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<SEC-DOCUMENT>0000950123-04-010396.txt : 20040830
<SEC-HEADER>0000950123-04-010396.hdr.sgml : 20040830
<ACCEPTANCE-DATETIME>20040830171745
ACCESSION NUMBER:		0000950123-04-010396
CONFORMED SUBMISSION TYPE:	8-K
PUBLIC DOCUMENT COUNT:		9
CONFORMED PERIOD OF REPORT:	20040806
ITEM INFORMATION:		Other Events
ITEM INFORMATION:		Financial Statements and Exhibits
FILED AS OF DATE:		20040830
DATE AS OF CHANGE:		20040830

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			AMERICAN REAL ESTATE PARTNERS L P
		CENTRAL INDEX KEY:			0000813762
		STANDARD INDUSTRIAL CLASSIFICATION:	OPERATORS OF NONRESIDENTIAL BUILDINGS [6512]
		IRS NUMBER:				133398766
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		8-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-09516
		FILM NUMBER:		041006077

	BUSINESS ADDRESS:	
		STREET 1:		100 SOUTH BEDFORD ROAD
		CITY:			MT KISCO
		STATE:			NY
		ZIP:			10549
		BUSINESS PHONE:		9142427700
</SEC-HEADER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>y00603ke8vk.txt
<DESCRIPTION>8-K
<TEXT>
<PAGE>
        =================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 8-K
                                 CURRENT REPORT
                     PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


                                 August 6, 2004
                ------------------------------------------------
                Date of Report (Date of earliest event reported)

                       American Real Estate Partners, L.P.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


       Delaware                      1-9516                   13-3398766
       --------                      ------                   ----------
(State or other jurisdiction   (Commission File Number)      (IRS Employer
    of incorporation)                                      Identification No.)

                             100 South Bedford Road
                               Mt. Kisco, NY 10549
            ---------------------------------------------------------
           (Address of principal executive offices including zip code)


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


                                 Not applicable
                        --------------------------------
          (Former name or former address, if changed since last report)


Check  the  appropriate  box  below  if the  Form  8-K  filing  is  intended  to
simultaneously  satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):

[ ]  Written communications pursuant to Rule 425 under the Securities
     Act (17 CFR 230.425)

[ ]  Soliciting material pursuant to Rule 14a-12 under the
     Exchange Act (17 CFR 240.14a-12)

[ ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the
     Exchange Act (17 CFR 240.14d-2(b))

[ ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the
     Exchange Act (17 CFR 240.13e-4(c))

     ==========================================================================

<PAGE>

Item 8.01. Other Events.

As a result of the reclassification of certain real estate to properties held
for sale during the first quarter of 2004 and in connection with the recent
filing of a Form S-4, we have reclassified the income and expenses of such
properties to discontinued operations for the first quarter of 2004 and for
prior periods. These reclassifications had no effect on our reported net income
or net income per limited partnership unit. Accordingly, we are providing
updated information for the following: Selected Financial Data, Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Financial Statements and Exhibits, Financial Statement Schedules and Reports on
Form 8-K for the periods contained in our Annual Report on Form 10-K for the
year ended December 31, 2003 ("Form 10-K"). All other items of the Form 10-K
remain unchanged.

Item 9.01. Financial Statements and Exhibits.

(c)   Exhibits.

31.1   Certification of Chief Executive Officer--pursuant to Section 302(a)
       of the Sarbanes-Oxley Act of 2002

31.2   Certification of Chief Financial Officer--pursuant to Section 302(a)
       of the Sarbanes-Oxley Act of 2002

32.1   Certification of Principal  Executive  Officer--pursuant  to Section
       906 of the  Sarbanes-Oxley Act of 2002

32.2   Certification of Principal  Financial  Officer--pursuant  to Section
       906 of the  Sarbanes-Oxley Act of 2002

99.1   Item 6. Selected Financial Data of Form 10-K.

99.2   Item 7.  Management's  Discussion  and  Analysis  of Financial
       Condition  and  Results of Operations of Form 10-K.

99.3   Item 8. Financial Statements of Form 10-K.

99.4   Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
       of Form 10-K.



<PAGE>


                                   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 hereunto duly authorized.

                                    AMERICAN REAL ESTATE PARTNERS, L.P.

                                    By: American Property Investors, Inc.,
                                    the general partner of American Real
                                    Estate Partners, L.P.


                                       By:   /s/ John P. Saldarelli
                                            -----------------------------------
                                             John P. Saldarelli
                                             Treasurer, Chief Financial Officer
                                             and Principal Accounting Officer
Dated: August 30, 2004


<PAGE>


                                  Exhibit Index

Exhibit No.       Description
- -----------       ------------

31.1              Certification of Chief Executive Officer pursuant to
                  Section 302(a) of the Sarbanes-Oxley Act of 2002

31.2              Certification of Chief Financial Officer--pursuant to
                  Section 302(a) of the Sarbanes-Oxley Act of 2002

32.1              Certification of Principal Executive Officer--pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002

32.2              Certification of Principal Financial Officer--pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002

99.1              Item 6. Selected Financial Data of Form 10-K.

99.2              Item 7. Management's Discussion and Analysis of Financial
                  Condition and Results of Operations of Form 10-K.

99.3              Item 8. Financial Statements of Form 10-K.

99.4              Item 15. Exhibits, Financial Statement Schedules and Reports
                  on Form 8-K of Form 10-K.



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>2
<FILENAME>y00603kexv31w1.txt
<DESCRIPTION>CERTIFICATION
<TEXT>
<PAGE>
                                                                    EXHIBIT 31.1


                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER


                           PURSUANT TO 18 U.S.C. 1350
                SECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002

I, Keith A. Meister certify that:

      1. I have reviewed this Current Report on Form 8-K of American Real Estate
Partners, L.P. (the "Report");

      2. Based on my knowledge, this Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Report;

      3. Based on my knowledge, the financial statements, and other financial
information included in this Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as
of, and for, the periods presented in this Report;

      4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have:

            a) designed such disclosure controls and procedures, or caused such
      disclosure controls and procedures to be designed under our supervision,
      to ensure that material information relating to the Registrant, including
      its consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this Report is being
      prepared;

            b) evaluated the effectiveness of the Registrant's disclosure
      controls and procedures and presented in this Report our conclusions about
      the effectiveness of the disclosure controls and procedures as of the end
      of the period covered by this report based on such evaluation and;

            c) disclosed in this Report any changes in the Registrant's internal
      control over financial reporting that occurred during the Registrant's
      most recent fiscal quarter (the Registrant's fourth fiscal quarter in the
      case of an annual report) that has materially affected, or is reasonably
      likely to materially affect, the Registrant's internal control over
      financial reporting.

      5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the Registrant's auditors and the audit committee of Registrant's board of
directors (or persons performing the equivalent functions):

            a) all significant deficiencies and material weaknesses in the
      design or operation of internal control over financial reporting which are
      reasonably likely to adversely affect the Registrant's ability to record,
      process, summarize and report financial information; and

            b) any fraud, whether or not material, that involves management or
      other employees who have a significant role in the Registrant's internal
      control over financial reporting.



                                                 /s/ KEITH A. MEISTER
                                        ----------------------------------------
                                                   KEITH A. MEISTER
                                        PRESIDENT AND CHIEF EXECUTIVE OFFICER OF
                                           AMERICAN PROPERTY INVESTORS, INC.,
                                                 THE GENERAL PARTNER OF
Date: August 30, 2004                      AMERICAN REAL ESTATE PARTNERS, L.P.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>3
<FILENAME>y00603kexv31w2.txt
<DESCRIPTION>CERTIFICATION
<TEXT>
<PAGE>
                                                                    EXHIBIT 31.2


                    CERTIFICATION OF CHIEF FINANCIAL OFFICER


                                   PURSUANT TO
                SECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002

I, John P. Saldarelli, certify that:

      1. I have reviewed this Current Report on Form 8-K of American Real Estate
Partners, L.P. (the "Report");

      2. Based on my knowledge, this Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Report;

      3. Based on my knowledge, the financial statements, and other financial
information included in this Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as
of, and for, the periods presented in this Report;

      4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have:

            a) designed such disclosure controls and procedures, or caused such
      disclosure controls and procedures to be designed under our supervision,
      to ensure that material information relating to the Registrant, including
      its consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this Report is being
      prepared;

            b) evaluated the effectiveness of the Registrant's disclosure
      controls and procedures and presented in this Report our conclusions about
      the effectiveness of the disclosure controls and procedures as of the end
      of the period covered by this report based on such evaluation and;

            c) disclosed in this Report any changes in the Registrant's internal
      control over financial reporting that occurred during the Registrant's
      most recent fiscal quarter (the Registrant's fourth fiscal quarter in the
      case of an annual report) that has materially affected, or is reasonably
      likely to materially affect, the Registrant's internal control over
      financial reporting.

      5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the Registrant's auditors and the audit committee of Registrant's board of
directors (or persons performing the equivalent functions):

            a) all significant deficiencies and material weaknesses in the
      design or operation of internal control over financial reporting which are
      reasonably likely to adversely affect the Registrant's ability to record,
      process, summarize and report financial information; and

            b) any fraud, whether or not material, that involves management or
      other employees who have a significant role in the Registrant's internal
      control over financial reporting.


                                                 /s/ JOHN P. SALDARELLI
                                        ----------------------------------------
                                                  JOHN P. SALDARELLI
                                        TREASURER AND CHIEF FINANCIAL OFFICER OF
                                           AMERICAN PROPERTY INVESTORS, INC.,
                                                 THE GENERAL PARTNER OF
Date: August 30, 2004                      AMERICAN REAL ESTATE PARTNERS, L.P.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>4
<FILENAME>y00603kexv32w1.txt
<DESCRIPTION>CERTIFICATION
<TEXT>
<PAGE>
                                                                    EXHIBIT 32.1


                  CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER


                                   PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      I, Keith A. Meister, President and Chief Executive Officer (Principal
Executive Officer) of American Property Investors, Inc., the General Partner of
American Real Estate Partners, L.P. (the "Registrant"), certify that to the best
of my knowledge, based upon a review of the Current Report of the Registrant on
Form 8-K as filed with the Securities and Exchange Commission on the date hereof
(the "Report"):

            (1) The Report fully complies with the requirements of Section 13(a)
      or 15(d) of the Securities Exchange Act of 1934, as amended; and

            (2) The information contained in the Report fairly presents, in all
      material respects, the financial condition and results of operations of
      the Registrant.



                                                  /s/ KEITH A. MEISTER
                                        ----------------------------------------
                                                    KEITH A. MEISTER
                                        PRESIDENT AND CHIEF EXECUTIVE OFFICER OF
                                            AMERICAN PROPERTY INVESTORS, INC.,
                                                  THE GENERAL PARTNER OF
Date: August 30, 2004                       AMERICAN REAL ESTATE PARTNERS, L.P.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>5
<FILENAME>y00603kexv32w2.txt
<DESCRIPTION>CERTIFICATION
<TEXT>
<PAGE>
                                                                    EXHIBIT 32.2


                  CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER


                                   PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      I, John P. Saldarelli, Treasurer and Chief Financial Officer (Principal
Financial Officer) of American Property Investors, Inc., the General Partner of
American Real Estate Partners, L.P. (the "Registrant"), certify that to the best
of my knowledge, based upon a review of the Current Report of the Registrant on
Form 8-K as filed with the Securities and Exchange Commission on the date hereof
(the "Report"):

            (1) The Report fully complies with the requirements of Section 13(a)
      or 15(d) of the Securities Exchange Act of 1934, as amended; and

            (2) The information contained in the Report fairly presents, in all
      material respects, the financial condition and results of operations of
      the Registrant.



                                                  /s/ JOHN P. SALDARELLI
                                           -------------------------------------
                                                    JOHN P. SALDARELLI
                                           TREASURER AND CHIEF FINANCIAL OFFICER
                                             AMERICAN PROPERTY INVESTORS, INC.,
                                                  THE GENERAL PARTNER OF
Date: August 30, 2004                       AMERICAN REAL ESTATE PARTNERS, L.P.


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>6
<FILENAME>y00603kexv99w1.txt
<DESCRIPTION>ITEM 6. SELECTED FINANCIAL DATA ON FORM 10-K
<TEXT>
<PAGE>
                                                                               .
                                                                               .
                                                                               .
                                                                    Exhibit 99.1

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                                    -----------------------
                                              2003            2002            2001            2000            1999
                                           ---------       ---------       ---------       ---------       ---------
                                                                        (IN THOUSANDS)
<S>                                        <C>             <C>             <C>             <C>             <C>
OPERATING DATA:
Total revenues .........................   $ 276,556       $ 346,380       $ 322,322       $ 294,267       $ 279,489
                                           =========       =========       =========       =========       =========
Operating income .......................   $  62,891       $  83,730       $  63,788       $  65,802       $  65,369
Other gains and (losses):
  Provision for loss on real estate ....        (750)         (3,212)         (3,184)         (1,351)         (1,946)
  Gain on sale of marketable
    equity and debt securities .........       2,607              --           6,749              --          28,590
  Write-down of equity securities
    available for sale .................        (961)         (8,476)             --              --              --
  Write-down of mortgages and
    notes receivable ...................     (18,798)             --              --              --              --
  Gain on sales and disposition
    of real estate .....................       7,121           8,990           1,737           6,763          13,971
    (Loss) gain on limited
      partnership interests ............          --          (3,750)             --           3,461              --
  Minority interest in net earnings
    of Stratosphere Corporation ........          --          (1,943)           (450)         (2,747)         (1,002)
                                           ---------       ---------       ---------       ---------       ---------
Income from continuing operations
  before income taxes ..................      52,110          75,339          68,640          71,928         104,982
Income tax benefit (expense) ...........       6,495          (7,480)         30,077          (2,533)           (775)
                                           ---------       ---------       ---------       ---------       ---------
Income from continuing operations ......      58,605          67,859          98,717          69,395         104,207
Discontinued operations:
  Income from discontinued operations ..       6,139           6,007           6,117           5,755           3,522
  Gain on sales and disposition of
    real estate ........................       3,353              --              --              --              --
                                           ---------       ---------       ---------       ---------       ---------
Income from discontinued operations ....       9,492           6,007           6,117           5,755           3,522
                                           ---------       ---------       ---------       ---------       ---------
Net earnings ...........................   $  68,097       $  73,866       $ 104,834       $  75,150       $ 107,729
                                           =========       =========       =========       =========       =========
</TABLE>




<TABLE>
<CAPTION>
                                                                  (IN $000'S EXCEPT PER UNIT AMOUNTS)
                                                                         YEAR ENDED DECEMBER 31,
                                                                         -----------------------
                                                    2003          2002            2001             2000           1999
                                                    ----          -------         -------          ----           ----
<S>                                             <C>             <C>             <C>             <C>            <C>
Net Earnings attributable to: (see note
  below)
  Limited partners ..........................   $    59,360     $    63,168     $    66,190     $    72,225    $    93,909
  General Partner ...........................         8,737          10,698          38,644           2,925         13,820
                                                -----------     -----------     -----------     -----------    -----------
Net Earnings ................................   $    68,097     $    73,866     $   104,834     $    75,150    $   107,729
                                                ===========     ===========     ===========     ===========    ===========

Net earnings per limited partnership unit:
  Basic earnings:
    Income from continuing operations .......   $      1.03     $      1.15     $      1.21     $      1.36    $      1.88
    Income from discontinued operations .....          0.20            0.12            0.13            0.12           0.07
                                                -----------     -----------     -----------     -----------    -----------
  Basic earnings per LP Unit ................   $      1.23     $      1.27     $      1.34     $      1.48    $      1.95
                                                ===========     ===========     ===========     ===========    ===========
Weighted average limited partnership
  units outstanding .........................    46,098,284      46,098,284      46,098,284      46,098,284     46,098,284
                                                ===========     ===========     ===========     ===========    ===========
  Diluted earnings:
    Income from continuing operations .......   $      0.96     $      1.02     $      1.09     $      1.19    $      1.61
    Income from discontinued operations .....          0.17            0.10            0.10            0.10           0.06
                                                -----------     -----------     -----------     -----------    -----------
  Diluted earnings per LP unit ..............   $      1.13     $      1.12     $      1.19     $      1.29    $      1.67
                                                ===========     ===========     ===========     ===========    ===========
Weighted average limited partnership
  units and equivalent partnership
  units outstanding .........................    54,489,943      56,466,698      55,599,112      56,157,079     56,078,394
                                                ===========     ===========     ===========     ===========    ===========
</TABLE>

                                    I-1
<PAGE>

Note: Earnings of National Energy Group, Inc. (October 2003) and Bayswater
(March 2000), prior to their acquisitions by the Company have been allocated to
the General Partner
<TABLE>
<S>                                             <C>             <C>            <C>              <C>            <C>
At year end:
Real estate leased to others ................   $   213,799     $   359,700     $   358,597     $   379,396    $   375,268
Properties held for sale ....................       128,813           4,300              --              --             --
Hotel, casino and resort operating
  properties ................................       215,775         215,775         228,181         185,253        141,829
U.S. Government and agency obligations ......        61,573         336,051         313,641         475,267        468,529
Cash and cash equivalents ...................       467,704          54,871          64,105         147,705        142,697
Note receivable due from affiliate ..........            --         250,000         250,000              --             --
Marketable equity and debt securities .......        80,522          26,728          35,253          54,736         67,397
Mortgages and notes receivable ..............        50,328          56,216          35,529          19,946         10,955
Investment in NEG Holdings LLC ..............        69,346         108,880          97,654              --             --
Equity interest in GB Holdings, Inc. ........        30,854          37,280          39,936          38,359             --
Land and construction-in-progress ...........        43,459          40,415          69,429          75,952         99,252
Deferred tax asset ..........................        82,450          25,522          30,589              --             --
Total assets ................................     1,489,930       1,560,476       1,584,351       1,422,987      1,364,861
Mortgages payable ...........................       180,969         171,848         166,808         182,049        179,387
Due to affiliate ............................            --              --          68,805          77,521             --
Senior notes-Due affiliate ..................            --         148,637         148,637              --             --
Liability for Preferred Limited
  Partnership Units .........................       101,649              --              --              --             --
Minority interest ...........................            --              --          67,433          64,907         66,307
Partners' Equity ............................     1,153,448       1,130,176       1,018,224       1,042,725      1,029,308
</TABLE>

                                    I-2


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>7
<FILENAME>y00603kexv99w2.txt
<DESCRIPTION>ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION ON FORM 10-K
<TEXT>
<PAGE>
                                                                    Exhibit 99.2


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS


OVERVIEW

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

      To capitalize on favorable real estate market conditions and the mature
nature of our commercial real estate portfolio, we are offering for sale our
rental real estate portfolio. No assurance can be given that either the attempt
to market our real estate portfolio will be successful or that, if successful,
the proceeds thereof can be used to acquire businesses and investments at prices
or at projected returns which are deemed favorable.

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

      Expenses relating to environmental clean-up have not had a material effect
on our earnings, capital expenditures, or competitive position. We believe that
substantially all such costs would be the responsibility of the tenants pursuant
to lease terms. While most tenants have assumed responsibility for the
environmental conditions existing on their leased property, there can be no
assurance that we will not be deemed to be a responsible party or that the
tenant will bear the costs of remediation. Also, as we acquire more operating
properties, our exposure to environmental clean-up costs may increase. We have
completed Phase I environmental site assessments on most of our properties
through third-party consultants. Based on the results of these Phase I
environmental site assessments, the environmental consultant has recommended
that certain sites may have environmental conditions that should be further
reviewed. We have notified each of the responsible tenants to attempt to ensure
that they cause any required investigation and/or remediation to be performed
and most tenants continue to take appropriate action. However, if the tenants
fail to perform responsibilities under their leases referred to above, we could
potentially be liable for these costs. Based on the limited number of Phase II
environmental site assessments that have been conducted by the consultants,
there can be no accurate estimation of the need for or extent of any required
remediation, or the costs thereof. In addition, we have notified all tenants of
the Resource Conservation and Recovery Act's, or RCRA, December 22, 1998
requirements for regulated underground storage tanks. We may, at our own cost,
have to cause compliance with RCRA's requirements in connection with vacated
properties, bankrupt tenants and new acquisitions. Phase I environmental site
assessments will also be performed in connection with new acquisitions and with
such property refinancings as we may deem necessary and appropriate. We are in
the process of updating our Phase I site assessments for certain of our
environmentally sensitive properties including properties with open RCRA
requirements. Approximately 75 updates were completed in 2003. No additional
material environmental conditions were discovered.

                                    II-1
<PAGE>

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

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

RESULTS OF OPERATIONS


      CALENDAR YEAR 2003 COMPARED TO CALENDAR YEAR 2002

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

                                    II-2
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

                                    II-3
<PAGE>

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

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

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

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

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

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

   CALENDAR YEAR 2002 COMPARED TO CALENDAR YEAR 2001

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

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

                                    II-4

<PAGE>

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

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

      As a result of the completion of Stratosphere's additional 1,000 rooms and
related amenities in June 2001, hotel and casino operating revenues and expenses
have increased. Increased room capacity provided more hotel guests thereby
increasing revenues. Earnings from hotel, casino and resort properties are
expected to be constrained by recessionary pressures, international tensions and
competition.

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

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

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

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

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

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

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

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

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

                                    II-5
<PAGE>

benefit of $30.1 million for 2001.

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

      Net cash provided by operating activities was $18.5 million for the year
ended December 31, 2003 as compared to $100.1 million in 2002. This decrease
resulted primarily from a decrease in the land, house and condominium operations
of $45.6 million and the payment of accrued interest on senior notes of $41.7
million partially offset by an increase in cash flow from other operations of
$5.7 million.

      The following table reflects our contractual cash obligations, as of
December 31, 2003, due during the indicated periods (dollars in millions):



<TABLE>
<CAPTION>
                                          LESS THAN 1                         AFTER 5
                                             YEAR     1-3 YEARS   4-5 YEARS    YEARS       TOTAL(1)
                                             ----     ---------   ---------    -----       --------
<S>                                       <C>         <C>         <C>        <C>         <C>
Mortgages payable ......................   $    6.5    $  28.2    $  68.0    $   78.3    $    181.0
Mezzanine loan commitments .............       20.0         --         --          --          20.0
Construction and development obligations       23.0         --         --          --          23.0
                                           --------    -------    -------    --------    ----------
Total ..................................   $   49.5    $  28.2    $  68.0    $   78.3    $    224.0
                                           ========    =======    =======    ========    ==========
</TABLE>

(1) In addition, see note 25 to consolidated financial statements for
preferred limited partnership redemption.

                                    II-6

<PAGE>

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

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

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

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

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

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

      The types of investments we are pursuing, including assets that may not be
readily financeable or generating positive cash flow, such as development
properties, non-performing mortgage loans or securities of companies which may
be undergoing restructuring or require significant capital investments, require
us to maintain a strong capital base in order to own, develop and reposition
these assets.

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

                                    II-7
<PAGE>

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

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

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

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

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

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

      Long-lived assets held and used by us and long-lived assets to be disposed
of, are reviewed for impairment whenever events or changes in circumstances,
such as vacancies and rejected leases, indicate that the carrying amount of an
asset may not be recoverable.

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

                                    II-8
<PAGE>

   COMMITMENTS AND CONTINGENCIES-LITIGATION

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

   MARKETABLE EQUITY AND DEBT SECURITIES AND INVESTMENT IN U.S. GOVERNMENT AND
AGENCY OBLIGATIONS

      Investments in equity and debt securities are classified as either
held-to-maturity or available for sale for accounting purposes. Investment in
U.S. government and agency obligations are classified as available for sale.
Available for sale securities are carried at fair value on our balance sheet.
Unrealized holding gains and losses are excluded from earnings and reported as a
separate component of partners' equity. Held-to-maturity securities are recorded
at amortized cost.

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

  MORTGAGES AND NOTES RECEIVABLE

      We have generally not recognized any profit in connection with the
property sales in which certain purchase money mortgages receivable were taken
back. Such profits are being deferred and will be recognized when the principal
balances on the purchase money mortgages are received.

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

  REVENUE RECOGNITION

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

  CASINO REVENUES AND PROMOTIONAL ALLOWANCES

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

  INCOME TAXES

      No provision has been made for Federal, state or local income taxes on the
results of operations generated by partnership activities as such taxes are the
responsibility of the partners. Stratosphere and NEG, our corporate

                                    II-9
<PAGE>

subsidiaries, account for their income taxes under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards.

      Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

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

  PROPERTIES

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

                                    II-10

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.3
<SEQUENCE>8
<FILENAME>y00603kexv99w3.txt
<DESCRIPTION>ITEM 8. FINANCIAL STATEMENTS
<TEXT>
<PAGE>
                                                                    Exhibit 99.3

ITEM 8. FINANCIAL STATEMENTS

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

    We have audited the accompanying consolidated balance sheets of American
Real Estate Partners, L.P. and subsidiaries as of December 31, 2003 and 2002,
and the related consolidated statements of earnings, changes in partners' equity
and comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2003. In connection with our audits of the
consolidated financial statements, we have also audited the financial statement
schedule as listed in the Index at Item 15(a)2. These consolidated financial
statements and the financial statement schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements and the financial statement schedule based on
our audits.

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

    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Real Estate Partners, L.P. and subsidiaries as of December 31, 2003 and 2002 and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2003 in conformity with U.S. generally
accepted accounting principles. 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

New York, New York
March 12, 2004


                                      F-1
<PAGE>

              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2003 AND 2002
                       (IN $000'S EXCEPT PER UNIT AMOUNTS)

<TABLE>
<CAPTION>
                                                                                             DECEMBER 31,
                                                                                -------------------------------------
                                                                                    2003                     2002
                                                                                ------------             ------------

<S>                                                                             <C>                      <C>
                                  ASSETS
Real estate leased to others:
 Accounted for under the financing method (Notes 4, 14 and 15) ............     $    137,356             $    155,458
 Accounted for under the operating method, net of accumulated depreciation
  (Notes 5, 14 and 15) ....................................................           76,443                  204,242
Properties held for sale (Notes 5 and 14) .................................          128,813                    4,300
Investment in U.S. Government and Agency obligations (Note 6) .............           61,573                  336,051
Note receivable due from affiliate (Note 12) ..............................               --                  250,000
Cash and cash equivalents (Note 2) ........................................          467,704                   54,871
Marketable equity and debt securities (Note 7) ............................           80,522                   26,728
Mortgages and notes receivable (Note 11) ..................................           50,328                   56,216
Investment in NEG Holding LLC (Note 10) ...................................           69,346                  108,880
Equity interest in GB Holdings, Inc. (Note 8) .............................           30,854                   37,280
Hotel, casino and resort operating properties net of accumulated
  depreciation:
 Stratosphere Corporation hotel and casino (Note 9) .......................          174,249                  171,430
 Hotel and resort (Notes 5 and 13) ........................................           41,526                   44,346
Land and construction-in-progress .........................................           43,459                   40,415
Deferred tax asset (Note 19) ..............................................           82,450                   25,522
Receivables and other assets ..............................................           45,307                   44,737
                                                                                ------------             ------------
  Total ...................................................................     $  1,489,930             $  1,560,476
                                                                                ============             ============
                      LIABILITIES AND PARTNERS' EQUITY
Mortgages payable (Notes 4, 5 and 15):
 Real estate leased to others .............................................     $     98,128             $    171,848
 Properties held for sale .................................................           82,861                       --
                                                                                ------------             ------------
                                                                                     180,989                  171,848
Credit facility due affiliates (Notes 10 and 16) ..........................               --                   10,940
Senior notes due affiliates (Notes 10 and 16) .............................               --                  148,637
Interest payable-senior notes (Note 16) ...................................               --                   44,360
Accounts payable, accrued expenses and other liabilities ..................           53,844                   54,515
Preferred limited partnership units:
 $10 liquidation preference, 5% cumulative pay-in-kind; 9,900,000
  authorized; 9,796,607 issued and outstanding as of December 31, 2003
  (Note 18) ...............................................................          101,649                       --
                                                                                ------------             ------------
                                                                                     336,482                  430,300
                                                                                ------------             ------------
Commitments and contingencies (Notes 3 and 22)
Limited partners:
 Preferred units, $10 liquidation preference, 5% cumulative pay-in-kind
  redeemable; 9,400,000 authorized; 9,330,963 issued and outstanding as of
  December 31, 2002 (Note 18) .............................................               --                   96,808
 Depositary units; 47,850,000 authorized; 47,235,484 outstanding ..........        1,184,870                1,071,857
General partner ...........................................................          (19,501)                 (26,568)
Treasury units at cost:
1,137,200 depositary units (Note 25) ......................................          (11,921)                 (11,921)
                                                                                ------------             ------------
Partners' equity (Notes 2, 3 and 17) ......................................        1,153,448                1,130,176
                                                                                ------------             ------------
  Total ...................................................................     $  1,489,930             $  1,560,476
                                                                                ============             ============
</TABLE>

                 See notes to consolidated financial statements.



                                      F-2
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF EARNINGS

                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
                      (IN $000'S EXCEPT PER UNIT AMOUNTS)

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                      --------------------------------------------
                                                          2003            2002            2001
                                                      ------------    ------------    ------------

<S>                                                   <C>             <C>             <C>
Revenues:
 Hotel and casino operating income (Note 9) .......   $    163,701    $    156,315    $    144,354
 Land, house and condominium sales ................         13,265          76,024          55,566
 Interest income on financing leases ..............         13,115          14,722          16,935
 Interest income on U.S. Government and Agency
  obligations and other investments (Notes 11
  and 12) .........................................         22,543          30,344          30,367
 Rental income ....................................         11,636          10,516          10,431
 Hotel and resort operating income (Note 13) ......         14,592          14,918          12,276
 Accretion of investment in NEG Holding LLC
  (Note 10) .......................................         30,142          32,879           9,834
 Oil and gas operating income .....................             --              --          33,176
 NEG management fee ...............................          7,967           7,637           2,699
 Dividend and other income (Notes 7 and 11) .......          3,061           2,720           4,877
 Equity in earnings (loss) of GB Holdings,
  Inc. (Note 8) ...................................         (3,466)            305           1,807
                                                      ------------    ------------    ------------
                                                           276,556         346,380         322,322
                                                      ------------    ------------    ------------
Expenses:
 Hotel and casino operating expenses (Note 9) .....        135,429         131,659         127,956
 Cost of land, house and condominium sales ........          9,129          54,640          42,599
 Hotel and resort operating expenses (Note 13) ....         11,138          12,553          10,792
 Interest expense (Notes 7, 14, 15 and 18) ........         20,640          27,369          34,765
 Oil and gas operating expenses ...................             --              --           5,569
 Depreciation and amortization ....................         17,773          17,613          20,814
 General and administrative expenses (Note 3) .....         14,081          14,134          13,011
 Property expenses ................................          5,475           4,682           3,028
                                                      ------------    ------------    ------------
                                                           213,665         262,650         258,534
                                                      ------------    ------------    ------------
Operating income ..................................         62,891          83,730          63,788
Other gains and (losses):
 Provision for loss on real estate ................           (750)         (3,212)         (3,184)
 Gain on sale of marketable equity and debt
  securities ......................................          2,607              --           6,749
 Write-down of equity securities available for
  sale (Note 7) ...................................           (961)         (8,476)             --
 Write-down of mortgages and notes receivable
  (Note 7) ........................................        (18,798)             --              --
 Gain on sales and disposition of real estate
  (Note 14) .......................................          7,121           8,990           1,737
  Loss on limited partnership interests ...........             --          (3,750)             --
 Minority interest in net earnings of
  Stratosphere Corporation (Note 9) ...............             --          (1,943)           (450)
                                                      ------------    ------------    ------------
Income from continuing operations before
  income taxes ....................................         52,110          75,339          68,640
 Income tax benefit (expense) (Note 19) ...........          6,495          (7,480)         30,077
                                                      ------------    ------------    ------------
 Income from continuing operations ................         58,605          67,859          98,717
                                                      ------------    ------------    ------------
Discontinued operations:
 Income from discontinued operations ..............          6,139           6,007           6,117
 Gain on sales and disposition of real estate .....          3,353              --              --
                                                      ------------    ------------    ------------
Income from discontinued operations ...............          9,492           6,007           6,117
                                                      ------------    ------------    ------------
Net earnings ......................................   $     68,097    $     73,866    $    104,834
                                                      ============    ============    ============
Net earnings attributable to (Note 3):
  Limited partners ................................   $     59,360    $     63,168    $     66,190
  General partners ................................          8,737          10,698          38,644
                                                      ------------    ------------    ------------
                                                      $     68,097    $     73,866    $    104,834
                                                      ============    ============    ============
Net earnings per limited partnership unit (Note 2):
 Basic earnings:

  Income from continuing operations ...............   $       1.03    $       1.15    $       1.21
  Income from discontinued operations .............           0.20            0.12            0.13
                                                      ------------    ------------    ------------
 Basic earnings per LP unit .......................   $       1.23    $       1.27    $       1.34
                                                      ============    ============    ============
Weighted average limited partnership units
  outstanding .....................................     46,098,284      46,098,284      46,098,284
                                                      ============    ============    ============
 Diluted earnings:
  Income from continuing operations ...............   $       0.96    $       1.02    $       1.09
  Income from discontinued operations .............           0.17            0.10            0.10
                                                      ------------    ------------    ------------
 Diluted earnings per LP unit .....................   $       1.13    $       1.12    $       1.19
                                                      ============    ============    ============
Weighted average limited partnership units and
  equivalent partnership units outstanding ........     54,489,943      56,466,698      55,599,112
                                                      ============    ============    ============
</TABLE>

                 See notes to consolidated financial statements.


                                      F-3

<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS'
                         EQUITY AND COMPREHENSIVE INCOME
                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
                                  (IN $000'S)

<TABLE>
<CAPTION>
                                                  GENERAL      LIMITED PARTNERS' EQUITY
                                                  PARTNER'S    ------------------------         HELD IN TREASURY         TOTAL
                                                  EQUITY       DEPOSITARY    PREFERRED     ------------------------    PARTNERS'
                                                 (DEFICIT)        UNITS         UNITS        AMOUNTS        UNITS       EQUITY
                                                 ----------    ----------    ----------    ----------    ----------   ----------
<S>                                              <C>           <C>           <C>           <C>           <C>          <C>
Balance, December 31, 2000 (as previously
  reported) ..................................   $   22,498    $  944,340    $   87,808    $  (11,921)        1,137   $1,042,725
NEG, Inc. acquisition (Note 1) ...............     (119,705)           --            --            --            --     (119,705)
                                                 ----------    ----------    ----------    ----------    ----------   ----------
Balance, December 31, 2000 (Restated) ........      (97,207)      944,340        87,808       (11,921)        1,137      923,020
Comprehensive income:
Net earnings .................................       38,644        66,190            --            --            --      104,834
Reversal of unrealized loss on sale of debt
  securities .................................           78         3,818            --            --            --        3,896
Net unrealized losses on securities available
  for sale ...................................         (269)      (13,257)           --            --            --      (13,526)
                                                 ----------    ----------    ----------    ----------    ----------   ----------
Comprehensive income .........................       38,453        56,751            --            --            --       95,204
Pay-in-kind distribution (Note 18) ...........           --        (4,390)        4,390            --            --           --
                                                 ----------    ----------    ----------    ----------    ----------   ----------
Balance, December 31, 2001 (Restated) ........      (58,754)      996,701        92,198       (11,921)        1,137    1,018,224
Comprehensive income:
Net earnings .................................       10,698        63,168            --            --            --       73,866
Reversal of unrealized loss on sale of debt
  securities .................................          211        10,384            --            --            --       10,595
Adjustment to reverse unrealized loss on
  investment securities reclassified to notes
  receivable .................................          131         6,451            --            --            --        6,582
Net unrealized losses on securities available
  for sale ...................................           (5)         (237)           --            --            --         (242)
                                                 ----------    ----------    ----------    ----------    ----------   ----------
Comprehensive income .........................       11,035        79,766            --            --            --       90,801
Net adjustment for acquisition of minority
  interest (Note 9(a)) .......................       21,151            --            --            --            --       21,151
Pay-in-kind distribution (Note 18) ...........           --        (4,610)        4,610            --            --           --
                                                 ----------    ----------    ----------    ----------    ----------   ----------
Balance, December 31, 2002 (Restated) ........      (26,568)    1,071,857        96,808       (11,921)        1,137    1,130,176
Comprehensive income:
Net earnings .................................        8,737        59,360            --            --            --       68,097
Reversal of unrealized loss on sale of debt
  securities .................................           15           746            --            --            --          761
Net unrealized gains on securities available
  for sale ...................................          183         8,991            --            --            --        9,174
Sale of marketable equity securities available
  for sale ...................................           (6)         (274)           --            --            --         (280)
                                                 ----------    ----------    ----------    ----------    ----------   ----------
Comprehensive income .........................        8,929        68,823            --            --            --       77,752
Pay-in-kind distribution (Note 18) ...........           --        (2,391)        2,391            --            --           --
Recognition of deferred tax asset at date of
  bankruptcy (Note 19) .......................          946        46,581            --            --            --       47,527
Capital distribution (Note 1) ................       (2,808)           --            --            --            --       (2,808)
Reclassification of Preferred LP units to
  liabilities (Note 18) ......................           --            --       (99,199)           --            --      (99,199)
                                                 ----------    ----------    ----------    ----------    ----------   ----------
Balance, December 31, 2003 ...................   $  (19,501)   $1,184,870    $       --    $  (11,921)        1,137   $1,153,448
                                                 ==========    ==========    ==========    ==========    ==========   ==========
</TABLE>

      Accumulated other comprehensive gain (loss) at December 31, 2003, 2002 and
2001 was $9,174, ($242) and ($17,178), respectively.

                 See notes to consolidated financial statements.


                                      F-4

<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
                                  (IN $000'S)

<TABLE>
<CAPTION>

                                                                            YEARS ENDED DECEMBER 31,
                                                                    --------------------------------------
                                                                       2003          2002          2001
                                                                    ----------    ----------    ----------

<S>                                                                 <C>           <C>           <C>
Cash flows from operating activities:
 Income from continuing operations ...............................  $   58,605    $   67,859    $   98,717
 Adjustments to reconcile net earnings to net cash provided by
  operating activities:
  Depreciation and amortization ..................................      17,773        17,613        20,814
  Preferred LP interest expense ..................................       2,450            --            --
  Gain on sale of marketable equity securities ...................      (2,607)           --        (6,749)
  Gain on sales and disposition of real estate ...................      (7,121)       (8,990)       (1,737)
  Loss on limited partnership interests ..........................          --         3,750            --
  Provision for loss on real estate ..............................         750         3,212         3,184
  Write-down of equity securities available for sale .............         961         8,476            --
  Write-down of mortgages and notes receivable ...................      18,798            --            --
  Minority interest in net earnings of Stratosphere Corporation ..          --         1,943           450
  Equity in losses (earnings) of GB Holdings, Inc ................       3,466          (305)       (1,807)
  Deferred gain amortization .....................................      (2,038)       (2,038)         (849)
  Accretion of investment in NEG Holding LLC .....................     (30,142)      (32,879)       (9,834)
  Deferred income tax (benefit) expense ..........................      (7,147)        7,480       (30,077)
  Change in fair market value of derivative contracts ............          --            --           716
  Changes in operating assets and liabilities:
     (Increase) decrease in land and construction-in-progress ....      (6,556)       24,215         7,753
     Decrease in accounts payable, accrued expenses
     and other liabilities .......................................     (40,503)       (3,037)       (1,359)
    Decrease in receivables and other assets .....................       1,424         4,068         4,570
                                                                    ----------    ----------    ----------
    Net cash provided by continuing operations ...................       8,113        91,367        83,792
                                                                    ----------    ----------    ----------
 Income from discontinued operations .............................       9,492         6,007         6,117
  Depreciation and amortization ..................................       4,212         3,616         3,383
  Net gain from property transactions ............................      (3,353)           --            --
                                                                    ----------    ----------    ----------
   Net cash provided by discontinued operations ..................      10,351         9,623         9,500
                                                                    ----------    ----------    ----------
   Net cash provided by operating activities .....................      18,464       100,990        93,292
                                                                    ----------    ----------    ----------
Cash flows from investing activities:
 Increase in mortgages and notes receivable ......................     (31,112)      (23,200)      (15,583)
 Repayments of mortgages and notes receivable ....................      12,200        23,000            --
 Net proceeds from the sales and disposition of real estate ......      15,290        20,513         3,656
 Principal payments received on leases accounted for under the
  financing method ...............................................       5,310         5,941         6,858
  Additions to hotel, casino and resort operating property .......     (19,734)       (4,577)      (62,662)
 Acquisitions of rental real estate ..............................          --       (18,226)           --
 Additions to rental real estate .................................        (413)         (181)       (1,064)
 Decrease (increase) in investment in U.S. Government and Agency
  Obligations (Note 2) ...........................................     274,478       (22,410)      162,046
 Disposition of marketable equity & debt securities...............       3,843            --        17,929
 Disposition proceeds on sale mortgages and notes receivable .....       2,621            --            --
 Increase in marketable equity & debt securities .................     (45,140)       (4,415)           --
 Decrease (increase) in note receivable from affiliate ...........     250,000            --      (250,000)
 Decrease in minority interest in Stratosphere Corp...............          --       (44,744)           --
 Decrease in investment in Stratosphere Corp .....................         788            --            --
 Investment in NEG, Inc ..........................................    (148,101)           --            --
 Investment in NEG Holding LLC ...................................          --            --        (4,379)
 Guaranteed payment from NEG Holding LLC .........................      18,229        21,653         3,625
 Priority distribution from NEG Holding LLC ......................      40,506            --            --
 Oil and natural gas acquisition, exploration and development
  expenditures ...................................................          --            --       (26,432)
 Decrease in due to affiliate ....................................          --       (68,815)       (8,716)
 Increase in investment in joint ventures ........................          --            --        (5,856)
 Other ...........................................................         589           197           (29)
                                                                    ----------    ----------    ----------
   Net cash provided by (used in) continuing operations ..........     379,354      (115,264)     (180,607)
 Cash flows from discontinued operations:
   Net proceeds from the sales and disposition of real estate ....       5,336            --            --
                                                                    ----------    ----------    ----------
   Net cash provided by (used in) investing activities ...........     384,690      (115,264)     (180,607)
                                                                    ----------    ----------    ----------

                                                                             (table continued on next page)
</TABLE>


                                      F-5


<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)

<TABLE>
<CAPTION>

                                                                                    YEARS ENDED DECEMBER 31,
                                                                            --------------------------------------
                                                                              2003          2002          2001
                                                                            ----------    ----------    ----------

<S>                                                                        <C>           <C>           <C>
Cash Flows from financing activities:
 Debt:
  Repayment of credit facility .........................................            --            --       (25,000)
  Proceeds from credit facility ........................................            --            --        10,940
  Repayment of senior notes ............................................            --            --       (10,500)
  Proceeds from mortgages payable ......................................        20,000        12,700            --
  Payments on mortgages payable ........................................        (3,837)         (462)       (6,457)
  Periodic principal payments ..........................................        (6,484)       (7,198)       (6,840)
  Balloon payments .....................................................            --            --        (1,756)
                                                                            ----------    ----------    ----------
   Net cash provided by (used in) financing activities .................         9,679         5,040       (39,613)
                                                                            ----------    ----------    ----------
Net increase (decrease) in cash and cash equivalents ...................       412,833        (9,234)     (126,928)
Cash and cash equivalents, beginning of year ...........................        54,871        64,105       191,033
                                                                            ----------    ----------    ----------
Cash and cash equivalents at end of year ...............................    $  467,704    $   54,871    $   64,105
                                                                            ==========    ==========    ==========
Supplemental information:
  Cash payments for interest, net of amounts capitalized...............     $   62,324    $   36,646    $   51,910
                                                                            ==========    ==========    ==========
  Cash payments for income taxes .......................................    $       --    $       --    $    1,200
                                                                            ==========    ==========    ==========
Supplemental schedule of noncash investing and financing activities:
Reclassification of real estate to operating lease .....................    $    5,065    $   13,403    $    3,082
Reclassification from hotel and resort operating properties ............            --            --        (1,167)
Reclassification of real estate from financing lease ...................        (5,065)      (13,503)       (9,754)
Reclassification of real estate from operating lease ...................      (126,263)           --            --
Reclassification of real estate to property held for sale...............       126,263           100         6,672
Decrease in mortgages and notes receivable .............................        (3,453)           --            --
Decrease in deferred income ............................................         2,565            --            --
Increase in real estate accounted for under the operating method .......           888            --            --
Reclassification of real estate to (from) construction-in-progress .....            --            --         1,167
Reclassification from marketable equity and debt securities ............            --       (20,494)           --
Reclassification from receivable and other assets ......................        (1,631)           --            --
Reclassification to mortgages and notes receivable .....................         1,631        20,494            --
                                                                            ----------    ----------    ----------
                                                                            $       --    $       --    $       --
                                                                            ==========    ==========    ==========
Net unrealized gains (losses) on securities available for sale .........    $    9,174    $     (242)   $  (13,526)
                                                                            ==========    ==========    ==========
Increase in equity and debt securities .............................        $    1,200    $    2,890    $    2,500
                                                                            ==========    ==========    ==========
Contribution of note from NEG Holding LLC ..........................        $   10,940    $       --    $       --
                                                                            ==========    ==========    ==========
Transfer of assets and liabilities to NEG Holding LLC...............        $       --    $       --    $   87,066
                                                                            ==========    ==========    ==========
</TABLE>

                 See notes to consolidated financial statements.


                                      F-6

<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001

1.    DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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

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

      On August 16, 1996 the Company amended its Partnership Agreement to permit
non-real estate related acquisitions and investments which has allowed and
continues to permit the Company to take advantage of investment opportunities it
believes exist outside of the real estate market in order to seek to enhance
unitholder value and further diversify its assets. The Amendment permits the
Company to invest in securities issued by companies that are not necessarily
engaged as one of their primary activities in the ownership, development or
management of real estate to further diversify its investments while remaining
in the real estate business and continuing to pursue suitable investments in the
real estate markets. Under the Amendment, investments may include equity and
debt securities of domestic and foreign issuers. The portion of the Company's
assets invested in any one type of security or any single issuer will not be
limited.

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

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

      In March 2000, the Company purchased an additional 50,000 shares of the
Stratosphere Corporation ("Stratosphere") from an affiliate of the General
Partner resulting in the Company owning approximately 51% of Stratosphere and
has included its accounts on a consolidated basis. In December 2002, the Company
purchased the remaining 49% minority interest. See Note 9.

      In October 2003, the Company acquired certain debt and equity securities
of National Energy Group, Inc. ("NEG") from entities affiliated with Icahn for
an aggregate consideration of $148.1 million. NEG owns a 50% interest in NEG
Holding LLC ("Holding LLC") which owns oil and gas properties managed by NEG.
The other 50% interest in Holding LLC is held by an Icahn affiliate and managing
member. In connection with the acquisition of stock in NEG, the excess of cash
disbursed over the historical cost which amounted to $2.8 million was charged to
the General Partner's equity.

      In accordance with generally accepted accounting principles, assets
transferred between entities under common control are accounted for at
historical costs similar to a pooling of interests, and the financial statements
of previously separate companies for periods prior to the acquisition are
restated on a combined basis. There is no minority interest allocated to the
other NEG stockholders because of NEG's negative equity. See Note 10.


                                      F-7



<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Financial Statements and Principles of Consolidation -- The consolidated
financial statements are prepared in accordance with accounting principles
generally accepted in the United States and include only those assets,
liabilities and results of operations, which relate to the Company and its
wholly owned and majority owned subsidiaries. All material intercompany accounts
and transactions have been eliminated in consolidation. The Company accounts for
its investments in subsidiaries that are less than 50% owned under the equity
method of accounting.

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

      Diluted earnings per share uses net earnings attributable to limited
partner interests as the numerator with the denominator based on the weighted
average number of units and equivalent units outstanding. The Preferred units
are considered to be unit equivalents. The number of limited partnership units
used in the calculation of diluted income per limited partnership unit increased
as follows: 8,391,659, 10,368,414 and 9,500,828 limited partnership units for
the years ended December 31, 2003, 2002 and 2001, respectively, to reflect the
effects of the conversion of preferred units.

      For accounting purposes, NEG's earnings prior to the NEG acquisition in
October 2003 have been allocated to the General Partner and therefore excluded
from the computation of basic and diluted earnings per limited partnership unit.

      Cash and Cash Equivalents -- The Company considers short-term investments,
which are highly liquid with original maturities of three months or less at date
of purchase, to be cash equivalents. Included in cash and cash equivalents at
December 31, 2003 and 2002 are investments in government backed securities of
approximately $378,000,000 and $5,467,000, respectively.

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

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

MORTGAGES AND NOTES RECEIVABLE

         a. The Company has generally not recognized any profit in connection
with the property sales in which certain purchase money mortgages receivable
were taken back. Such profits are being deferred and will be recognized when the
principal balances on the purchase money mortgages are received.

         b. The Company has provided development financing for certain real
estate projects. The security for these loans is either a second mortgage or a
pledge of the developers' ownership interest in the properties. Such loans are
subordinate to construction financing and are generally referred to as mezzanine
loans. Current mezzanine loans accrue interest at approximately 22% per annum.
Generally interest is not paid periodically but is due at maturity or earlier
from unit sales or refinancing proceeds. The Company defers recognition of
interest income on mezzanine loans pending receipt of principal and interest
payments.

         Income Taxes -- No provision has been made for Federal, state or local
income taxes on the results of operations generated by partnership activities as
such taxes are the responsibility of the partners. Stratosphere and NEG, the
Company's corporate subsidiaries, account for their income taxes under the asset
and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and


                                      F-8
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


liabilities and their respective tax bases and operating loss and tax credit
carry forwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

         Leases -- The Company leases to others substantially all its real
property under long-term net leases and accounts for these leases in accordance
with the provisions of Financial Accounting Standards Board Statement No. 13,
"Accounting for Leases," as amended. This Statement sets forth specific criteria
for determining whether a lease is to be accounted for as a financing lease or
an operating lease.

         a. Financing Method-Under this method, minimum lease payments to be
received plus the estimated value of the property at the end of the lease are
considered the gross investment in the lease. Unearned income, representing the
difference between gross investment and actual cost of the leased property, is
amortized to income over the lease term so as to produce a constant periodic
rate of return on the net investment in the lease.

         b. Operating Method-Under this method, revenue is recognized as rentals
become due and expenses (including depreciation) are charged to operations as
incurred.

         Properties -- Properties held for investment, other than those
accounted for under the financing method, are carried at cost less accumulated
depreciation unless declines in the values of the properties are considered
other than temporary at which time the property is written down to net
realizable value. A property is classified as held for sale at the time
management determines that the criteria in SFAS 144 have been met. Properties
held for sale are carried at the lower of cost or net realizable value. Such
properties are no longer depreciated and their operations are included in
discontinued operations.

         Depreciation -- Depreciation is computed using the straight-line method
over the estimated useful life of the particular property or property
components, which range from 3 to 45 years.

         Use of Estimates -- Management has made a number of estimates and
assumptions relating to the reporting of assets and liabilities, revenues and
expenses and the disclosure of contingent assets and liabilities to prepare
these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates. The more
significant estimates include the valuation of (i) long-lived assets, (ii)
mortgages and notes receivable, (iii) marketable equity and debt securities,
(iv) costs to complete for land, house and condominium developments, (v)
gaming-related liability and loyalty programs and (vi) deferred tax assets.

Revenue Recognition

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

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

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

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


                                      F-9

<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


         Investment in NEG Holding LLC -- Due to the substantial uncertainty
that the Company will receive any distribution above the priority and guaranteed
payment amounts, the Company accounts for its investment in Holding LLC as a
preferred investment whereby guaranteed payment amounts received and receipts of
the priority distribution amount are recorded as reductions in the investment
and income is recognized from accretion of the investment up to the priority
distribution amount, including the guaranteed payments (based on the interest
method) (see Note 10). Following receipt of the guaranteed payments and priority
distributions, the residual interest in the investment will be valued at zero.

         The Company periodically evaluates the propriety of the carrying amount
of its investment in Holding LLC to determine whether current events or
circumstances warrant adjustments to the carrying value and/or revisions to
accretion of income. The Company currently believes that no such impairment has
occurred and that no revision to the accretion of income is warranted.

         Accounting for Impairment of a Loan -- If it is probable that based
upon current information the Company will be unable to collect all amounts due
according to the contractual terms of a loan agreement, the Company considers
the asset to be "impaired". Reserves are established against impaired loans in
amounts equal to the difference between the recorded investment in the asset and
either the present value of the cash flows expected to be received, or the fair
value of the underlying collateral if foreclosure is deemed probable or if the
loan is considered collateral dependent.

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

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

Recent Accounting Standards:

         1. In May 2003, the FASB issued SFAS 150 "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
150 is effective at the beginning of the first interim period beginning after
June 15, 2003. The Company adopted SFAS 150 on July 1, 2003 and has reclassified
its preferred units to a liability account. See Note 18.

         2. In January 2003, the FASB issued FASB Interpretation 46 (revised
December 2003), Consolidation of Variable Interest Entities, which addresses how
a business enterprise should evaluate whether it has a controlling financial
interest in an entity through means other than voting rights and accordingly
should consolidate the entity. FIN 46R, issued in December 2003 as a revision to
the original interpretation, clarifies the application of ARB 51, Consolidated
Financial Statements, to certain entities in which the equity investors do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support.

         The Company is required to apply FIN 46R to variable interests created
after January 2003. For variable interest entities created prior to January
2003, for which FIN 46 has not been applied prior to December 24, 2003, the
interpretation will be applied in reporting periods ending after March 15, 2004.

         The Company has an investment in a variable interest entity, which owns
oil and natural gas operating properties. The variable interest entity has net
assets of $161 million. The Company has determined that it is not the primary
beneficiary of the variable interest entity. The maximum exposure to losses as a
result of its involvement with the variable interest entity is $69 million.

3.    RELATED PARTY TRANSACTIONS



                                      F-10
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


         a. At December 31, 2002, the Company had a $250 million note receivable
from Mr. Icahn, Chairman of the General Partner, which was repaid in October
2003. (See Note 12).

         b. In addition, in 1997 the Company entered into a license agreement
for a portion of office space from an affiliate. The license agreement dated as
of February 1, 1997 expires May 22, 2004 unless sooner terminated in accordance
with the agreement. Pursuant to the license agreement, the Company has the non-
exclusive use of 3,547 square feet of office space and common areas (of an
aggregate 21,123 rentable square feet sublet by such affiliate) for which it
paid $17,068 per month, together with 16.79% of certain "additional rent". In
November 2000, the Company reduced its office size to approximately 2,275 square
feet, which decreased its monthly rental to $11,185 plus 10.77% of certain
additional rent. In the years ended December 31, 2003, 2002 and 2001, the
Company paid such affiliate approximately $159,000, $153,000 and $147,000 of
rent, respectively, in connection with this licensing agreement. The terms of
such sublease were reviewed and approved by the Audit Committee. The agreement
expires in May 2004. If the Company must vacate the space, it believes there
will be adequate alternative space available.

        c. Stratosphere received as reimbursement from affiliates of the General
Partner approximately $2,993,000, $1,675,000 and $1,343,000 in the years ended
December 31, 2003, 2002 and 2001, respectively, for administrative services
performed by Stratosphere personnel.

         Stratosphere received hotel revenue of approximately $3,000, $123,000
and $600,000 in the years ended December 31, 2003, 2002 and 2001, respectively,
in connection with a tour and travel agreement entered into with an affiliate of
the General Partner. Stratosphere also received approximately $101,000 in hotel
and food revenue from an affiliate of the General Partner in the year ended
December 31, 2003 in connection with a conference held at Stratosphere.

        d. The General Partner and its affiliates may realize substantial fees,
commissions and other income from transactions involving the purchase,
operation, management, financing and sale of the Company's properties, subject
to certain limitations relating to properties acquired from the Predecessor
Partnerships in the Exchange. Some of such amounts may be paid regardless of the
overall profitability of the Company and whether any distributions have been
made to Unitholders. As new properties are acquired, developed, constructed,
operated, leased, financed and sold, the General Partner or its affiliates may
perform acquisition functions, development and construction oversight and other
land development services, property management and leasing services, either on a
day-to-day basis or on an asset management basis, and other services and be
entitled to fees and reimbursement of expenses relating thereto, including
property management fees, real estate brokerage and leasing commissions, fees
for financing either provided or arranged by the General Partner and its
affiliates, development fees, general contracting fees and construction
management fees. The terms of any transactions between the Company and the
General Partner or its affiliates must be fair and reasonable to the Company and
customary to the industry. There were no significant fees paid in the years
ended December 31, 2003, 2002, and 2001.

         e. NEG received management fees from an affiliate of approximately
$7,967,000, $7,637,000 and $2,699,000 in the years ended December 31, 2003, 2002
and 2001, respectively.

         f. NEG entered into an agreement to manage TransTexas Gas Corporation,
an Icahn affiliate, for a fee of $312,500 per month.

         g. For the year ended December 31, 2003, the Company paid approximately
$81,000 to an affiliate of the General Partner for telecommunication services.

         h. See Note 26 in connection with the acquisition of Arizona Charlie's
Decatur and Arizona Charlie's Boulder from Icahn and an entity affiliated with
Icahn.


                                      F-11
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)



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):

<TABLE>
<CAPTION>
                                                     DECEMBER 31,
                                              -------------------------
                                                 2003           2002
                                              ----------     ----------

<S>                                           <C>            <C>
        Minimum lease payments receivable     $  161,785     $  180,943
        Unguaranteed residual value .....         74,651         87,160
                                              ----------     ----------
                                                 236,436        268,103
        Less unearned income ............         99,080        112,645
                                              ----------     ----------
                                              $  137,356     $  155,458
                                              ==========     ==========
</TABLE>

         The following is a summary of the anticipated future receipts of the
minimum lease payments receivable at December 31, 2003 in ($000's):

<TABLE>
<CAPTION>
                         YEAR ENDING
                         DECEMBER 31,           AMOUNT
                         ---------------     ----------
<S>                                          <C>
                         2004............    $  17,797
                         2005............       15,686
                         2006............       15,491
                         2007............       14,577
                         2008............       13,221
                         Thereafter......       85,013
                                             ---------
                                             $ 161,785
                                             =========
</TABLE>

         At December 31, 2003, approximately $107,543,000 of the net investment
in financing leases was pledged to collateralize the payment of nonrecourse
mortgages payable.

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

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

<TABLE>
<CAPTION>
                                                    DECEMBER 31,
                                             -------------------------
                                                2003           2002
                                             ----------     ----------

         <S>                                 <C>            <C>
         Land ........................       $   24,040     $   55,034
         Commercial Buildings ........           83,252        194,521
                                             ----------     ----------
                                                107,292        249,555
         Less accumulated depreciation           30,849         45,313
                                             ----------     ----------
                                             $   76,443     $  204,242
                                             ==========     ==========
</TABLE>

         As of December 31, 2003 and 2002, accumulated depreciation on the hotel
and resort operating properties (not included above) amounted to approximately
$12,341,000 and $9,665,000, respectively (See Note 13).



                                      F-12
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


         The following is a summary of the anticipated future receipts of
minimum lease payments under non-cancelable leases at December 31, 2003 (in
$000's):

<TABLE>
<CAPTION>
                      YEAR ENDING
                      DECEMBER 31,        AMOUNT
                      ------------       --------
<S>                                      <C>
                      2004........       $  9,967
                      2005........          8,802
                      2006........          5,443
                      2007........          3,874
                      2008........          2,810
                      Thereafter..          5,799
                                         --------
                                         $ 36,695
                                         ========
</TABLE>

         At December 31, 2003, approximately $15,630,000 of net real estate
leased to others was pledged to collateralize the payment of non-recourse
mortgages payable.

         b. Real estate held for sale (in $000's):

<TABLE>
<CAPTION>
                                                    DECEMBER 31,
                                            -------------------------
                                               2003           2002
                                            ----------     ----------

<S>                                         <C>            <C>
        Leased to others ............       $  146,416     $       --
        Vacant ......................            2,550          4,300
                                            ----------     ----------
                                               148,966          4,300
        Less accumulated depreciation           20,153             --
                                            ----------     ----------
                                            $  128,813     $    4,300
                                            ==========     ==========
</TABLE>

         The following is a summary of income from discontinued operations (in
$000's):

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                ----------------------------------
                                                  2003         2002         2001
                                                --------     --------     --------

<S>                                             <C>          <C>          <C>
Rental income .........................         $ 18,548     $ 17,409     $ 16,456
Hotel & resort operating income .......            3,912        3,679        4,142
                                                --------     --------     --------
                                                  22,460       21,088       20,598
                                                --------     --------     --------
Mortgage interest expense .............            6,247        5,691        5,599
Depreciation and amortization .........            4,212        3,616        3,383
Property expenses .....................            2,546        2,589        2,127
Hotel and resort operating expenses ...            3,316        3,185        3,372
                                                --------     --------     --------
                                                  16,321       15,081       14,481
                                                --------     --------     --------
Income from discontinued operations             $  6,139     $  6,007     $  6,117
                                                ========     ========     ========
</TABLE>

     At December 31, 2003, approximately $105,984,000, respectively, of real
estate held for sale was pledged to collateralize the payment of non-recourse
mortgages payable.



                                      F-13
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


6.    INVESTMENT IN U.S. GOVERNMENT AND AGENCY OBLIGATIONS

         The Company has investments in U.S. Government and Agency Obligations
whose maturities range from 2004 to December 2008 as follows (in $millions):

<TABLE>
<CAPTION>
                                           DECEMBER 31,
                          -----------------------------------------------
                                   2003                     2002
                          ---------------------     ---------------------
                            COST       CARRYING       COST       CARRYING
                           BASIS        VALUE        BASIS         VALUE
                          --------     --------     --------     --------

<S>                       <C>          <C>          <C>          <C>
Available for Sale:
Matures in:
 less than 1 year .       $   52.8     $   52.8     $  292.9     $  292.9
 2-5 years ........            9.0          8.8         39.7         39.7
 Thereafter .......             --           --          3.4          3.4
                          --------     --------     --------     --------
                          $   61.8     $   61.6     $  336.0     $  336.0
                          ========     ========     ========     ========
</TABLE>

7.    MARKETABLE EQUITY AND DEBT SECURITIES

<TABLE>
<CAPTION>
                                                       DECEMBER 31,
                                     -----------------------------------------------
                                             2003                     2002
                                     ---------------------     ---------------------
                                       COST       CARRYING       COST       CARRYING
(IN $MILLIONS)                         BASIS       VALUE         BASIS       VALUE
                                     --------     --------     --------     --------

<S>                                  <C>          <C>          <C>          <C>
Available for Sale:
 Philip Service Corporation (b):
   Equity ......................     $     --     $     --     $    9.4     $    0.2
 Corporate bonds (c) ...........         45.1         51.6           --           --
 Other .........................          1.3          4.2          2.5          3.0
                                     --------     --------     --------     --------
                                         46.4         55.8         11.9          3.2
Held-to-maturity:
  GB Notes(a) ..................         21.3         24.7         21.3         23.5
                                     --------     --------     --------     --------
   Total .......................     $   67.7     $   80.5     $   33.2     $   26.7
                                     ========     ========     ========     ========
</TABLE>

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

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

         Furthermore, in 1998 and 1999, the Company acquired an interest in the
Claridge Hotel and Casino (the "Claridge Hotel") located in Atlantic City, New
Jersey by purchasing the principal amount of $16.7 million of First Mortgage
Notes of the Claridge Hotel and Casino Corporation (the "Claridge Corporation").
The purchase price of such notes was approximately $15.1 million. A total of $85
million of such notes were issued. An affiliate of the General Partner also made
an investment in the Notes of the Claridge Corporation. In August 1999, the
Claridge Corporation announced that it had filed a voluntary petition under
Chapter 11 of the U.S. Bankruptcy Code to facilitate a financial restructuring.

         The Company, the General Partner, and the directors and officers of the
General Partner were in the process of pursuing gaming applications to obtain
licenses from the New Jersey Casino Control Commission. In March 2000, in an
effort to facilitate the consummation of the reorganization process of Greate
Bay and Claridge Hotel, the Company entered into separate agreements to transfer
its interests in such entities to an affiliate of the General Partner for $40.5
million, which was equal to the Company's cost for


                                      F-14
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


such Notes. The affiliate of the General Partner was obligated to sell back to
the Company, and the Company was obligated to repurchase such interests at the
same price (together with a commercially reasonable interest factor), when the
appropriate licenses were obtained by the Company. The Company would also
acquire its proportionate share of all sale proceeds, stock rights, acquired
shares and other benefits, if any, that may have accreted to or obtained in
connection with such interests while held by the affiliate of the General
Partner. Subsequent to the transfer, the affiliate of the General Partner
purchased $1.7 million of the Claridge Notes for approximately $0.9 million on
the Company's behalf.

         In July 2000, the U.S. Bankruptcy Court ruled in favor of the
reorganization plan proposed by affiliates of the General Partner which provided
for an additional investment of $65 million by the Icahn affiliates in exchange
for a 46% equity interest, with bondholders (which also includes the Icahn
affiliates) to receive $110 million in new notes and a 54% ownership position.
The plan, which became effective September 29, 2000, provided the Icahn
affiliates with a controlling interest.

         In February 2001, the Icahn affiliates sold their entire Claridge
Corporation portfolio ($37.1 million face amount of Claridge Notes) for the
following additional interest in GB Holdings, Inc. ("GB Holdings"): (i) 779,861
common shares of GB Holdings ("GBH") and (ii) $15.96 million face amount of GB
Property First Mortgage Notes ("GB Notes"), plus $21.56 million in cash. The
Company recognized a gain of approximately $1.3 million as a result of this sale
in the year ended December 31, 2001. As a result, affiliates of the General
Partner were, in effect, holding on behalf of the Company (i) approximately 3.6
million common shares of GBH and (ii) $26.9 million face amount of GB Notes, to
which the Company would become entitled and obligated to purchase when it was
fully licensed. As of February 2001, the Company no longer had any interests in
the Claridge.

         In May 2002, the Company was qualified as a holding company by the New
Jersey Casino Control Commission (the "Casino Control Commission") and in
accordance with the prior agreement repurchased its interest in the Sands,
located in Atlantic City, New Jersey, from affiliates of the General Partner. As
a result, the Company acquired approximately 3.6 million common shares (36%) of
GBH and $26.9 million face amount of GB Notes. The Company paid approximately
$68.8 million to reacquire its interests representing the affiliates' advances
plus accrued interest of approximately $11 million. In accordance with the
agreement, interest was accrued from March 2000 to May 2002 at an annual rate of
1 1/2% over the prime rate. Interest expense of approximately $919,000, and
$5,306,000 for the years ended December 31, 2002 and 2001, respectively, has
been included in "Interest expense" in the Consolidated Statements of Earnings.
As required by the New Jersey Casino Control Act (the "Casino Control Act"), the
Partnership Agreement was amended to provide that securities of the Company are
held subject to the condition that if a holder thereof is found to be
disqualified by the Casino Control Commission, pursuant to the provisions of the
Casino Control Act, such holder shall dispose of his interest in the Company in
accordance with the Casino Control Act.

         In July 2003, GBH announced that its Board of Directors, acting through
a special committee, approved an exchange offer for the GB Notes. The proposed
transaction is subject to the consent of the holders of a majority in principal
amount of the GB notes, the approval of stockholders owning a majority of the
common stock of GBH, the effectiveness of required filings under applicable
securities laws and the receipt of all required governmental and third party
approvals. Mr. Icahn and his affiliated companies hold in excess of 77% of the
GBH stock and 58% of the existing debt, of which the Company owns approximately
36% of the common stock and 24% of the debt. The Company and Mr. Icahn intend to
support the proposed transaction. The GB Notes in the face amount of $110
million are due in September 2005 and bear interest at 11% per annum.

         The proposed transaction would involve the following:

            -     An amendment to the existing note indenture to remove certain
                  provisions and covenants and release the liens on the Sands
                  assets; thereby allowing the transfer of these assets and
                  those now held at GBH to a wholly-owned indirect subsidiary of
                  GBH, Atlantic Coast Entertainment Holdings, Inc. ("Atlantic
                  Holdings").

            -     The solicitation of an exchange of the existing notes for new
                  notes due September 2008, which will bear interest at 3% per
                  annum payable at maturity.

            -     The payment of $100 per $1,000 in principal amount of the
                  existing notes exchanged plus accrued interest on the existing
                  notes.



                                      F-15
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


            -     The holders of a majority of the new notes will have an option
                  to convert into 72.5% of the Atlantic Holdings stock if all of
                  the existing notes participate in the exchange.

            -     The distribution to the GBH common stockholders of warrants
                  (following the occurrence of certain events) for 27.5% of the
                  common stock of Atlantic Holdings (on a fully diluted basis).

         As the exchange will be accounted for as a modification of debt for
accounting purposes, this transaction is not expected to have a significant
impact on the Company's consolidated financial statements.

         For accounting purposes, the Company reflects its interest in the GB
Notes as held to maturity.

         The Company reflects its pro rata equity interest in Greate Bay as
"Equity interest in GB Holdings, Inc." in the Consolidated Balance Sheets (See
Note 8).

         b. At December 31, 2002, the Company owned the following approximate
interests in Philip Service Corporation ("Philip"): (i) 1.8 million common
shares, (ii) $14.2 million in secured term debt, and (iii) $10.9 million in
accreted secured convertible payment-in-kind debt. The Company had an
approximate 7% equity interest in Philip and an Icahn affiliate had an
approximate 38% equity interest. Icahn affiliates also owned term and
payment-in-kind debt.

         The secured term debt matures March 31, 2005 and bears interest at 9%
per annum. Interest was payable quarterly, in arrears, beginning July 1, 2000.
The secured convertible payment-in-kind debt matures March 31, 2005 and bears
interest at 10% per annum. Interest was accreted quarterly with interest on the
accreted interest also calculated at the rate of 10% per annum.

         The market value of Philip's common stock declined steadily since it
was acquired by the Company. In 2002, based on a review of Philip's financial
statements, management of the Company deemed the decrease in value to be other
than temporary. As a result, the Company wrote down its investment in Philip's
common stock by charges to earnings of $8,476,000 and charges to other
comprehensive income ("OCI") of $761,000 in the year ended December 31, 2002.
This investment had been previously written down by approximately $6.8 million
in charges to earnings. The Company's adjusted carrying value of Philip's common
stock was approximately $200,000 at December 31, 2002.

         In June 2003, Philip announced that it and most of its wholly owned
U.S. subsidiaries filed voluntary petitions under Chapter 11 of the Federal
Bankruptcy Code.

         In the year ended December 31, 2003, management of the Company
determined that it was appropriate to write-off the balance of its investment in
the Philip's common stock by a charge to earnings of approximately $961,000; of
this amount $761,000 was previously charged to other comprehensive income in
2002, which was reversed in 2003, and included in the $961,000 charge to
earnings.

         The Company also has a participation in Philip's debt with an original
cost at the date of their acquisition of approximately $19.7 million. At
December 31, 2001, such notes were classified as available-for-sale securities
and were written down through charges to OCI, to an estimated fair market value
of approximately $13.2 million. In 2002, upon concluding its review of these
investments, management determined that such investments were more properly
classified as notes receivable.

         Approximately $6.6 million of charges to OCI were reversed and the
investments were reclassified at their original cost to "Mortgages and notes
receivable" at December 31, 2002. These adjustments had no effect on the
Company's reported earnings for the year ended December 31, 2002.

         In 2003, the cost basis of the debt was approximately $22.1 million. As
previously mentioned, Philip filed for bankruptcy protection in June 2003.
Management of the Company reviewed Philip's financial statements, bankruptcy
documents and the prices of recent purchases and sales of the debt and
determined this investment to be impaired. Based upon this review, management
concluded the fair value of the debt to be approximately $3.3 million;
therefore, the Company recorded a write-down of approximately $18.8 million by a
charge to earnings which was included in "Write-down of mortgages and notes
receivable" in the Consolidated

                                      F-16
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


Statements of Earnings in the year ended December 31, 2003. In December 2003,
the Company sold two-thirds of its term and PIK debt with a basis of $2.2
million for $2.6 million generating a gain of $0.4 million.

         Philip emerged from bankruptcy on December 31, 2003 as a private
company controlled by an Icahn affiliate. The Company's remaining interest in
the notes will be delivered and exchanged for approximately 443,000 common
shares representing a 4.4% equity interest in the new Philip valued at the
carrying value of the debt at December 31, 2003 of $1.1 million. Subsequent to
December 31, 2003, the Company received a bankruptcy distribution of
approximately $350,000.

         c. In December 2003, the Company acquired approximately $86.9 million
principal amount of corporate bonds for approximately $45.1 million. Such bonds
were classified as available for sale securities. Available for sale securities
are carried at fair value on the Balance Sheet. Unrealized holding gains and
losses are excluded from earnings and reported as a separate component of
Partners' Equity. At December 31, 2003, the carrying value of the bonds was
approximately $51.6 million and accumulated other comprehensive gain was
approximately $6.5 million.

8.    EQUITY INTEREST IN GB HOLDINGS, INC.

         The Company reflects its pro rata equity interest in GB Holdings, Inc.,
which is approximately 36%, under this caption in the Consolidated Balance
Sheets. "Equity in the earnings (losses) of GB Holdings, Inc." of approximately
($3.4 million), $0.3 million and $1.8 million have been recorded in the
Consolidated Statements of Earnings in the years ended December 31, 2003, 2002
and 2001, respectively (See Note 7).

9.    HOTEL AND CASINO OPERATING PROPERTY

         In September 2000, Stratosphere Corp.'s Board of Directors approved
a going private transaction proposed by the Company and an affiliate of Icahn.
On February 1, 2001 the Company entered into a merger agreement with
Stratosphere Corp. ("Stratosphere") under which the Company would acquire the
remaining shares of Stratosphere that it did not currently own. The Company
owned approximately 51% of Stratosphere and Mr. Icahn owned approximately 38.6%.
The Company, subject to certain conditions, agreed to pay approximately $44.3
million for the outstanding shares of Stratosphere not currently owned by it.
Stratosphere stockholders not affiliated with Icahn would receive a cash price
of $45.32 per share and Icahn related stockholders would receive a cash price of
$44.33 per share. This transaction was completed in December 2002 after
shareholders' approval.

         The acquisition by the Company of the minority shares not owned by an
Icahn affiliate has been accounted for as a purchase in accordance with
Financial Accounting Standards Board ("FASB") Statement No. 141, "Business
Combinations." The acquisition by the Company of the common stock held by an
Icahn affiliate has been recorded at historical cost. The excess of the
historical cost over the amount of the cash disbursed, which amounted to
$21,151,000, has been accounted for as a net addition to the General Partner's
equity.

         The Company indirectly owns 100% of Stratosphere and consolidates
Stratosphere in its financial statements. The Stratosphere which offers the
tallest free-standing observation tower in the United States, is situated on
approximately 31 acres of land located at the northern end of the Las Vegas
Strip. The facility is a tourist-oriented gaming and entertainment destination
property, which has approximately 80,000 square feet of gaming space, 2,444
hotel rooms, eight restaurants and approximately 110,000 square feet of
developed retail space. The Stratosphere features three of the most visible
amusement rides in Las Vegas.

         Stratosphere has invested approximately $95 million for the
construction of an additional 1,000 hotel rooms and related amenities and to
purchase the leasehold interest in the shopping center located on its premises.
The improvements were substantially completed in June 2001.

                                      F-17
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

      Stratosphere's property and equipment consist of the following as of and
December 31, 2003 and 2002 (in $000's):

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                             -----------------------
                                                               2003          2002
                                                             ---------     ---------

<S>                                                          <C>           <C>
Land and improvements, including land held for development   $  20,625     $  20,110
Building and improvements ................................     140,922       135,989
Furniture, fixtures and equipment ........................      58,577        57,158
Construction in progress .................................       4,179           329
                                                             ---------     ---------
                                                               224,303       213,586
Less accumulated depreciation and amortization ...........     (50,054)      (42,156)
                                                             ---------     ---------
                                                             $ 174,249     $ 171,430
                                                             =========     =========
</TABLE>

      Included in property and equipment at December 31, 2002 are assets
recorded under capital leases of $1.9 million.

      Stratosphere's operations for the years ended December 31, 2003, 2002 and
2001 have been included in "Hotel and casino operating income and expenses" in
the consolidated Statements of Earnings. Hotel and casino operating expenses
include all expenses except for approximately $12,276,000, $13,328,000 and
$11,257,000 of depreciation and amortization for the years ended December 31,
2003, 2002 and 2001, respectively, and $2,259,000 of income tax benefit for the
year ended December 31, 2003 and $2,412,000 and $513,000 of income tax provision
for the years ended December 31, 2002 and 2001, respectively. Such amounts have
been included in "Depreciation and amortization expense" and "Income tax benefit
(expense)" in the Consolidated Statements of Earnings.

                                      F-18
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


10. NATIONAL ENERGY GROUP

      a. National Energy Group, Inc.

      In October 2003, pursuant to a Purchase Agreement dated as of May 16,
2003, the Company acquired certain debt and equity securities of National Energy
Group, Inc. ("NEG") from entities affiliated with Mr. Icahn for an aggregate
consideration of approximately $148.1 million plus approximately $6.7 million of
accrued interest on the debt securities. The agreement was reviewed and approved
by the Audit Committee who were advised by its independent financial advisor and
legal counsel. The securities acquired were $148,637,000 in principal amount of
outstanding 10 3/4% Senior Notes due 2006 of NEG and 5,584,044 shares of common
stock of NEG. As a result of the foregoing transaction and the acquisition by
the Company of additional securities of NEG prior to the closing, the Company
beneficially owns in excess of 50% of the outstanding common stock of NEG.

      NEG owns a 50% interest in NEG Holding LLC ("Holding LLC"), the other 50%
interest in Holding LLC is held by Gascon Partners ("Gascon") an Icahn affiliate
and managing member. Holding LLC owns NEG Operating LLC ("Operating LLC") which
owns operating oil and gas properties managed by NEG. Under the Holding LLC
operating agreement NEG is to receive guaranteed payments of approximately $47.9
million in addition to a priority distribution of approximately $148.6 million
before the Icahn affiliate receives any monies. Due to the substantial
uncertainty that NEG will receive any distribution above the priority and
guaranteed payments amounts, NEG accounts for its investment in Holding LLC as a
preferred investment. The Company consolidates NEG in its financial statements.

      In connection with a credit facility obtained by Holding LLC, NEG and
Gascon have pledged as security their respective interests in Holding LLC.

      b. Investment in NEG Holding LLC

      As explained below, NEG's investment in Holding LLC is recorded as a
preferred investment. The initial investment was recorded at historical carrying
value of the net assets contributed with no gain or loss recognized on the
transfer.

      Summarized financial information for Holding LLC for the years ended
December 31, is as follows (in $000's):

<TABLE>
<CAPTION>
                                           DECEMBER 31,
                                       --------------------
                                        2003         2002
                                       --------    --------

<S>                                    <C>         <C>
Current assets ......................  $ 33,415    $ 42,126
Noncurrent assets(1) ................   189,988     180,611
                                       --------    --------
Total assets ........................  $223,403    $222,737
                                       ========    ========
Current liabilities .................  $ 14,253    $ 20,927
Noncurrent liabilities ..............    48,640       1,968
                                       --------    --------
Total liabilities ...................    62,893      22,895
Member's equity .....................   160,510     199,842
                                       --------    --------
Total liabilities and member's equity  $223,403    $222,737
                                       ========    ========
</TABLE>

- ----------

(1)   Primarily oil and gas properties

                                      F-19
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


<TABLE>
<CAPTION>
                                      DECEMBER 31,
                            ----------------------------------
                              2003         2002         2001
                            --------     --------     --------

                                       (IN $000'S)
<S>                         <C>          <C>          <C>
Total revenues .......      $ 80,475     $ 39,509     $ 12,637
Costs and expenses ...       (47,277)     (32,064)      (9,988)
                            --------     --------     --------
Operating income .....        33,198        7,445        2,649
Other income (expense)        (2,855)       6,481       (3,940)
                            --------     --------     --------
Net income (loss) ....      $ 30,343     $ 13,926     $ (1,291)
                            ========     ========     ========
</TABLE>

      Under Holding LLC Operating Agreement, NEG is to receive guaranteed
payments in addition to a priority distribution amount of $202.2 million before
Gascon receives any monies. The priority distribution is to be made on or before
November 1, 2006. Guaranteed payments are to be paid, on a semi annual basis,
based on an annual interest rate of 10.75% of the outstanding priority
distribution amount. After the payments to NEG, Gascon is to receive
distributions equivalent to the priority distribution amount and guaranteed
payments plus other amounts as defined. Following the above distributions to NEG
and Gascon, additional distributions, if any, are to be made in accordance with
their respective capital accounts. The order of distributions is listed below.
Because of the substantial uncertainty that NEG will receive any distributions
above the priority and guaranteed payment amounts, NEG accounts for its
investment in Holding LLC as a preferred investment.

      Prior to September 2001, NEG owned and operated certain oil and gas
properties. At inception (September 12, 2001), NEG recorded the investment in
Holding LLC at the historical cost of the oil and gas properties that NEG
contributed into the partnership (in exchange for Holding LLC obligation to pay
NEG the priority distribution and guaranteed payments). Subsequently, NEG
accretes its investment in Holding LLC from the initial investment recorded up
to the priority distribution amount, including the guaranteed payments, at the
implicit rate of interest, recognizing the accretion income in earnings.
Accretion income is periodically adjusted for changes in the timing of cash
flows, if necessary due to unscheduled cash distributions. Receipt of guaranteed
payments and the priority distribution are recorded as reductions in the
preferred investment. The preferred investment is evaluated quarterly for other
than temporary impairment.

      Because of the substantial uncertainty that NEG will receive any
distributions in excess of the priority distribution and the guaranteed payments
("residual interest"), the residual interest attributable to the investment in
Holding LLC is valued at zero. Upon payment of the priority distribution in
2006, NEG's investment in Holding LLC will be zero. Cash receipts, if any, after
the priority distribution and the guaranteed payments will be reported in income
as earned.

      The following is a roll forward of the Investment in Holding LLC as of
December 31, 2003 (in $000s):

<TABLE>
<CAPTION>
                                                   DECEMBER 31,
                                                       2003
                                                    ---------

<S>                                                 <C>
Investment in Holding LLC at beginning of period    $ 108,880
Priority distribution from Holding LLC .........      (51,446)
Guaranteed payment from Holding LLC ............      (18,230)
Accretion of investment in Holding LLC .........       30,142
                                                    ---------
Investment in Holding LLC at end of period .....    $  69,346
                                                    =========
</TABLE>

      Holding LLC Operating Agreement requires that distributions shall be made
to both NEG and Gascon as follows:

      1. Guaranteed payments are to be paid to NEG, calculated on an annual
interest rate of 10.75% on the outstanding priority distribution amount. The
priority distribution amount includes all outstanding debt owed to entities
owned or controlled by Carl C. Icahn, including the amount of NEG's 10.75%
Senior Notes. As of December 31, 2003, the priority distribution amount

                                      F-20
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


was $148.6 million which equals the amount of NEG's 10.75% Senior Notes due the
Company. The guaranteed payments will be made on a semi-annual basis.

            2. The priority distribution amount is to be paid to NEG. Such
payment is to occur by November 6, 2006.

            3. An amount equal to the priority distribution amount and all
guaranteed payments paid to NEG, plus any additional capital contributions made
by Gascon, less any distribution previously made by NEG to Gascon, is to be paid
to Gascon.

            4. An amount equal to the aggregate annual interest (calculated at
prime plus 1/2% on the sum of the guaranteed payments), plus any unpaid interest
for prior years (calculated at prime plus 1/2% on the sum of the guaranteed
payments), less any distributions previously made by NEG to Gascon, is to be
paid to Gascon.

            5. After the above distributions have been made, any additional
distributions will be made in accordance with the ratio of NEG's and Gascon's
respective capital accounts.

      In addition, the Holding LLC Operating Agreement contains a provision that
allows Gascon at any time, in its sole discretion, to redeem the NEG membership
interest in Holding LLC at a price equal to the fair market value of such
interest determined as if Holding LLC had sold all of its assets for fair market
value and liquidated. Since all of the NEG's operating assets and oil and
natural gas properties have been contributed to Holding LLC, as noted above,
following such a redemption, NEG's principal assets would consist solely of its
cash balances.

11. MORTGAGES AND NOTES RECEIVABLE

<TABLE>
<CAPTION>                                                                                 BALANCE AT
                                                                                          DECEMBER 31,
                                                               BALANCE     MONTHLY        (IN $000'S)
COLLATERALIZED BY PROPERTY             INTEREST   MATURITY        AT       PAYMENT   ---------------------
TENANTED BY OR DEBTOR                    RATE       DATE       MATURITY     AMOUNT      2003       2002
- --------------------------             --------   --------     --------    -------   ---------   ---------

<S>                                    <C>        <C>          <C>         <C>       <C>         <C>
Peninsula/Hampton & Alex Hotel(b)      Various      Various           --      --     $  42,030   $  23,200
Philip debt(c) ..................           --           --           --      --         1,091      20,494
Other ...........................           --           --           --      --         7,207      12,522
                                                                                     ---------   ---------
                                                                                     $  50,328   $  56,216
                                                                                     =========   =========
</TABLE>

      The Company has provided development financing for certain real estate
projects. The security for these loans is a pledge of the developers' ownership
interest in the properties. Such loans are subordinate to construction financing
and are generally referred to as mezzanine loans. The Company's mezzanine loans
accrue interest at approximately 22% per annum. However interest is not paid
periodically and is due at maturity or earlier from unit sales or refinancing
proceeds. The Company defers recognition of interest income on mezzanine loans
pending receipt of principal and interest payments.

      a. On November 30, 2000, the Company entered into a mezzanine loan
agreement to fund $23 million in two tranches to an unaffiliated borrower. The
funds were to be used for certain initial development costs associated with a 65
unit condominium property located at 931 1st Avenue in New York City. The first
tranche of $10 million was funded on November 30, 2000 and provided for interest
accruing at a rate of 25% per annum, with principal and interest due at
maturity, May 29, 2003. Also, in November 2000, approximately $3.7 million of
the second tranche of the loan was funded. The balance of approximately $9.3
million was funded in installments during 2001. The second tranche provided for
interest accruing at a rate of 21.5% per annum with principal and interest due
at maturity, November 29, 2002. The loans were payable at any time from the
proceeds of unit sales after satisfaction of senior debt of approximately $45
million. The loans were secured by the pledge of membership interests in the
entity that owns the real estate. In May 2002, the Company received
approximately $31.3 million for prepayment of the mezzanine loans. The balance
of the prepayment of $8.3 million represented accrued interest ($7.9 million)
and exit fees ($0.4 million) which amounts were recognized as "Interest income
on U.S. Government and Agency obligations and other investments" and "Other
income" respectively, in the Consolidated Statements of Earnings for the year
ended December 31, 2002.

      b. At December 31, 2002, the Company had funded two mezzanine loans for
approximately $23.2 million and had

                                      F-21
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


commitments to fund, under certain conditions, additional advances of
approximately $5 million. Both loans have an interest rate of 22% per annum
compounded monthly. The Peninsula loan, for a Florida condominium development,
which had a term of 24 months from the date of funding, February 2002, was
repaid in full in 2003. Approximately $6.8 million of interest income was
recorded and is included in "Interest income on U.S. Government and Agency
obligations and other investments" in the Consolidated Statements of Earnings.
The Alex Hotel loan, for a New York City hotel with approximately 200 rooms, has
a term of 36 months from the closing date, April 2002. At December 31, 2003,
accrued interest of approximately $4.4 million has been deferred for financial
statement purposes pending receipt of principal and interest payments in
connection with this loan. Origination fees of $3.0 million have been received
in connection with one of the mezzanine loans and approximately $1.5 million and
$1.1 million has been recognized as "Other income" in the Consolidated
Statements of Earnings in the years ended December 31, 2003 and 2002
respectively. In February 2003, the Company funded the Hampton mezzanine loan
for approximately $30 million on a Florida condominium development. The loan is
due in 18 months with one six month extension and has an interest rate of 22%
per annum compounded monthly. The Company has committed to fund an additional
$15 million if required by the borrower to complete the project. At December 31,
2003 accrued interest of approximately $6.7 million has been deferred for
financial statement purposes pending receipt of principal and interest payments
in connection with this loan.

      c. See Note 7 with respect to Philip debt.

12. NOTE RECEIVABLE DUE FROM AFFILIATE

      On October 17, 2003 Mr. Icahn, Chairman of the Board of the General
Partner, repaid the $250 million loan which had been made to him by the Company
on December 27, 2001. The Company made the two-year $250 million loan to Mr.
Icahn, secured by securities consisting of (i) 21,136,044 and 8,073,466 of the
Company's depositary units and preferred units, respectively, owned by Mr.
Icahn, such units having an aggregate market value on that date of $250 million
and (ii) shares of a private company owned by Mr. Icahn, which shares were
represented to have an aggregate book value of at least $250 million, together
with an irrevocable proxy on sufficient additional shares of the private company
so that the pledged shares and the shares covered by the proxy equal in excess
of 50% of the private company's shares. The interest on the loan was payable
semi-annually, at a per annum rate equal to the greater of (i) 3.9% and (ii) 200
basis points over 90 day LIBOR to be reset each calendar quarter. The applicable
rate in 2003 was 3.9% and in 2002 ranged from 3.9% to 4.03%. Interest income of
approximately $7.9 million, $9.9 million and $0.1 million was earned on this
loan in the years ended December 31, 2003, 2002 and 2001, respectively, and is
included in "Interest income on U.S. Government and Agency obligations and other
investments" in the Consolidated Statements of Earnings.

      The Company entered into this transaction to earn interest income on a
secured investment. The terms of this transaction were reviewed and approved by
the Audit Committee.

13. HOTEL AND RESORT OPERATING PROPERTIES

      a. The Company owns a hotel and resort property that is part of a master
planned community situated in the town of Mashpee located on Cape Cod in
Massachusetts. This property includes two golf courses, other recreational
facilities, condominium and time share units and land for future development.

      Total initial costs of approximately $28 million were classified as
follows: approximately $17.4 million as "Hotel and resort properties", $8.9
million as "Land and construction-in-progress" and $1.7 million as "Other
assets" on the Consolidated Balance Sheet.

      Resort operations have been included in the "Hotel and resort operating
income and expenses" in the Consolidated Statements of Earnings. Net hotel and
resort operations for this property ("hotel and resort operating income" less
"hotel and resort operating expenses") resulted in

                                      F-22
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


income of approximately $3,033,000, $1,909,000 and $712,000 for the years ended
December 31, 2003, 2002, and 2001, respectively. Hotel and resort operating
expenses include all expenses except for approximately $2,451,000, $1,833,000
and $970,000 for the years ended December 31, 2003, 2002 and 2001 of
depreciation and amortization, respectively, which is included in such caption
in the Consolidated Statements of Earnings.

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

      b. The Company owns a hotel located in Miami, Florida which has a carrying
value of approximately $6.4 million and $6.3 million at December 31, 2003 and
2002, respectively, and is unencumbered by any mortgages. Approximately $1.3
million of capital improvements were completed in the year ended December 31,
2002.

      The Company has a management agreement for the operation of the hotel with
a national management organization. As a result of the decision to sell the
property in 2004, net hotel and resort operations ("hotel and resort operating
revenues" less "hotel and resort operating expenses") totaled approximately
$596,000, $494,000 and $770,000 for the years ended December 31, 2003, 2002 and
2001, respectively and have been included in discontinued operations.
Depreciation expense of $210,000, $374,000 and $342,000 for the years ended
December 31, 2003, 2002 and 2001, respectively, have been included in
discontinued operations.

14. SIGNIFICANT PROPERTY TRANSACTIONS

      Information on significant property transactions during the three-year
period ended December 31, 2003 is as follows:

      a. In September 2002, the Company purchased an industrial building located
in Nashville, Tennessee for approximately $18.2 million. The building was
constructed in 2001 and is fully leased to two tenants, Alliance Healthcare and
Jet Equipment & Tools Inc., with leases expiring in 2011. The annual net
operating income is anticipated to be approximately $1.6 million increasing to
approximately $1.9 million by 2011. In October 2002, the Company closed a $12.7
million non-recourse mortgage loan on the Nashville, Tennessee property. The
loan bears interest at 6.4% per annum and matures in ten years. Required
payments are interest only for the first three years and then principal
amortization will commence based on a thirty-year amortization schedule.

      At December 31, 2003 and 2002, the property had a carrying value of
approximately $18,066,000 and $17,584,000 respectively, and was encumbered by a
non-recourse mortgage in the amount of $12,700,000.

      b. In October 2002, the Company sold a property located in North Palm
Beach, Florida for a selling price of $3.5 million. A gain of approximately $2.4
million was recognized in the year ended December 31, 2002.

      c. In October 2003, the Company sold a property located in Columbia,
Maryland to its tenant for a selling price of $11 million. A gain of
approximately $5.8 million was recognized in the year ended December 31, 2003.

      d. Due to favorable real estate market conditions and the mature nature of
the Company's real portfolio, the Company has engaged C.B. Richard Ellis, Inc.
to assist it in obtaining offers for its rental real estate portfolio. The
Company intends to utilize proceeds from any asset sales to continue to invest
in its core businesses, including real estate, gaming and entertainment and oil
and gas. The Company may also seek opportunities in other sectors including
industrial, manufacturing and insurance and asset management. In total, the
Company is marketing for sale properties with a book value of approximately $340
million individually encumbered by mortgage debt which in the aggregate is
approximately $180 million, a portion of which portfolio meets the criteria as
held for sale under SFAS 144 at December 31, 2003. There can be no assurance
that offers satisfactory to the Company will be received and, if received, that
the properties will ultimately be sold at prices acceptable to the Company.

      The Company had properties under contract or as to which letters of intent
had been executed by potential purchasers, all of which contracts or letters of
intent are subject to purchaser's due diligence and other closing conditions.
Selling prices for the properties covered by the contracts or letters of intent
would total approximately $323 million but the

                                      F-23
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


properties are encumbered by aggregate mortgage debt of approximately $142
million which would have to be repaid out of the proceeds of the sales or
assumed by the purchaser. In 2003, net income from these properties totaled
approximately $7 million; interest expense was approximately $11 million; and
depreciation and amortization expense was approximately $4.2 million. In
accordance with generally accepted accounting principles, only the real estate
operating properties under contract or letter of intent, but not the financing
lease properties, were reclassified to "Properties held for sale" and the
related income and expense reclassified to "Income from discontinued
operations."

15. MORTGAGES PAYABLE

      Mortgages payable, all of which are nonrecourse to the Company, are
summarized as follows (in $000's):

<TABLE>
<CAPTION>
                                                  ANNUAL PRINCIPAL
RANGE OF INTEREST RATES   RANGE OF MATURITIES   AND INTEREST PAYMENT      BALANCE AT DECEMBER 31,
- -----------------------   -------------------   --------------------        2003        2002
                                                                          --------    ---------
<S>                       <C>                   <C>                       <C>         <C>
5.630% -- 8.430%.......   10/15/07 - 12/31/18            $19,328          $180,989    $166,287
9.000 -- 9.500.........   11/30/03 - 11/30/09                 --                --       5,561
                                                         -------          --------    --------
                                                         $19,328          $180,989    $171,848
                                                         =======          ========    ========
</TABLE>

      The following is a summary of the anticipated future principal payments of
the mortgages (in 000's):

<TABLE>
<CAPTION>
   YEAR ENDING
  DECEMBER 31,         AMOUNT
- ----------------    ---------
<S>                 <C>
2004............    $     6,489
2005............          6,702
2006............          7,360
2007............         14,176
2008............         58,817
2009 - 2013.....         66,905
2014 - 2018.....         20,540
                    -----------
                    $   180,989
                    ===========
</TABLE>

      a. See Note 14(a) for Mid-South Logistics financing in October 2002.

      b. On May 16, 2003, the Company executed a mortgage note secured by a
distribution facility located in Windsor Locks, Connecticut and obtained funding
in the principal amount of $20 million. The loan bears interest at 5.63% per
annum and matures on June 1, 2013. Annual debt service is approximately
$1,382,000 per annum based on a 30 year amortization schedule.

16. SENIOR NOTES AND CREDIT FACILITY DUE AFFILIATES


                                      F-24
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


      a. The Senior Notes of National Energy Group, Inc. ("Notes") were held in
their entirety by affiliates of Icahn at December 31, 2002. The Notes bear
interest at an annual rate of 10 3/4%, payable semiannually in arrears on May 1
and November 1 of each year. The Notes are senior, unsecured obligations of NEG,
ranking pari passu with all existing and future senior indebtedness of NEG, and
senior in right of payment to all future subordinated indebtedness of NEG.
Subject to certain limitations set forth in the indenture covering the Senior
Notes (the "Indenture"), NEG and its subsidiaries may incur additional senior
indebtedness and other indebtedness.

      The Indenture contains certain covenants limiting NEG with respect to the
following: (i) asset sales; (ii) restricted payments; (iii) the incurrence of
additional indebtedness and the issuance of certain redeemable preferred stock;
(iv) liens; (v) sale and leaseback transactions; (vi) lines of business; (vii)
dividend and other payment restrictions affecting subsidiaries; (viii) mergers
and consolidations; and (ix) transactions with affiliates.

      NEG was unable to reasonably determine the fair value of the Notes at
December 31, 2002, due to a lack of available market quotations, credit ratings
and inability to determine an appropriate discount rate.

      In August 2001, NEG redeemed both $16.4 million of principal outstanding
under the notes and $4.8 million of Reinstated Interest for a cash consideration
of $10.5 million. NEG paid two Icahn affiliates approximately $0.4 million in
current interest on the redeemed senior note obligations at the date of
redemption related to interest owed from the last semi-annual interest payment
date of May 1, 2001, to the date of redemption. As this was a partial redemption
of the Notes, it has been accounted for as a modification of terms that changes
the amounts of future cash payments. Accordingly, the excess of redeemed
principal and interest over the redemption payment of $10.5 million is being
amortized as a reduction to interest expense over the remaining life of the
bonds. In connection with this transaction, NEG borrowed $10.9 million under its
existing credit facility with an Icahn affiliate.

      In October 2003, the Company acquired these Notes. At December 31, 2003,
these Notes were eliminated in consolidation (See Note 10).

      b. At December 31, 2002, NEG had $10.9 million outstanding under its
existing $100 million credit facility with Arnos, an Icahn affiliate. Arnos
continued to be the holder of the credit facility; however, the $10.9 million
note outstanding under the credit facility was contributed to Holding LLC as
part of Gascon's contribution to Holding LLC on September 12, 2001. In December
2001, the maturity date of the credit facility was extended to December 31, 2003
and NEG was given a waiver of compliance with respect to any and all covenant
violations. NEG was not in compliance with the minimum interest coverage ratio
at September 30, 2002; and December 31, 2002 and the current ratio at December
31, 2002, however, in December 2001, NEG was given a waiver of compliance with
respect to any and all covenant violations through December 31, 2003.

      On March 26, 2003, Holding LLC distributed the $10.9 million note
outstanding under NEG'S revolving credit facility as a priority distribution to
NEG, thereby canceling the note. Also, on March 26, 2003, NEG, Arnos and
Operating LLC entered into an agreement to assign the credit facility to
Operating LLC. Effective with this assignment, Arnos amended the credit facility
to increase the revolving commitment to $150 million, increase the borrowing
base to $75 million and extend the revolving due date until June 30, 2004.
Concurrently, Arnos extended a $42.8 million loan to Operating LLC under the
amended credit facility. Operating LLC then distributed $42.8 million to Holding
LLC who, thereafter, made a $40.5 million priority distribution and a $2.3
million guaranteed payment to NEG. NEG utilized these funds to pay the entire
amount of the long-term interest payable on the Notes and interest accrued
thereon outstanding on March 27, 2003. The Arnos facility was canceled on
December 29, 2003 in conjunction with a third party bank financing.


                                      F-25
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


17. RIGHTS OFFERINGS

      a. A registration statement relating to the 1995 Rights Offering (the
"1995 Offering") was filed with the Securities and Exchange Commission and
declared effective February 23, 1995.

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

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

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

      b. In September 1997, the Company completed its 1997 Rights Offering (the
"1997 Offering") to holders of its Depositary Units. The aggregate amount raised
in the 1997 Rights Offering was approximately $267 million. The Preferred and
Depositary Units issued under the 1997 Rights Offering carry the same rights and
designations as those issued in 1995.

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

     At December 31, 2003, affiliates of the General Partner owned 8,477,139
Preferred Units and 39,896,836 Depositary Units.

18. PREFERRED UNITS

      Pursuant to the terms of the Preferred Units, on February 21, 2003, the
Company declared its scheduled annual preferred unit distribution payable in
additional Preferred Units at the rate of 5% of the liquidation preference of
$10. The distribution was payable March 31, 2003 to holders of record as of
March 14, 2003. A total of 466,548 additional Preferred Units were issued. At
December 31, 2003 and 2002, 9,796,607 and 9,330,963 Preferred Units are issued
and outstanding, respectively.

      Pursuant to the terms of the Preferred Units, on February 25, 2004, the
Company declared its scheduled annual preferred unit distribution payable in
additional Preferred Units at the rate of 5% of the liquidation preference of
$10. The distribution is payable on


                                      F-26
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


March 31, 2004 to holders of record as of March 12, 2004. In addition, the
Company increased the number of authorized Preferred Units to 10,400,000.

      On July 1, 2003, the Company adopted Statement of Financial Accounting
Standards No. 150 (SFAS 150) "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity." SFAS 150 requires that a
financial instrument, which is an unconditional obligation, be classified as a
liability. Previous guidance required an entity to include in equity financial
instruments that the entity could redeem in either cash or stock. Pursuant to
SFAS 150 the Company's Preferred Units, which are an unconditional obligation,
have been reclassified from "Partners' equity" to a liability account in the
consolidated Balance Sheets and the preferred pay-in-kind distribution for the
period from July 1, 2003 to December 31, 2003 of $2,449,000 and all future
distributions have been and will be recorded as "Interest expense" in the
Consolidated Statements of Operations.

19. INCOME TAXES

<TABLE>
<CAPTION>
                                                                                                      DECEMBER 31,
                                                                                                      ------------
(IN $000'S)                                                                                       2003            2002
                                                                                             -------------   -------------
<S>                                                                                          <C>             <C>
      a. The difference between the book basis and the tax basis of the net assets
         of the Company, not directly subject to income taxes, is as follows:
         Book basis of American Real Estate Partners' net assets excluding Stratosphere
         Corp. and NEG, Inc..........................................................        $   1,149,418   $   1,177,329
      Excess of tax over book (Excess of book over tax basis)........................               79,238          (1,778)
                                                                                             -------------   -------------
      Tax basis of net assets........................................................        $   1,228,656   $   1,175,551
                                                                                             =============   =============
</TABLE>

      b. Corporate income taxes

      (i)   The Company's corporations recorded the following income tax
            (expense) benefit attributable to continuing operations for
            Stratosphere and NEG for the years ended December 31, 2003,
            2002 and 2001 (in $000's):

<TABLE>
<CAPTION>
                                                     DECEMBER 31,
                                     ----------------------------------
                                       2003         2002         2001
                                     --------     --------     --------

<S>                                  <C>          <C>          <C>
                      Current        $   (723)    $     --     $     --
                      Deferred          7,218       (7,480)      30,077
                                     --------     --------     --------
                                     $  6,495     $ (7,480)    $ 30,077
                                     ========     ========     ========
</TABLE>

      (ii)  The tax effect of significant differences representing net deferred
            tax assets (the difference between financial statement carrying
            values and the tax basis of assets and liabilities) for the Company
            is as follows at December 31, 2003 and 2002 (in $000's):

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                            -----------------------
                                                               2003          2002
                                                            ---------     ---------

<S>                                                         <C>           <C>
                 Deferred tax assets:
                     Depreciation ...................       $  40,191     $  61,628
                     Net operating loss carryforwards          30,942        45,958
                     Investment in NEG Holding LLC ..          18,845         8,440
                     Other ..........................           8,347         9,950
                                                            ---------     ---------
                                                               98,325       125,976
                      Valuation allowance ...........         (15,875)     (100,454)
                                                            ---------     ---------
                      Net deferred tax assets .......       $  82,450     $  25,522
                                                            =========     =========
</TABLE>

       At December 31, 2003, Stratosphere had net operating loss carryforwards
available for federal income tax purposes of approximately $28.5 million which
begin expiring in 2019.

      SFAS 109 requires a "more likely than not" criterion be applied when
evaluating the realizability of a deferred tax asset. As of December 31, 2002,
given Stratosphere's history of losses for income tax purposes, the volatility
of the industry within which the


                                      F-27
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


Stratosphere operates, and certain other factors, Stratosphere had established a
valuation allowance for the deductible temporary differences, including the
excess of the tax basis of the Stratosphere's assets over the basis of such
assets for financial statement purposes and the tax carryforwards. However, at
December 31, 2003, based on various factors including the current earnings trend
and future taxable income projections, Stratosphere determined that it was more
likely than not that the deferred tax assets will be realized and removed the
valuation allowance.

      In accordance with SFAS 109, the tax benefit of any deferred tax asset
that existed on the effective date of a reorganization should be reported as a
direct addition to contributed capital. Stratosphere has deferred tax assets
relating to both before and after Stratosphere emerged from bankruptcy in
September of 1998. The net decrease in the valuation allowance was $79.3 million
of which a net amount of $47.5 million was credited to partners' capital in the
year ended December 31, 2003.

       At December 31, 2003, NEG had net operating loss carryforwards available
for federal income tax purposes of approximately $58 million, which expire in
2009. Net operating loss limitations may be imposed as a result of subsequent
changes in stock ownership of NEG. Prior to the formation of Holding LLC, the
income tax benefit associated with the loss carryforwards had not been
recognized since, in the opinion of management, there was not sufficient
positive evidence of future taxable income to justify recognition of a benefit.
Upon the formation of Holding LLC, management again evaluated all evidence, both
positive and negative, in determining whether a valuation allowance to reduce
the carrying value of deferred tax assets was still needed and concluded, based
on the projected allocations of taxable income by Holding LLC, NEG more likely
than not will realize a partial benefit from the loss carryforwards. In
accordance with SFAS 109, NEG recorded a deferred tax asset of $31.9 million in
September 2001, $25.5 million as of December 31, 2002, and $25.9 million as of
December 31, 2003. Ultimate realization of the deferred tax asset is dependent
upon, among other factors, NEG's ability to generate sufficient taxable income
within the carryforward periods and is subject to change depending on the tax
laws in effect in the years in which the carryfowards are used. As a result of
the recognition of expected future income tax benefits, subsequent periods will
reflect a full effective tax rate provision.

20. QUARTERLY FINANCIAL DATA (UNAUDITED) (IN $000'S, EXCEPT PER UNIT DATA)

<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED(1)
                                    --------------------------------------------------------------------------------------------
                                          MARCH 31,                JUNE 30,             SEPTEMBER 30,          DECEMBER 31,
                                    --------------------    --------------------    --------------------    --------------------
                                        2003        2002        2003        2002        2003        2002        2003        2002
                                    --------    --------    --------    --------    --------    --------    --------    --------
<S>                                 <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
Revenues ........................   $ 69,030    $ 82,995    $ 67,016    $ 89,008    $ 71,492    $ 80,906    $ 69,018    $ 93,471
                                    ========    ========    ========    ========    ========    ========    ========    ========
Operating Income ................   $ 14,524    $ 19,810    $ 15,033    $ 26,106    $ 14,811    $ 17,802    $ 18,523    $ 20,012
Gains (losses) on property
  transactions ..................      1,138       1,639        (272)         --         501       2,891       5,754       4,460
Gain on sale of marketable
  equity and debt securities ....         --          --          --          --       2,168          --         439          --
Provision for loss on real estate       (200)         --          --        (926)       (100)         --        (450)     (2,286)
Write-down of equity securities
  available for sale ............       (961)         --          --      (8,476)         --          --          --          --
Write-down write-up of mortgages
  & notes receivable ............         --          --     (18,798)         --          --          --          --          --
Loss on limited partnership
  interest ......................         --          --          --          --          --          --          --      (3,750)
Minority interest in net
  earnings of Stratosphere Corp.          --        (407)         --        (589)         --        (612)         --        (335)
                                    --------    --------    --------    --------    --------    --------    --------    --------
Income (loss) from continuing
  operations before income tax ..     14,501      21,042      (4,037)     16,115      17,380      20,081      24,266      18,101
Income tax (expense) benefit ....     (2,878)     (1,595)     (2,158)     (1,854)     (2,568)     (2,031)     14,099      (2,000)
                                    --------    --------    --------    --------    --------    --------    --------    --------
Income (loss) from continuing
  operations ....................     11,623      19,447      (6,195)     14,261      14,812      18,050      38,365      16,101
Income from discontinued
  operations ....................      1,629       1,502       3,427       1,502       2,933       1,502       1,503       1,501
                                    --------    --------    --------    --------    --------    --------    --------    --------
Net earnings (loss) .............   $ 13,252    $ 20,949    $ (2,768)   $ 15,763    $ 17,745    $ 19,552    $ 39,868    $ 17,602
                                    ========    ========    ========    ========    ========    ========    ========    ========
Net Earnings (loss) per limited
Partnership unit(2):
  Basic earnings:
</TABLE>


                                      F-28
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED(1)
                                    --------------------------------------------------------------------------------------------
                                          MARCH 31,                JUNE 30,             SEPTEMBER 30,          DECEMBER 31,
                                    --------------------    --------------------    --------------------    --------------------
                                        2003        2002        2003        2002        2003        2002        2003        2002
                                    --------    --------    --------    --------    --------    --------    --------    --------
<S>                                 <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
   Income (loss) from continuing
    operations ..................   $    .17    $    .35    $   (.20)   $    .24    $    .26    $    .31    $    .82    $    .26
   Income from discontinued
    operations ..................        .03         .03         .07         .03         .06         .03         .03         .03
                                    --------    --------    --------    --------    --------    --------    --------    --------
  Basic earnings (loss) per LP
   unit .........................   $    .20    $    .38    $   (.13)   $    .27    $    .32    $    .34    $    .85    $    .29
                                    ========    ========    ========    ========    ========    ========    ========    ========
  Diluted earnings:
   Income (loss) from continuing
    operations ..................   $    .15    $    .30    $   (.20)   $    .21    $    .24    $    .27    $    .71    $    .22
   Income from discontinued
    operations ..................        .03         .03         .07         .03         .05         .03         .03         .03
                                    --------    --------    --------    --------    --------    --------    --------    --------
  Diluted earnings (loss) per LP
   unit .........................   $    .18    $    .33    $   (.13)   $    .24    $    .29    $    .30    $    .74    $    .25
                                    ========    ========    ========    ========    ========    ========    ========    ========
</TABLE>

- ----------

(1)   All quarterly amounts have been restated for the effects of the
      acquisition of NEG and the reporting of discontinued operations.

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

21. SEGMENT REPORTING

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

            Non-segment revenue to reconcile to total revenue consists primarily
of interest income on treasury bills and other investments. Non-segment assets
to reconcile to total assets includes investment in U.S. Government and Agency
obligations, cash and cash equivalents, receivables and other assets.

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

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

      The revenues, net earnings, assets and real estate investment capital
expenditures for each of the reportable segments are summarized as follows for
the years ended and as of December 31, 2003, 2002, and 2001 (in $000's):

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                -----------------------------------------
                                                  2003            2002             2001
                                                ---------       ---------       ---------

<S>                                             <C>             <C>             <C>
 Revenues:
   Hotel & casino operating properties ....     $ 160,235       $ 156,620       $ 146,161
   Land, house and condominium sales ......        13,265          76,024          55,566
   Rental real estate .....................        24,751          25,238          27,366
   Hotel & resort operating properties ....        14,592          14,918          12,276
   Oil & gas operating properties .........        38,109          40,516          45,709
   Other investments ......................        13,874          15,283           7,097
                                                ---------       ---------       ---------
    Subtotal ..............................       264,826         328,599         294,175
</TABLE>


                                      F-29
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                  -----------------------------------------
                                                    2003            2002             2001
                                                  ---------       ---------       ---------

<S>                                               <C>             <C>             <C>
 Reconciling items ........................          11,730(1)       17,781(1)       28,147(1)
                                                  ---------       ---------       ---------
    Total revenues ........................       $ 276,556       $ 346,380       $ 322,322
                                                  =========       =========       =========
 Net earnings:
 Segment earnings:
   Hotel & casino operating property ......       $  24,806       $  24,961       $  18,205
   Land, house and condominium sales ......           4,136          21,384          12,967
   Oil & gas operating properties .........          38,109          40,516          40,140
   Rental real estate .....................          19,276          20,556          24,338
   Hotel and resort operating properties ..           3,454           2,365           1,484
   Other investments ......................          13,874          15,283           7,097
                                                  ---------       ---------       ---------
    Total segment earnings ................         103,655         125,065         104,231
 Interest income ..........................          11,730          17,781          28,147
 Interest expense .........................         (20,640)        (27,369)        (34,765)
 General and administrative expenses ......         (14,081)        (14,134)        (13,011)
 Depreciation and amortization ............         (17,773)        (17,613)        (20,814)
                                                  ---------       ---------       ---------
   Operating Income .......................          62,891          83,730          63,788
 Gain on sales and disposition of real
   estate from continuing operations ......           7,121           8,990           1,737
 Loss on sale of limited partnership
   interests ..............................              --          (3,750)             --
 Write-down of mortgages and notes
   receivable .............................         (18,798)             --              --
 Provision for loss on real estate ........            (750)         (3,212)         (3,184)
 Write-down of equity securities available
   for sale ...............................            (961)         (8,476)             --
 Gain on sale of marketable equity
   securities .............................           2,607              --           6,749
 Minority interest in net earnings of
   Stratosphere Corp ......................              --          (1,943)           (450)
 Income tax benefit (expense) .............           6,495          (7,480)         30,077
 Income from discontinued operations ......           9,492           6,007           6,117
 General partner's share of net income ....          (8,737)        (10,698)        (38,644)
                                                  ---------       ---------       ---------
 Net earnings-limited partners' unitholders       $  59,360       $  63,168       $  66,190
                                                  =========       =========       =========
</TABLE>


- ----------

(1)   Primarily interest income on U.S. Government and Agency obligations and
      other short-term investments and Icahn note receivable.

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                               ------------------------------------
                                                  2003         2002         2001
                                               ----------   ----------   ----------

<S>                                            <C>          <C>          <C>
Assets:
  Rental real estate .......................   $  340,062   $  359,700   $  358,597
  Hotel and casino operating property ......      174,249      171,430      184,191
  Land and construction-in-progress ........       43,459       40,415       69,429
  Hotel and resort operating properties ....       41,526       44,346       43,990
  Other investments ........................      231,050      479,104      458,372
                                               ----------   ----------   ----------
                                                  830,346    1,094,995    1,114,579
  Reconciling items ........................      659,584      465,481      469,772
                                               ----------   ----------   ----------
   Total ...................................   $1,489,930   $1,560,476   $1,584,351
                                               ==========   ==========   ==========
Real estate investment capital expenditures:
Acquisitions:
  Rental real estate .......................   $       --   $   18,226   $       --
  Land and construction-in-progress ........           --           --           --
  Hotel and casino operating property ......           --           --           --
  Hotel and resort operating properties ....           --           --           --
                                               ----------   ----------   ----------
                                               $       --   $   18,226   $       --
                                               ==========   ==========   ==========
Developments:
  Rental real estate .......................   $      413   $      181   $    1,064
  Land and construction-in-progress ........           --        1,138        3,804
  Hotel and casino operating property ......       18,667        2,582       48,909
  Hotel and resort operating properties ....        1,067        1,995       13,753
                                               ----------   ----------   ----------
                                               $   20,147   $    5,896   $   67,530
                                               ==========   ==========   ==========
</TABLE>


                                      F-30
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


22. COMMITMENTS AND CONTINGENCIES

      a. In January 2002, Kmart Corp., a tenant leasing seven properties owned
by the Company which represent approximately $1,374,000 in annual rentals, filed
a voluntary petition for reorganization under Chapter 11 of the Federal
Bankruptcy Code. Pursuant to an order of the Bankruptcy Court, four leases have
been rejected representing approximately $713,000 in annual rents. The Company
recorded a provision for loss of approximately $1.9 million on the four
properties, whose leases were rejected, for the year ended December 31, 2001.
The Company has not been notified regarding the three remaining leases
representing approximately $661,000 in annual rents. At December 31, 2003 and
2002, the carrying value of the seven properties was approximately $5,482,000
and $6,529,000, respectively, which management believes is less than the
estimate of net realizable value.

      Tiffiny Decorating Company ("Tiffiny"), a subcontractor to Great
Western Drywall ("Great Western"), filed a legal action against Stratosphere
Corporation, Stratosphere Development, LLC, American Real Estate Holdings
Limited Partnership (collectively referred to as the "Stratosphere Parties"),
Great Western, Nevada Title and Safeco Insurance, Case No. A443926 in the Eighth
Judicial District Court of the State of Nevada. The legal action asserts claims
that include breach of contract, unjust enrichment and foreclosure of lien. The
Stratosphere Parties have filed a cross-claim against Great Western in that
action. Additionally, Great Western has filed a separate legal action against
the Stratosphere Parties setting forth the same disputed issues. That separate
action, Case No. A448299 in the Eighth Judicial Court of the State of Nevada,
has been consolidated with the case brought by Tiffiny.

      The initial complaint brought by Tiffiny asserts that Tiffiny performed
certain construction services at the Stratosphere and was not fully paid for
those services. Tiffiny claims the sum of $521,562 against Great Western, the
Statosphere Parties, and the other defendants, which the Stratosphere Parties
contend has been paid to Great Western for payment to Tiffiny.

      Great Western is alleging that it is owed payment from the Stratosphere
Parties for work performed and for delay and disruption damages. Great Western
is claiming damages in the sum of $3,935,438 plus interest, costs and legal fees
from the Stratosphere Parties. This amount apparently includes the Tiffiny
claim.

      The Stratosphere Parties have evaluated the project and have determined
that the amount of $1,004,059, of which $195,953 and $371,973 were disbursed to
Tiffiny and Great Western in 2002, respectively, is properly due and payable to
satisfy all claims for the work performed, including the claim by Tiffiny. The
remaining amount has been segregated in a separate interest bearing account. The
Stratosphere Parties intend to vigorously defend the action for claims in excess
of $1,004,059.

      c. In January 2002, the Cape Cod Commission, (the "Commission"), a
Massachusetts regional planning body created in 1989, concluded that AREP's New
Seabury development is within its jurisdiction for review and approval (the
"Administrative Decision"). It is the Company's position that the proposed
residential, commercial and recreational development is in substantial
compliance with a special permit issued for the property in 1964 and is
therefore exempt from the Commission's jurisdiction and that Commission is
barred from exercising jurisdiction pursuant to a 1993 settlement agreement
between the Commission and a prior owner of the New Seabury property (the
"Settlement Agreement").

      In February 2002, New Seabury Properties LLC ("New Seabury"), an AREP
subsidiary and owner of the property, filed in Barnstable County Massachusetts
Superior Court, a civil complaint appealing the Administrative Decision by the
Commission, and a separate civil complaint to find the Commission in contempt of
the Settlement Agreement. The Court subsequently consolidated the two complaints
into one proceeding. In July 2003, New Seabury and the Commission filed cross
motions for summary judgment.


                                      F-31
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


      Also, in July 2003, in accordance with a Court ruling, the Commission
reconsidered the question of its jurisdiction over the initial development
proposal and over a modified development proposal that New Seabury filed in
March 2003. The Commission concluded that both proposals are within its
jurisdiction (the Second Administrative Decision). In August 2003, New Seabury
filed in Barnstable County Massachusetts Superior Court another civil complaint
appealing the Second Administrative Decision to find the Commission in contempt
of the Settlement Agreement.

      In November 2003, the Court ruled in New Seabury's favor on its July 2003
motion for partial summary judgment, finding that the special permit remains
valid and that the modified development proposal is in substantial compliance
with the Special Permit and therefore exempt from the Commission's jurisdiction
(the Court did not yet rule on the initial proposal). Under the modified
development proposal New Seabury could potentially develop up to 278 residential
units and 145,000 square feet of commercial space. In March 2004, New Seabury
moved for Summary Judgment to dispose of remaining claims under all three
complaints and to obtain a final judgment from the Court. Also in March 2004,
the Commission cross-moved for summary judgment on certain claims under each
complaint. Under the initial proposal, New Seabury could potentially build up to
675 residential/hotel units and 80,000 square feet of commercial space. The
Company cannot predict the effect on the development process if it loses any
appeal or if the Commission is ultimately successful in asserting jurisdiction
over any of the development proposals.

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

      In addition, in the ordinary course of business, the Company, its
subsidiaries and other companies in which the Company has invested are parties
to various legal actions. In management's opinion, the ultimate outcome of such
legal actions will not have a material effect on the Company's consolidated
financial statements taken as a whole.

23. FAIR VALUE OF FINANCIAL INSTRUMENTS

CASH AND CASH EQUIVALENTS, RECEIVABLES, NOTE RECEIVABLE DUE FROM AFFILIATE,
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES AND THE PREFERRED
LIMITED PARTNERSHIP UNITS LIABILITY

      The carrying amount of cash and cash equivalents, receivables, note
receivable due from affiliate, and accounts payable, accrued expenses and other
liabilities and the Preferred Limited Partnership Units Liability are carried at
cost, which approximates their fair value.

MORTGAGES AND NOTES RECEIVABLE

      The fair values of the mortgages and notes receivable past due, in process
of foreclosure, or for which foreclosure proceedings are pending, are based on
the discounted cash flows of the underlying lease. The fair values of the
mortgages and notes receivable satisfied after year end are based on the amount
of the net proceeds received.

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

      The approximate estimated fair values of the mortgages and notes
receivable held as of December 31, 2003 and 2002 are summarized as follows (in
$000's):

<TABLE>
<CAPTION>
                     AT DECEMBER 31, 2003        AT DECEMBER 31, 2002
                     --------------------        --------------------
                       NET       ESTIMATED        NET        ESTIMATED
                   INVESTMENT    FAIR VALUE    INVESTMENT    FAIR VALUE
                   ----------    ----------    ----------    ----------

<S>                 <C>            <C>          <C>           <C>
Total               $ 50,272       $ 55,000     $ 51,449      $ 53,973
                    ========       ========     ========      ========
</TABLE>

      The net investment at December 31, 2003 and 2002 is equal to the carrying
amount of the mortgage receivable less any deferred income recorded.


                                      F-32
<PAGE>
              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


MORTGAGES PAYABLE

      The approximate estimated fair values of the mortgages payable as of
December 31, 2003 and 2002 are summarized as follows (in $000's):

<TABLE>
<CAPTION>
                     AT DECEMBER 31, 2003        AT DECEMBER 31, 2002
                     --------------------        --------------------
                    CARRYING     ESTIMATED      CARRYING     ESTIMATED
                      VALUE      FAIR VALUE      VALUE       FAIR VALUE
                      -----      ----------      -----       ----------

<S>                 <C>           <C>           <C>           <C>
Total               $180,989      $185,000      $171,848      $190,000
                    ========      ========      ========      ========
</TABLE>

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.

24. EMPLOYEE BENEFIT PLANS

      a. Employees of the Company who are members of various unions are covered
by union-sponsored, collectively bargained, multi-employer health and welfare
and defined benefit pension plans. The Company recorded expenses for such plans
of approximately $7,600,000, $6,500,000 and $4,900,000 for the years ended
December 31, 2003, 2002 and 2001, respectively. Sufficient information is not
available from the plans' sponsors to permit the Company to determine the
adequacy of the plans' funding status.

      b. The Company has retirement savings plans under Section 401(k) of the
Internal Revenue Code covering its non-union employees. The plans allow
employees to defer, within prescribed limits, up to 15% of their income on a
pre-tax basis through contributions to the plans. The Company currently matches,
within prescribed limits, up to 6% of eligible employees' compensation at rates
ranging from 33% to 50%. The Company recorded charges for matching contributions
of approximately $422,000, $433,000 and $477,000, for the years ended December
31, 2003, 2002 and 2001, respectively.

25. REPURCHASE OF DEPOSITARY UNITS

      The Company has previously been authorized to repurchase up to 1,250,000
Depositary Units. As of December 31, 2003, the Company has purchased 1,137,200
Depositary Units at an aggregate cost of approximately $11,921,000.

26. SUBSEQUENT EVENTS


      On January 5, 2004, American Casino & Entertainment Properties LLC
("American Casino"), an indirect wholly-owned subsidiary of the Company, entered
into an agreement to acquire two Las Vegas casino/hotels, Arizona Charlie's
Decatur and Arizona Charlie's Boulder from Carl C. Icahn and an entity
affiliated with Mr. Icahn, for an aggregate consideration of $125.9 million. The
closing of the acquisition is subject to certain conditions, including among
other things, obtaining all approvals necessary under the gaming laws. The terms
of the transaction were approved by the Audit Committee, who received an opinion
from its financial advisor as to the fairness of the consideration to be paid
from a financial point of view. Upon receiving all approvals necessary under
gaming laws and upon closing of the acquisition, the AREH will transfer 100% of
the common stock of Stratosphere Corporation ("Stratosphere") to American
Casino. As a result, following the acquisition and contribution, American Casino
will own and operate three gaming and entertainment properties in the Las Vegas
metropolitan area.

      Also, in January 2004, American Casino closed on its offering of Senior
Secured Notes Due 2012. The Notes, in the aggregate principal amount of $215
million, bear interest at the rate of 7.85% per annum. The proceeds will be
held in escrow pending receipt of all approvals necessary under gaming laws and
certain other conditions in connection with the acquisition of Arizona
Charlie's Decatur and Boulder. The amount raised in excess of the acquisition
cost and expenses will be used to repay intercompany debt and for general
business purposes by the Company and its subsidiaries.

      Arizona Charlie's Decatur is located on approximately 17 acres of land,
four miles west of the Las Vegas strip. An estimated 500,000 people live within
a five-mile radius of the property. The property is easily accessible from
Route 95, a major highway in Las Vegas. Arizona Charlie's Decatur contains
approximately 52,000 square feet of gaming space, 258 hotel rooms, four
restaurants and three bars. The property targets repeat customers from the
surrounding communities. In 2003, revenues were $67.9 million.

      Arizona Charlie's Boulder is located on approximately 24 acres of land,
seven miles east of the Las Vegas strip, near an I-515 interchange. The I-515
is the most heavily traveled east/west highway in Las Vegas. An estimated
423,000 people live within a five-mile radius of the property. Arizona Charlie's
Boulder contains approximately 41,000 square feet of gaming space, 303 hotel
rooms, four restaurants and a 202-space recreational vehicle park. As with the
Arizona Charlie's Decatur property, the property targets repeat customers from
the surrounding communities. In 2003, revenues were $31.2 million.


                                      F-33

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.4
<SEQUENCE>9
<FILENAME>y00603kexv99w4.txt
<DESCRIPTION>ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TEXT>
<PAGE>
                                                                  Exhibit 99.4

ITEM 15. 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 Item 8 (Exhibit 99.3 to this Form 8-K):

<TABLE>
<CAPTION>

<S>  <C>                                                                          <C>
     Report of Independent Registered Public Accounting Firm .....................F-1

     Consolidated Balance Sheets -- December 31, 2003 and 2002....................F-2

     Consolidated Statements of Earnings -- Years ended December 31, 2003, 2002
       and 2001...................................................................F-3

     Consolidated Statements of Changes in Partners' Equity and Comprehensive
       Income -- Years ended December 31, 2003, 2002, and 2001....................F-4

     Consolidated Statements of Cash Flows -- Years ended December 31, 2003,
       2002 and 2001..............................................................F-5

     Notes to Consolidated Financial Statements...................................F-7
</TABLE>

(a)(2) Financial Statement Schedules:

      Schedule III: Real Estate Owned and Revenues Earned (by tenant or
guarantor, as applicable) is included herein.

      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
            (incorporated by reference to AREP's Exhibit 3.1 to Form 10-Q for
            the quarter ended March 31, 2004, filed on May 10, 2004).

   3.2  --  Amended and Restated Agreement of Limited Partnership of AREP, dated
            as of May 12, 1987 (incorporated by reference to AREP's Exhibit 3.2
            to Form 10-Q for the quarter ended March 31, 2004, filed on May 10,
            2004).

   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 (incorporated by reference
            to AREP's Exhibit 3.4 to Form 10-Q for the quarter ended March 31,
            2004, filed on May 10, 2004.).

   3.5  --  Amended and Restated Agreement of Limited Partnership of the
            Subsidiary, dated as of July 1, 1987 (incorporated by reference to
            AREP's Exhibit 3.5 to Form 10-Q for the quarter ended March 31,
            2004, filed on May 10, 2004).

   3.6  --  Amendment No. 2 to the Amended and Restated Agreement of Limited
            Partnership of AREP dated as of August 16, 1996 and filed as Exhibit
            10.1 to 8-K filed on August 16, 1996 and incorporated herein by
            reference.

   3.7  --  Amendment No. 1 to the Amended and Restated Agreement of Limited
            Partnership of the Subsidiary dated August 16, 1996 filed as Exhibit
            10.2 to the 8-K dated August 16, 1996 and incorporated herein by
            reference.

   3.8  --  Amendment No. 3. To the Amended and Restated Agreement of Limited
            Partnership of AREP dated May 9, 2002. (Included in the annual
            report on 10-K for the year ended December 31, 2002 and incorporated
            herein by reference)

   3.9  --  Amendment No. 2 to the Amended and Restated Agreement of Limited
            Partnership of the Subsidiary

                                      IV-1

<PAGE>
            dated June 14, 2002. (Included in the annual report on 10-K for the
            year ended December 31, 2002 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 (incorporated by
            reference to AREP's Exhibit 4.1 to Form 10-Q for the quarter ended
            March 31, 2004, filed on May 10, 2004).

   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).

 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).

 10.17  --  Note dated December 27, 2001 from Carl Icahn to American Real Estate
            Holdings, L.P. in the amount of $250 million and incorporated herein
            by reference.

 10.18  --  Pledge Agreement dated December 27, 2001 between American Real
            Estate Holdings, L.P. and Carl Icahn and incorporated herein by
            reference.

 10.19  --  Accommodation Pledge Agreement dated December 27, 2001, between
            American Real Estate Holdings, L.P. and various pledgors 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).

 21     --  List of Subsidiaries (incorporated by reference to AREP's Exhibit 21
            to Form 10-Q for the quarter ended March 31, 2004, filed on May 10,
            2004).

 31.1   --  Certification of Chief Executive Officer - pursuant to Section
            302(a) of the Sarbanes-Oxley Act of 2002.

                                      IV-2
<PAGE>

 31.2   --  Certification of Chief Financial Officer - pursuant to Section
            302(a) of the Sarbanes-Oxley Act of 2002.

 32.1   --  Certification of Principal Executive Officer - pursuant to Section
            906 of the Sarbanes-Oxley Act of 2002.

 32.2   --  Certification of Principal Financial Officer - pursuant to Section
            906 of the Sarbanes-Oxley Act of 2002.

 99.1   --  Audit Committee Charter was adopted on March 12, 2004 and is
            incorporated herein as Exhibit 99.1.

 99.2   --  Code of Ethics for Principal Executive Officer and Senior Financial
            Officers of American Property Investors, Inc. and American Real
            Estate Partners, L.P. is incorporated herein as Exhibit 99.2.


(b)  Reports on Form 8-K:

            (1) A Form 8-K was filed on October 2, 2003 -- American Real Estate
      Partners, L.P. Acquires Certain Securities of NEG Inc.

            (2) A Form 8-K was filed on November 14, 2003 -- American Real
      Estate Partners, L.P. reports Third Quarter and Nine Months Results.

            (3) A Form 8-K was filed on November 19, 2003 -- American Real
      Estate Partners, L.P. Comments on Trading Activity.

                                      IV-3

<PAGE>

                                  SCHEDULE III
<PAGE>
                        AMERICAN REAL ESTATE PARTNERS, L.P.
                              a limited partnership                 Schedule III
                                                                    ------------

                      REAL ESTATE OWNED AND REVENUES EARNED

<TABLE>
<CAPTION>








                                                          No. of       Amount of
                                                  State  Locations  Encumberances
                                                  -----  ---------  -------------
<S>                                               <C>    <C>        <C>
COMMERCIAL PROPERTY LAND AND BUILDING
- -------------------------------------
       Acme Markets, Inc. and FPBT of Penn.         PA       1
       Alabama Power Company                        AL       5
       Amer Stores, Eckerd & Marburn                NJ       1
       Atrium                                       VA       1      $ 18,716,286
       Best Products Co., Inc.                      VA       1
       Chesebrough-Pond's Inc.                      CN       1
       Collins Foods International, Inc.            OR       3
       Collins Foods International, Inc.            CA       1
       Dillon Companies, Inc.                       MO       1
       Dragon court                                 MA       1
       Duke Power Co.                               NC       1
       Easco Corp.                                  NC       1
       European American Bank and Trust Co.         NY       1
       Farwell Bldg.                                MN       1
       First National Supermarkets, Inc.            CT       1        19,848,351
       Fisher Scientific Company                    IL       1
       Forte Hotels International, Inc.             NJ       1
       Fox Grocery Company                          WV       1
       Gino's, Inc.                                 MO       1
       Gino's, Inc.                                 OH       1
       Golf Road                                    IL       1         6,682,664
       Grand Union Co.                              MD       1
       Grand Union Co.                              NY       1
       Grand Union Co.                              VA       1
       Whalen                                       NY       1
       Gunite                                       IN       1
       G.D. Searle & Co.                            IL       1
       G.D. Searle & Co.                            MN       1
       G.D. Searle & Co.                            IL       1
       Integra A Hotel and Restaurant Co.           AL       1
       Integra A Hotel and Restaurant Co.           AL       1
       Integra A Hotel and Restaurant Co.           IL
       Integra A Hotel and Restaurant Co.           IN       1
       Integra A Hotel and Restaurant Co.           OH       1
       Integra A Hotel and Restaurant Co.           MO       1
       Integra A Hotel and Restaurant Co.           TX       1
       Integra A Hotel and Restaurant Co.           MI       1
       Intermountain Color                          KY       1
       J.C. Penney Company, Inc.                    MA       1
       Kings buffet                                 FL       1
       K-Mart Corporation                           LA       1
       K-Mart Corporation                           WI       1
       K-Mart Corporation                           MN       1
       K-Mart Corporation                           FL       1
       K-Mart Corporation                           IA       1
       K-Mart Corporation                           FL       1
       K-Mart Corporation                           FL       1
       K-Mart Corporation                           IL       1
       Kobacker Stores, Inc.                        MI       2
       Kobacker Stores, Inc.                        KY       1
       Kobacker Stores, Inc.                        OH       4
       Landmark Bancshares Corporation              MO       1
       Levitz Furniture Corporation                 NY       1
       Louisiana Power and Light Company            LA       6
       Louisiana Power and Light Company            LA       7
       Marsh Supermarkets, Inc.                     IN       1
       Mid-South                                    TN       1        12,700,000
       Montgomery Ward, Inc.                        PA       1
       Montgomery Ward, Inc.                        NJ       1
       Morrison, Inc.                               AL       1
</TABLE>

<TABLE>
<CAPTION>

                                                  Part 1 - Real estate owned at December 31, 2003 - Accounted for under the:
                                                  --------------------------------------------------------------------------
                                                                                 Operating Method
                                                                                 ----------------
                                                                                                                    Rent due
                                                                                      Amount                      and accrued
                                                                                      Carried                     or received
                                                   Initial Cost      Cost of         at close      Reserve for   in advance at
                                                    to Company    Improvements       of period     Depreciation  end of period
                                                  --------------  ------------    ---------------  ------------  -------------
<S>                                               <C>             <C>             <C>              <C>           <C>
COMMERCIAL PROPERTY LAND AND BUILDING
- -------------------------------------
       Acme Markets, Inc. and FPBT of Penn.         $ 2,004,393    $ 165,714      $ 2,170,107       $1,560,784      $14,736
       Alabama Power Company
       Amer Stores, Eckerd & Marburn                  2,045,641                     2,045,641 (2)    1,632,403
       Atrium                                        27,921,246        8,627       27,929,873 (2)    2,293,391
       Best Products Co., Inc.                        3,303,553       73,262        3,376,815          128,769      (25,833)
       Chesebrough-Pond's Inc.                        1,549,805                     1,549,805 (4)    1,191,062      (11,770)
       Collins Foods International, Inc.                250,812                       250,812 (2)       16,352
       Collins Foods International, Inc.                134,253                       134,253 (2)        9,289
       Dillon Companies, Inc.                           546,681                       546,681          382,676      (11,217)
       Dragon court                                   3,700,000       44,706        3,744,706          176,368
       Duke Power Co.                                 3,464,225                     3,464,225          344,114
       Easco Corp.                                      157,560      888,452        1,046,012           44,423
       European American Bank and Trust Co.           1,355,210                     1,355,210 (2)    1,284,888
       Farwell Bldg.                                  5,081,105                     5,081,105 (4)    2,595,341
       First National Supermarkets, Inc.
       Fisher Scientific Company                        597,806                       597,806 (2)      276,722       13,583
       Forte Hotels International, Inc.
       Fox Grocery Company
       Gino's, Inc.
       Gino's, Inc.                                     314,012                       314,012           22,415
       Golf Road                                      9,288,263       11,591        9,299,854 (2)    1,395,053
       Grand Union Co.
       Grand Union Co.                                  874,765                       874,765           83,272
       Grand Union Co.                                  266,468                       266,468 (2)      200,472
       Whalen                                         7,934,020                     7,934,020 (2)      226,925          670
       Gunite                                         1,134,565                     1,134,565 (2)    1,065,034
       G.D. Searle & Co.
       G.D. Searle & Co.                                339,358                       339,358          169,939
       G.D. Searle & Co.                                323,559                       323,559 (2)      250,581
       Integra A Hotel and Restaurant Co.               434,056                       434,056 (4)        9,422
       Integra A Hotel and Restaurant Co.               458,428                       458,428            4,658
       Integra A Hotel and Restaurant Co.
       Integra A Hotel and Restaurant Co.               443,249                       443,249 (4)        4,235        1,082
       Integra A Hotel and Restaurant Co.               204,192                       204,192 (2)        4,082
       Integra A Hotel and Restaurant Co.               414,887                       414,887            9,503
       Integra A Hotel and Restaurant Co.               438,097                       438,097           10,465
       Integra A Hotel and Restaurant Co.               431,486                       431,486 (2)        9,851        1,219
       Intermountain Color                              560,444                       560,444          523,715
       J.C. Penney Company, Inc.                      2,484,262                     2,484,262        1,987,410      (20,854)
       Kings buffet                                     910,425                       910,425           21,401         (279)
       K-Mart Corporation
       K-Mart Corporation
       K-Mart Corporation
       K-Mart Corporation
       K-Mart Corporation
       K-Mart Corporation                             2,636,000                     2,636,000 (2)    1,899,765
       K-Mart Corporation
       K-Mart Corporation                               600,000                       600,000           15,866
       Kobacker Stores, Inc.                            112,225                       112,225                         1,068
       Kobacker Stores, Inc.                             88,364                        88,364                           769
       Kobacker Stores, Inc.                            298,496                       298,496                         2,487
       Landmark Bancshares Corporation
       Levitz Furniture Corporation
       Louisiana Power and Light Company              5,636,053                     5,636,053          483,544
       Louisiana Power and Light Company              6,984,806                     6,984,806          553,118
       Marsh Supermarkets, Inc.                       5,001,933                     5,001,933        3,097,560
       Mid-South                                     18,226,344                    18,226,344 (2)      642,413
       Montgomery Ward, Inc.                          3,289,166                     3,289,166 (4)    2,290,820
       Montgomery Ward, Inc.                          1,178,030                     1,178,030 (4)       12,812
       Morrison, Inc.                                   858,112                       858,112           21,353
</TABLE>

<TABLE>
<CAPTION>
                                                                              Part 2 - Revenues earned for the
                                                                                Year ended December 31, 2003
                                                                              --------------------------------
                                                     Financing Method
                                                     ----------------
                                                                Minimum lease                      Expended
                                                                 payments due      Total        for interest,
                                                                 and accrued      revenue           taxes,       Net income
                                                       Net          at end       applicable      repairs and     applicable
                                                   Investment     of period      to period         expenses      to period
                                                  ------------  -------------  --------------  --------------  ---------------
<S>                                               <C>           <C>            <C>             <C>             <C>
COMMERCIAL PROPERTY LAND AND BUILDING
- -------------------------------------
       Acme Markets, Inc. and FPBT of Penn.                                    $  224,856      $  125,712      $   99,144
       Alabama Power Company                      $ 4,849,942                     557,828               0         557,828
       Amer Stores, Eckerd & Marburn                                              565,214          36,898         528,316
       Atrium                                                                   4,107,462       3,166,166         941,296
       Best Products Co., Inc.                                                    232,500         379,156        (146,656)
       Chesebrough-Pond's Inc.                                                    141,236           9,094         132,142
       Collins Foods International, Inc.                                           32,489           4,088          28,401
       Collins Foods International, Inc.                                           17,646           2,817          14,829
       Dillon Companies, Inc.                                                      26,956           9,016          17,940
       Dragon court                                                               143,148         748,277        (605,129)
       Duke Power Co.                                                             797,177         115,171         682,006
       Easco Corp.                                                                321,000          58,490         262,510
       European American Bank and Trust Co.                                       175,000              36         174,964
       Farwell Bldg.                                                            1,151,819         313,290         838,529
       First National Supermarkets, Inc.           19,815,365                   1,856,505         874,730         981,775
       Fisher Scientific Company                                                  163,000          22,286         140,714
       Forte Hotels International, Inc.             5,352,110                     494,512               0         494,512
       Fox Grocery Company                          2,128,666                     196,007             450         195,557
       Gino's, Inc.                                                                                     0               0
       Gino's, Inc.                                                                51,733           5,604          46,129
       Golf Road                                                                  943,033         817,663         125,370
       Grand Union Co.                                                                  0               0               0
       Grand Union Co.                                                            108,000          20,840          87,160
       Grand Union Co.                                                             24,150           4,464          19,686
       Whalen                                                                      30,700       1,035,623      (1,004,923)
       Gunite                                                                           0          68,419         (68,419)
       G.D. Searle & Co.                                                                0             447            (447)
       G.D. Searle & Co.                                                           37,000           2,562          34,438
       G.D. Searle & Co.                                                           47,080           4,516          42,564
       Integra A Hotel and Restaurant Co.                                         108,549           7,537         101,012
       Integra A Hotel and Restaurant Co.                                         145,211           4,659         140,552
       Integra A Hotel and Restaurant Co.                                          87,925 (3)       4,591 (3)      83,334 (3)
       Integra A Hotel and Restaurant Co.                                         131,038           4,600         126,438
       Integra A Hotel and Restaurant Co.                                          82,000           3,266          78,734
       Integra A Hotel and Restaurant Co.                                          91,818           7,919          83,899
       Integra A Hotel and Restaurant Co.                                         103,960          11,942          92,018
       Integra A Hotel and Restaurant Co.                                         149,589          10,134         139,455
       Intermountain Color                                                         98,422           7,968          90,454
       J.C. Penney Company, Inc.                                                  250,244           1,709         248,535
       Kings buffet                                                               103,161          37,478          65,683
       K-Mart Corporation                                                               0          24,295         (24,295)
       K-Mart Corporation                                                               0        (119,468)        119,468
       K-Mart Corporation                                                               0         111,970        (111,970)
       K-Mart Corporation                                                               0           8,713          (8,713)
       K-Mart Corporation                           1,046,571                     100,422           3,037          97,385
       K-Mart Corporation                                                         251,420          13,511         237,909
       K-Mart Corporation                                                         113,793 (3)      18,207 (3)      95,586 (3)
       K-Mart Corporation                                                          58,582          41,145          17,437
       Kobacker Stores, Inc.                          123,964      $2,412          25,733             111          25,622
       Kobacker Stores, Inc.                           70,860       1,115          16,480           1,505          14,975
       Kobacker Stores, Inc.                          299,721       5,531          59,157               0          59,157
       Landmark Bancshares Corporation              3,609,872                     521,813             317         521,496
       Levitz Furniture Corporation                                                     0               0               0
       Louisiana Power and Light Company                                        1,240,853         161,703       1,079,150
       Louisiana Power and Light Company                                        1,299,275         174,703       1,124,572
       Marsh Supermarkets, Inc.                                                   506,300         131,844         374,456
       Mid-South                                                                1,684,918       1,306,639         378,279
       Montgomery Ward, Inc.                                                      314,280          29,294         284,986
       Montgomery Ward, Inc.                                                      193,586          12,930         180,656
       Morrison, Inc.                                                                   0          77,996         (77,996)
</TABLE>

                                      S-1
<PAGE>

                        AMERICAN REAL ESTATE PARTNERS, L.P.
                              a limited partnership                 Schedule III
                                                                    ------------

                      REAL ESTATE OWNED AND REVENUES EARNED

<TABLE>
<CAPTION>








                                                          No. of       Amount of
                                                  State  Locations  Encumberances
                                                  -----  ---------  -------------
<S>                                               <C>    <C>        <C>
       Morrison, Inc.                               GA       1
       Morrison, Inc.                               VA       2
       North Carolina National Bank                 SC       2
       Occidental Petroleum Corp.                   CA       1
       Ohio Power Co. Inc.                          OH       1
       Park West                                    KY       1        11,740,990
       Park West UPS                                KY       1        17,605,571
       Penske Corp.                                 OH       1
       Pneumo Corp.                                 OH       1
       Portland General Electric Company            OR       1        33,628,639
       Rayovac                                      WI       1        15,415,558
       Rouse Company                                MD       1
       Safeway Stores, Inc.                         LA       1
       Sams                                         MI       1
       Smith's Management Corp.                     NV       1
       Southland Corporation                        FL       4
       Southland Corporation                        FL       1
       Staples                                      NY       1
       Stone Container                              WI       1         5,824,491
       Stop & Shop                                  NY       1
       Stop & Shop                                  NJ       1
       Stop 'N Shop Co., Inc.                       VA       1
       Super Foods Services, Inc.                   MI       1         4,327,290
       SuperValu Stores, Inc.                       MN       1
       SuperValu Stores, Inc.                       OH       1
       SuperValu Stores, Inc.                       GA       1
       SuperValu Stores, Inc.                       IN       1
       Telecom Properties, Inc.                     OK       1
       Telecom Properties, Inc.                     KY       1
       The A&P Company                              MI       1
       The TJX Companies, Inc.                      IL       1
       Tire Distribution Systems Inc.               TN       1
       Tops Market                                  NY       1
       Toys "R" Us, Inc.                            TX       1
       Waban                                        NY       1
       Watkins                                      MO       1
       Webcraft Technologies                        MD       1
       Wetterau, Inc.                               PA       1
       Wetterau, Inc.                               NJ       1
       Wickes Companies, Inc.                       CA       1


RESIDENTIAL PROPERTY LAND AND BUILDING
- --------------------------------------
       Crown Cliffs                                 AL       1         7,233,108


COMMERCIAL PROPERTY - LAND
- --------------------------
       Foodarama supermarkets, Inc.                 NY       1
       Foodarama supermarkets, Inc.                 PA       1
       Gino's, Inc.                                 PA       1
       Gino's, Inc.                                 MA       1
       Gino's, Inc.                                 NJ       1
       J.C. Penney Company, Inc.                    NY       1



COMMERCIAL PROPERTY - BUILDING
- ------------------------------
       AT&T                                         CA       1
       Bank of America                              GA       1
</TABLE>

<TABLE>
<CAPTION>

                                                  Part 1 - Real estate owned at December 31, 2003 - Accounted for under the:
                                                  --------------------------------------------------------------------------
                                                                                 Operating Method
                                                                                 ----------------
                                                                                                                    Rent due
                                                                                      Amount                      and accrued
                                                                                      Carried                     or received
                                                   Initial Cost      Cost of         at close      Reserve for   in advance at
                                                    to Company    Improvements       of period     Depreciation  end of period
                                                  --------------  ------------    ---------------  ------------  -------------
<S>                                               <C>             <C>             <C>              <C>           <C>
       Morrison, Inc.
       Morrison, Inc.                                 1,765,899                     1,765,899           47,355
       North Carolina National Bank                   1,450,047                     1,450,047          646,536       10,092
       Occidental Petroleum Corp.
       Ohio Power Co. Inc.
       Park West                                     19,199,296                    19,199,296 (2)    2,793,207
       Park West UPS                                 21,109,367                    21,109,367 (2)    2,479,441       (1,000)
       Penske Corp.                                     524,956                       524,956           19,525       (9,533)
       Pneumo Corp.                                   1,629,713                     1,629,713           68,492
       Portland General Electric Company
       Rayovac                                       22,065,852                    22,065,852 (2)    2,243,143
       Rouse Company
       Safeway Stores, Inc.                           1,782,885                     1,782,885 (4)    1,134,894
       Sams                                           8,844,225                     8,844,225        2,340,082
       Smith's Management Corp.
       Southland Corporation                            862,367                       862,367          513,035
       Southland Corporation
       Staples                                        2,391,540                     2,391,540 (2)      265,276
       Stone Container                                9,028,574                     9,028,574        1,287,134
       Stop & Shop                                      900,865                       900,865           83,272
       Stop & Shop                                      800,770                       800,770           74,021
       Stop 'N Shop Co., Inc.                         2,158,099                     2,158,099           57,647
       Super Foods Services, Inc.
       SuperValu Stores, Inc.
       SuperValu Stores, Inc.
       SuperValu Stores, Inc.
       SuperValu Stores, Inc.
       Telecom Properties, Inc.
       Telecom Properties, Inc.                         340,321                       340,321            1,181
       The A&P Company                                  999,172                       999,172           13,041
       The TJX Companies, Inc.
       Tire Distribution Systems Inc.                   120,946                       120,946 (4)       75,200
       Tops Market                                      262,357                       262,357           24,249      (15,726)
       Toys "R" Us, Inc.
       Waban                                          8,478,095                     8,478,095 (2)    1,164,396
       Watkins
       Webcraft Technologies
       Wetterau, Inc.                                                                         (4)
       Wetterau, Inc.                                   747,116                       747,116           32,088
       Wickes Companies, Inc.                           700,333                       700,333 (4)      195,738       (4,533)


RESIDENTIAL PROPERTY LAND AND BUILDING
- --------------------------------------
       Crown Cliffs                                  11,457,646       93,253       11,550,899 (1)    3,662,776


COMMERCIAL PROPERTY - LAND
- --------------------------
       Foodarama supermarkets, Inc.                     140,619                       140,619 (2)
       Foodarama supermarkets, Inc.                     112,554                       112,554 (2)                     1,200
       Gino's, Inc.                                      36,271                        36,271 (2)
       Gino's, Inc.                                      50,904                        50,904 (2)
       Gino's, Inc.                                      61,050                        61,050 (2)
       J.C. Penney Company, Inc.                         51,009                        51,009 (4)                       458



COMMERCIAL PROPERTY - BUILDING
- ------------------------------
       AT&T                                           2,546,139       23,566        2,569,705 (4)       82,237
       Bank of America
</TABLE>

<TABLE>
<CAPTION>
                                                                             Part 2 - Revenues earned for the
                                                                               Year ended December 31, 2003
                                                                             --------------------------------
                                                      Financing Method
                                                      ----------------
                                                               Minimum lease                      Expended
                                                                payments due      Total        for interest,
                                                                and accrued      revenue           taxes,       Net income
                                                      Net          at end       applicable      repairs and     applicable
                                                  Investment     of period      to period         expenses      to period
                                                  -----------  -------------  --------------  --------------  ---------------
<S>                                               <C>          <C>            <C>             <C>             <C>
       Morrison, Inc.                                                            183,360               0         183,360
       Morrison, Inc.                                                                  0          84,818         (84,818)
       North Carolina National Bank                                               69,476          69,670            (194)
       Occidental Petroleum Corp.                                                      0           1,228          (1,228)
       Ohio Power Co. Inc.                         3,221,531     114,600         305,332               0         305,332
       Park West                                                               1,559,346       1,473,397          85,949
       Park West UPS                                                           1,959,010       1,734,716         224,294
       Penske Corp.                                                               63,551          44,467          19,084
       Pneumo Corp.                                                              243,750          54,793         188,957
       Portland General Electric Company          46,892,351    (414,424)      4,074,139       2,685,000       1,389,139
       Rayovac                                                                 1,993,330       1,786,171         207,159
       Rouse Company                                                             359,392         134,037         225,355
       Safeway Stores, Inc.                                                       85,150          11,974          73,176
       Sams                                                                    1,245,569         161,517       1,084,052
       Smith's Management Corp.                                                   32,531           9,856          22,675
       Southland Corporation                                                     100,359           3,748          96,611
       Southland Corporation                                                       9,993 (3)         330 (3)       9,663 (3)
       Staples                                                                   352,729         120,169         232,560
       Stone Container                                                           885,334         678,909         206,425
       Stop & Shop                                                               108,000          20,818          87,182
       Stop & Shop                                                                96,000          18,505          77,495
       Stop 'N Shop Co., Inc.                                                    109,255         179,573         (70,318)
       Super Foods Services, Inc.                  8,670,045                     931,980         396,831         535,149
       SuperValu Stores, Inc.                                                          0               0               0
       SuperValu Stores, Inc.                                                          0               0               0
       SuperValu Stores, Inc.                                                          0           3,430          (3,430)
       SuperValu Stores, Inc.                                                     72,678          14,354          58,324
       Telecom Properties, Inc.                                                     (252)          3,654          (3,906)
       Telecom Properties, Inc.                                                   34,672           6,763          27,909
       The A&P Company                                                            77,851         106,413         (28,562)
       The TJX Companies, Inc.                                                    29,575           5,996          23,579
       Tire Distribution Systems Inc.                                             13,200               0          13,200
       Tops Market                                                                31,453           6,277          25,176
       Toys "R" Us, Inc.                                                               0         136,637        (136,637)
       Waban                                                                     795,285         196,043         599,242
       Watkins                                                                         0               0               0
       Webcraft Technologies                                                           0         (22,313)         22,313
       Wetterau, Inc.                                                                  0          45,072         (45,072)
       Wetterau, Inc.                                                            150,800          25,788         125,012
       Wickes Companies, Inc.                                                    145,452          38,825         106,627


RESIDENTIAL PROPERTY LAND AND BUILDING
- --------------------------------------
       Crown Cliffs                                                            2,000,409       1,871,243         129,166


COMMERCIAL PROPERTY - LAND
- --------------------------
       Foodarama supermarkets, Inc.                                               16,800               0          16,800
       Foodarama supermarkets, Inc.                                               14,400               0          14,400
       Gino's, Inc.                                                                8,571               0           8,571
       Gino's, Inc.                                                                8,571               0           8,571
       Gino's, Inc.                                                                8,571               0           8,571
       J.C. Penney Company, Inc.                                                   5,500               0           5,500



COMMERCIAL PROPERTY - BUILDING
- ------------------------------
       AT&T                                                                      449,548         247,906         201,642
       Bank of America                             2,798,908      40,573         292,259          26,584         265,675
</TABLE>

                                      S-2
<PAGE>

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

                      REAL ESTATE OWNED AND REVENUES EARNED

<TABLE>
<CAPTION>








                                                          No. of       Amount of
                                                  State  Locations  Encumberances
                                                  -----  ---------  -------------
<S>                                               <C>    <C>        <C>
       Baptist Hospital 1                           TN       1        19,885,664
       Baptist Hospital 2                           TN       1         7,380,651
       Harwood Square                               IL       1
       Safeway Stores, Inc.                         CA       1
       Toys "R" Us, Inc.                            RI       1
       United Life & Accident Ins. Co.              NH       1
       Wickes Companies, Inc.                       PA       1

                                                                    -------------
                                                                     180,989,263
                                                                    -------------

HOTEL AND RESORT OPERATING PROPERTIES
- -------------------------------------
       New Seabury                                  MA
       Holiday Inn                                  FL
       Bayswater                                    FL
                                                                    -------------
                                                                               0
                                                                    -------------
LESS HELD FOR SALE                                                    (82,861,069)
- ------------------                                                  -------------
                                                                    $  98,128,194
                                                                    =============

</TABLE>

<TABLE>
<CAPTION>

                                                  Part 1 - Real estate owned at December 31, 2003 - Accounted for under the:
                                                  --------------------------------------------------------------------------
                                                                                 Operating Method
                                                                                 ----------------
                                                                                                                    Rent due
                                                                                      Amount                      and accrued
                                                                                      Carried                     or received
                                                   Initial Cost      Cost of         at close      Reserve for   in advance at
                                                    to Company    Improvements       of period     Depreciation  end of period
                                                  --------------  ------------    ---------------  ------------  -------------
<S>                                               <C>             <C>             <C>              <C>           <C>
       Baptist Hospital 1
       Baptist Hospital 2
       Harwood Square                                 6,943,373          800        6,944,173 (4)    4,186,890       29,900
       Safeway Stores, Inc.                             558,652                       558,652          558,652
       Toys "R" Us, Inc.
       United Life & Accident Ins. Co.
       Wickes Companies, Inc.

                                                    ------------   ----------     ------------      -----------     --------
                                                    252,397,367    1,309,971      253,707,338       51,001,774      (23,481)
                                                    ------------   ----------     ------------      -----------     --------

HOTEL AND RESORT OPERATING PROPERTIES
- -------------------------------------
       New Seabury                                   37,490,989     (403,250)      37,087,739        6,704,739
       Holiday Inn                                   11,103,847      365,123       11,468,970 (4)    5,104,068      280,213
       Bayswater                                      5,310,365                     5,310,365          531,855
                                                    ------------   ----------     ------------      -----------     --------
                                                     53,905,201      (38,127)      53,867,074       12,340,662      280,213
                                                    ------------   ----------     ------------      -----------     --------
LESS HELD FOR SALE                                  (146,395,413)     (20,218)    (146,415,631)     (20,152,684)
- ------------------                                  ------------   ----------     ------------      -----------     --------
                                                    $159,907,155   $1,251,626     $161,158,781      $43,189,752     $256,732
                                                    ============   ==========     ============      ===========     ========
</TABLE>

<TABLE>
<CAPTION>
                                                                              Part 2 - Revenues earned for the
                                                                                Year ended December 31, 2003
                                                                              --------------------------------
                                                      Financing Method
                                                      ----------------
                                                                Minimum lease                     Expended
                                                                 payments due      Total       for interest,
                                                                 and accrued      revenue          taxes,       Net income
                                                       Net          at end       applicable     repairs and     applicable
                                                   Investment     of period      to period        expenses      to period
                                                  ------------  -------------  --------------  -------------  ---------------
<S>                                               <C>           <C>            <C>             <C>            <C>
       Baptist Hospital 1                          23,438,376   1,105,517       1,862,951       1,574,065         288,886
       Baptist Hospital 2                           8,726,374     410,319         691,443         583,409         108,034
       Harwood Square                                                             790,838         246,064         544,774
       Safeway Stores, Inc.                                                        26,900             495          26,405
       Toys "R" Us, Inc.                              797,816      10,430          77,173               0          77,173
       United Life & Accident Ins. Co.              3,165,914                     274,017             950         273,067
       Wickes Companies, Inc.                       2,347,187                     467,454               0         467,454

                                                  ------------  ----------     -----------     -----------     -----------
                                                  137,355,573   1,276,073      43,298,285      24,714,252      18,584,033
                                                  ------------  ----------     -----------     -----------     -----------

HOTEL AND RESORT OPERATING PROPERTIES
- -------------------------------------
       New Seabury                                                             11,678,516      10,996,669         681,847
       Holiday Inn                                                              3,911,515       3,253,372         658,143
       Bayswater                                                                2,914,000       2,789,000         125,000
                                                  ------------  ----------     -----------     -----------     -----------
                                                            0           0      18,504,031      17,039,041       1,464,990
                                                  ------------  ----------     -----------     -----------     -----------
LESS HELD FOR SALE                                                             (22,459,690)    (16,320,692)     (6,138,998)
- ------------------                                ------------  ----------     -----------     -----------     -----------
                                                  $137,355,573  $1,276,073     $39,342,626     $25,432,601     $13,910,025
                                                  ============  ==========     ===========     ===========     ===========
</TABLE>

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

(2)   Such properties are being classified as held for sale at 12/31/03.

(3)   Sold in 2003 and included in discontinued ops.

(4)   Such properties have been reclassified to held for sale during the quarter
      ended March 31, 2004. As a result, for the year ended December 31, 2003,
      such operating lease and hotel and resort operating revenues, expenses and
      net income have been reclassified to discontinued operations.

                                      S-3
<PAGE>
                                                                    SCHEDULE III


              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

                      REAL ESTATE OWNED AND REVENUES EARNED
                    YEAR ENDED DECEMBER 31, 2003 (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:

<TABLE>
<S>                                                                    <C>
          Balance -- January 1, 2003.................................  $   303,460
          Additions during period....................................        1,675
          Reclassifications during period from financing leases......        5,065
          Reclassifications during period to held for sale...........     (146,416)
          Disposals during period....................................       (2,626)
                                                                       -----------
          Balance December 31, 2003..................................  $   161,158
                                                                       ===========
</TABLE>



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:

<TABLE>
<S>                                                                    <C>
          Balance -- January 1, 2003...................................$    54,978
          Depreciation during period...................................      8,605
          Reclassifications during period to held for sale.............    (20,153)
          Disposals during period......................................       (240)
                                                                       -----------
          Balance -- December 31, 2003.................................$    43,190
                                                                       ===========
</TABLE>


       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:

<TABLE>
<S>                                                                    <C>
          Balance -- January 1, 2003...................................$   155,458
          Reclassifications during period to operating properties......     (5,065)
          Disposals during period......................................     (7,708)
          Amortization of unearned income..............................     13,115
          Minimum lease rentals received...............................    (18,444)
                                                                       -----------
          Balance -- December 31, 2003.................................$   137,356
                                                                       ===========
</TABLE>

3.    The aggregate cost of real estate owned for Federal income tax purposes is
      $377,539 before accumulated depreciation.


                                      S-4
<PAGE>
                                                                    SCHEDULE III


              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

              REAL ESTATE OWNED AND REVENUES EARNED -- (CONTINUED)
                    YEAR ENDED DECEMBER 31, 2003 (IN $000'S)

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

<TABLE>
<S>                                                                                                  <C>
          Net income applicable to financing and operating leases and hotel and resort operating
             properties...........................................................................   $  13,910
          Net income applicable to Stratosphere hotel and casino..................................      22,716(1)
          Net income applicable to land, house and condominium sales..............................       4,136
          Net income applicable to NEG, Inc.......................................................      19,522(2)
          Add:
             Interest income on U.S. Government and Agency Obligations and other
               investments........................................................................      22,543
             Dividend and unallocated other income................................................       3,027
                                                                                                     ---------
                                                                                                        85,854
                                                                                                     ---------
          Deduct expenses not allocated:
             General and administrative expenses..................................................       6,850
             Nonmortgage interest expense.........................................................       2,449
             Equity in losses of GB Holdings, Inc.................................................       3,466
             Other................................................................................       3,703
                                                                                                     ---------
                                                                                                        16,468
                                                                                                     ---------
          Operating income after income taxes.....................................................      69,386
          Provision for loss on real estate.......................................................        (750)
          Gain on sale of real estate.............................................................       7,121
          Loss on sale of securities..............................................................        (961)
          Write-down of securities................................................................     (18,798)
          Write-down of mortgages and notes receivable............................................       2,607
                                                                                                     ---------
          Income from continuing operations.......................................................      58,605

          Discontinued Operations:
             Income from discontinued operations..................................................       6,139
             Net gain on property transactions....................................................       3,353
                                                                                                     ---------
          Earnings from discontinued operations...................................................       9,492
                                                                                                     ---------
             Net earnings.........................................................................   $  68,097
                                                                                                     =========
</TABLE>

- --------------
(1)   Includes depreciation expense of $12,276 and income tax benefit of $6,720.
(2)   Includes income tax expense of $225.


                                      S-5
<PAGE>
                                                                    SCHEDULE III


              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

                      REAL ESTATE OWNED AND REVENUES EARNED
                    YEAR ENDED DECEMBER 31, 2002 (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,
      was carried at the beginning of the period, with the total at the close of
      the period, is shown below:

<TABLE>
<S>                                                                   <C>
          Balance -- January 1, 2002................................  $  273,887
          Additions during period...................................      20,886
          Reclassifications during period from financing leases.....      13,503
          Write downs...............................................      (1,992)
          Disposals during period...................................      (2,824)
                                                                      ----------
          Balance -- December 31, 2002..............................  $  303,460
                                                                      ==========
</TABLE>


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:

<TABLE>
<S>                                                                   <C>
          Balance -- January 1, 2002................................  $  48,057
          Depreciation during period................................      7,105
          Disposals during period...................................       (184)
                                                                      ----------
          Balance -- December 31, 2002..............................  $  54,978
                                                                      =========
</TABLE>


      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 7 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:

<TABLE>
<S>                                                               <C>
          Balance -- January 1, 2002............................  $  176,757
          Reclassifications during period.......................     (13,503)
          Write downs...........................................        (257)
          Disposals during period...............................      (1,560)
          Amortization of unearned income.......................      14,722
          Minimum lease rentals received........................     (20,663)
          Other.................................................         (38)
                                                                  ----------
          Balance -- December 31, 2002..........................  $  155,458
                                                                  ==========
</TABLE>



3.    The aggregate cost of real estate owned for Federal income tax purposes is
      $382,208 before accumulated depreciation.


                                      S-6
<PAGE>
                                                                    SCHEDULE III


              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

              REAL ESTATE OWNED AND REVENUES EARNED -- (CONTINUED)
                    YEAR ENDED DECEMBER 31, 2002 (IN $000'S)

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

<TABLE>
<S>                                                                                                   <C>
          Net income applicable to financing and operating leases and hotel and resort operating
             properties............................................................................   $  14,128
          Net income applicable to Stratosphere hotel and casino...................................       8,916(1)
          Net income applicable to land, house and condominium sales...............................      20,384
          Net income applicable to NEG Inc.........................................................       9,415(2)
          Add:
               Interest income on U.S. Government and Agency Obligations and other investments.....      30,344
               Dividend and unallocated other income...............................................       2,684
               Equity in earnings of GB Holdings, Inc..............................................         305
                                                                                                      ---------
                                                                                                         86,176
                                                                                                      ---------
          Deduct expenses not allocated:
               General and administrative expenses.................................................       7,029
               Non-mortgage interest expense.......................................................       1,272
               Other...............................................................................       1,625
                                                                                                      ---------
                                                                                                          9,926
                                                                                                      ---------
          Operating income after income taxes......................................................      76,250
          Provision for loss on real estate........................................................      (3,212)
          Gain on sale of real estate..............................................................       8,990
          Write down of securities.................................................................     (12,226)
          Minority interest in net earnings of Stratosphere Corporation............................      (1,943)
                                                                                                      ---------
          Income from continuing operations........................................................      67,859
          Discontinued Operations:
               Income from discontinued operations.................................................       6,007
                                                                                                      ---------
               Net earnings........................................................................   $  73,866
                                                                                                      =========
</TABLE>


- --------------
(1)   Includes depreciation expense of $13,328 and income tax expense of $2,412.
(2)   Includes income tax expense of $5,068.


                                      S-7
<PAGE>
                                                                    SCHEDULE III


              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

                      REAL ESTATE OWNED AND REVENUES EARNED
                    YEAR ENDED DECEMBER 31, 2001 (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,
      was carried at the beginning of the period, with the total at the close of
      the period, is shown below:

<TABLE>
<S>                                                                                <C>
          Balance -- January 1, 2001............................................   $  262,356
          Additions during period...............................................       14,586
          Reclassifications during period from financing leases.................        9,755
          Write downs...........................................................       (3,184)
          Reclassifications during period to assets held for sale...............       (8,072)
          Other reclassifications...............................................       (1,130)
          Disposals during period...............................................         (424)
                                                                                   ----------
          Balance -- December 31, 2001..........................................   $  273,887
                                                                                   ==========
</TABLE>


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:

<TABLE>
<S>                                                                                <C>
          Balance -- January 1, 2001............................................   $  43,471
          Depreciation during period............................................       6,252
          Disposals during period...............................................        (266)
          Reclassifications during period to assets held for sale...............      (1,400)
                                                                                   ---------
          Balance -- December 31, 2001..........................................   $  48,057
                                                                                   =========
</TABLE>


      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:

<TABLE>
<S>                                                                                <C>
          Balance -- January 1, 2001............................................   $  193,428
          Reclassifications during period to operating properties...............       (9,755)
          Disposals during period...............................................          (71)
          Amortization of unearned income.......................................       16,935
          Minimum lease rentals received........................................      (23,780)
                                                                                   ----------
          Balance -- December 31, 2001..........................................   $  176,757
                                                                                   ==========
</TABLE>


3.    The aggregate cost of real estate owned for Federal income tax purposes is
      $399,813 before accumulated depreciation.


                                      S-8
<PAGE>
                                                                    SCHEDULE III


              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

              REAL ESTATE OWNED AND REVENUES EARNED -- (CONTINUED)
                    YEAR ENDED DECEMBER 31, 2001 (IN $000'S)

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

<TABLE>
<S>                                                                                                  <C>
          Net income applicable to financing and operating leases and hotel and resort operating
             properties...........................................................................   $  15,733
          Net income applicable to Stratosphere hotel and casino..................................       4,628(1)
          Net income applicable to land, house and condominium sales..............................      12,967
          Net income applicable to NEG, Inc.......................................................      37,300(2)
          Add:
               Interest income on U.S. Government and Agency Obligations and other investments....      30,367
               Dividend and unallocated other income..............................................       4,989
               Equity in earnings of GB Holdings, Inc.............................................       1,807
                                                                                                     ---------
                                                                                                       107,791
                                                                                                     ---------

          Deduct expenses not allocated:
               General and administrative expenses................................................       7,080
               Non-mortgage interest expense......................................................       5,306
               Other..............................................................................       1,540
                                                                                                     ---------
                                                                                                        13,926
                                                                                                     ---------
          Operating income after income taxes.....................................................      93,865
          Provision for loss on real estate.......................................................      (3,184)
          Gain on sale of marketable equity and debt securities...................................       6,749
          Gain on sale of real estate.............................................................       1,737
          Minority interest in net earnings of Stratosphere Corporation...........................        (450)
                                                                                                     ---------
          Income from continuing operations.......................................................      98,717
          Discontinued Operations:
               Income from discontinued operations................................................       6,117
                                                                                                     ---------
          Net Earnings............................................................................   $ 104,834
                                                                                                     =========
</TABLE>


- --------------
(1)   Includes depreciation expense of $11,257 and income tax expense of $513.
(2)   Includes depreciation expense of $6,163 and income tax benefit of $30,590.


                                      S-9
<PAGE>
                                                                    SCHEDULE III


              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

             REAL ESTATE OWNED AND RESERVE FOR DEPRECIATION BY STATE
                   (ACCOUNTED FOR UNDER THE OPERATING METHOD)
                          DECEMBER 31, 2003 (IN $000'S)

<TABLE>
<CAPTION>
                                               AMOUNT AT WHICH
                                                 CARRIED AT          RESERVE FOR
STATE                                           CLOSE OF YEAR       DEPRECIATION
- -----                                          ---------------      ------------
<S>                                               <C>                <C>
Alabama.....................................      $  13,301          $   3,698
California..................................          3,829                837
Connecticut.................................          1,550              1,191
Florida.....................................         18,553              5,636
Illinois....................................          7,544              4,203
Indiana.....................................          5,445              3,633
Kentucky....................................            989                525
Louisiana...................................         14,404              2,172
Massachusetts...............................         43,317              8,869
Michigan....................................          9,956              2,353
Minnesota...................................          5,420              2,765
Missouri....................................            962                392
New Jersey..................................          2,726                119
New York....................................          2,088                190
North Carolina..............................          4,510                389
Ohio........................................          2,767                111
Pennsylvania................................          5,459              3,852
South Carolina..............................          1,450                647
Tennessee...................................            121                 76
Texas.......................................            438                 10
Virginia....................................          7,301                234
Wisconsin...................................          9,029              1,288
                                                  ---------          ---------
                                                  $ 161,159          $  43,190
                                                  =========          =========
</TABLE>


                                      S-10
<PAGE>
                                                                    SCHEDULE III


              AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES

                           REAL ESTATE OWNED BY STATE
                   (ACCOUNTED FOR UNDER THE FINANCING METHOD)
                          DECEMBER 31, 2003 (IN $000'S)


<TABLE>
<CAPTION>
                                                                      NET
STATE                                                             INVESTMENT
- -----                                                             ----------
<S>                                                                <C>
Alabama.........................................................   $   4,850
Connecticut.....................................................      19,815
Georgia.........................................................       2,799
Iowa............................................................       1,047
Kentucky........................................................          71
Michigan........................................................       8,794
Missouri........................................................       3,610
New Hampshire...................................................       3,166
New Jersey......................................................       5,352
Ohio............................................................       3,521
Oregon..........................................................      46,892
Pennsylvania....................................................       2,347
Rhode Island....................................................         798
Tennessee.......................................................      32,165
West Virginia...................................................       2,129
                                                                   ---------
                                                                   $ 137,356
                                                                   =========
</TABLE>


                                      S-11



</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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