respectively. Such amounts have been included in "Depreciation and amortization
expense" in the Consolidated Statements of Earnings.

b. Hotel and Resort Operating Properties

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

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

Hotel and resort operations for the three and six months ended June 30, 2000
have been included in "Hotel and resort operating income and expenses" in the
Consolidated Statements of Earnings. Hotel and resort operating expenses include
all expenses except for approximately $369,000 and $673,000 of depreciation and
amortization for the three and six months ended June 30, 2000, respectively, and
$176,000 and $352,000 for the three and six months ended June 30, 1999,
respectively. Such amounts have been included in "Depreciation and amortization
expense" in the Consolidated Statements of Earnings.

Hotel, casino and resort operations are highly seasonal in nature and are not
necessarily indicative of results expected for the full year.

6.  MARKETABLE EQUITY AND DEBT SECURITIES

a. In March 2000, in accordance with a prior agreement, the Company transferred
its First Mortgage Notes ("Notes") in the Sands Hotel and Casino ("Sands") and
the Claridge Hotel and Casino ("Claridge")to an affiliate of the General Partner
in order to facilitate the bankruptcy reorganizations of the two Atlantic City
casinos. The Company was paid approximately $40.5 million, its cost for such
notes. However, the affiliate of the General Partner is obligated to sell back
to the Company and the Company is obligated to repurchase its interest in the
Sands and/or Claridge, as the case may be, at the same price (together with a
commercially reasonable interest factor) when the appropriate licenses are
obtained by the Company.

Regarding the Sands, 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 includes Icahn affiliates) to
receive $110 million in new notes and a 54% ownership position. The plan, which
is subject to certain closing conditions including authorization by the N.J.
Casino Control Commission, provides the Icahn affiliates with a controlling
interest.

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In July 2000, the Claridge's proposed reorganization plan was not accepted by
the required number of bondholders. The plan would have provided for the holders
of $85 million of First Mortgage Notes to receive 100% of the equity in the
reorganized entity. The Claridge stated that it would move to have the plan
confirmed by the U.S. Bankruptcy Court under the provisions of federal
bankruptcy laws which allows the Court to impose a plan, but there can be no
assurances of such confirmation.

Subsequent to the transfer of interests, pursuant to the prior agreement, the
affiliate of the General Partner has purchased approximately $1,525,000 face
value of additional Claridge Notes for approximately $848,000 on the Company's
behalf. The cost of these Notes has been added to the Company's investment and
"Due to affiliate" in the Consolidated Balance Sheets.

Interest expense due to the affiliate for the three and six months ended June
30, 2000 of $1,102,000 and $1,299,000, respectively, has been included in
"Interest expense" in the Consolidated Statements of Earnings.

For accounting purposes, the Company continues to reflect its interests in the
Sands and Claridge notes as available for sale and has recorded its
corresponding liability to repurchase such interests from the affiliate of the
General Partner.

These investments are carried at fair market value on the Balance Sheet. At June
30, 2000, unrealized holding losses of $8,708,000 have been recorded in
Partners' Equity and the carrying value of the investments was approximately
$32,558,000.

b. In 1998 and 1999, the Company purchased approximately $88 million of senior
debt of Philips Services Corp. and Philip Services (Delaware), Inc.
(collectively "Philips") for approximately $39.6 million and received
approximately $5.6 million as a return of capital.

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.

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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 affiliate of Icahn 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. Interest due
the Company for the period April 7 ("Closing date") through June 30, 2000 in the
amount of approximately $394,000 was received on July 5, 2000 and is included in
"Interest income" in the Consolidated Statements of Earnings in the three and
six months ended June 30, 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. Interest
accreted for the period from the Closing date through June 30, 2000 in the
amount of approximately $148,000 is included in "Interest income" in the
Consolidated Statements of Earnings in the three and six months ended June 30,
2000.

For accounting purposes, the Company reflects its interest in New Philips stock
and debt securities as available for sale. These investments are carried at fair
market value on the Balance Sheet. At June 30, 2000, unrealized holding gains of
$334,000 have been recorded in Partners' Equity and the carrying value of the
investments was approximately $29,323,000.

7.  BAYSWATER ACQUISITION

On March 23, 2000, the Company purchased from affiliates of the General Partner,
the net 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.

The accounts of Bayswater are included in these Consolidated Financial
Statements for the three and six months ended June 30, 2000 and prior period
financial statements have been restated to include Bayswater. For accounting
purposes, earnings and distributions/dividends prior to the acquisition have
been allocated to the General Partner and therefore excluded from the
computation of basic and diluted earnings per limited partnership unit.

15

18

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
$1.65 million related to the Bayswater transaction have been included as
"Bayswater acquisition costs" in the Consolidated Statements of Earnings in the
six months ended June 30, 2000. 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 Statement of Changes in Partners' Equity and
Comprehensive Income.

8.  SIGNIFICANT PROPERTY TRANSACTIONS

a. 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.

b. 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 Sheet.

At June 30, 2000, the property had a carrying value of approximately $7,880,000
and was encumbered by a mortgage of approximately $4,161,000 which will be
repaid in the third quarter.

9.  PREFERRED UNITS

Pursuant to the terms of the Preferred Units, on February 23, 2000, the Company
declared its scheduled annual preferred unit distribution payable in additional
Preferred Units at the rate of 5% of the liquidation preference of $10. The
distribution was payable March 31, 2000 to holders of record as of March 15,
2000. A total of 403,022 additional Preferred Units were issued. As of June 30,
2000, 8,463,459 Preferred Units are issued and outstanding.

10. EARNINGS PER SHARE

Basic earnings per share are based on earnings after the preferred pay-in-kind
distribution to Preferred Unitholders. Diluted earnings per share uses net
earnings attributable to limited partner interests as the numerator with the
denominator based on the weighted average number of units and equivalent units
outstanding. The Preferred Units are considered to be unit equivalents. The
weighted average number of depositary units outstanding for basic 

16

19

earnings per share purposes for the three and six months ended June 30, 2000
and 1999 were 46,098,284. The weighted average number of depositary units and
equivalent units assumed outstanding for diluted earnings per share purposes
were (i) for the three months ended June 30, 2000 and 1999 56,055,005 and
56,249,021, respectively, and (ii) for the six months ended June 30, 2000 and
1999 56,559,509 and 55,567,794, respectively. The number of limited partnership
units used in the calculation of diluted income per limited partnership unit
increased by (i) 9,956,721 and 10,150,737 limited partnership units for the
three months ended June 30, 2000 and 1999, respectively, and (ii) 10,461,225
and 9,469,510 limited partnership units for the six months ended June 30, 2000
and 1999, respectively, to reflect the effects of the conversion of Preferred
Units.

For the three and six months ended June 30, 2000 and 1999, basic and diluted
earnings per weighted average limited partnership unit are detailed as follows:

Three Months Ended    Six Months Ended
------------------    ----------------
6/30/00   6/30/99    6/30/00     6/30/99
-------   -------    -------     -------
Basic:

Earnings before property
and securities transactions     $ .41    $   .25    $   .63    $    .51
Net gain from property
and securities transactions       .01        .63        .04         .66
----       ----       ----       -----
Net earnings                       $ .42    $   .88    $   .67    $   1.17
====       ====       ====       =====

Diluted:
Earnings before property
and securities transactions     $ .35    $   .23    $   .55    $    .46
Net gain from property
and securities transactions       .01        .51        .04         .55
----       ----       ----       -----
Net earnings                       $ .36    $   .74    $   .59    $   1.01
====       ====       ====       =====

11.  COMPREHENSIVE INCOME

The Company follows SFAS No. 130 "Reporting Comprehensive Income" which
establishes standards for the reporting and display of comprehensive income and
its components. The components of comprehensive income include net income and
certain amounts previously reported directly in equity.

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20

Comprehensive income for the three months ended June 30, 2000 and 1999 is as
follows (in $000's):

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

Net income                               $ 20,607        $ 45,779
Realized gains previously reported
in partner's equity                          -         (16,058)
Unrealized losses on securities
available for sale                        (743)           (383)
--------        --------
Comprehensive income                     $ 19,864        $ 29,338
========        ========

Comprehensive income for the six months ended June 30, 2000 and 1999 is as
follows (in $000's):

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

Net income                               $ 35,305        $ 61,965
Realized gains previously reported
in partner's equity                          -         (16,058)
Unrealized losses on securities
available for sale                      (1,299)         (2,033)
--------        --------
Comprehensive income                     $ 34,006        $ 43,874
========        ========

12.  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 properties, (iv) land sales, house
and condominium development, and (v) investment in securities including
investment in other limited partnerships and marketable equity securities. The
Company's reportable segments offer different services and require different
operating strategies and management expertise.

Non-segment revenue to reconcile to total revenue consists primarily of interest
income on treasury bills and other investments. There have been no material
changes in segment assets since December 31, 1999, after giving effect to the
restatement as described in notes 2b. and c.

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21

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

The revenues and net earnings for each of the reportable segments are summarized
as follows for the three and six months ended June 30, 2000 and 1999 (in
$000's).

Three Months Ended
------------------
6/30/00                         6/30/99
-------                         --------

Revenues:
Rental real estate                                         $11,223                         $10,723
Hotel & resort operating properties                          5,763                           5,553
Hotel & casino operating properties                         32,088                          29,771
Land, house and condominium sales                           22,227                          20,640
Other investments                                            2,915                           3,972
-------                         -------

Sub-total                                  74,216                          70,659

Reconciling items                                            8,099 (1)                       4,653 (1)
-------                         -------

Total revenues                            $82,315                         $75,312
=======                         =======

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

Three Months Ended
------------------
6/30/00                 6/30/99
-------                 -------
Net earnings:

Segment earnings:
Rental real estate                                                            $9,950                   $9,929
Land, house and condominium development                                        5,688                    4,294
Hotel and resort operating properties                                            962                    1,507
Hotel and casino operating properties                                          3,290                    2,179

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Other investments                                                              2,915                               3,972
--------                           ---------
Total segment earnings                                                     22,805                              21,881
Other expenses, net                                                           (2,198)                             (4,692)
Gain on sale of marketable equity securities                                     -                                28,590
General partner's share                                                         (410)                             (4,211)
--------                            --------
Net earnings-limited partner unitholders                                 $ 20,197                            $ 41,568
========                            ========

Six Months Ended
--------------------  
6/30/00                             6/30/99
---------                            --------
Revenues:
Rental real estate                                                               $ 21,752                            $ 21,510
Hotel & resort operating properties                                                 9,527                               8,111
Hotel & casino operating properties                                                66,092                              63,686
Land, house and condominium sales                                                  41,036                              33,781
Other investments                                                                   3,978                               8,742
--------                          ----------

Sub-total                                                        142,385                             135,830

Reconciling items                                                                  15,297      (1)                      9,006   (1)
--------                           ---------

Total revenues                                                  $157,682                            $144,836
========                            ========

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

Six Months Ended
--------------------
6/30/00                           6/30/99
---------                         ----------

Net earnings:

Segment earnings:
Rental real estate                                                             $19,675                         $19,988
Land, house and condominium development                                         10,336                           7,420
Hotel and resort operating properties                                              266                           1,327
Hotel and casino operating properties                                            7,270                           6,523

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Other investments                                                              3,978                             8,742
---------                        ---------
Total segment earnings                                                     41,525                            44,000
Other expenses, net                                                           (6,220)                          (10,625)
Gain on sale of marketable equity securities                                     -                              28,590
General partner's share                                                       (2,132)                           (5,881)
--------                          ---------
Net earnings-limited partner unitholders                                 $ 33,173                          $ 56,084
========                          =========

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

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

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

GENERAL

The Company believes that it will benefit from the diversification of its
portfolio of assets. In selecting future real estate investments, the Company
intends to focus on assets that it believes are undervalued in the real estate
market, which investments may require substantial liquidity to maintain a
competitive advantage. To further its investment objectives, the Company may
consider the acquisition or seek effective control of land development companies
and other real estate operating companies which may have a significant inventory
of quality assets under development. The Company believes that there are still
opportunities available to acquire investments that are undervalued. These may
include commercial properties, residential and commercial development projects,
land, assets in the gaming industry, non-performing loans, the securities of
entities which own, manage or develop significant real estate assets, including
limited partnership units and securities issued by 

21

24
real estate investment trusts and the acquisition of debt or equity securities
of companies which may be undergoing restructuring and sub-performing properties
that may require active asset management and significant capital improvements.
As discussed elsewhere herein, the Company has made investments in the gaming
industry, and may consider additional gaming industry investments and
investments related to the entertainment industry including interests in
additional casino properties and those in the entertainment field such as movie
theater interests and the financing and investment in the movie production and
distribution industry. Such investments may include acquisitions from, or in
joint venture or co-management with, Icahn, the General Partner or their
affiliates, provided that the terms therof are fair and reasonable to the
Company. The Company notes that while there are still opportunities available to
acquire investments that are undervalued, acquisition opportunities in the real
estate market for value-added investors have become more competitive to source
and the increased competition may have some impact on the spreads and the
ability to find quality assets that provide returns that are sought. These
investments may not be readily financeable and may not generate immediate
positive cash flow for the Company. As such, they require the Company to
maintain a strong capital base in order to react quickly to these market
opportunities as well as to allow the Company the financial strength to develop
or reposition these assets. While this may impact cash flow in the near term and
there can be no assurance that any asset acquired by the Company will increase
in value or generate positive cash flow, the Company intends to focus on assets
that it believes may provide opportunities for long-term growth and further its
objective to diversify its portfolio. Historically, substantially all of the
Company's real estate assets have been net leased to single corporate tenants
under long-term leases. With certain exceptions, these tenants are required to
pay all expenses relating to the leased property and therefore the Company is
not typically responsible for payment of expenses, such as maintenance,
utilities, taxes and insurance associated with such properties.

By the end of the year 2002, net leases representing approximately 18.2% of the
Company's net annual rentals from its portfolio will be due for renewal, and by
the end of the year 2004, net leases representing approximately 30.1% of the
Company's net annual rentals will be due for renewal. Since most of the
Company's properties are net-leased to single, corporate tenants, it may be
difficult and time-consuming to re-lease or sell those properties that existing
tenants decline to re-let or purchase and the Company may be required to incur
expenditures to renovate such properties for new tenants. In addition, the
Company may become responsible for the payment of certain operating expenses,
including maintenance, utilities, taxes, insurance and environmental compliance
costs associated with such properties, which are presently the responsibility of
the tenant. As a result, the Company could experience an adverse impact on net
cash flow in the future from such properties.

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

In September 1997, the Company completed its Rights Offering (the "1997
Offering") to holders of its Depositary Units to increase its assets available
for investment, take advantage of investment opportunities, further diversify

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25

its portfolio of assets and mitigate against the impact of potential lease
expirations. Net proceeds of approximately $267 million were raised for
investment purposes.

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

The Company has notified each of the responsible tenants to attempt to ensure
that they cause any required investigation and/or remediation to be performed
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 the Company's
exposure could amount to $2-3 million, however, as no Phase II Environmental
Site Assessments have been conducted by the consultants, there can be no
accurate estimation of the need for or extent of any required remediation, or
the costs thereof. In addition, the Company has notified all tenants of the
Resource Conservation and Recovery Act's ("RCRA") December 22, 1998 requirements
for regulated underground storage tanks. The Company may, at its own cost, have
to cause compliance with RCRA's requirements in connection with vacated
properties, bankrupt tenants and new acquisitions. Phase I Environmental Site
Assessments will also be performed in connection with new acquisitions and with
such property refinancings as the Company may deem necessary and appropriate.

The Company is in the process of updating its Phase I Site Assessments for
certain of its environmentally sensitive properties including properties with
open RCRA requirements. Approximately forty updates are expected to be completed
in 2000 with another forty scheduled for the year 2001.

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26
RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Gross revenues increased by $7,003,000, or 9.3%, during the three months ended
June 30, 2000 as compared to the same period in 1999. This increase reflects
increases of $4,103,000 in interest income on treasury bills and other
investments, $2,317,000 in Stratosphere Corporation hotel and casino operating
income, $1,587,000 in land, house and condominium sales, $1,214,000 in rental
income, and $210,000 in hotel and resort operating income, partially offset by
decreases of $1,714,000 in dividend and other income and $714,000 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
and an increase in interest rates. The increase in Stratosphere Corporation
hotel and casino operating income is primarily attributable to gaming
operations. 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
Nabisco Holdings Corp. ("RJR") common stock in June of 1999.

Expenses increased by $2,992,000, or 5.07%, during the three months ended June
30, 2000 as compared to the same period in 1999. This increase reflects
increases of $1,206,000 in Stratosphere Corporation hotel and casino operating
expenses, $755,000 in hotel and resort operating expenses, $525,000 in
depreciation and amortization, $479,000 in rental property expenses, $299,000 in
general and administrative expenses and $193,000 in the cost of land, house and
condominium sales partially offset by a decrease of $465,000 in interest
expense. The increase in Stratosphere Corporation hotel and casino operating
expenses is primarily attributable to gaming operations. The increase in hotel
and resort operating expenses is primarily attributable to the New Seabury
resort operations. The increase in rental property expenses is primarily
attributable to newly acquired and off-lease properties. The decrease in
interest expense is primarily attributable to decreased interest due affiliates
in connection with repurchase obligations.

Earnings before property and securities transactions and minority interest in
subsidiary increased during the three months ended June 30, 2000 by $4,011,000
as compared to the same period in 1999.

Gain on property transactions increased by $143,000, during the three months
ended June 30, 2000 as compared to the same period in 1999, due to differences
in the size and number of transactions.

24

27

During the three months ended June 30, 2000, the Company recorded a provision
for loss on real estate of $232,000. No such provision was recorded in the same
period in 1999.

In the three months ended June 30, 1999 the Company recorded a non-recurring
gain on sale of marketable equity securities of $28,590,000 related to the sale
of its RJR common stock. There was no such income in 2000.

Minority interest in the net earnings of Stratosphere Corporation increased by
$504,000 during the three months ended June 30, 2000 as compared to the same
period in 1999.

Net earnings for the three months ended June 30, 2000 decreased by $25,172,000
as compared to the three months ended June 30, 1999 primarily due to the
non-recurring gain on the sale of the Company's RJR common stock in 1999
partially offset by increased earnings before property and securities
transactions and minority interest in subsidiary.

Diluted earnings per weighted average limited partnership unit outstanding
before property and securities transactions were $.35 in the three months ended
June 30, 2000 compared to $.23 in the comparable period of 1999, and net gain
from property and securities transactions was $.01 in the three months ended
June 30, 2000 compared to $.51 in the comparable period of 1999. Diluted net
earnings per weighted average limited partnership unit outstanding totalled $.36
in the three months ended June 30, 2000 compared to $.74 in the comparable
period of 1999.

SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Gross revenues increased by $12,846,000, or 8.9%, during the six months ended
June 30, 2000 as compared to the same period in 1999. This increase reflects
increases of $7,255,000 in land, house and condominium sales, $6,971,000 in
interest income on treasury bills and other investments, $2,406,000 in
Stratosphere Corporation hotel and casino operating income, $1,477,000 in rental
income, and $1,416,000 in hotel and resort operating income, partially offset by
decreases of $5,444,000 in dividend and other income and $1,235,000 in financing
lease income. The increase in land, house and condominium sales is primarily due
to differences in the size and number of transactions. 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 gaming operations. The increase in rental income is
primarily attributable to newly acquired properties. The increase in hotel and
resort

25

28

operating income is primarily attributable to the Bayswater and New Seabury
resort operations. The decrease in dividend and other income is primarily due to
the disposition of the RJR common stock in June of 1999.

Expenses increased by $9,776,000, or 8.7%, during the six months ended June 30,
2000 as compared to the same period in 1999. This increase reflects increases of
$4,339,000 in the cost of land, house and condominium sales, $2,477,000 in hotel
and resort operating expenses, $1,659,000 in Stratosphere Corporation hotel and
casino operating expenses, $1,650,000 in Bayswater acquisition costs, $555,000
in rental property expenses, $434,000 in depreciation and amortization and
$305,000 in general and administrative expenses partially offset by a decrease
of $1,643,000 in interest expense. 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 Stratosphere
Corporation hotel and casino operating expenses is primarily due to gaming
operations. The increase in rental property expenses is primarily attributable
to newly acquired and off-lease properties. The decrease in interest expense is
primarily due to decreased interest due affiliates in connection with repurchase
obligations.

Earnings before property and securities transactions and minority interest in
subsidiary increased during the six months ended June 30, 2000 by $3,070,000 as
compared to the same period in 1999.

Gain on property transactions decreased by $749,000, during the six months ended
June 30, 2000 as compared to the same period in 1999 due to differences in the
size and number of transactions.

During the six months ended June 30, 2000, the Company recorded a provision for
loss on real estate of $232,000 as compared to $227,000 in the same period in
1999.

In the six months ended June 30, 1999, the Company recorded a non-recurring gain
on sale of marketable equity securities of $28,590,000 related to the sale of
its RJR common stock. There was no such income in 2000.

Minority interest in the net earnings of Stratosphere Corporation increased by
$386,000 during the six months ended June 30, 2000 as compared to the same
period in 1999.

Net earnings for the six months ended June 30, 2000 decreased by $26,660,000 as
compared to the six months ended June 30, 1999 primarily due to the
non-recurring gain on the sale of the Company's RJR common stock in 

26

29

1999 partially offset by increased earnings before property and securities
transactions and minority interest in subsidiary.

Diluted earnings per weighted average limited partnership unit outstanding
before property and securities transactions were $.55 in the six months ended
June 30, 2000 compared to $.46 in the comparable period of 1999, and net gain
from property and securities transactions was $.04 in the six months ended June
30, 2000 compared to $.55 in the comparable period of 1999. Diluted net earnings
per weighted average limited partnership unit outstanding totalled $.59 in the
six months ended June 30, 2000 compared to $1.01 in the comparable period of
1999.

CAPITAL RESOURCES AND LIQUIDITY

Generally, the cash needs of the Company for day-to-day operations have been
satisfied from cash flow generated from current operations. 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 flow
from the operations of Bayswater and Stratosphere 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 are scheduled to expire. Twenty
nine of these leases originally representing approximately $3.7 million in
annual rental income have been or will be re-let or renewed for approximately
$3.7 million in annual rentals. Such renewals are generally for a term of five
years. Eight properties, with an approximate annual rental income of $1.4
million have not been renewed and will be marketed for sale or lease when the
current lease terms expire. Two properties whose annual rentals were $.6 million
have been sold.

The Board of Directors of the General Partner announced that no distributions on
its Depositary Units are expected to be made in 2000. The Company believes that
it should continue to hold and invest rather than distribute cash. In making its
announcement, the Company noted it plans to continue to apply available
operating cash flow toward its operations, repayment of maturing indebtedness,
tenant requirements and other capital expenditures and creation of cash reserves
for contingencies including environmental matters and scheduled lease
expirations.

During the six months ended June 30, 2000, the Company generated approximately
$22.8 million in cash flow from day-to-day operations which excludes
approximately $16 million in cash flow from the operations of

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Bayswater and Stratosphere which are being retained for their operations and
excludes approximately $4.4 million in interest earned on the 1997 Offering
proceeds which is being retained for future acquisitions.

Capital expenditures for real estate were approximately $3.2 million during the
six months ended June 30, 2000.

In 2000, the Company had approximately $3.3 million of maturing debt
obligations, which it repaid in the second quarter 2000, and intends to repay a
higher interest rate mortgage of approximately $4,161,000 secured by a property
formerly tenanted by Grand Union Company. The Company may seek to refinance a
portion of these maturing mortgages, although it does not expect to refinance
all of them, and may repay them from cash flow and increase reserves from time
to time, thereby reducing cash flow otherwise available for other uses.

During the six months ended June 30, 2000, net cash flow after payment of
maturing debt obligations and capital expenditures was approximately $16.4
million which was added to the Company's operating cash reserves. This excludes
cash flow from Bayswater and Stratosphere which is being retained for their
operations. The Company's operating cash reserves are approximately $125 million
at June 30, 2000 (not including the cash from capital transactions or from the
1997 Offering which is being retained for investment), which are being retained
to meet maturing debt obligations, capital expenditures and certain
contingencies.

Sales proceeds from the sale or disposal of portfolio properties totalled
approximately $10.3 million in the six months ended June 30, 2000. The Company
intends to use asset sales, financing and refinancing proceeds for new
investments.

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

In March, 2000, the Company acquired the assets of Bayswater and all of the
ownership interests of its affiliated entities for approximately $84.35 million.
In addition the Company purchased a multi-tenant office building for
approximately $27.5 million.

Also in March, 2000, the Company acquired approximately an additional 2%
interest in Stratosphere from affiliates of the General Partner for
approximately $2 million, thereby providing the Company with an aggregate

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31

interest in Stratosphere of approximately 51%. Also, the Company understands
that Stratosphere will require approximately $70 million for expansion of its
hotel and casino facility, a substantial portion of which will be provided by
the Company. The Company may acquire additional interests in Stratosphere.

The Company anticipates that golf course and clubhouse improvements in New
Seabury, Massachusetts will require the expenditure by the Company of an
aggregate of approximately $11 million in years 2000 and 2001. In addition, the
Company anticipates participating in the $65 million investment to be made in
the Sands as part of the Sands reorganization.

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

Pursuant to the 1997 Offering, which closed in September 1997, the Company
raised approximately $267 million to increase its available liquidity so that it
will be in a better position to take advantage of investment opportunities and
to further diversity its portfolio.

The Company's cash and cash equivalents and investment in treasury bills
decreased by $21.5 million during the six months ended June 30, 2000, primarily
due to the acquisition of Bayswater's net assets ($84.4 million) and one
property acquisition ($27.5 million), partially offset by the transfer of the
Claridge and Sands interests ($40.5 million), net cash flow from operations
($16.4 million), net cash flow from Bayswater and Stratosphere operations ($16
million), sales proceeds from the disposition of real estate ($10.3 million),
and miscellaneous other items ($7.2 million).

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

29

32

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

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

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

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

PART II.  Other information

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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

EXHIBIT INDEX

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

30

33

SIGNATURES

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

AMERICAN REAL ESTATE PARTNERS, L.P.
By: American Property Investors, Inc.
General Partner
/s/ John P. Saldarelli
-------------------------------
John P. Saldarelli
Treasurer
Chief Financial Officer
and Principal Accounting Officer

Date:   August 14, 2000

<ARTICLE> 5
<MULTIPLIER> 1,000

<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          DEC-31-2000
<PERIOD-END>                               JUN-30-2000
<CASH>                                         139,821
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